About the authors I-5 A few words from the authors I-7

Transcription

1 CONTENTS About the authors I-5 A few words from the authors I-7 BOOK 1 INCOME-TAX LAW IN BRIEF 1 LAW OF INCOME-TAX IN BRIEF n Basic Concepts 3 n Residential Status 5 n Income that is exempt from tax 8 n Salary 14 n Profits and gains of business or profession 21 n Capital Gains 30 n Set off and carry forward of losses 38 n Permissible deductions from gross total income and tax liability 40 BOOK 2 CORPORATE TAX PLANNING UNIT I TAX PLANNING, TAX MANAGEMENT, TAX AVOIDANCE, TAX EVASION 2 TAX PLANNING, TAX MANAGEMENT, TAX AVOIDANCE AND TAX EVASION 1. Introduction Tax planning/avoidance/evasion - Concept in brief What is tax planning What is tax avoidance What is tax evasion Tax avoidance v. Tax evasion Tax planning v. Tax management 61 I-9

2 CONTENTS I-10 UNIT II CORPORATE TAX IN INDIA 3 DEFINITIONS 16. Company [Sec. 2(17)] Indian company [Sec. 2(26)] Domestic company Arrangement for declaration and payment of dividend - Meaning of Foreign company Industrial company Other points Company in which the public are substantially interested [Sec. 2(18)] Onus to prove Investment company Widely-held company Closely-held company Case study 67 MULTIPLE CHOICE QUESTIONS 68 4 RESIDENTIAL STATUS AND TAX INCIDENCE 28. Residential status of a company [Sec. 6(3)] Control and management Incidence of tax [Sec. 5] Indian income and foreign income Incidence of tax Conclusions Receipt of income Receipt vs. Remittance Actual receipt vs. Deemed receipt Cash v. Kind Receipt v. Accrual Accrual of income 71 MULTIPLE CHOICE QUESTIONS 72 5 TAXATION OF COMPANIES 40. Carry forward and set-off of losses in the cases of certain companies [Sec. 79] Exceptions Taxable income - How computed Tax liability - How computed Minimum alternate tax [Sec. 115JB] When applicable 76

3 I-11 CONTENTS 43.2 Book profit Minimum income and tax Report from a chartered accountant Carry forward and set-off of tax credit Hints for tax planning Dividend tax Basis of charge [Sec. 115-O(1)] What is dividend Nature of tax Rate of dividend tax Mitigating the cascading effect of dividend distribution tax When the additional tax should be paid Dividend tax is the final levy Dividend tax is not deductible Interest for non-payment of tax [Sec. 115P] When company is deemed to be in default [Sec. 115Q] Penalty under section 271C Prosecution Judicial rulings Tax on income distributed to unitholders [Secs. 115R, 115S and 115T] Tax on income received from venture capital companies and venture capital funds [Sec. 115U] Case studies 91 MULTIPLE CHOICE QUESTIONS 109 UNIT III TAX PLANNING WITH REFERENCE TO SPECIFIC BUSINESS DECISIONS 6 TAX PLANNING WITH REFERENCE TO NEW BUSINESS - LOCATION OF A BUSINESS 57. Location of new business 113 MULTIPLE CHOICE QUESTIONS TAX PLANNING WITH REFERENCE TO NEW BUSINESS - NATURE OF BUSINESS 69. Nature of new business Tea/coffee/rubber development account [Sec. 33AB] Conditions Amount of deduction Amount can be withdrawn for the purpose of the scheme Consequences in the case of closure of business Withdrawal from the special account cannot be utilised for certain purposes Consequences if the new asset is transferred within 8 years Double deduction not permissible Telecom licence fees [Sec. 35ABB] 118

4 CONTENTS I Conditions Amount of deduction Profit or loss on sale of telecom licence Consequences in the case of amalgamation or demerger Depreciation under section 32 not available Expenditure on specified business [Sec. 35AD] Conditions Amount of deduction Consequences of claiming deduction under section 35AD Computing business profits on presumptive basis [Sec. 44AD] Consequences if the above conditions are satisfied Is it possible to declare lower income Transport operators [Sec. 44AE] Who is covered by the scheme of section 44AE Consequences if section 44AE is applicable Other points Employment of new workmen [Sec. 80JJAA] Conditions Amount of deduction Points to be noted Tonnage Tax Scheme [Secs. 115V to 115VZC] Salient features 132 MULTIPLE CHOICE QUESTIONS TAX PLANNING WITH REFERENCE TO NEW BUSINESS FORM OF ORGANISATION 86. Form of organisation Whether sole proprietorship is a better alternative Firm v. Company How to reduce tax incidence on companies Limited liability partnership (LLP) LLP is taxed like traditional partnership firm Firm, LLP and company - A comparison of tax benefits LLP v. Company 141 MULTIPLE CHOICE QUESTIONS TAX PLANNING WITH REFERENCE TO FINANCIAL MANAGEMENT DECISIONS 90. Capital structure decision Dividend policy 146

5 I-13 CONTENTS 92. Meaning of dividend [Sec. 2(22)] Accumulated profits Distribution of accumulated profits entailing release of company s assets [Sec. 2(22)(a)] Distribution of accumulated profits in the form of debentures, debenture stock [Sec. 2(22)(b)] Distribution of accumulated profits at the time of liquidation [Sec. 2(22)(c)] Distribution of accumulated profits on the reduction of its capital [Sec. 2(22)(d)] Distribution of accumulated profits by way of advance or loan [Sec. 2(22)(e)] Tax treatment in the hands of shareholders Bonus shares Bonus shares to equity shareholders Bonus shares to preference shareholders 150 MULTIPLE CHOICE QUESTIONS TAX PLANNING WITH REFERENCE TO MANAGERIAL DECISIONS 100. Purchase of asset Lease v. Purchase Purchase by instalment v. Hire Sale of assets used for scientific research Make or buy Repairs, replace, renewal or renovation 158 MULTIPLE CHOICE QUESTIONS TAX PLANNING IN RESPECT OF EMPLOYEES REMUNERATION 109. Factors which require consideration Deduction of remuneration in the hand of employer Tax incidence in the hands of employees Fringe benefit tax Remuneration planning Broad hints Other points Case studies 163 MULTIPLE CHOICE QUESTIONS TAX PLANNING WITH REFERENCE TO SALE OF SCIENTIFIC RESEARCH ASSETS 116. Sale of scientific research assets 170 MULTIPLE CHOICE QUESTIONS 171

6 CONTENTS I TAX PLANNING WITH REFERENCE TO RECEIPT OF INSURANCE COMPENSATION 118. Insurance claim When section 45(1A) is attracted Consequences where section 45(1A) is applicable When section 45(1A) is not applicable When insurance compensation is a capital receipt When insurance compensation is a revenue receipt Case studies 173 MULTIPLE CHOICE QUESTIONS TAX PLANNING WITH REFERENCE TO DISTRIBUTION OF ASSETS BY COMPANIES IN LIQUIDATION 125. Liquidation of a company Tax treatment in the hands of the company [Sec. 46(1)] Tax treatment in the hands of shareholders [Sec. 46(2)] Case study 177 MULTIPLE CHOICE QUESTIONS 178 UNIT IV NON-RESIDENT 15 TAX PLANNING IN RESPECT OF NON-RESIDENT 142. Residential status Income taxable in the hands of non-resident in India Income deemed to accrue or arise in India [Sec. 9] Income from business connection [Sec. 9(1)(i)] Income through or from any property, asset or source of income in India [Sec. 9(1)(i)] Transfer of capital asset situated in India [Sec 9(1)(i)] Income under the head Salaries [Sec. 9(1)(ii)] Salary payable abroad [Sec. 9(1)(iii)] Dividend paid by an Indian company [Sec. 9(1)(iv)] Income by way of interest [Sec. 9(1)(v)] Income by way of royalty [Sec. 9(1)(vi)] Income by way of fees for technical services [Sec. 9(1)(vii)] Hints for tax planning in respect of residential status Interest to non-residents [Sec. 10(4), (4B)] Salaries of foreign citizens Salary of diplomatic personnel [Sec. 10(6)(ii)] Salary of foreign employees [Sec. 10(6)(vi)] Salary received by a ship s crew [Sec. 10(6)(viii)] Remuneration of a foreign trainee [Sec. 10(6)(xi)] 187

7 I-15 CONTENTS 148. Exemption from tax paid on behalf of foreign companies in respect of certain income [Sec. 10(6A)] Tax paid on behalf of non-resident [Sec. 10(6B)] Technical fees received by a notified foreign company [Sec. 10(6C)] Foreign Government employee under co-operative programmes [Sec. 10(8)] Non-resident consultants Under section 10(8A) Under section 10(8B) Income of family members [Sec. 10(9)] Aircraft lease rent payable to foreign Government [Sec. 10(15A)] Shipping [Sec. 44B] Conditions Consequences if the above conditions are satisfied Exploration of mineral oils [Sec. 44BB] Conditions Consequences if the above conditions are satisfied Is it possible to declare lower income Computation of income in respect of foreign airlines [Sec. 44BBA] Computation of profits and gains of foreign companies engaged in the business of civil construction [Sec. 44BBB] Is it possible to declare lower income Head office expenditure in the case of non-resident [Sec. 44C] Meaning of adjusted total income Average adjusted total income Head office expenditure Section 44C - When not applicable Royalties and technical fees in the case of foreign companies [Sec. 44D] Agreement made before April 1, Agreement made on or after April 1, 1976 not being covered by section 44DA [Sec. 115A] Section 44DA Conclusions Computation of income and tax Computation of capital gain in the case of non-resident [First proviso to Sec. 48] Special provisions in the case of a non-resident Indian [Sec. 115F] Special provisions Who can claim the benefit of special provisions Incomes which are qualified for special treatment Special rate of tax Return of income not to be filed in certain cases Benefit available even after the assessee becomes resident Special provisions not to apply if the assessee so chooses [Sec. 115-I] Case studies 205 MULTIPLE CHOICE QUESTIONS 207

8 CONTENTS I DOUBLE TAXATION RELIEF 170. Relief for double taxation [Secs. 90, 90A and 91] ADT agreements [Sec. 90] Modes of granting relief under ADT agreements Unilateral relief [Sec. 91] Double taxation relief in case of specified associations [Sec. 90A] Case studies 210 MULTIPLE CHOICE QUESTIONS TRANSFER PRICING 177. International transaction [Secs. 92 to 92F] Conditions for applicability of arm s length price in the international transaction Computation of the arm s length price (ALP) Computation of ALP [Sec. 92C] Method of computing arm s length price Comparability of transaction Most appropriate method Determination of arm s length price by Assessing Officer in certain cases [Sec. 92C(3)] Reference to Transfer Pricing Officer [Sec. 92CA] Computation of income by Assessing Officer Mistakes apparent from record Powers under section 131 or Maintenance of books of account [Sec. 92D] Support by authentic documentation Continuity for more than a year Period Furnishing information about international transaction Report from accountant [Sec. 92E] Specified domestic transactions Advance pricing agreement (APA) [Section 92CC and 92CCD] 222 MULTIPLE CHOICE QUESTIONS ADVANCE RULING FOR NON-RESIDENTS 186. Advance ruling Authority for advance ruling [Sec. 245-O] Meaning of applicant and advance ruling [Sec. 245N(a) and (b)] Non-resident in which year Procedure for filing application Application form number Fees Who should sign the application Withdrawal of application 226

9 I-17 CONTENTS 188. Procedure on receipt of application [Sec. 245R] When the application can be rejected Pronouncement of advance ruling Continuation of proceedings after the death, etc., of the applicant Hearing of application ex parte Modification of order Rectification Appellate authority not to proceed in certain cases Applicability of advance ruling [Sec. 245S] Advance ruling to be void in certain circumstances [Sec. 245T] Powers of authority [Sec. 245U] 227 MULTIPLE CHOICE QUESTIONS RESTRUCTURING BUSINESS UNIT V BUSINESS RESTRUCTURING 195. Restructuring business AMALGAMATION 196. Amalgamation Meaning of amalgamation under the Income-tax Act [Sec. 2(1B)] Conditions Transactions not treated as amalgamation Actual cost and written down value when assets are transferred in a scheme of amalgamation When a capital asset (other a block of assets) is transferred When a block of asset is transferred Assets in amalgamation not treated as transfer Transfer of capital assets to amalgamated Indian company [Sec. 47(vi)] Transfer of shares in an Indian company held by a foreign company to another foreign company [Sec. 47(via)] Allotment of shares in amalgamated company to the shareholders of amalgamating company [Secs. 47(vii) and 49(2)] Carry forward and set-off of loss and depreciation - When permissible in the hands of amalgamated company [Sec. 72A] Set-off of losses of a banking company against the profit of a banking institution under a scheme of amalgamation [Sec. 72AA] Case studies Expenditure on amalgamation/demerger [Sec. 35DD] Consequences of amalgamation Date of amalgamation 240 MULTIPLE CHOICE QUESTIONS 240

10 CONTENTS I DEMERGER 205. Meaning of demerger [Sec. 2(19AA)] Condition one - Entities involved should be companies Condition two - Sections 391 to Condition three - It involves transfer of an undertaking Condition four - All property of the undertaking should be transferred to the resulting company Condition five - The resulting company should take over all liabilities of the undertaking Condition six - Liabilities/properties are to be transferred at book value Condition seven - Shares in resulting company to shareholders of demerged company Condition eight - Person holding 75 per cent shares in the demerged company to become shareholders in the resulting company Condition nine - Transfer as ongoing concern Condition ten - Section 72A(5) conditions Other points Actual cost and WDV When a capital asset (other than forming part of a block of asset) is transferred When an asset forming part of block of assets is transferred [Explns. 2A and 2B to sec. 43(6)] Computation of depreciation Demerger and capital gains When it is not treated as transfer Cost of acquisition of shares in resulting company and demerged company [Sec. 49(2C)/(2D)] Expenditure on demerger Carry forward and set-off of losses/depreciation - When permissible in the hands of resulting company [Sec. 72A] Case study Consequences of demerger Amalgamation vis-a-vis Demerger Amalgamation or demerger of co-operative banks When not treated as transfer Carry forward and set-off of loss and depreciation - When permissible in the hands of amalgamated/resulting co-operative bank [Sec. 72AB] Special provision for computing deductions 253 MULTIPLE CHOICE QUESTIONS CONVERSION OF SOLE PROPRIETARY BUSINESS OR FIRM INTO COMPANY 215. Conversion of sole proprietary concern Taking back the exemption Set-off and carry forward loss of sole proprietary by company 257

11 I-19 CONTENTS 216. Conversion of firm into company Exemption under section 47(xiii) Exemption under section 47(xi) Is it possible to set-off and carry forward loss of firm by company [Sec. 72A(6)] 259 MULTIPLE CHOICE QUESTIONS SLUMP SALE 220. Definition of slump sale [Section 2(42C)] Taxpayer owns an undertaking Transfer by way of sale Transfer takes place for a lump sum consideration How to find out written down value in the hands of transferor in the case of slump sale [Sec. 43(6)] Capital gains in the case of slump sale [Sec. 50B] Other points Case studies Amalgamation/Demerger vis-a-vis slump sale 266 MULTIPLE CHOICE QUESTIONS TRANSFER OF ASSETS BETWEEN HOLDING AND SUBSIDIARY COMPANIES 230. When a capital asset (other than block of asset) is transferred When a block of asset is transferred [Expln. 2 to sec. 43(6)] Exemption under section Withdrawal of exemption Cases when exemption is taken back Consequences Case study 270 MULTIPLE CHOICE QUESTIONS CONVERSION OF COMPANY INTO LIMITED LIABILITY PARTNERSHIP 238. Conversion Capital gain exemption in Conditions for claiming exemption When exemption will be taken back Carry forward of loss/depreciation [Sec. 72A(6A)] Other points 274

12 CONTENTS I-20 BOOK 3 BUSINESS TAX PROCEDURE AND MANAGEMENT 26 ADVANCE PAYMENT OF TAX UNIT I ADVANCE TAX, TDS AND INTEREST 251. Income liable for advance tax Liability to advance tax - When arises Due dates of payment of advance tax Different situations Payment of advance tax by the assessee of his own account [Sec. 210] Payment of advance tax in pursuance of order of Assessing Officer [Sec. 210] Payment of advance tax in pursuance of revised order of Assessing Officer Interest Case study 283 MULTIPLE CHOICE QUESTIONS DEDUCTION/COLLECTION OF TAX AT SOURCE AND E-TDS RETURN 269. What is the scheme of tax deduction at source Tax credit Payments covered by TDS scheme TDS rates during the financial year When and how tax is to be deducted at source from salary [Sec. 192] How to compute taxable salary and tax thereon Special cases Particulars of perquisite and profit in lieu of salary Salary with lower TDS When and how tax is to be deducted at source from interest on securities [Sec. 193] Securities interest which is not subject to tax deduction Time of tax deduction When tax is not deductible at regular rates When and how tax is to be deducted at source from dividends [Sec. 194] When tax is not deductible at regular rates When and how tax is to be deducted at source from interest other than interest on securities [Sec. 194A] When interest is not subject to tax deduction or subject to lower tax deduction Adjustment in the case of short deduction Payment under a hire purchase agreement 293

13 I-21 CONTENTS 274. When and how tax is to be deducted at source from winnings from lotteries or crossword puzzles [Sec. 194B] Prize given partly in cash and partly in kind When and how tax is to be deducted at source from winnings from horse races [Sec. 194BB] Tax deductible from payments to contractors or sub-contractors [Sec. 194C] Who is deductor Who is recipient Payments subject to tax deduction under section 194C When tax has to be deducted at source Rate of TDS When tax is not deductible When and how tax is to be deducted at source from insurance commission [Sec. 194D] Adjustment not possible When tax is not deductible or deductible at lower rate Reinsurance not covered by section 194D When and how tax is deductible at source from payment to non-resident sportsmen or sports associations [Sec. 194E] When and how tax is deductible from payments in respect of National Savings Scheme [Sec. 194EE] When tax is not deductible When and how tax is deductible on payments on account of repurchase of units of Mutual Funds or UTI [Sec. 194F] When tax is deductible from commission, etc., on sale of lottery tickets [Sec. 194G] When and how to deduct tax at source from commission or brokerage [Sec. 194H] When tax has to be deducted Meaning of commission or brokerage No TDS in the case of amount payable by BSNL/MTNL to PCOs When and how tax is deductible from rent [Sec. 194-I] TDS rates When tax has to be deducted No tax deduction if payee is Government/local authorities When tax is deducted at lower rate Payment to cold store When tax is deductible at source on fees for professional or technical services [Sec. 194J] When tax is deductible at lower rate Meaning of professional/technical services A. When and how to deduct tax at source from payment of compensation on acquisition of certain immovable property [Sec. 194LA] B. When and how tax is to be deducted at source from Interest payable on Infrastructure debt fund [Sec. 194LB] C. When and how tax is to be deducted by an Indian Company from Interest to a non-resident/ foreign citizen [Sec. 194LC] When and how tax is to be deducted at source from other sums [Sec. 195] TDS from units or long-term capital gain under section 196B TDS from income or long-term capital gain from foreign currency bonds/global Depository Receipts [Sec. 196C] When tax is deductible at source from income of Foreign Institutional Investors from securities [Sec. 196D] 303

14 CONTENTS I What are other points for consideration Amount payable to Government/RBI/certain corporations not subject to tax deduction Tax deducted - To be treated as income of deductee and available for tax credit [Secs. 198 and 199] Time of deposit of tax deducted at source (TDS) or collected at source (TCS) Quarterly statement of tax deduction/collection Certificate of tax deduction/collection at source Tax deduction and collection account number [Sec. 203A] Obtaining a certificate of lower rate from the Assessing Officer [Sec. 197] Provisions of section 197A Furnishing of quarterly returns regarding the details of non-deduction of tax by certain persons [Sec. 206A] Processing of statements of tax deducted at source [Sec. 200A] Tax collection at source [Sec. 206C] In which case tax has to be collected at source Tax collection at lower rate Deposit of tax Issue of certificate Quarterly returns to Government Tax collection account number 310 MULTIPLE CHOICE QUESTIONS INTEREST PAYABLE BY ASSESSEE/GOVERNMENT 296. When interest becomes payable by assessee For defaults in furnishing return of income [Sec. 234A] For failure to deduct or collect and pay tax at source [Sec. 201(1A) or 206C(7)] For default in payment of advance tax [Sec. 234B] For deferment of advance tax Interest on excess refund [Sec. 234D] For making late payment of income-tax [Sec. 220(2)] Fees for defaults in furnishing quarterly returns [Sec. 234E] Interest payable to assessee [Sec. 244A] How to compute interest Other points Procedure to be followed in calculation of interest [Rule 119A] Is it possible to reduce/waive interest Conditions Period Extent of interest to be reduced or waived Discretion should be exercised in judicial manner Is it possible for Chief Commissioner/Director General (Investigation) to reduce penal interest in certain cases Other points 326

15 I-23 CONTENTS 301. Can Central Board of Direct Taxes make relaxation Writ petition - Is it maintainable against levy of interest 327 MULTIPLE CHOICE QUESTIONS REFUND OF EXCESS PAYMENTS 305. Right to claim refund - When arises [Sec. 237] Who can claim refund [Sec. 238] How to claim refund Claim after the statutory time limit Other points Refund on appeal [Sec. 240] Power to withhold refund Interest on delayed refunds Set-off of refunds against tax remaining payable [Sec. 245] 329 UNIT II RETURN, ASSESSMENT, PENALTIES, SETTLEMENT COMMISSION AND SEARCH 30 RETURN/ASSESSMENT OF INCOME 314. When return is to be filed as statutory obligation [Sec. 139(1), (4A), (4B), (4C), (4D)] Exemption provided by the Government when taxable income of an individual is up to Rs. 5,00, Forms - New return Forms Time for filing return of income [Sec. 139(1)] When return of loss should be filed [Sec. 139(3)] Belated return [Sec. 139(4)] Other points Revised return [Sec. 139(5)] Conditions Other points What is a defective or incomplete return [Sec. 139(9)] When a return is defective Clarification from the Board What is Permanent Account Number (PAN) [Sec. 139A] Where the PAN should be quoted or to whom PAN should be intimated Other points Scheme to facilitate submission of returns through Tax Return Preparers [Sec. 139B] A. Power of Board to dispense with Furnishing of document B. Filing of return in electronic form [Sec. 139D] Return by whom to be signed [Sec. 140] 341

16 CONTENTS I What is self-assessment [Sec. 140A] Other points What is inquiry before assessment under section 142 or 142A Giving notice to the assessee [Sec. 142(1)] Making inquiry [Sec. 142(2), (3)] Giving direction for audit [Sec. 142(2A) to (2D)] Estimate by Valuation Officer in certain cases [Sec. 142A, inserted from November 15, 1972] Summary assessment Intimation - Provisions applicable from April 1, Summary assessment not necessary in some cases Time-limit for intimation under section 143(1)(i) Scrutiny assessment Scrutiny under section 143(3)(ii) Special procedure for assessment in the case of scientific research association, news agency, notified trust, etc. [Proviso to sec. 143(3)] What is best judgment assessment [Sec. 144] Time limit completion A. Reference to Dispute Resolution Panel [Sec. 144C] What is income escaping assessment [Sec. 147] Two conditions Cases of income escaping assessment Notice for reassessment Time-limit and other conditions for issue of notice [Secs. 149 and 151] When can mistakes be rectified Which order can be rectified [Sec. 154(1)] What is the time-limit for completion of assessments/reassessments [Sec. 153] Assessment under section 143 or 144 [Sec. 153(1)] Assessment or reassessment under section 147 [Sec. 153(2)] Fresh assessment [Sec. 153(2A)] Assessment/reassessment to give effect to a direction [Sec. 153(3)] When reference is made Transfer Pricing Officer (TPO) Computation of period of limitation [Explanation 1 to sec. 153] Time-limit applies to passing of order and not on its communication to the assessee Case study Annual information return Transactions covered Return to whom Form Time-limit Defective return Notice for submission of return 355 MULTIPLE CHOICE QUESTIONS 355

17 I-25 CONTENTS 31 APPEALS, REVISIONS, REFERENCES 342. What is appeal Who are appellate authorities When and against what orders appeal lies to Commissioner (Appeals) [Sec. 246A] Appeal by a person denying liability to deduct tax [Sec. 248] Procedure for filing appeal Payment of tax before filing appeal [Sec. 249(4)] Power of Commissioner (Appeals) under section Revision by Commissioner Revision of orders prejudicial to revenue [Sec. 263] Revision in favour of assessee [Sec. 264] Appeal to Tribunal Appealable orders Procedure for filing appeal Order of the Tribunal Appeal to High Court What is a substantial question of law Memorandum of appeal Fees Time-limit Formulation of question of law Issue which may be determined by High Court Case to be heard by not less than two Judges Stay of recovery proceeding where appeal is pending in High Court Decision of High Court When appeal lies to Supreme Court What are the provisions for avoiding repetitive appeals [Sec. 158A] 365 MULTIPLE CHOICE QUESTIONS PENALTIES AND PROSECUTIONS 373. Penalties for defaults in brief Penalty cannot be imposed if there was a reasonable cause Penalty under section 271(1)(c) Penalty under section 271B for failure to get books of account audited Penalty for failure to deduct tax at source under section 271C Penalty for violation of provisions of sections 269SS and 269T Penalty for failure to answer questions, submit TDS returns under section 272A Penalty for failure to furnish quarterly TDS/TCS return [Sec. 271H] Penalty under section 271(1)(c) Explanations to section 271(1) Concealment penalty in search cases 374

18 CONTENTS I Power of the Commissioner Power to reduce or waive penalty under section 271(1)(c) [Sec. 273A(1)] Power to reduce or waive any penalty [Sec. 273A(4)] Conditions Power of Commissioner to grant immunity from penalty [Sec. 273AA] Procedure Opportunity of being heard Previous approval of Joint Commissioner Copy of order Time-limit for completion of penalty proceedings Time-limit for passing penalty order under sec. 275(1A) Exclusion of certain period Offences and prosecutions Amendment made by the Finance Act, 2012 to expedite prosecution proceedings under the Act Other points Immunity Onus of proof Sections 273B and 278AA Section 278E 383 MULTIPLE CHOICE QUESTIONS SETTLEMENT OF CASES 388. Introduction Meaning of case [Sec. 245A(b)] A pending proceeding is a case When a proceeding is not taken as pending proceeding When a proceeding is taken as pending proceeding Settlement Commission [Sec. 245B] Application for settlement of cases [Sec. 245C] Additional tax - How computed Meaning of related for the purpose of case 2 mentioned in para Procedure on receipt of application Application Notice to the applicant Settlement Commission can allow the application to proceed or outrightly reject it [Sec. 245D(1)] Report from the Commissioner of Income-tax [Sec. 245D(2B)/(2C)] A second report from the Commissioner of Income-tax [Sec. 245D(3)] Order of Settlement Commission Consequences if settlement order is obtained by fraud or misrepresentation Section 153 time-limit not to apply Power of the Settlement Commission to rectify its orders [Sec. 245D(6B)] Power to order provisional attachment to protect revenue [Sec. 245DD] 391

19 I-27 CONTENTS 394. Power to reopen completed proceedings [Sec. 245E] Power can be exercised only with the concurrence of applicant Time-limit of 9 years Power to reopen is limited for which concurrence is given by applicant Powers and procedure of Settlement Commission [Sec. 245F] Inspection, etc., of reports [Sec. 245G] Powers of Settlement Commission to grant immunity from prosecution, etc. [Sec. 245H] Abatement of proceeding before Settlement Commission [Sec. 245HA] Consequence of abatement of proceedings before Settlement Commission Order of settlement to be conclusive [Sec. 245-I] Other points Recovery of sums due under order of Settlement Commission [Sec. 245J] Bar on subsequent application for settlement in certain cases [Sec. 245K] 395 MULTIPLE CHOICE QUESTIONS SEARCH, SEIZURE AND BLOCK ASSESSMENT 412. Powers regarding discovery, production of evidence, etc. [Sec. 131] Powers of Civil Court [Sec. 131(1)] When power can be exercised in respect of concluded proceedings [Sec. 131(1A)] Impounding of books [Sec. 131(3)] Collection of information on requests received from tax authorities outside India Search and seizure Circumstances in which search and seizure can be conducted [Sec. 132(1)] Who is the authorised officer Powers of authorised officer in respect of search and seizure If books of account, etc. are kept in building not specified in the search warrant [Sec. 132(1A)] Police assistance [Sec. 132(2)] Where it is not practicable to seize books of account etc. [Sec. 132(3)] Examination on oath [Sec. 132(4)] Presumptions [Sec. 132(4A)] Time-limit for retention of seized books of account, etc. [Sec. 132(8)] Taking copies of seized documents [Sec. 132(9)] Authorised Officer having no jurisdiction [Sec. 132(9A)] Requisitioning of books of account, etc Who can exercise powers Requisitioning officers Situations in which powers under section 132A can be invoked Requisition procedure Application of assets seized or requisitioned [Sec. 132B] Release of sum remaining after recovery Recovery through any other modes Payment of interest by the Central Government 402

20 CONTENTS I Power to call for information [Sec. 133] Power of survey Places where an income-tax authority can enter Powers of survey If a person refuses to obey orders Meaning of proceeding Power to collect certain information [Sec. 133B] Other points Scheme of assessment Notice for submission of return of six assessment years Pending assessment Provisions for re-assessment vis-à-vis section 153A Regular tax rate will be applicable Time-limit for completion of assessment under section 153A [Sec. 153B] Assessment of income of any other person [Sec. 153C applicable from June 1, 2003] Prior approval in the case of search [Sec. 153D] WEALTH-TAX UNIT III WEALTH-TAX 440. Chargeability Assessment year Valuation date [Sec. 2(q)] Change of ownership on the valuation date Net wealth - How computed Incidence of tax [Sec. 6] Location of assets Assets [Sec. 2(ea)] Guest house, residential house or commercial building [Sec. 2(ea)(i)] Motor cars [Sec. 2(ea)(ii)] Jewellery, bullion, utensils of gold, silver, etc. [Sec. 2(ea)(iii)] Yachts, boats and aircrafts [Sec. 2(ea)(iv)] Urban land [Sec. 2(ea)(v)] Cash in hand [Sec. 2(ea)(vi)] Illustrative examples Assets must belong to the assessee [Sec. 2(ea) read with sec. 2(m)] Deemed assets [Sec. 4] Assets transferred by one spouse to another [Sec. 4(1)(a)(i)] Assets held by minor child [Sec. 4(1)(a)(ii)] Assets transferred to a person or an association of persons [Sec. 4(1)(a)(iii)] Assets transferred under revocable transfers [Sec. 4(1)(a)(iv)] Assets transferred to son s wife [Sec. 4(1)(a)(v)] 419

21 I-29 CONTENTS Assets transferred for the benefit of son s wife Interest of partner [Sec. 4(1)(b)] Conversion of self-acquired property into joint family property [Sec. 4(1A)] Gifts by book entries [Sec. 4(5A)] Impartible estate [Sec. 4(6)] Property held by a member of a housing society [Sec. 4(7)] Property held by a person in part performance of a contract [Sec. 4(8)] Assets exempt from tax [Sec. 5] Property held under a trust [Sec. 5(i)] Coparcenary interest in a Hindu undivided family Residential building of a former ruler Former ruler s jewellery [Sec. 5(iv)] Assets belonging to the Indian repatriates One house or part of a house [Sec. 5(vi)] Debt owed Debt owed - Meaning of Valuation of assets [Sec. 7] Valuation of a building Valuation of self-occupied property Valuation of assets of business Value of interest in firm Value of life interest [Part F, Schedule III] Valuation of jewellery Valuation of any other asset Other points Charitable or religious trusts [Sec. 21A] Association of persons where shares of members are indeterminate/unknown [Sec. 21AA] Derecognition of partial Return of wealth and assessment Return in response to a notice Return showing wealth below taxable limit [Sec. 14(2)] Return after due date or amendment of return [Sec. 15] Assessment Regular assessment Interest or penalty/prosecution Rate of tax Case studies SERVICE TAX UNIT IV SERVICE TAX 480. Why service tax Need of service tax Beginning 447

22 CONTENTS I What are different approaches to service tax What is nature of service tax What are different features of service tax Is it constitutional valid How to define extent and application [Sec. 64] What is basis of charge of service tax How classification of taxable services determined [Sec. 65A] Classification under two different clauses How to find out valuation of taxable services [Sec. 67] Value of taxable services Computation of service tax How service tax is paid Credit for input service Registration Payment of service tax [Sec. 68] Payment schedule of service tax Registration requirements Tax to be paid when amount is actually received or when service is provided No service tax on free services Payment of service tax if not collected from the client Service tax on payments received in advance Payment of service tax collected in excess to be paid to the Central Government [Sec. 73A] Interest payable on amount collected in excess [Sec. 73B] Due date for payment of service tax Manner of payment of service tax Adjustment of service tax Provisional payment of service tax Interest on late payment of service tax [Sec. 75] How service tax is administered Levy and assessment Collection of service tax in India Administrative mechanism Service tax law Procedures of service tax General exemptions from service tax Analysis of Service Tax Revenue What are provisions pertaining to returns Furnishing of returns Form of return Periodicity for filing return Due dates for filing return Contents of return First return Return in case of multiple service providers Return when no services are provided (nil return) Mandatory e-filing with effect from October 1, Procedure for e-filing return 473

23 I-31 CONTENTS Revised return Penalty for late filing of return When a person is liable for penalty under service tax Penalty for non-payment or late payment of service tax Penalty for not obtaining registration Penalty for non-maintenance of books of account and documents Penalty for not furnishing information required Penalty for failure to pay tax electronically when required Penalty for issuing incorrect invoice or not accounting invoices in books of account Penalty for late filing of return Penalty for suppressing value of taxable services Penalty for any other default A. What is role of chartered accountants A.1 Advising clients A.2 Procedural requirements A.3 Personal representation A.4 Certification and audit A.5 Constant updation of law and provisions What are challenges before the service tax administration in India Is there any electronic tax administration What are taxable services The statutory definition Steps involved Exclusion of out of pocket expenditure Different taxable services Export of service Category A - Immovable property situated abroad Category B - Services performed outside India Category C - Service provided from India, but recipient of service outside India Category D - Services which will never be treated as export of service Case study Amendments made by the Finance Act, Increase in service tax rates Introduction of negative list approach Amendments in the Finance Act, New reverse charge mechanism Renting of immovable property service Amendment to Service Tax Rules Amendment to Point of Taxation Rules 491 APPENDIX TO CHAPTER 36 : Partial abatement VALUE ADDED TAX (VAT) UNIT V VALUE ADDED TAX 530. What is the background and justification of VAT 497

24 CONTENTS I Justification of VAT Illustrations Tax on value added What are the benefits of VAT in brief What is the need for introducing VAT What are the merits of VAT Is there any demerit of VAT Demerits in Indian context Demerits in general What is input tax credit Coverage of set-off input tax credit Carrying over of tax credit Treatment of exports Inputs procured from other States Input tax and output tax What are variants of VAT Gross product variant Income variant Consumption variant What are different modes of computation of VAT Addition method Subtraction method Tax credit method Provision illustrated What are Administrative Procedures which are generally adopted by different States Compulsory issue of tax invoice, cash memo or bill Registration, small dealers and composition scheme Taxpayer s identification number (TIN) Return Procedure of self-assessment of VAT liability Audit Declaration form Other taxes Penal provisions Coverage of goods under VAT VAT rates and classification of commodities Records Stock transfer Compensation of losses 509 ANNEX 1 : Tax Rates 510 ANNEX 2 : Present value tables 528