Direct Tax Proposals 2012 : ANTI EVASION MEASURES / PREVENTION OF GENERATION & CIRCULATUON OF UNACCOUNTED MONEY

                 Understanding
   Direct Tax
                 Proposals

 Anti Evasion Measures & Prevention of Generation & Circulation of Unaccounted Money

    Cash Credits u/s 68

Present Law	Proposed Changes
ü If any sum is found credited in the books of an assessee and assessee Either ü does not offer any explanation about nature and source of money; Or ü Explanation is not satisfactory as per AO Then, ü Such amount can be taxed as income of the assessee	ü Nature and source of any sum credited, ü Being  Share capital, Share Premium etc., in the books of a closely held company shall be treated as explained only if ü Source of funds is also explained by the assessee company in the hands of the resident shareholder. Exemption if shareholders being ü Venture Capital Fund & Venture Capital Company registered with (SEBI)

Brief Comment:

The amendment going to nullify the impact of few court decisions as under

v Hindustan Inks & Resins Limited vs. DCIT 60 DTR 18 (Guj HC) : Assessee having established identity of shareholders, addition under section 68 could not be made on the ground that assessee failed to explain the source of credit.  

v CIT vs. STL Extrusion (p) Ltd. 333 ITR 269 (MP High Court) :  Where the Assessee had provided to the assessing authority the name, age, address, date of filing the share application and number of shares applied by each shareholder, addition under section 68 of the Act cannot be made.

v CIT vs. Dataware (p) Ltd (Kolkata HC): Assessee’s Assessing Officer cannot question Creditor’s I. T. Return.

v DCIT vs. Dolphine Marbles (P) Ltd. 129 ITD 163 (Jabalpur ITAT): Assessee had established identity of each of share holder, and also proved that each of them was income tax assessee and share application money credited to their accounts was duly reflected in their income tax returns and balance sheets. No addition can be made.

v CIT vs. Lovely Exports (p) Ltd 216 CTR 195 (SC): Court held that if the share application money is received by the assessee from alleged shareholders, whose names are given to AO, department is free to proceed to reopen individual assessments. Further held that share application money cannot be taxed u/s 68.

v    Will help the government to curb unaccounted money.

v    Additional Burden now on the assessee.

Extract of Memorandum:  

     “  Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company

                 In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit.”

    Unexplained Money, Investments etc u/s 68, u/s 69, u/s 69A – 69D (section 115BBE)

Present Law	Proposed Changes
ü Certain unexplained amounts are deemed as income ü u/s 68, 69, 69A, 69B, 69C, 69D of the Act ü and taxed as per Applicable TAX SLAB Rate ü In case of individuals, HUF, no tax till basis exemption	ü Unexplained credits, money, investment, expenditure, etc., ü u/s 68, 69, 69A, 69B, 69C, 69D of the Act ü shall be taxed @ 30% (plus applicable surcharge /cess).   ü No deduction allowed being any expenditure or allowance for earning said unexplained income.

Comment:

v To Curb Unaccounted money, govt is trying to penal provisions has been made very harsh.

v Welcome Step by Government.

v Genuine cases may also have adverse implications.

Memorandum explaining finance bill

    “ In these cases, no tax can be levied on these deemed income if the amount of such deemed income is less than the amount of basic exemption limit and even if it is higher, it is levied at the lower slab rate.

     In order to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit”

    TDS on Transfer of Certain Immovable Properties (Applicable w.e.f. 01-10-2012)

Taxable Event

      Every Buyer at the time of making payment or crediting any sum, being

      Sale consideration for transfer of immovable property (other than agricultural land),

      Shall deduct tax, at the rate of 1% of such sum,

      if the sale price paid or payable exceeds

»        INR 50,00,000 in case property is situated in a specified “urban agglomeration” or

»        INR 20,00,000 in other cases

Deemed Consideration

      Where above sale consideration is less than Stamp Duty value

      then Stamp duty value will be deemed sale consideration

Procedural Aspects

      Simple one page challan for payment of TDS.

      Containing PAN of transferor and transferee and also certain details of the property.

      Buyer will not required to obtain TAN or file TDS statement

      Seller will get the TDS credit on the basis of above mentioned challan 

Effect on Property Registration:

      Property will not be registered by Registrar

      Unless Buyer submits with the registrar both Proof of deduction and payment of TDS

Comment:

v To curb the circulation of black money and make the real estate transaction more transparent and to enhance reporting criteria, the said amendment is proposed to be introduced

v Buyer of the property has to deduct Tax @ 1% of the Sale Consideration

v If Seller not furnishes PAN, then Section 206AA will be effective and buyer should deduct tax @ 20%

v If the consideration is less than Stamp Duty value, stamp duty shall be taken as full value of consideration

v Registrar will not register property unless Buyer submits proof of TDS compliances

v What will be the status of the payment made on or before 01-10-2012 and registration done after 01-10-2012. A more clarity on this issue shall be required. 

v Buyer will not require to obtain TAN

v One Page challan for TDS payment

v Will buyer have to bear the TDS on differential amount of sale consideration and stamp duty valuation?

Extract of Memorandum:

“Better compliance, it is also proposed to provide that a registering officer appointed under the Indian Registration Act, 1908 (Registrar) shall not register the transfer of any immovable property where taxes are required to be deducted under this provision unless the transferee furnishes proof of deduction and payment of TDS. For reducing the compliance burden on the transferee, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property. The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one-time transaction. The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS.”

    TCS on Bullion / Jewellery / Certain Minerals (Section 206C)

Present Law	Proposed Changes (w.e.f. 01-07-2012)
ü Tax is required to collected at source ü By the Seller ü At the specified rate on goods like ·         Alcoholic liquor ·         Tendu leaves ·         Scrap etc.	ü Tax is required to collected at source ü By the Seller from the buyer ü At the specified rate of 1% of sales on ·         Bullion ·         Jewellery ü If Sale consideration exceeds INR 2,00,000 & ü Sale is in CASH. ü Irrespective of fact that buyer is a Manufacturer or trader or Purchase is for personal use
ü Presently no TCS on sale of certain Minerals	ü Tax is required to collected at source ü By the Seller from the buyer ü At the specified rate of 1% of sales on ·         Coal ·         Lignite ·         Iron Ore  Exception ü Used for personal consumption ü Used for manufacturing, processing or producing article or things

Comment:

Bullion & Jewellery:

v For regulating the Bullion Market and to prevent circulation of unaccounted money, this amendment is proposed to Introduced

v Purchase of Bullion or jewellery in cash in excess o INR 2,00,000, will be the charging criteria

v It is not clarified that whether threshold limit of INR 2,00,000 will apply for single transaction or aggregate of purchase during the previous year

v Compliance burden will be on the seller of bullion or jewellery. In case of Non compliances, all the penal provisions will be applicable

Minerals:

v For regulating the Mining Sector, to prevent the circulation of unaccounted money and to collect the taxes at earliest stage, TCS provisions on minerals are introduced

v Basically Applicable for entities engaged in Trading of coal, lignite & ore.

v No Compliances will lead to all penal consequences prescribed in IT Act

v No threshold limit prescribed, which means Tax should be collected at source from INR 1 onwards

Extract of Memorandum:

     “In order to reduce the quantum of cash transaction in bullion and jewellery sector and for curbing the flow of unaccounted money in the trading system of bullion and jewellery, ..............

              Mining sector is an important segment of Indian economy but the trading of minerals remained largely unregulated resulting in non-reporting or under-reporting of trading in minerals trading transactions for the taxation purpose.

      In order to collect tax at the earliest point of time and also to improve reporting mechanism of transactions in mining sector, it is proposed............................“

    Share Premium in excess of FMV will be treated as Income [u/s 56(2)]

Existing Act

New Proposed Clause

ü Specific Category of Income will be ü Taxed under ü Income from Other Sources (IOS).

Taxability ü where a Company (NOT being a company in which public are substantially interested) , ü Receives, from any resident Consideration for issue of shares ü Which exceeds Face value of such shares, then ü the aggregate consideration received, as exceeds, the FMV of shares ü Shall be taxed under the head “Income from other sources. ü Company will be provided an opportunity to substantiate its claim regarding the FMV. Calculation of FMV, being HIGHER of value ü as may be determined in accordance with the method as may be prescribed; or ü as may be substantiated by the company to the satisfaction of the AO , based on the value of its assets, including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. Exemption ü Where the Recipient of consideration is a venture capital undertaking from a venture Capital Company or a venture capital fund.

Comment:

v Excess share premium received by Unlisted Company for issue of shares to Residents will be taxable as Income from other sources

v This amendment will prevent unlisted companies to issue their shares at a high premium, a normal practice prevalent in India.

v Section 56(1)(viia) states that if a person acquires shares at a price which is less than ‘fair value’, the difference may be treated as income in the hands of such shareholder.

     Hence, if shares are issued at a price Higher than FMV, the difference shall be treated as income in the hands of the Company, while if shares are issued at a price lower than fair value, then the difference may be treated as income in the hands of the shareholder.

v Provisions will not be applicable on issue of debentures BUT may be applicable for preference shares

v Provisions will not be applicable when shares will be issued to a non resident

v AO has been given a wide power to invoke this section FMV will be determined as per satisfaction of the AO

v VCF/ VCC has been given exemption for this section

   Assets held outside India

Section		Existing Act	Proposed  Changes
Compulsory Return Filing
139	ü Every person is required to furnish ROI ü if Total income during the previous year ü Exceeds the maximum amount which is not chargeable to tax		ü It will be Mandatory for Every Residents ü HAVING ANY ASSETS (Including Financial interest in any entity) ü LOCATED OUTSIDE INDIA, or ü Signing Authority in any a/c located outside India ü Irrespective of the fact ü whether the resident taxpayer ü Has taxable income or not ü W.R.E.F. AY 2012-13
Reopening upto 16 years
149	ü Time limit for issue of notice ü for reopening of Assessment ü on account of income escaping assessment is 6 years		ü Income in relation to any asset (including financial interest in any entity) located outside India, ü chargeable to tax, ü has escaped assessment, ü Time limit for issue of notice ü for reopening of Assessment ü will be 16 years Reopening can be made for any assessment year on or before 01-04-2012
Deemed Income Escaping
147		Income deemed to escape assessments, when ü No ROI by assessee, even if total income exceeds exemption limit ü ROI Furnished and no assessment made and AO finds excessive losses, allowances, deductions etc ü When Assessment made and Income under assessed or excess deduction allowed etc	ü Income shall be deemed to have escaped assessment ü where a person is found to have ü any asset (including financial interest in any entity) located outside India ü W.E.F. 01-07-2012
Extended Time limit for Assessment, when information sought under DTAA
153 / 153B		ü Time limit for Completion of assessment shall exclude ü Time taken in obtaining information from foreign tax authorities ü It starts from the date on which the process of getting information is initiated and end with the date on which information is Received by the Commissioner ü Currently, this period of exclusion is limited to “SIX MONTHS”	ü Period of Limitation extended to “1 year” ü W.e.f. 01-07-2012.

Comment:

v As per survey, unaccounted money or Investments of Residents Indian abroad is much higher than the budgeted expenditure of the govt.

v To Track Unaccounted money, Un-Disclosed assets located outside India & to track all such transactions, these amendments are proposed in the Finance Bill.

v For Resident assessee, it is mandatory to file return of Income for AY 2012-13 and succeeding years, if any assets including financial interest are outside India.

v In case of resident assessee having signing authority in any account outside India, then also have to file ROI.

v If Resident assessee has not disclosed “Such Assets”, it shall be presumed that his Income has escape assessments and his case will be reopened.

v To give more time to track such type of transactions, Reopening can be made UPTO 16 YEARS. Memorandum explaining finance bill “The time limit of 6 years is not sufficient in cases where assets are located outside India because gathering information regarding such assets takes much more time on account of additional procedures and laws of foreign jurisdictions” affirms the same.

v Extended time of 1 year provided to Taxing authority, when information sought under DTAA.