Dividends from Foreign
Company & Removal of cascading effect of DDT : |
Present Law
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Proposed Changes
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S Section 115 BBD
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ü Gross
dividends received by an Indian Company from a specified foreign company
ü in
which it has shareholding of 26% or more
ü shall
be taxed @ 15%
ü If
dividend is included in total income
of FY 2012-13 i.e. AY 2013-14.
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ü Benefit extended to one more year i.e.
for FY 2013-14.
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Section
115-O
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·
Any amount declared, distributed or paid by domestic company
·
out of current profits or accumulated profits
·
to its shareholders
·
shall be charged to additional tax (Dividend distribution tax i.e.
DDT) @ 15%.
Sub section 1A (i)
ü The
tax base for DDT (i.e. the dividend payable in case of a company)
ü is
to be reduced by an amount of dividend
ü received
from its domestic subsidiary
ü if
such subsidiary has paid the DDT which is payable on such dividend.
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Revised Sub section
1A (i) (w.e.f. 01.06.2013)
Dividend for section 115-O shall be reduced by the amount of dividend,
if any, received by the domestic company during the FY, if such dividend is
received from its subsidiary
and,—
(a) where such
subsidiary is a domestic company, the subsidiary has paid the tax which is payable
under this section on such dividend; or
(b) where such
subsidiary is a foreign company, the tax is payable by the domestic company
under section 115BBD on such dividend.
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Comment:
1. Indian company will require to pay lower rate of tax
i.e. @ 15% on the dividend received from foreign company till 31.03.2014. This provision was introduced as an incentive for attracting
repatriation of income earned by resident companies from investments made
abroad with certain conditions to check the misuse of the incentive. Extension
of the scheme for one more year is a welcome move.
2. To remove the cascading effect, it is also proposed
that Indian company will not required to pay DDT on distribution of dividends
to the extent of dividends received from foreign subsidiary (having 50% or more
stake) which is taxed u/s 115BBD in the same financial year.
3. Removal of cascading effect should be extended to all
domestic company instead of dividend received from the subsidiary.
Extract
of Memorandum:
“Section 115-O provides that the tax base for DDT
(i.e. the dividend payable in case of a company) is to be reduced by an amount
of dividend received from its subsidiary if such subsidiary has paid the DDT
which is payable on such dividend . This ensured removal of cascading effect of
DDT in a multi-tier structure where dividend received by a domestic company
from its subsidiary (which is also a domestic company) is distributed to its
shareholders.
It is proposed to amend section 115-O in order
to remove the cascading effect in respect of dividends received by a domestic
company from a similarly placed foreign subsidiary (i.e. the foreign company in
which domestic company holds more than fifty percent of equity share capital).
It is proposed that where the tax on dividends received from the foreign
subsidiary is payable under section 115BBD by the holding domestic company
then, any dividend distributed by the holding company in the same year, to the
extent of such dividends, shall not be subject to Dividend Distribution Tax
under section 115-O of the Income-tax Act.”
Investment Linked Incentives
[New Section 32AC]|
New Section - 32AC
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Where an assessee,
being a company,—
(a)
is engaged in the business of manufacture of an
article or thing; and
(b) invests a sum of more
than INR 100 crore in new assets (plant or machinery) during the period
beginning from 1st April, 2013 and ending on 31st March, 2015,
then, the assessee shall be allowed—
(i) for AY 2014-15, a deduction of 15% of
aggregate amount of actual cost of new assets acquired and installed during the F.Y. 2013-14, if the
cost of such assets exceeds INR 100 crore;
(ii) for AY 2015-16, a deduction of 15% of
aggregate amount of actual cost of new assets, acquired and installed during
the period beginning on 1st April, 2013 and ending on 31st
March, 2015, as reduced by the deduction allowed, if any, for A.Y. 2014-15.
The phrase “new asset” has been defined as new plant
or machinery but does not include—
(i)
any plant or machinery which before its installation by the assessee
was used either within or outside India by any other person;
(ii)
any plant or machinery installed in any office premises or any
residential accommodation, including accommodation in the nature of a guest
house;
(iii) any
office appliances including computers or computer software;
(iv)
any vehicle;
(v) ship
or aircraft; or
(vi)
any plant or machinery, the whole of the actual cost of which is
allowed as deduction (whether by way of depreciation or otherwise) in
computing the income chargeable under the head “Profits and gains of business
or profession” of any previous year.
Above mentioned Plant or machinery cannot be
transferred for a period of 5 years (except transfer by way of amalgamation
or demerger route).
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Comment:
1. This is a very good amendment keeping in view of the
Overall economy of the country. The said incentive will give a much needed
boost to corporate to invest more in new projects.
2. The wording of the proposed provision is similar in
the lines of section 32(1)(iia) related to additional depreciation.
3. There may be some interpretation issue for the
wording “Acquired and installed”. If we go by strict interpretation, the new
plant and machinery much be acquired and installed on or before the prescribed
time.
Hon’ble Delhi
ITAT in Escorts Employees
Ancillaries Ltd. (52 TTJ 325) had held that for getting the benefit of
additional deprecation machinery must be purchased on or before the specified
date.
Extract of Amendment:
“ In order to encourage substantial investment in plant or
machinery, it is proposed to insert a new section 32AC...........
It is further proposed to provide
suitable safeguards so as to restrict the transfer of the plant or machinery
for a period of 5 years. However, this restriction shall not apply in a case of
amalgamation or demerger but shall continue to apply to the amalgamated company
or resulting company, as the case may be....”
Deduction for Additional Wages
-: Section 80JJAA|
Present Law
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Proposed Changes
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ü A deduction of 30% of
additional wages
ü paid to the new regular
workman
ü employed in any
previous year by an Indian company
ü in its Industrial undertaking
ü engaged in manufacture
or production of any article or thing
ü is allowed.
The deduction is
allowed for three assessment years.
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Revised Section 80JJAA:
·
Where the GTI of an Indian company includes any profits
and gains derived from the manufacture of goods
·
in a factory,
·
there shall, subject to conditions, be allowed 30%
·
of additional wages paid to the new regular workmen
employed by the assessee in such
·
factory,
·
in the previous year, for three AY including the AY in
which such employment is provided.
No
Deduction shall be allowed if the factory is hived off or transferred from
another existing entity or acquired by the assessee company as a result of
amalgamation with another company.
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Comment:
1. Section 80JJAA was introduced by Finance Act 1998 to
encourage the employers to generate more and more employment. It provides a
deduction of 30% of additional wages paid to the new regular workmen employed
in any previous year by an Indian company in its industrial undertaking engaged in manufacture or
production of article or thing. It is proposed by finance bill 2013 that
incentive shall be available to only those Indian companies who derives profit
from manufacturing of goods in its factory.
2. Proposed said amendment is prospective and will apply
from AY 2014-15 onwards which means that it will not make any adverse impact on
existing assessee, who will not be entitled for the deduction from AY 2014-15
onwards.
3. Bangalore ITAT decision in case of Texas Instrument (India) pvt Ltd.
(115 TTJ 976), seems to be overruled,
wherein ITAT had held that assessee is eligible for relief in respect of new
software engineers employed, not in supervisory capacity, taking note of the
notification of Karnataka Government under which the assessee engaged in
development of software was covered by the Industrial Disputes Act, 1947.
Extract
of Memorandum:
“The tax
incentive under section 80JJAA was intended for employment of blue collared
employees in the manufacturing sector whereas in practice, it is being claimed
for other employees in other sectors also. It is, therefore, proposed to amend
the provisions of section 80JJAA so as to provide that the deduction shall be
available to an Indian Company deriving profits from manufacture of goods in its
factory. The deduction shall be of an amount equal to thirty per cent of
additional wages paid to the new regular workmen employed by the assessee in
such factory, in the previous year, for three assessment years including the
assessment year relevant to the previous year in which such employment is
provided.
It is also
proposed to provide that the deduction under this section shall not be
available if the factory is hived off or transferred from another existing
entity or acquired by the assessee company as a result of amalgamation with
another company.”
Incentive to Power Sector|
Present Law
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Proposed Changes
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Extension of Sunset
Clause [u/s 80-IA(4)] |
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ü Deduction should be
allowed to an undertaking which –
·
is set up for the generation
and distribution of power.
·
Starts transmission or distribution by laying a network of new transmission
or distribution lines.
·
Undertakes substantial renovation and modernization of existing network
of transmission or distribution lines.....
ü AND
ü Completes the above projects till 31st
March 2013
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ü Sunset Clause Extended to 31st March
2014
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Comment:
v In India, there is an actual
demand supply mismatch in Power sector. To give Incentive to Power sector,
these amendments have proposed, which is a welcome move by Finance Minister.
Extract of Memorandum
“ With
a view to provide further time to the undertakings to commence the eligible
activity to avail the tax incentive, it is proposed to amend the above
provisions so as to extend the terminal date by a further period of one year
i.e. up to 31st March, 2014”
Treatment of Bad debts (for
Banking Companies):- Section 36(viia) |
Present Law
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Proposed Changes
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Section 36 (viia)
·
In computing the business income of certain banks and financial
institutions,
·
deduction is allowable in respect of
·
any provision for bad and doubtful debts made by such entities
subject to certain limits..
Section 36 (vii)
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The amount of Bad debt, which is
·
Written off as irrecoverable in the accounts of the assessee
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Shall be allowed as deduction.
Proviso
·
For Bank & Financial institutions (as per section 36(viia),
·
the amount of deduction for any such debt or part shall be limited to
the amount
·
By which the bed debt written off exceeds the credit balance in the
provision for bad and doubtful debts.
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Explanation 2 inserted after Section 36 (vii)
·
For the purposes of the
proviso to section 36 (vii)
and section 36(2) (v),
·
the account referred to
therein shall be
·
Only one account in
respect of provision for bad and doubtful debts under clause (viia) and
·
such account shall relate to all types of advances,
including advances made by rural branches.
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Comment:
1. After the proposed amendment,
for banks and financial institution as referred in clause (viia), the amount of
deduction in respect of the bad debts actually written off under section
36(1)(vii) shall be limited to
the amount by which such bad debts exceeds the credit balance in the provision
for bad and doubtful debts account made under section 36(1)(viia) without any
distinction between rural advances and other advances.
2. Supreme Court decision in case
of Catholic Syrian Bank Ltd. 343 ITR
270 (SC) is seems to be overruled. In this case Apex Court held “The proviso to s. 36(1)(vii) and ss.
36(1)(viia) and 36(2)(v) have to be read and construed together. They form a
complete scheme for deductions and prescribe the extent to which such deductions
are available to a scheduled bank in relation to rural loans etc., whereas
s. 36(1)(vii) deals with general deductions available to a bank and even non-banking
businesses upon their showing that an account had become bad and written off as
irrecoverable in the accounts of the assessee for the previous year, satisfying
the requirements contemplated in that behalf under s. 36(2). The provisions of
s. 36(1)(vii) operate in their own field and are not restricted by the
limitations of s. 36(1)(viia).
Apex
Court finally concluded that “Provisions
of ss. 36(1)(vii) and 36(1)(viia) are distinct and independent items of
deduction and operate in their respective fields; proviso to s. 36(1)(vii)
operates only in cases falling under cl. (viia) to limit the deduction to the
extent of difference between the debt or part thereof written off in the
previous year and the credit balance in the provision for bad and doubtful
debts made under cl. (viia) and, therefore, scheduled and non-scheduled
commercial banks are entitled to full benefit of write off of irrecoverable
debts under s. 36(1)(vii) in addition to the benefit of deduction of provision
for bad and doubtful debts under s. 36(1)(viia). “
Extract of Memorandum:
“ Certain judicial pronouncements have created
doubts about the scope and applicability of proviso to section 36(1)(vii) and
held that the proviso to section 36(1)(vii) applies only to provision made for
bad and doubtful debts relating to rural advances.
Section
36(1)(viia) of the Act contains three sub-clauses, i.e. sub-clause (a),
sub-clause (b) and sub-clause (c) and only one of the sub-clauses i.e.
sub-clause (a) refers to rural advances whereas other sub-clauses do not refer
to the rural advances. In fact, foreign banks generally do not have rural
branches. Therefore, the provision for bad and doubtful debts account made
under clause (viia) of section 36(1) and referred to in proviso to clause (vii)
of section 36(1) and section 36(2)(v) applies to all types of advances, whether
rural or other advances.
It has also been interpreted that there
are separate accounts in respect of provision for bad and doubtful debt under
clause (viia) for rural advances and urban advances and if the actual write off
of debt relates to urban advances, then, it should not be set off against
provision for bad and doubtful debts made for rural advances. There is no such
distinction made in clause (viia) of section 36(1).”
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