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Dated: 9-6-2009
To
Honble Shri S.S.N. Moorthy,
IRS
Chairman
Central Board of Direct Taxes,
Ministry of Finance, Department of Revenue,
North Block, New Delhi 110 003
Dear Shri Moorthy Ji,
Sub: Annual Budget 2009 -
Amendments in the Income-tax Act Suggestions regarding
As you may be aware, the All
India Federation of Tax Practitioners (AIFTP) is the largest Federation of Tax
Practitioners in India with about 110 associations and 4200 individual members
including leading senior advocates and Chartered Accountants. Established in
1976, the AIFTP seeks to promote ethics, education and excellence and is
committed to promoting a fair and reasonable administration of tax laws. It has
been organizing national seminars and conferences all over the country, making
representations to various Government agencies for amendment of taxation laws
and bringing out books on direct and indirect taxes and also a monthly Journal.
2. The Federation makes the
following suggestions, through the ensuing Finance Bill, 2009, for amendment
in the Income-tax Act, 1961 for your kind consideration.
I. Fringe Benefit Tax and
Wealth Tax may be abolished
3. The Federation requests
that both, the Fringe Benefit Tax and Wealth Tax should be abolished as they
are not serving any useful purpose.
4. Fringe Benefit Tax,
introduced in 2005, has been bringing between Rs. 5,300 crores to Rs. 8,000
crores only as annual revenue which is barely 2% of the taxes on income and
expenditure of Rs. 3,55,000 crores. The cost of compliance and enforcement
is disproportionate to the yield from this tax and can be made good by a
marginal increase in the Corporation Tax. Likewise, the Wealth Tax brings in
annually a meagre Rs. 300 crores which is 0.1% of the total collection from
the taxes on income and expenditure. With the introduction of comprehensive
return forms, it has ceased to be a tool of income verification. Its scope
over the years has also narrowed down to cover largely the immovable
property and jewellery. It has, therefore, ceased to be an instrument of
narrowing down inequalities of income and wealth.
5. It is, therefore,
requested that both the above taxes need to be abolished to enable the
Department to devote its manpower resources for better enforcement of the
income tax law.
II. Extension of the
period for abatement of Settlement Applications before the Settlement
Commission
6. Finance Act, 2007,
amongst others, inserted clause (iv) in section 245HA (1) of the Act, to
provide for abatement of all pending Settlement Application as on 31-3-2008
where an order of settlement under sub-section (4) of section 245D has not
been passed by the Commission. After disposing off 1675 old application
during 2007-08 (filed prior to 1-6-2007), the Settlement Commission was left
with 2037 applications as at 31-3-2008. Several more applications would have
been disposed of during 2008-09.
7. As regards the
settlement applications received after 1-6-2007, their institution has
fallen drastically. There were only 26 applications filed, only 2 of which
were disposed off and the balance as on 31-3-2008 was 24. The total pendency,
Bench-wise, is given below:-
|
Particulars |
Delhi |
Mumbai |
Kolkata |
Chennai |
Total |
|
Balance of
applications as on 31-3-2008 eligible for abatement |
1225 |
664 |
130 |
15 |
2034 |
|
Balance of other
applications as on
31-3-2008 |
13
|
8 |
3 |
|
24 |
|
Total
|
1238
|
672 |
133
|
15
|
2058 |
Most of the pending
applications, numbering 2034 are in litigation against abatement. The High
Courts and the Supreme Court have granted stays against their abatement. The
new institution is so small that it does not justify the continuance of the
four Benches in the country.
8. The settlement
applications eligible for abatement have been pending for the periods
ranging from 2 to 15 years. When the Commission has got so little current
work, it will be grossly unfair to allow the applications to abate resulting
in the applicants suffering further tax litigation of another 8-10 years
before normal assessing/appellate authorities for no fault of theirs.
9. It is, therefore,
suggested that the abatement provision of section 245HA(1)(iv) may be
extended till 31-3-2011. It should be further provided that if any
application remains un-disposed off till then, the disclosure made in the
application shall be deemed to be accepted. This will ensure that all the
old applications get disposed off and huge tax litigations going into the
country is stopped.
III. Deletion/amendment of
sub-clause (ia) to section 40(a) providing for disallowance of expense for
failure to deduct tax at source
10. Sub-section (ia) of section 40(a) inserted by the Finance (No.2) Act, 2004
w.e.f. the A.Y. 2005-06 prohibits the deduction, in the computation of total
income, of any expense on account of interest, commission or brokerage, rent,
royalty, fees for professional or technical services, payment to contractors
or sub-contractors etc. if the assessee fails to deduct tax at source or after
deduction does not deposit it within the prescribed time. The expense is
allowed deduction in any subsequent year in which the tax is deducted and/or
paid.
11. This clause is
conceptually misconceived, causing great hardship and unnecessary tax
litigation without bringing in any material benefit to the Revenue.
Deduction of tax at source is only one of the several methods of collecting
revenue. Section 191 of the Act permits direct assessment and collection of
tax where it was not deducted at source. While in the case of non-residents,
direct assessment may not be practicable and therefore, sub-section (i) of
section 40(1) is well justified, in respect of resident assessee, this needs
to be deleted. Alternatively time should be allowed to pay the tax till the
date of filing of the return.
IV. Raising of monetary
limits under various sections
12. Income-tax law is
replete with provisions where the monetary limits were fixed long ago. With
the deprecation in the value of rupee and vast increase in the volume of
transactions, the monetary limits need to be increased as suggested below:-
|
Section
|
Present
|
Proposed
|
Remarks |
|
40A(8) Payment of
expenses in cash |
Rs. 20,000/- |
Rs. 50,000/- |
Limit fixed in 1989 |
|
44A Maintenance
of Accounts |
Income exceeds Rs.
1,20,000/- or turn over Rs. 10 lakhs |
Income exceeds Rs.
2 lacs or turn over Rs. 20 lakhs |
Basic exemption
limit increased |
|
44AB Tax audit |
Rs. 10 lakhs for
profession and Rs. 40 lakhs for business |
Rs. 40 lakhs for
profession and Rs. 1 crore for business |
Limit fixed in 1985
Exemption limit increased |
|
194A TDS on
interest |
Rs. 5,000/- |
Rs. 25,000/- |
Fixed in 1975 |
|
194C Payment to
contractors and sub-contractors |
Rs. 20,000/- |
Rs. 1 lakh |
Limit fixed in 1975 |
|
194H TDS on
commission or brokerage |
Rs. 2,500/- |
Rs. 25,000/- |
Limit fixed in 1991 |
|
208 Liability to
pay advance tax |
Rs. 5,000/- |
Rs. 10,000/- |
Limit fixed in 1987 |
|
269SS Accepting
loans and deposits in cash |
Rs. 20,000/- |
Rs. 1 lakh |
Fixed in 1989
|
|
269T Repayment of
loans and deposits in cash |
Rs. 20,000/- |
Rs. 1 lakh |
Fixed in 1989 |
V. Time limit for
disposing off rectification applications
13. Section 154(8) of the
Act requires an income tax authority to pass an order of rectification u/s
154 within a period of 6 months from the end of the month in which the
application is received. The law is silent as to the consequences of not
passing the order. This is resulting in rectification applications not being
disposed off for several years. It is suggested that sub-section (8) of
section 154 may be amended to provide that the rectification sought for by
the assessee shall be deemed to be accepted if the authority does not make a
specific order rectifying the mistake within six months.
VI. Fixing time limit u/s
80G
14. Under section 80G of the
Act, no time limit is fixed for passing an order permitting deduction on
donations made to charitable institutions. This is affecting their working.
The applications are delayed, sometimes for several years. It is suggested
that the time limit of 6 months may be prescribed for passing an order u/s 80G
failing which, the application shall be deemed to have been accepted.
15. We shall be thankful
if an early action is taken on the above suggestions for amendment of law.
Thanking you,
Yours faithfully
Bharatji Agrawal
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