21 June 2010

VAT on petroleum Products- Presss note

Monday, June 21, 2010
	Ministry of Petroleum & Natural Gas
	SHRI DEORA CALLS UPON STATE GOVERNMENTS TO BRING DOWN HIGH RATES OF VAT ON PETROL DIESEL ; REPLACE AD-VALOREM LEVIES BY SPECIFIC ONES HIGH VAT RATES BY SOME STATES ON PDS KEROSENE NEEDS REVIEW IN VIEW OF LIGHTING AND COOKING USAGE BY THE COMMON MAN
	17:31 IST

	Shri Murli Deora Deora, Minister of Petroleum and natural gas has called upon the State Governments to reduce and rationalize Sales Tax / VAT on Petrol and Diesel. In a letter to the CMs of various State Governments he said that a rise in the international oil prices exerts an upward pressure on domestic prices of petroleum products. "Ad valorem rates of VAT imposed by the State Governments further aggravates the impact of international oil prices on the consumer," Shri Deora added. The Minister underscored the commitment of the Central Government to ensuring supply of essential fuels to the common man at affordable rates. "To achieve this objective, the Central Government has provided financial assistance of Rs.26,000 crore to the public sector OMCs, while the upstream oil PSUs have contributed Rs.14,430 crore towards under-recoveries of Oil Marketing Companies (OMCs) during 2009-10.," Shri Deora said. Enclosing a statement of VAT rates in different States, the Minister pointed out that the VAT rates are very high in most of the States, and need to be reduced. In some of the States, the VAT on Petrol and Diesel is as high as 33% and 24.7% respectively. Further, he said, in the current taxation structure, VAT is levied by the State Governments on an ad valorem basis, i.e., as a percentage of the price of the product. This means that when oil prices are high, the taxation on the products is higher, rendering the product even more expensive. At a time of rising prices, ad valorem taxes have a cascading impact on the retail price of petroleum products. "To address this issue, the ad valorem component of the VAT can be converted into a specific component, at the current levels," Shri Deora suggested. The Minister informed that the Central Government has already done away with the ad valorem component of Excise Duty on Petrol and Diesel, and the Excise Duty has been made specific. It is desirable that the State Governments also undertake similar tax rationalization on Petrol and Diesel. "Also, some of the States are levying high VAT rates on a product like PDS Kerosene, which needs to be looked into in view of its usage in lighting and cooking purposes by the common man," he emphasised Urging an early action on the part of State Governments, Shri Deora asked the CMs to have this subject reviewed at your level at an early date so that the much-needed tax reform can be implemented. Levying specific VAT rates instead of at ad valorem rates will help cushion the effect of rise in international oil prices. "While I appreciate your need for revenue mobilization, the current high levels of local taxes on petroleum products are clearly unsustainable, if we are to protect the interests of the consumers, particularly the vulnerable sections of society," the Minister stressed. ---- VAT rates in major States RCJ/Deora-to-CMs-VAT

--
Best Wishes

CA. V.M.V.SUBBA RAO
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20 June 2010

Analysis on Revised DTC by BMR

ANALYSIS ON REVISED DIRECT TAXES CODE BY BMR ADVISORS - SEE ATTACHMENT

--
Best Wishes

CA. V.M.V.SUBBA RAO
Chartered Accountant
Door No.24-2-1885,
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16 June 2010

MCA Review on CLS Scheme

Tuesday, June 15, 2010
	Ministry of Corporate Affairs
	SECRETARY MCA REVIEWS PROGRESS OF COMPANY LAW SETTLEMENT SCHEME AND EASY EXIT SCHEME EXHORTS ROCS AND RDS TO ENSURE ZERO HARASSMENT TO STAKEHOLDERS
	16:36 IST

	To review the two schemes namely, Company Law Settlement Scheme 2010 and Easy Exit Scheme 2010, introduced by the Ministry of Corporate Affairs (MCA) on 30.5.2010, the Secretary, MCA, Shri R. Bandyopadhyay held a videoconference with all Registrars of Companies (RoCs) in 20 offices all over India and Regional Directors (RDs), yesterday i.e., on 14th June, 2010. The Secretary enquired about the initial response of corporates and professionals to the abovementioned schemes and also the efforts put in by ROCs to popularize the schemes in order to make them successful. ROCs reported that they are taking out print ads in English and vernacular media and are also addressing seminars and conferences in association with professional institutes. Simultaneously, they are also issuing Show Cause Notices to defaulters so that these defaulting companies can be identified/sensitized. Shri Bandyopadhyay emphasized that ROCs should keep in mind, at all times, the objective of introducing these schemes, that "Every Company should be accounted for". The Secretary also desired that in this age of e-governance, public interaction of MCA officials should be limited and efforts must be made by ROCs/RDs to ensure zero harassment to stakeholders. BY

15 June 2010

Revised DTC [1 Attachment]

[Attachment(s) from Ashwin Nagar included below]

REVISED DISCUSSION PAPER ON DIRECT TAXES CODE- SEE ATTACHMENT

__._,_.___

Attachment(s) from Ashwin Nagar

1 of 1 File(s)

DTC_june2010.pdf

12 June 2010

APPEAL - CA Benevolent Fund

THE CHARTERED ACCOUNTANTS' BENEVOLENT FUND

C/O THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

ICAI BHAWAN, I.P. MARG, P.O. BOX NO 7100, NEW DELHI – 110 002.

APPEAL

The Chartered Accountants' Benevolent Fund (CABF) was established in December, 1962 with object of providing financial assistance for maintenance, and other similar purposes to needy persons being members of our Institute, their wives, widows, children and dependent relatives. The income from the Fund is utilized in giving financial assistance to members and their families in distress. The resources of the Fund need to be augmented.

A small contribution with a big heart from each member would facilitate grant of financial assistance to the needy and suffering members/dependents of members of the profession. It is, therefore, necessary that all members of the Institute enroll themselves as Life Members of CABF so as to enhance the corpus of the Fund, for rendering financial help to more beneficiaries and mitigate their hardship.

Your subscription to the Life Membership of the Fund and voluntary contribution to the Fund will certainly strengthen the noble cause to provide much needed assistance to the beneficiaries of the Fund. Your contribution is also eligible for exemption under section 80G of the I.T.Act, 1961.

Please remit voluntary contribution in the form of local cheque /DD in favour of 'CABF' and send it to Head Office at Delhi or in favour of 'Secretary, ICAI' payable at decentralized office at Mumbai. The contributors donating Rs.25,000/- shall be recognized by Publication of Photograph in Newsletter and by publishing the names of those contributing Rs.5,000/- or more in the WIRC Newsletter.

Let's be a part of this Noble Mission of extending helping hand to our brethren in need.

Dear Sir,

I hereby apply for admission as a Subscriber Member of The Chartered Accountants' Benevolent Fund. I am remitting herewith Rs. 2,500/- towards my subscription as Life Member / I am already a member of CABF and would like to voluntarily contribute Rs. _________ towards the corpus of the CABF *. I have read out the Rules & Regulations of the fund and I agree to abide by them, and also by the Rules that may be made thereafter. I give below the necessary particulars.

1. Full Name :

2. Membership No. :

3. Date of Enrolment :

4. Whether Fellow or Associate :

5. Address for communication :

6. Name of dependents and relationship :

S. NO.	NAME	AGE	RELATIONSHIP
1.
2.
3.
4.

Life Membership Fee Rs. 2,500/-/ Voluntarily Contribution Rs. __________ SIGNATURE OF MEMBER

DECLARATION

I hereby declare that the amount of Rs.2,500/- as life membership fee contributed by me / I am already a member of CABF and would like to voluntarily contribute Rs. ________ and same * shall form part of the corpus of the CABF. The amount is being paid through Local Cheque / Demand Draft No. ………………………….

Dated ……………………………….of …………………………..

Place …………………………… Yours faithfully,

Date…………………………….. Signature ……………………….

CABF Life Membership No…………….(To be filled by officials) Name …………………………...

Signature of official S.O./E.O./A.S. Head of Region M. No……………………………..

PAN……………………………

* Strike out whichever is not applicable.

Cenvat credit on building material: - Tax Expert or Jyotishi

Prepared By: -

CA Pradeep Jain ,

Sukhvinder Kaur, LLB [FYIC]

CA Ridhi Anchalia

Introduction: -

This is most interesting remark we got on our article "Amendment on Cenvat on building material: Far from solutions" after the pronouncement of Larger Bench decision in case of Vandana Global Limited [2010-TIOL-624-CESTAT-DEL-LB]. In the aforesaid piece prepared by me along with Sukhvinder Kaur and Neetu Sukhwani, we have opined that after the amendment in the definition of "inputs", the earlier cases will be decided in favour of manufacturers as the amendment is prospective and not retrospective. But our conclusion was wrong and Larger bench of Delhi Tribunal has given the decision in favour of Revenue. Then comes this interesting Comment. Comments from Readers of our website are always source of our inspiration. This remark has also prompted us to write this second piece on this subject in light of the latest larger bench decision.

Dispute involved: -

Always litigation arises when there are two ways of seeing the same thing. To this dispute also, the assessee and the revenue were walking on the two shores of the sea that never meet. To have a clear idea on the issue, we are discussing the issue in depth.

Before the recent amendment in Explanation 2 of the Rule 2 (k) the assessee was claiming credit on Cement and steel items as inputs used in the manufacture of capital goods. To this the argument by the assessee was that the said items were being used indirectly in relation to the manufacture of finished goods and whatever is used in the manufacture of final product will be available for Cenvat credit.

But the Revenue had its own contentions. According to them cement and steel are construction material and not inputs as they were not parts or components or accessories of capital goods.

So the revenue and the assessee both had their own contentions that is both were thinking of the cement and steel but an assessee will always look on that side of the coin that will allow him to avail Cenvat credit and according to the inbuilt nature of the department it will always see to that side of the coin disallowing the Cenvat credit to the assessee. The amendments in between always act as an antidote to the flames.

Legal Provisions: -

The Explanation 2 to Rule 2 (k) before the amendment read as under: -

Explanation 2 - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;

Thus the word used in the definition was "goods" used in the manufacture of capital goods. The word GOODS in the definition made the definition inclusive that is the word GOODS had a wide connotation and could include anything including cement and steel items used for constructing the structure or for foundation on which capital goods would be affixed or mounted. This interpretation was given by assessee to take the advantage of the language used in the law. Accordingly, the assessee were claiming cenvat credit on the cement, steel sheets, angles, channels etc as they were used for making capital goods and were indirectly related to the manufacture of the final products. The revenue rejected to accept the inclusive nature of the definition and so it came up with show cause notices issued to the assessee denying the benefit of cenvat credit on the said goods.

There were number of judicial pronouncements on this issue. Some were in favour of manufacturers while others favoured the Revenue. We have already written on the same in earlier article and hence the matter was referred to larger bench.

Amendment in Explanation 2: -

While the matter was referred to larger bench, the department had a different prospect in mind. These decisions were acting as a sword on the intentions of the department. So the department came forward with a new amendment in the Explanation 2 of the Rule 2 (k) of the Cenvat Credit Rules, 2004 to specifically exclude cement, angles, channels, CTD bar or TMT bars and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. This was done by Budget 2009 introduced July 7, 2009. The said Explanation is reproduced hereunder for ready reference: -

Explanation 2 - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated Bar (TMT) and othet items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods.;

So now what? A new amendment always opens the doors for a new dispute. Same happened with this amendment also. The department now forgot to explain whether the Explanation 2 would be applicable retrospectively or prospectively. So as always happens with the incompleteness in the formation of law a new issue for the applicability of the effect of amendment took birth. Every set of incompleteness in law will be judged by any person according to his benefits. Same happened here also the assessee was of the view that the amended Explanation 2 will have prospective effect and Revenue contended that the said Explanation 2 has made clear things which were already there. Therefore credit would not be admissible even before 2009.The assessee now contended that this amendment only proves that before this amendment credit was available on the angles, channels, joints, cement and steel sheets used the errection, construction or mounting of the capital goods. So a small mistake in the formation of the legal provision leads with a beneficial interpretation for the assessee. Even we were of the same opinion and wrote on the same lines in our aforesaid article. But the outcome of the verdict was known to anybody.

Latest Judgment of Larger Bench: -

The decision of the Larger Bench of the Tribunal in the case of Vandana Global Ltd & Ors v/s CCE, Raipur [2010-TIOL-624-CESTAT-DEL-LB] answered the referred question in favour of Revenue. The Larger Bench gave the findings that intention behind the amendment of Explanation 2 to Rule 2 (k) in 2009 was merely clarificatory in nature. It clarified as to what will be covered under the expression "input" used in the Cenvat Credit Rules, 2004. There was no scope that the said amendment was made to change the scope of the Rules or to introduce any new provision. Reliance was placed on the decision given in the case of J. K. Synthetics Ltd v/s CCE, Jaipur [1996 (88) ELT 785].

Further it was held that the clarificatory amendment made to Explanation2 to Rule 2 (k) in 2009 has retrospective application. It was held that the Explanation Memorandum to the Parliament alongwith the amending notification and the contemporaneous exposition of amendment given to the Department and public clearly showed that the said goods were never intended to be included by the rule making authority under the expression `input' eligible for cenvat credit.

The Larger Bench further held that the phrases `capital assets' and `capital goods' cannot be held to be synonymous. The phrase `capital assets' had wider meaning and would include capital goods and other assets such as immovable property in the form of building etc. Thus, the foundations and supporting structures embedded to earth may be categorized as capital assets but would not qualify to be capital goods in terms of the definition contained in the Cenvat Credit Rules. It was held that foundations and supporting structures were neither machinery items, nor components, spares nor accessories of machineries, nor have they been listed for special inclusion in the definition. They were held not to be part of accessory of the machinery. They were also held to not intermediate goods arising in the process of manufacture of final product.

So in the above decision it was held that cement and steel items could not be considered as inputs and therefore credit would not be available on the same.

Also, this decision made the Division Bench in the case of Bhushan Steel and Strips Ltd v/s Commissioner [2007-TIOL-2306-CESTAT-MUM] to be not correct view in law.

So the Larger Bench of the Tribunal has delivered the judgment on interpretation of the legal provisions. But now what about the assessee? The said judgment has shattered all the expectations of the assessee of availment of credit at least before the amendment in the definition. The above decision made it clear that it is the assessee who is at the disadvantageous place and has to bear the loss of sitting in this place.

Before Departing:-

But this controversy doesn't end here. There are Higher Forums wherein this judgment will be challenged and until the Apex Court gives any verdict in this regard, the issue is still in swing. The assessee should not loose hope because there are still miles to go before they sleep. So, let us wait for another round of litigation and matter will not end before Apex court. If the matter is settled by the Apex court in favour of manufacturers then we can see one retrospective amendment by Government. So, the future is uncertain for poor assessee.

But we once again should not form any opinion as our reader has clearly and truly said that we are tax experts and not Jyotishi. So, we should refrain from commenting on future course of action. But then what should we write? Only history and no comments. This is a vital question and we think only our readers can guide us in this regard.

11 June 2010

CBDT Approval on Gratuity Enhancement

Press Information Bureau
Government of India

Friday, June 11, 2010
	Ministry of Finance
	EXEMPTION FROM TAX FOR GRATUITY PAYMENTS ENHANCED FROM RS. 3.5 LAKH TO RS. 10 LAKH
	18:28 IST

	The Central Board of Direct Taxes has approved notification of ten lakh rupees as the maximum amount of gratuity entitled to exemption under sub-clause (iii) of clause (10) of section 10 of the Income Tax Act 1961. The notification will be applicable to employees who retire, or become incapacitated before retirement, or expire, or whose services are terminated, on or after the 24th May 2010. DSM/BY/GN-194/10

Computerisation of State Treasuries

Union Cabinet today approved the Mission Mode Project for computerisation of State Treasuries. This scheme, at an overall cost of Rs.626 crore aims at supporting the State Governments to computerise their treasury functions and provide the required interface for data sharing among treasuries, State finance departments, Accountant General Offices, Reserve Bank of India, Agency Banks and Central Plan Schemes Monitoring System of Controller General of Accounts.

The focus of the project is to improve the efficiency and transparency of the financial administration of the State Governments.

08 June 2010

Amendment to public shareholding requirement

Amendment to public shareholding requirement

Press Release [F.No. 5/35/2006-CM], dated 4-6-2010

The Securities Contracts (Regulation) Rules 1957 provide for the requirements which have to be satisfied by companies for the purpose of getting their securities listed on any stock exchange in India. A dispersed shareholding structure is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices. Further, the larger the number of shareholders, the less is the scope for price manipulation. Accordingly, the Finance Minister in his Budget speech for 2009-10, inter-alia, proposed to raise the threshold for non- promoter, public shareholding for all listed companies. To implement the Budget announcement the Securities Contracts(Regulation) (Amendment) Rules, 2010 has been notified today.

2. The salient features of the amendment are as follows:

a) The minimum threshold level of public holding will be 25% for all listed companies.

b) Existing listed companies having less than 25% public holding have to reach the minimum 25% level by an annual addition of not less than 5% to public holding.

c) For new listing, if the post issue capital of the company calculated at offer price is more than Rs. 4000 crore, the company may be allowed to go public with 10% public shareholding and comply with the 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum.

d) For companies whose draft offer document is pending with Securities and Exchange Board of India on or before these amendments are required to comply with 25% public shareholding requirement by increasing its public shareholding by at least 5% per annum, irrespective of the amount of post issue capital of the company calculated at offer price.

e) A company may increase its public shareholding by less than 5% in a year if such increase brings its public shareholding to the level of 25% in that year.

f) The requirement for continuous listing will be the same as the conditions for initial listing.

g) Every listed company shall maintain public shareholding of at least 25%. If the public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall.

03 June 2010

IndianCAs: NEW MULTI PURPOSE CALCULATOR [1 Attachment]

[Attachment(s) from Ashwin Nagar included below]

It looks realy helpful. Try it.

| Ashwin Nagar | FCA and SAP-FICO\SEM-BCS |

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Ph: India: +91-98330-15352 US: +1-323-325-4111

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----- Forwarded Message ----
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Respected All,

Please Find Attached Excel(xls) Multi Calculator file.

It includes INCOME TAX(Up to A.Y. 2011-12) , N.S.C., K.V.P., CAPITAL GAIN, & 3 WAY SIMPLE INTEREST CALCULATOR

You can also download same file by visiting Download Section of website www.taxsoftware.in

I request you to all group members to forward this excel file to your friends, groups & publish it maximum.

For any query regarding calculation, Please feel free to email me

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Attachment(s) from Ashwin Nagar

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CALCULATOR.xls

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CBDT Amends Rules Relating to TDS

CBDT Amends Rules Relating to TDS

THE Central Board of Direct Taxes ( CBDT ) has amended the Rules relating to TDS provisions, date and mode of payment of tax deducted at source ( TDS ), TDS certificate and filing of 'statement of TDS ' ( TDS return) vide Notification No.41/2010; dated 31.05.2010. The amended rules will apply only in respect of tax deducted on or after April 1, 2010.

Forms for TDS certificate have been revised to include the receipt number of the TDS return filed by the deductor. Now the Tax-deduction Account Number (TAN) of the deductor, Permanent Account Number (PAN) of the deductee, and Receipt number of TDS return filed by the deductor will form the unique identification for allowing tax credit claimed by the taxpayer in his income-tax return.

Government Authorities (Pay and Accounts Officer or Treasury Officer or Cheque Drawing and Disbursing Officer) responsible for crediting tax deducted at source to the credit of the Central Government by book-entry are now required to electronically file a monthly statement in a new Form No. 24G containing details of credit of TDS to the agency authorised by the Director General of Income-tax (Systems) .

Due date for furnishing TDS return for the last quarter of the financial year has been modified to 15th May (from earlier 15 th June), as per the Press Release issued by the CBDT through the PIB

Sl. No.	Date of ending of the quarter of the financial year	Due date
1.	30 th June	15 th July of the financial year
2.	30 th September	15 th October of the financial year
3.	31 st December	15 th January of the financial year
4.	31 st March	15th May of the financial year immediately following the financial year in which deduction is made

Due date for furnishing TDS certificate to the employee or deductee or payee is revised as under

Sl. No.

Category

Periodicity of furnishing TDS certificate

Due date

Salary (Form No.16)

Annual

By 31 st day of May of the financial year immediately following the financial year in which the income was paid and tax deducted

Non-Salary

(Form No.16A)

Quarterly

Within fifteen days from the due date for furnishing the 'statement of TDS '

31 May 2010

e-filing of central excise returns- CBEC instructions

Circular No. 926 / 16 / 2010 - CX

F.No. 201/20/2009-CX 6

Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise and Customs)

New Delhi dated the 28^th May 2010.

Sub.: Procedure for electronic filing of Central Excise returns - reg.

Attention is invited to Circular No. 919/09/2010 – CX dated 23.03.2010 prescribing detailed instructions and the procedure for electronic filing of Central Excise and Service Tax returns. Attention is also invited to the Central Excise (Second Amendment) Rules, 2010 and CENVAT Credit (Amendment) Rules, 2010 issued vide Notification No. 20/2010-Central Excise (NT) and No. 21/2010- Central Excise (NT) respectively both dated 18.05.2010 providing for mandatory electronic filing of certain returns by assessees including dealers.

2. The said notifications have been made effective from 1.6.2010. Following amendments have been made in the Central Excise Rules, 2002 and CENVAT Credit Rules, 2004:

i. Manufacturers who have paid Central Excise duty of Rs. 10 Lakh or more (including payment by utilisation of Cenvat credit) in the previous financial year shall file their Annual Financial Information Statement (ER4) as prescribed under the proviso to clause (a) of sub rule (2) of Rule 12 of the Central Excise Rules, 2002,electronically.

ii. EOU manufacturers who have paid Central Excise duty of Rs. 10 Lakh or more (including payment by utilisation of Cenvat credit) in the previous financial year shall file ER 2 returns as prescribed under the proviso to sub-rule (3) Rule 17 of the Central Excise Rules 2002, electronically.

iii. All registered dealers would now be required to file quarterly returns as prescribed under the proviso to sub-rule (8) of rule 9 of the CENVAT Credit Rules 2004, electronically irrespective of the amount of CENVAT credit taken by them or passed on by them in a year.

iv. Manufacturers who have paid Central Excise duty of Rs. 10 Lakh or more (including payment by utilisation of Cenvat credit) in the previous financial year shall file the Annual Declaration relating to principal inputs (ER5) under the second proviso to sub rule (1) of Rule 9A of the CENVAT Credit Rules, 2004; and

v. Manufacturers who have paid Central Excise duty of Rs. 10 Lakh or more (including payment by utilisation of Cenvat credit) in the previous financial year shall file the Monthly Return of information relating to principal inputs (ER6) under proviso to sub-rule (3) of rule 9A, electronically.

3. The instructions contained in Circular No. 919/09/2010 – CX dated 23.03.2010 on the procedure for electronic filing of excise returns and obtaining acknowledgement thereof shall mutadis mutandis apply for electronic filing of returns as envisaged under the said amended Rules. It is requested to sensitise concerned officers and the trade regarding the instructions.

4. As a large number of assessees including dealers would be required to file Excise returns electronically, it is requested that they may be provided all assistance so as to help them in adopting the new procedure.

5. Field formations and trade may also please be informed suitably.

6. Hindi version will follow.

(Deepankar Aron)

Director (CX 6)

Lower deduction of taxes- eifiling

Section 197 of the Income-tax Act, 1961 – Deduction of tax at source – Certificate of lower deduction or non-deduction of tax at source – Instructions for issue of certificate u/s 197 mandatorily through ITD system

Instruction No. 4/2010, dated 25-5-2010

1. I am directed to bring to your notice on the subject of issue of certificates u/s 197 that by Instruction No. 8/2006 dated 13/10/2006, it was laid down that certificates for lower deduction or nil deduction of tax at source u/s 197 are not to be issued indiscriminately and for issue of each certificate, prior administrative approval of the concerned Range Head shall be obtained by the AO. Subsequently, Instruction No. 7/2009, dated 23/12/2009 read with letter F.No.275/23/2007-IT(B), dated 8/02/2010 has laid down monetary limits for prior administrative approval of the CIT-TDS or DIT-Intl. Taxation, as the case may be. Such certificates are normally being issued at present, manually rather than through the ITD system.

2. To maintain centralized data of issue of such certificates and facilitate better processing of the TDS returns filed by the deductors and in continuation to the above instructions, I am directed to communicate that henceforth w.e.f………….the certificates u/s 197 shall be generated and issued by the AO mandatorily through ITD system only.

3. In case due to certain reasons, it is not possible to generate the certificate through the system on the date of its issue, the AO shall upload the necessary data on the system within 7 days of the date of issue (manually) of the certificate.

4. The manner of issue of certificate u/s 197 through the system, uploading of data in situation covered in para 3 above and the prior administrative approval by the Range Head and by the CIT-TDS / DIT-Intl. Taxation is given in the enclosed Annexure for guidance of all concerned.

5. The content of the above Instruction may be brought to the notice of all officers working in your charge for strict compliance.

Note for issue of certificate u/s 197 mandatorily through the system

1. Chapter-XVIIB of the IT Act 196l provides for deduction of tax at source by person responsible for making payment of some specified nature mentioned in Sec 192 to Sec 194 LA (hereof. The tax so deducted is deposited to Govt. a/c on monthly basis. The deductor of tax is liable to file quarterly returns of TDS wherein data about the amount paid, tax deducted, rate of deduction, date of deduction, date of payment of tax to Government, identification of the payees/recipients (by specifying their PAN) and some other prescribed details are furnished.

2. While processing the TDS return, the information contained therein is matched with the legal provisions (prescribed rates of deduction), due dates for payment, the information of tax payment received from banks etc. and defaults, if any, are generated. The defaults are mainly non-deduction (including short deduction), non-payment of tax deducted (including part payment) and interest for default or delayed payment.

3. Sec 197 of the IT Act, 1961 provides for issue of certificate for no deduction or deduction of tax at lower rate if the Assessing Officer is satisfied that the issue of such certificate is justified in view of total income of the recipient. Till FY 09-10 the certificates u/s 197 were being issued manually by the concerned Assessing Officer. The present system of issuance of 197 certificates suffers from the following deficiencies:

• There is no check as to whether such certificate has been issued by the authorized/ competent assessing officer having jurisdiction.

• There is no information available in the system as regards number of certificates issued at Nil/Lower rate authorized by AO or the quantum of revenue involved.

• Such certificates are being presently issued without any systematic reference number which could be amenable to verification. In the TDS returns, since neither reference numbers of 197 certificates are being captured nor is it possible to compare such numbers in the light of manual issue of certificates, it is not possible to ascertain the veracity of claim, of the deductors about no/low deduction having been made on the strength of a 197 certificate actually issued by the department.

• The extent of default, for FYs 2007-08 and 2008-09, generated as a result of deductors making 'mistakes' in ticking relevant column (about 197 certificates) in TDS returns is to the extent of more than Rs 10,000 crores. This is indicative of the magnitude of revenue involved in issuance of 197 certificates, which are being otherwise issued by the field officers without perhaps being aware of the extent of revenue involved.

4. Therefore, processes have to be put in place which enables the
department to take policy decision on the issue on one hand and on the
other help the field officers to verify the genuineness of claims being made in
TDS returns as also to decide about the extent of such certificates which are
to be issued.

5. It is reported that in the middle of FY 09- 10, facility was provided in the TDS module of ITD system to generate certificates Under section u/s 197 through the system.

6. Some of the benefit of issue of certificate u/s 197 through the system would be that:

• Entire information about the deductor and deductee, nature of payment (related section), the lower rate authorized, dates of validity of certificate and quantum of payment would he available to the department in the system.

• Element of reconciliation on part of deductors and regulation in the case of field officers (so far as issuance of the certificates is concerned) would be introduced.

• The information (as above) can he used while processing the TDS returns and matching the data provided by the deductor in TDS return.

• The information/statistics would help the CBDT in taking an informed policy decision on the issue in future.

• The non-deduction defaults detected by the system while processing the TDS returns would be substantially reduced or almost eliminated, if all certificate u/s 197 are issued compulsorily through the system.

7. Under these facts, it is proposed that all certificates u/s 197 be issued
mandatorily through ITD system.

However, considering that these certificates are issued by the AOs scattered throughout the country, there may be exigencies/situations when these may not be generated through the system. In such cases, the procedure may involve suitable measures to capture the data on the system by the AO within 7 days of the date of issue (manually) of the certificate.

8. The entire procedure is open for suggestions, modifications and
amendments as considered necessary.

IndianCAs by Ashwin Nagar