CA Certificate on Return of Income

NCOME-TAX (ELEVENTH AMENDMENT) RULES, 2012 - INSERTION OF RULES 31ACB, 37J, FORM NOS. 26A & 27BA

NOTIFICATION NO. 37/2012 [F.NO. 142/18/2012-SO(TPL)], DATED 12-9-2012

In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (11th Amendment) Rules, 2012.

(2) They shall come into force on the date of publication in the Official Gazette.

2. In the Income-tax Rules, 1962, (hereafter referred to as the "said rules"),-

(a)  after rule 31ACA, the following rule shall be inserted, namely:-

"Form for furnishing certificate of accountant under the first proviso to sub-section (1) of section 201

31ACB. The certificate from an accountant under first proviso to sub-section (1) of section 201 shall be furnished in Form No.26A";

(b)  after rule 37-I, the following rule shall be inserted, namely:-

"Form for furnishing certificate of accountant under first proviso to sub-section (6A) of section 206C

37J. The certificate from an accountant under first proviso to sub-section (6A) of section 206C shall be furnished in Form No. 27BA."

3. In Appendix-II to the said rules.-

(a) after Form No. 26, the following form shall be inserted, namely.—

"FORM No. 26A

[See rule 31ACB]

Form for furnishing accountant certificate under the first proviso to sub-section (1) of section 201 of the Income-tax Act, 1961

I (name) _________________________ am the person responsible for paying (within the meaning of section 204) in the case of (name of the payer) ______________________ with PAN # (PAN of the payer) __________________________________________ and TAN (TAN of the payer) ______________________ located at  (address of the payer) _______________________ ______________

I do hereby state that I, being the person responsible for paying had paid to/credited to the account of (name of the payee)  _________________ a sum of _____________________ rupees without deduction of whole or any part of the tax

A certificate from an accountant certifying that the payee has fulfilled all the conditions mentioned in the first proviso to sub-section (1) of section 201 of the Income-tax Act, 1961 is enclosed as Annex 'A' to this Form

I further state that the interest under sub-section (1A) of section 201 amounting to _______ rupees for non-deduction/short deduction of tax * has been paid by me the details of which are as under -

BSR Code/**24G Receipt Number (first seven digits of BIN)	Challan Serial Number/**DDO Serial Number (last five digits of BIN)	Date of deposit through challan/**date of transfer voucher

or

*has not yet been paid by me

Place	Signature
Date	Designation

 # In case of Government deductors "PAN NOT REQD" should be mentioned

* Delete whichever is not applicable

** For payment made without the production of challan

ANNEXURE A

Certificate of accountant under first proviso to sub-section (1) of section 201 of the Income-tax Act, 1961 for certifying the furnishing of return of income, payment of tax etc. by the payee

I/We *hereby confirm that I/we* have examined the relevant accounts, documents and records of (name and address of the payee with PAN) __________________________________________________ for the period ___________________ and hereby certify the following:

(i) ____________________  (payer) has paid to or credited following sum to the account of ________________ (payee) without deduction of whole or any part of the tax in accordance with the provisions of Chapter-XVII-B

Nature of payment	Date of payment or credit	Section under which tax was deductible	Amount paid or credited	Amount of tax deductible	Details of amount deducted, if any
					Amount deducted	Date of deduction

(ii) The payee, who is a resident, has furnished his return of income for the assessment year ______________ relevant to the payment referred to in (i) above. The details of return of income filed by the payee are as under -

Date of filing return	Mode of filing i.e.whether e-filed or paper return	Acknowledgement number of return filed	If paper return-designation and address of the Assessing Officer	Amount of total taxable income as per return filed	Tax due on the income declared in the return	Details of tax paid

(iii) The payee has taken into account the sum referred to in (i) for computing his taxable income in return of income filed by him the details of which are as under -

Receipt on which Tax has not been deducted	Head of Income under which the receipt is accounted for	Gross receipt under the head of income under which the receipt is accounted for	Amount of taxable income under the head of income under which the receipt is accounted for

(iv) It has been ensured that the information furnished is true and correct in all respects and no relevant information has been concealed or withheld

(v) Neither I, nor any of my partners, is a director, partner or an employee of the above mentioned entities or its associated concerns

I/we* fully understand that any statement made in this certificate, if proved incorrect or false, will render me/us* liable for any penal or other consequences as may be prescribed in law or is otherwise warranted

(Signature and Stamp/Seal of the Signatory)

†Accountant

Place	Name of the Signatory
Date	Full Address
	Membership No.

Notes:

 1.  *Delete whichever is not applicable

 2.  †This certificate is to be given by -

 (i)  a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or

(ii)  any person, who in relation to any State, is, by virtue of the provisions in sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State "

(b) after Form No. 27B, the following form shall be inserted, namely.—

"FORM No. 27BA

[See rule 37J]

Form for furnishing accountant certificate under first proviso to sub-section (6A) of section 206C of the Income-tax Act, 1961

I. (name) ____________________ am the person responsible for collecting tax under section 206C in the case of (name of the seller/licensor/lessor) ________________________________ with PAN # (PAN of the seller/licensor/lessor) ___________________ and TAN (TAN of the seller licensor/lessor) ____________________ located at (address of the seller/licensor/lessor) _______________

I do hereby state that I, being the person responsible for collecting tax had received from debited to the account of (name of the buyer/licensee/lessee) _________________ a sum of _______________ rupees without collection of whole or any part of tax.

A certificate from accountant certifying that the buyer/licensee/lessee has fulfilled all the conditions mentioned in the first proviso to sub-section (6A) of section 206C of the Income-tax Act, 1961 is enclosed as Annex 'A' to this Form.

I, further, state that the interest under sub-section (7) of section 206C amounting to ____________ rupees for non-collection short collection of tax

* has been paid by me, the details of which are as under :-

BSR Code/**24G Receipt Number (first seven digits of BIN)	Challan Serial Number/**DDO Serial Number (last five digits of BIN)	Date of deposit through challan/* *date of transfer voucher

or

*has not yet been paid by me.

Place:	Signature:
Date:	Designation:

# In case of Government deductors, "PAN NOT REQD" should be mentioned.

*Delete whichever is not applicable.

** For payment made without the production of challan by the Government deductor.

ANNEXURE A

Certificate of accountant under first proviso to sub-section (6A) of section 206C of the Income-tax Act, 1961 for certifying the furnishing of return of income, payment of tax etc. by the buyer/licensee/lessee

I/We* hereby confirm that I/we* have examined the relevant accounts, documents and records of (name and address of the buyer/licensee/lessee with PAN) ____________________ for the period _______________ and hereby certify the following:

(i) ______________________________ (seller/licensor/lessor) has received from or debited following sum to the account of _______________________ (buyer/licensee/lessee) without collection of whole or any part of the tax in accordance with the provisions of Chapter -XVII-BB

Nature of Receipt	Date of Receipt or debit	Section under which tax was Collectible	Amount received or debited	Amount tax collectible	Details of amount collected, if any
					Amount collected	Date of collection

(ii) The buyer/licensee/lessee, has furnished his return of income for the assessment year _________________ relevant to the receipt referred to in (i) above. The details of return of income filed by the buyer/licensee/lessee are as under -

Date of filing return	Mode of filing i.e.whether e-filed or paper return	Acknowledgement number of return filed	If paper return-designation and address of the Assessing Officer	Amount of total taxable income as per return filed	Tax due on the income declared in the return	Details of tax paid

(iii) The buyer/licensee/lessee has taken into account the sum referred to in (i) for computing his taxable income in return of income filed by him, the details of which are as under:-

Payment on which Tax has not been collected	Head of Income under which the payment is accounted for	Gross payment under the head of income under which the payment is accounted for	Amount of taxable income under the head of income under which the payment is accounted for

(iv) It has been ensured that the information furnished is true and correct in all respects and no relevant information has been concealed or withheld

(v) Neither I, nor any of my partners, is a director, partner or an employee of the above mentioned entities or its associated concerns

I/we* fully understand that any statement made in this certificate, if proved incorrect or false, will render me/us* liable for any penal or other consequences as may be prescribed in law or is otherwise warranted.

(Signature and Stamp/Seal of the Signatory)

†Accountant

Place:	Name of the Signatory..............................
Date:	Full Address:............................................
	Membership No.......................................

Notes:

 1.  *Delete whichever is not applicable.

 2.  †this certificate is to be given by-

 (i)  A chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949); or

(ii)  Any person, who in relation to any State, is, by virtue of the provisions in sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), entitled to be appointed to act as an auditor of companies registered in that State.".

-CA. V.M.V.SUBBA RAO

Cost Inflation Index for FY 2012-13 is 852

Notified Cost Inflation Index for Financial Year 2012-13 / Assessment Year 2013-14 : 852

Amendment ST Determination of Rules

SERVICE TAX (DETERMINATION OF VALUE) SECOND AMENDMENT RULES, 2012 - AMENDMENT IN RULES 2B, 3, 5 & 6; INSERTION OF RULE 2C; SUBSTITUTION OF RULE 2A AND OMISSION OF RULE 7

NOTIFICATION NO. 24/2012 - SERVICE TAX, DATED 6-6-2012

In exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) number 11/2012 - Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, vide number G.S.R. 209 (E), dated the 17th March, 2012, the Central Government, hereby makes the following rules further to amend the Service Tax (Determination of Value) Rules, 2006, namely :-

1. (1) These rules may be called the Service Tax (Determination of Value) Second Amendment Rules, 2012.

(2) They shall come into force from the 1st day of July, 2012.

2. In the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as the said rules), for rule 2A, the following rule shall be substituted, namely:-

"2A. Determination of value of service portion in the execution of a works contract.- Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:-

 (i)  Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.

Explanation.- For the purposes of this clause,-

(a)  gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;

(b)  value of works contract service shall include, -

(i)  labour charges for execution of the works;

(ii)  amount paid to a sub-contractor for labour and services;

(iii)  charges for planning, designing and architect's fees;

(iv)  charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v)  cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(vi)  cost of establishment of the contractor relatable to supply of labour and services;

(vii)  other similar expenses relatable to supply of labour and services; and

(viii)  profit earned by the service provider relatable to supply of labour and services;

(c)  Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.

(ii)  Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;

(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract;

(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract;

Explanation 1.- For the purposes of this rule,-

(a)  "original works" means-

(i)  all new constructions;

(ii)  all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(iii)  erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

(b)  "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-

(i)  the amount charged for such goods or services, if any; and

(ii)  the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Explanation 2.--For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.".

3. In the said rules, in rule 2B, the words, brackets, letters and figures "referred to in sub-clause (zm) and (zzk) of clause (105) of section 65 of the Act," shall be omitted.

4. In the said rules, after rule 2B, the following rule shall be inserted, namely:-

"2C. Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering.- Subject to the provisions of section 67, the value of service portion, in an activity wherein goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity at a restaurant or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely:-

TABLE

	Sl. No.	Description	Percentage of the total amount
	(1)	(2)	(3)
	1.	Service portion in an activity wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant	40
	2.	Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of such outdoor catering	60

Explanation 1.- For the purposes of this rule, "total amount" means the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink(whether or not intoxicating), whether or not supplied under the same contract or any other contract, after deducting-

 (i)  the amount charged for such goods or services, if any; and

(ii)  the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Explanation 2.- For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986).".

5. In the said rules, in rule 3, for the words "where the consideration received is not wholly or partly consisting of money", the words "where such value is not ascertainable" shall be substituted.

6. In the said rules, in rule 5, in sub-rule(1), in the Explanation, for the words, brackets, letters and figures "services specified in sub-clause (zzzx) of clause (105) of section 65 of the Finance Act, 1994, the value of taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority", the words "the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided." shall be substituted.

7. In the said rules, in rule 6,-

(a)  in sub-rule (1),-

 (i)  in clause (viii), for the words "in any manner; and" the words "in any manner;" shall be substituted;

 (ii)  in clause (ix), for the words "insurance agent", the words "insurance agent; and" shall be substituted;

(iii)  after clause (ix), the following clause shall be inserted, namely:-

"(x)  the amount realised as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service.";

(b)  in sub-rule (2),-

 (i)  for clause (iv), the following clause shall be substituted, namely:-

"(iv) interest on delayed payment of any consideration for the provision of services or sale of property, whether moveable or immoveable;"

(ii)  after clause (v), the following clause shall be inserted, namely:-

"(vi) accidental damages due to unforeseen actions not relatable to the provision of service; and

(vii) subsidies and grants disbursed by the Government, not directly affecting the value of service.".

8. In the said rules, rule 7 shall be omitted.

RBI on Trade Credits

Date: Sep 11, 2012

Trade Credits for Import into India

RBI/2012-13/202 A.P. (DIR Series) Circular No. 28 September 11, 2012 To, All Category - I Authorised Dealer Banks Madam / Sir, Trade Credits for Import into India Attention of Authorized Dealer Category - I (AD Category - I) banks is invited to A.P. (DIR Series) Circular No. 87 dated April 17, 2004 and A.P. (DIR Series) Circular No. 24 dated November 01, 2004. 2. As per the extant guidelines, for import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date of shipment). No roll-over/extension is permitted beyond the permissible period. AD banks are also permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to three years for import of capital goods, subject to prudential guidelines issued by the Reserve Bank from time to time. The period of such Letters of credit / guarantees / LoU / LoC has to be co-terminus with the period of credit, reckoned from the date of shipment. AD banks shall not, however, approve trade credit exceeding USD 20 million per import transaction. 3. On a review, it has been decided to allow companies in the infrastructure sector, where "infrastructure" is as defined under the extant guidelines on External Commercial Borrowings (ECB) to avail of trade credit up to a maximum period of five years for import of capital goods as classified by DGFT subject to the following conditions: - (i) the trade credit must be abinitio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs; and (ii) AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years. 4. The all-in-cost ceilings of trade credit will be as under: Maturity period All-in-cost ceilings over 6 months LIBOR* Up to one year 350 basis points More than one year and up to three years More than three years and up to five years * for the respective currency of credit or applicable benchmark The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any. 5. All other aspects of Trade Credit policy will remain unchanged and should be complied with. The amended trade credit policy will come into force with immediate effect and is subject to review based on the experience gained in this regard. 6. Necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 dated May 3, 2000 are being issued separately wherever necessary. 7. AD Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 8. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (Rashmi Fauzdar) Chief General Manager

View your arrear demand.

View your arrear demand.

As a Taxpayer friendly initiative, a facility to view details of Arrear Demand of taxpayers as communicated by their Jurisdictional Assessing Officers (A.O.) to the Central Processing Centre (CPC) is now enabled on the e-filing website

i.e.

https://incometaxindiaefiling.gov.in/portal/index.do

Taxpayers can now log in to 'My Account' window and view their Arrear Demand.

Taxpayers can view the details of their Arrear Demand in 'My Account' as communicated by their jurisdictional Assessing Officers to CPC

-CA. V.M.V.SUBBA RAO

Key recommendations of expert committee on GAAR

Key recommendations of expert committee on GAAR The expert committee on GAAR, as constituted by the Prime Minister, has submitted its report. Inter-alia, the key recommendations of expert committee are as under: 1) GAAR should be deferred by three years; 2) GAAR should be applicable only if a tax benefit of Rs. 3 crore and above has been obtained by the taxpayer; 3) In case of deferral of tax benefit, present value of tax benefit should be considered; 4) Non-applicability of GAAR on a resident of Mauritius holding valid tax residency certificate; 5) GAAR should not be applicable if FII offers to be taxed under domestic laws; 6) GAAR should not be applicable if non-resident invests in listed securities through FIIs; 7) Abolition of tax on gains arising from transfer of listed securities (both capital gains and business income); 8) Grandfathering of existing structures or investment. In other words, only income arising after implementation of GAAR should be subject to provisions; 9) GAAR should not be allowed to over-ride the anti-avoidance provisions of treaties (i.e. limitation of benefit, etc.); 10) Onus should be on revenue to prove if a transaction is impermissible avoidance agreement; 11) Amendment to the Act to provide that only arrangements with sole purpose (and not one of the main purpose) of obtaining tax benefit should be covered under GAAR; 12) Tax consequences of 'impermissible avoidance arrangements' should be limited to the tainted part of the transaction; 13) Definition of 'connected person' under Sec. 99 should be restricted to 'associated person' and 'associated enterprise' only; 14) AAR should decide the GAAR cases within 6 months; 15) A 'negative list' for the purpose of invoking GAAR should be provided; 16) 'Tenure of arrangements, payment of taxes and an option to exit' should be given due weightage while deciding if arrangements lack commercial substance; 17) GAAR not to be invoked if taxpayer submits a satisfactory undertaking to pay tax along with interest in case GAAR provisions are made applicable in relation to the remittances; 18) Tax auditor should report the probable transaction which may accrue to the tax payer a tax benefit of Rs. 3 crore and above; 19) Extensive training of Assessing officer to be placed in the regime of International Taxation; and 20) Various illustrations have been given where GAAR will be considered as applicable or not applicable. (View report of Committee)

GAAR Comments Invited

Press Information Bureau
Government of India
Ministry of Finance

01-September-2012 15:41 IST

The Expert Committee Headed by Dr. Parthasarathi Shome on Gaar Submits the Draft Report; Comments from Stakeholders and General Public Invited by 15th September,2012

The Government had constituted an Expert Committee on General Anti Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the GAAR guidelines as well as a roadmap for implementation.

The Committee, chaired by Dr. Parthasarathi Shome, has submitted its draft report after analysis of the GAAR provisions and noting the concerns expressed by various shareholders. The draft report has recommended certain amendments in the Income-tax Act, 1961; guidelines to be prescribed under the Income-tax Rules, 1962; circular to clarify GAAR provisions along with illustrations; and other measures to improve tax administration specifically oriented towards GAAR matters.

The report of the Committee has been uploaded on the Finance Ministry's website (http://finmin.nic.in) for comments from stakeholders and the general public.

The comments and suggestions on the draft report may be submitted by 15th September, 2012 at the email address (jstpl2@nic.in) or by post at the address: Joint Secretary (Tax Policy & Legislation-II), Room No.152, North Block, Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, North Block, New Delhi – 110001 with "Comments on GAAR Committee" written on the envelope.

******

DSM/RS

 

ROC Filing Date Extended

FILLING OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT BY COMPANIES IN NON-XBRL FOR ACCOUNTING YEAR COMMENCING ON OR AFTER 1-4-2011 - DUE DATE FOR FILING OF e-FORM 23AC AND 23ACA (NON-XBRL) IS EXTENDED UP TO 15-10-2012  

GENERAL CIRCULAR NO. 28/2012, DATED 3-9-2012

Reference: General Circular No.21/2012 vide File No.l7/160/2012-CL-V, dated 2-8-2012

This Ministry had issued General Circular No. 21/2012, dated 2-8-2012 for extending time for filing e-form 23AC and 23ACA (non-XBRL) as per revised Schedule VI without any additional fees/penalty up to 15-9-2012 or within 30 days from the date of their AGM, which ever later. It is to inform you that with approval of competent authority, the filing of e-form 23AC and 23ACA (non-XBRL), is now extended up to 15-10-2012 or within 30 days from the date of AGM, which ever is later.

The lawyer is not rendering a service but is assisting the court in rendering justice

Lawyers try to come to terms with service tax

Mumbai 
August 30, 2012

While some lawyers welcome the concession on service tax imposed, others continue to say it isn't enough

The finance ministry's latest concession on service tax imposed on lawyers that was notified in June has been welcomed by some; others continue to say it wasn't enough and many remained unaware of the current law and how, or if at all, they had to pay this tax.

It all started in the government's 2009-10 budget, when it announced that law firms would have to pay service tax, explicitly exempting individual advocates representing clients before the courts.

The Bar Council of India (BCI) spoke out in favour of taxing law firms at the time. The Society of Indian Law Firms (SILF) was less pleased and took the Union government to court while lobbying the finance minister.

Advocates' associations such as the Supreme Court Bar Association (SCBA) showed solidarity with the law firm lawyers, and the Delhi High Court Bar Association (DHCBA) even went on strike in protest for its brethren.

Next year, on 28 February 2011, the service tax net widened and also included individual advocates advising businesses. SILF filed a second writ petition after the first court case against the tax was dismissed.

SILF and other lawyers continued their lobbying efforts, while the DHCBA held another strike against the service tax.

Lalit Bhasin, chairman of SILF, explained one particular bugbear in the regime, whereby lawyers would have to pay the service tax to the taxman as soon as the lawyer issued the invoice to the client. "We met the then finance minister Mr Pranab Mukherjee and told him that it is very difficult for us to pay service tax on the basis that our invoices may not be honoured," said Bhasin.

As often, client bill payments are delayed. "If you've already paid service tax based on the bills you've already sent out, and the bills get cleared later in the year, or even in the next financial year, it's a huge headache to keep track of whether you've paid taxes in excess or not," said one Delhi advocate about the previous rules.

In a 31 March 2011 notification the finance ministry gave lawyers that concession and made service tax payable by the recipient of the service and not by the lawyer. This reversal of service tax collection—separating the payment of tax from the service provider—one notable case where this had been done before was for transport services, after drivers and transport operators went on strike, lobbied and filed in court.

Even today, however, some lawyers appear to misunderstand the implication of those rules. One Delhi high court advocate stated wrongly: "Suppose a lawyer is dealing with a client that is a corporate client, (service tax) is payable by the client but has to be collected by the lawyer."

Still other problems persisted. By a strange twist of the service tax regime, the pay of every single lawyer on full-time and exclusive retainer for a law firm, was also subject to service tax, said Majmudar and Partners managing partner Akil Hirani.

Law firms dealt with the issue in a variety of ways, said Milan Chitalia, a partner at Mumbai-based accounting firm NPV and Associates, which advises a number of lawyers. One law firm told its associates to register and pay the service tax directly but that it would later reimburse them, while at another only the fees charged by associates in the litigation department were subject to service tax, he said.

On 29 April 2011, the Delhi high court then stayed the operation of service tax in the DHCBA's petition, which was followed by the Andhra Pradesh and Gauhati high courts also ordering interim stays on the operation of the tax in May.

On 20 June, after the March 2012 budget muddied the situation even further, the government finally came out with service tax rules for lawyers that were at least consistent (see box), though they are still not universally loved.

The new rules fix the problem of lawyers who are quasi-employees having to pay service tax within their firm by restricting service tax primarily to advice provided by lawyers to businesses but not individuals. The rules also intend that fees charged by an advocate appearing in court when instructed and paid by a law firm would not have to charge service tax again. But even those rules are not clear to everyone. "If a lawyer is briefed by a law firm, I have to collect the service tax from them?" the Delhi high court advocate said, guessing incorrectly at the current position.

Law firms have mostly consigned themselves to the new service tax realities. "In a way it's good," commented Hirani about the changes, although law firm profits would be reduced. Because the client was now collecting the service tax rather than the law firm, the firm could not use the tax credits anymore to set off service tax payments made by firms to their service providers.

However, when advising foreign companies, under export of service rules in most cases, the Indian lawyer would again have to become a tax collector and pay the service tax to the revenue when the invoice is raised.

So is the treatment of foreign companies for the purpose of the tax a problem for law firms? "Not really," said Bhasin. "One is reconciled to this, that service tax has to be paid."

Things are also uncertain, claimed Chitalia, with respect to corporate lawyers who are doing non-legal work, such as company incorporation, fund raising or transaction structuring within a law firm. He said that those services, which are not legal in nature, could very well be taxable when provided to the law firm.

DHCBA president Amarjit Singh Chandhiok , who is also an additional solicitor general of India, said that he and the DHCBA remained opposed to the principle of service tax being payable at all. "We are not happy with the situation because in this country the constitution provides justice for everybody so you can't tax the justice delivery systems.

"The lawyer is not rendering a service but is assisting the court in rendering justice."

While the Delhi high court stay order is still in effect, it doesn't apply to the current financial year, he said, and the new laws have not yet been examined by a court. The contentious issue therefore remains, and the DHCBA has sent representations to the government to resolve the problem. "When you can exempt doctors," said Chandhiok, "I am sure you can exempt lawyers."

[Source: Livemint]