Circular on Liability of Interst on Cenvat Credit wrongly taken

Liability of interest where CENVAT credit was wrongly taken but reversed by assessee before utilization   Circular No. 897/17/2009-CX, dated 3-9-2009     Representation has been received from the field formation stating that the decision of Hon'ble High Court of P&H in the case of CCE, Delhi III V/s Maruti Udyog Ltd. [2007(214)ELT173(P&H)], has upheld the order of Tribunal wherein it was held that assessee is not liable to pay interest in the case where credit was only taken and not utilized. The SLP against this order has been dismissed by the Hon'ble Supreme Court. On the other hand, Rule 14 of The CENVAT Credit Rules, 2004, provides for recovery of credit taken or utilized wrongly with interest. In view of this conflict in legal provisions and the decision of Hon'ble Supreme Court, a clarification has been requested from the Board.   2. The matter has been examined. It is seen that the Tribunal decision and the High Court judgement referred to above, was delivered in the context of erstwhile Rule 57I of the Central Excise Rules, 1944 and that the Supreme Court order under reference is only a decision and not a judgement. Since, the Rule 14 of the CENVAT Credit Rules, 2004, is clear and unambiguous in the position that interest would be recoverable when CENVAT credit is taken or utilized wrongly, it is clarified that the interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of the present Rule 14.   3. Trade & Industry as well as field formations may be suitably informed.   4. Receipt of this circular may kindly be acknowledged.   Revenue clarifies that Interest liability is triggered if Cenvat credit is wrongly taken though not utilized  The Central Board of Excise and Customs has issued Circular No. 897/17/2009-CX ('Board Circular') on September 3, 2009 clarifying that liability to interest would arise where CENVAT credit is wrongly taken but reversed by the taxpayer even before utilization.  Background              Rule 14 of the CENVAT Credit Rules, 2004 ('CENVAT Rules') provides for recovery of credit taken or utilized wrongly along with interest.   In the case of CCE vs Maruti Udyog Limited [2007 (214) ELT 173 (P&H)], the High Court had held that the taxpayer is not liable to pay interest where credit was taken but not utilized.  The Special Leave Petition ('SLP') against this order was dismissed by the Hon'ble Supreme Court. The Clarification The Board observed that the High Court decision in Maruti Udyog Limited was delivered in the context of erstwhile Rule 57-I of the Central Excise Rules, 1944 ('Erstwhile Rules') and that the dismissal of the SLP by the Supreme Court was not a judgment. The Board clarified that interest shall be recoverable when credit has been wrongly taken, even if it has not been utilized, in terms of the wordings of Rule 14 of the CENVAT Rules.  BMR Comments and Analysis Rule 14 of the CENVAT Rules and Rule 57-I of the Erstwhile Rules are pari materia to the extent that both the rules provide for recovery of credit wrongly taken.  Accordingly, the decision of the High Court in Maruti Udyog Limited should apply even in the context of Rule 14 of the CENVAT Rules.  Further, in a recent decision the Punjab and Haryana High Court held [Ind-Swift Laboratories Limited vs UOI 2009 (240) ELT 328 (P&H)] that Rule 14 has to be read down to mean that interest would arise only if cenvat credit has been 'taken and utilized' wrongly, though the words used in the Rule are 'taken or utilised'.  The Court held that wrong taking of credit by itself does not create any liability for payment of excise duty and consequently interest cannot be levied. Thus the provisions of Section 11A and Section 11AB of the Central Excise Act, 1944 would not apply in such cases.  Similar views have been held by various Tribunals in the context of Rule 14 of the CENVAT Rules. It is pertinent to note that the Supreme Court in the case of CCE vs Bombay Dyeing & Mfg Co Ltd 2007 (215) ELT 3 (SC) categorically held that if the credit entry has been reversed before utilization, it amounts to not taking credit.  The law declared by the Supreme Court is binding on all Courts and Revenue authorities.  Therefore, interest liability should not arise if the credit taken is reversed before utilization.   Though circulars are intended to clarify the legal position in case of doubts and to remove anomalies, this circular is likely to result in a spate of litigation on this issue.                                                                                              Source: Tax Edge

Acceptance of Deposits by Chit Fund Companies

Circular No. DNBS (PD) CC.No. 159/03.03.01/2009-10, dated 28-8-2009   The Reserve Bank of India, having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system of the country to its advantage, it is necessary to amend the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977, in exercise of the powers conferred by Sections 45J,45K and 45L of the Reserve Bank of India Act, 1934, (2 of 1934) and of all the powers enabling it in this behalf, hereby with immediate effect, prohibit MNBCs from accepting deposits from public except from the shareholders, which is subject to the conditions specified in the Directions issued by the Reserve Bank. Any deposit accepted and held by the MNBCs other than from its shareholders as on date shall be repaid on maturity and shall not be eligible for renewal. 2. The amending notification No. 207 of date as also the updated Notification DNBC.39/DG(H) -77 dated June 20, 1977 (as amended up-to-date) are enclosed for your information and compliance. 3. Kindly acknowledge receipt to the Regional Office of the Department of Non-Banking Supervision, Reserve Bank of India under whose jurisdiction the Registered Office of your company is situated.   Notification No. DNBS. 207 / CGM (ANR)-2009 dated August 28, 2009 The Reserve Bank of India, having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system of the country to its advantage, it is necessary to amend the Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 1977, (hereinafter referred to as the Directions) in exercise of the powers conferred by Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said directions contained in Notification No. DNBC. 39 / DG (H)-77 dated June 20, 1977 shall stand amended with immediate effect, as follows, namely –   A. In clause (a) of paragraph 5 of the Directions, the first and second provisos shall stand deleted.   B. In clause (b) of paragraph 5 of the Directions, 1. Sub-clause (i) shall be substituted with the following words: "any deposit from a shareholder, if the amount of such deposit already received and outstanding in the books of the company as on the date of acceptance or renewal of such deposits, exceeds fifteen per cent of its net owned funds". 2. Sub-clause (ii) shall be substituted with the following words: "any other deposit, including non-convertible bonds or debentures". 3. The following Proviso shall be inserted:   "Provided that where a miscellaneous non-banking company is holding any deposit accepted from any person other than its shareholders, the same shall be repaid on maturity and shall not be eligible for renewal". 4. Sub-clauses (iii) and (iv) shall stand deleted.   C. In sub-clause (a) of clause (1) of paragraph 9A, the proviso "Provided that nothing contained in this clause shall apply to monies raised by the issue of debentures and bonds", shall stand deleted. D. In paragraph 9A, clause (2) shall stand deleted. E. In Paragraph 9AB, after the words "an existing depositor" and before the words "to renew his deposit" the following words shall be inserted: "being a shareholder". F. In Paragraph 9B, in the title of clauses (ii) and (iii) viz; 'Repayment of public deposits by miscellaneous non-banking company not being a problem miscellaneous non-banking company' and 'Repayment of public deposits by problem miscellaneous non-banking company' respectively, the word 'public' shall stand deleted.

New MCA Webpage with ICAI link

Ministry of Corporate Affairs     SHRI SALMAN KHURSHID, MINISTER FOR CORPORATE AFFAIRS, LAUNCHES NEW HOMEPAGE OF HIS MINISTRY'S WEBSITE     18:0 IST       Shri Salman Khurshid, Minister for Corporate Affairs, launched a new and much more user-friendly Homepage of his Ministry's official website: www.mca.gov.in here today. The new Home page focuses much more on various activities of the Ministry of Corporate Affairs, though MCA21 e-services will be easily reached through a link in the portal. The new design of the Homepage was necessitated because in the last three years, the Ministry of Corporate Affairs has put in place a number of legislative, regulatory and capacity building initiatives to enable corporate sector explore newer and wider horizons. The long list of new initiatives include MCA21 e-Governance Project, Limited Liability Partnership Act (LLP), establishment and operationalisation of Competition Commission of India (CCI), amending Acts governing Professional Institutes, establishment of Indian Institute of Corporate Affairs (IICA), modification of Accounting Standards and comprehensive revision of Companies Act, 1956. The new Homepage will be more effective in disseminating information on these transformational initiatives. ....................................... KKP

Clarification regarding deduction of tax at source from payments of second installment of arrears to Government employees on account of implementation of Sixth Central Pay Commission's recommendations

Circular No. 6/2009, dated 31-8-2009 Under the provisions of Section 192 of the Income-tax Act, an employer is required to deduct tax at source from any payments in the nature of salary, which inter alia also includes any arrear payments. The Implementation Cell of the Department of Expenditure, Govt of India, vide its Office Order dated 30th Aug' 08 had stated that 40% of the aggregate arrear (first installment of arrears) would be payable during FY 2008-09. In Circular No. 09/2008 dated 29th Sept. 2008 issued from this office it was stated that during 2008-09 the tax has to be deducted at source on this 40% of aggregate arrear during FY 2008-09. The OM,F.No-1//1/2008-IC, of the Implementation Cell of the Department of Expenditure, Govt of India, vide its order dated 25th August, 2009 has stated that the remaining 60% of the aggregate arrear ( second installment of arrears) would be paid to the concerned Government servants during FY 2009-10. Such arrangements could be followed by State Governments also. In this regard, all the DDOs and PAOs as the case may be, in the Central/State Government and various organizations under them are advised to compute the correct tax liability of every employee on second installment of arrears drawn by him and immediately recover the full tax liability along with education cess thereon at the rates in force. The deduction of tax at source on such arrear payment should not be deferred in any circumstance. They should further ensure that the tax so recovered is paid to the account of Central Government account immediately as per the Income Tax Rules, 1962. The DDOs/PAOs are further advised that they should ensure that the PAN details of the deductees (recipient of arrears) are correctly quoted in the relevant quarterly e-TDS returns filed by them so that the Government Servants get proper credit of their tax deducted in their respective income tax returns. DDOs/PAOs who fail to comply with the provisions of Section 192 of the Income-tax Act, 1961 would be liable to pay interest under section 201(1)/(1A) of Income Tax Act along with other penal consequences. Hindi version will follow.

Service Tax Notifications on New Services

TO BE PUBLISHED IN THE GAZZETE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] Government of India Ministry of Finance Department of Revenue New Delhi, the 31st August, 2009 Notification No. 28/2009 - Service Tax G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided to any person in relation to transport of goods, the description of which is specified in column (2) of the Table, by rail as referred to in sub-clause (zzzp) of clause (105) of section 65 of the Finance Act, from the whole of the service tax leviable thereon under section 66 of the Finance Act. 2. This notification shall come into force on the first day of September, 2009. Table Sl.No. Description of Goods (1) (2) 1 Defence/ military equipments 2 Railway equipments/ materials 3 Postal mail bags 4 Relief materials meant for victims of natural or manmade disasters, calamities, accidents and mishap 5 Luggage of train passengers, whether carried as personal luggage in the train compartments or booked separately in the luggage van/Household effects 6 Parcels [including newspaper/magazines registered with Registrar of Newspapers] booked in the luggage vans, where the goods/commodity heads fall below train load class 130 as per the Indian Railway Conference Association(IRCA) Goods Tariff 7 The following goods which are classified in the IRCA Goods Tariff, as below train load class 130 and wagon load class 130 ( Formula: Train Load Class 120+10) including 'Low Rate' goods viz., LR1, LR2, LR3, LR4: Food grains, flours and pulses(9), Chemical Manure(6), Gunnies(21), Oil cakes and seeds(16), Soap(19), Starch(21), Salt for industrial use(18), Sugar(20), Salt (18),De-oiled cakes(16), Machinery and machine tools(14), Hides and Skins(12), Leather(12), Rubber and plastic(12), Electrical appliances and fittings(22), Empty drums(22), jerry cans and barrels(22), Jaggry(22), Jute(22), Milk and Milk products(22), Organic Manure(22), Paints and polishes(22), Timber(22), Vegetable oil pitches(22), Water(22), Fireworks(23), Boiler components(24), Charcoal(24), Paper(24) Bamboos(25), Brooms(25), Coffee and Tea(25), Cotton and other textiles(25), Fodder and Husk(25), Fruits and vegetables(25) and other perishables like fishery and marine produce, Groceries(25), Live stock(25), Motor vehicles(25), Sugar cane and Bagasse(25),Fire clay(7),Edible oils booked in covered wagons and charged as LR4, booked in 4 wheeled Tank wagon and charged as Train Load class-100 8 Kerosene oil meant for supply through public distribution system; Petroleum products including LPG Cylinders (filled and empty) booked by public sector Oil Marketing Companies transported by Indian Railways F. No. 356/24/2009-TRU Prashant Kumar Under Secretary to the Government of India TO BE PUBLISHED IN THE GAZZETE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] Government of India Ministry of Finance Department of Revenue New Delhi, the 31st August, 2009 Notification No. 29/2009-Service Tax In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 1/2006-Service Tax, dated the 1 st March, 2006, G.S.R. 115(E), dated the 1 st March, 2006, with effect from the 1st day of September, 2009 namely:- 2. In the said notification, in the Table, in S.No.11 for the entry in column (3), the following entry shall be substituted, namely:- "Transport of goods by rail." F. No. 356/24/2009-TRU Prashant Kumar Under Secretary to the Government of India Note.- The principal notification No. 1/2006-Service Tax, dated the 1st March, 2006, was published vide number G.S.R. 115(E), dated the 1st March, 2006 and last amended vide notification No.20/2006 dated the 25 th April 2006, published vide number G.S.R.250(E), dated the 25 th April,2006. [TO BE PUBLISHED IN THE GAZZETE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] Government of India Ministry of Finance Department of Revenue New Delhi, the 31st August, 2009 Notification No. 30/2009 – Service Tax G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided to any person in relation to the transport of goods, the description of which is specified in column (2) of the Table, through national waterway, inland water and coastal shipping as referred to in sub-clause (zzzzl) of clause (105) of section 65 of the Finance Act, from the whole of service tax leviable thereon under Section 66 of the said Act. 2. This notification shall come into force on the first day of September 2009. Table Sl.No. Description of Goods (1) (2) 1. Foodstuffs including edible oil seeds and edible oils; food grains (cereals and pulses) and flours; fruits, vegetables and flowers; agricultural, fishery, marine produce; meat and poultry; water; tea and coffee; salt, sugar, sugarcane; grocery; milk and milk products; livestock and cattle fodder; dhoties , sarees and voils; long cloth, sheeting Fertilizer whether inorganic, organic or mixed; 2 Petroleum and petroleum products; 3 Hank yarn made wholly from cotton; 4 Hank yarn made wholly from cotton; 5 Raw jute and jute textile; 6 Seeds of food crops and seeds of fruits and vegetables; seeds of cattle fodder and jute seeds; 7 Medicine/pharmaceutical products; 8 Relief materials meant for victims of natural or manmade disasters, calamities, accidents and mishap; 9 Defence/ military equipments. 10 Luggage of passengers, whether carried as personal luggage in the ship or booked separately as consignment/ postal mail / mail bags/Household effects 11 Newspaper/magazines registered with Registrar of Newspapers. [F. No. 354/163/2009-TRU] (Prashant Kumar) Under Secretary to the Government of India

PSU Audit Status

PSU Audit empanelment status of C A Firms for the year (2009-2010) - (27-08-2009) Dear Colleagues, Empanelment status of C A Firms for conducting PSU Audit for the year 2009-10 can be viewed by visiting http://cagofindia.delhi.nic.in/caempanel/empstat-08.asp. To check the empanelment status, please put name of applicant firm (at least three Characters ) or Online Acknowledgement Number or CAG's Empanelment Number or Firm's Station then click the submit button.

History of Taxation PRE – 1922

"It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold" –                                     --Kalidas in Raghuvansh eulogizing KING DALIP.   It is a matter of general belief that taxes on income and wealth are of recent origin but there is enough evidence to show that taxes on income in some form or the other were levied even in primitive and ancient communities. The origin of the word "Tax" is from "Taxation" which means an estimate. These were levied either on the sale and purchase of merchandise or livestock and were collected in a haphazard manner from time to time. Nearly 2000 years ago, there went out a decree from Ceaser Augustus that all the world should be taxed. In Greece, Germany and Roman Empires, taxes were also levied sometime on the basis of turnover and sometimes on occupations. For many centuries, revenue from taxes went to the Monarch. In Northern England, taxes were levied on land and on moveable property such as the Saladin title in 1188. Later on, these were supplemented by introduction of poll taxes, and indirect taxes known as "Ancient Customs" which were duties on wool, leather and hides. These levies and taxes in various forms and on various commodities and professions were imposed to meet the needs of the Governments to meet their military and civil expenditure and not only to ensure safety to the subjects but also to meet the common needs of the citizens like maintenance of roads, administration of justice and such other functions of the State.   In India, the system of direct taxation as it is known today, has been in force in one form or another even from ancient times. There are references both in Manu Smriti and Arthasastra to a variety of tax measures. Manu, the ancient sage and law-giver stated that the king could levy taxes, according to Sastras. The wise sage advised that taxes should be related to the income and expenditure of the subject. He, however, cautioned the king against excessive taxation and stated that both extremes should be avoided namely either complete absence of taxes or exorbitant taxation. According to him, the king should arrange the collection of taxes in such a manner that the subjects did not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances. The detailed analysis given by Manu on the subject clearly shows the existence of a well-planned taxation system, even in ancient times. Not only this, taxes were also levied on various classes of people like actors, dancers, singers and even dancing girls. Taxes were paid in the shape of gold-coins, cattle, grains, raw-materials and also by rendering personal service.   The learned author K.B.Sarkar commends the system of taxation in ancient India in his book "Public Finance in Ancient India", (1978 Edition) as follows:- "Most of the taxes of Ancient India were highly productive. The admixture of direct taxes with indirect Taxes secured elasticity in the tax system, although more emphasis was laid on direct tax. The tax-structure was a broad based one and covered most people within its fold. The taxes were varied and the large variety of taxes reflected the life of a large and composit population".   However, it is Kautilya's Arthasastra, which deals with the system of taxation in a real elaborate and planned manner. This well known treatise on state crafts written sometime in 300 B.C., when the Mauryan Empire was as its glorious upwards move, is truly amazing, for its deep study of the civilisation of that time and the suggestions given which should guide a king in running the State in a most efficient and fruitful manner. A major portion of Arthasastra is devoted by Kautilya to financial matters including financial administration. According to famous statesman, the Mauryan system, so far as it applied to agriculture, was a sort of state landlordism and the collection of land revenue formed an important source of revenue to the State. The State not only collected a part of the agricultural produce which was normally one sixth but also levied water rates, octroi duties, tolls and customs duties. Taxes were also collected on forest produce as well as from mining of metals etc. Salt tax was an important source of revenue and it was collected at the place of its extraction.     Kautilya described in detail, the trade and commerce carried on with foreign countries and the active interest of the Mauryan Empire to promote such trade. Goods were imported from China, Ceylon and other countries and levy known as a vartanam was collected on all foreign commodities imported in the country. There was another levy called Dvarodaya which was paid by the concerned businessman for the import of foreign goods. In addition, ferry fees of all kinds were levied to augment the tax collection.   Collection of Income-tax was well organised and it constituted a major part of the revenue of the State. A big portion was collected in the form of income-tax from dancers, musicians, actors and dancing girls, etc. This taxation was not progressive but proportional to the fluctuating income. An excess Profits Tax was also collected. General Sales-tax was also levied on sales and the sale and the purchase of buildings was also subject to tax. Even gambling operations were centralised and tax was collected on these operations. A tax called yatravetana was levied on pilgrims. Though revenues were collected from all possible sources, the underlying philosophy was not to exploit or over-tax people but to provide them as well as to the State and the King, immunity from external and internal danger. The revenues collected in this manner were spent on social services such as laying of roads, setting up of educational institutions, setting up of new villages and such other activities beneficial to the community.   The reason why Kautilya gave so much importance to public finance and the taxation system in the Arthasastra is not far to seek. According to him, the power of the government depended upon the strength of its treasury. He states – "From the treasury, comes the power of the government, and the Earth whose ornament is the treasury, is acquired by means of the Treasury and Army". However, he regarded revenue and taxes as the earning of the sovereign for the services which were to be rendered by him to the people and to afford them protection and to maintain law and order. Kautilya emphasised that the King was only a trustee of the land and his duty was to protect it and to make it more and more productive so that land revenue could be collected as a principal source of income for the State. According to him, tax was not a compulsory contribution to be made by the subject to the State but the relationship was based on Dharma and it was the King's sacred duty to protect its citizens in view of the tax collected and if the King failed in his duty, the subject had a right to stop paying taxes, and even to demand refund of the taxes paid.   Kautilya has also described in great detail the system of tax administration in the Mauryan Empire. It is remarkable that the present day tax system is in many ways similar to the system of taxation in vogue about 2300 years ago. According to the Arthasastra, each tax was specific and there was no scope for arbitratiness. Precision determined the schedule of each payment, and its time, manner and quantity being all pre-determined. The land revenue was fixed at 1/6 share of the produce and import and export duties were determined on advalorem basis. The import duties on foreign goods were roughly 20 per cent of their value. Similarly, tolls, road cess, ferry charges and other levies were all fixed. Kautilya's concept of taxation is more or less akin to the modern system of taxation. His over all emphasis was on equity and justice in taxation. The affluent had to pay higher taxes as compared to the not so fortunate. People who were suffering from diseases or were minor and students were exempted from tax or given suitable remissions. The revenue collectors maintained up-to-date records of collection and exemptions. The total revenue of the State was collected from a large number of sources as enumerated above. There were also other sources like profits from Stand land (Sita) religious taxes (Bali) and taxes paid in cash (Kara). Vanikpath was the income from roads and traffic paid as tolls.   He placed land revenues and taxes on commerce under the head of tax revenues. These were fixed taxes and included half yearly taxes like Bhadra, Padika, and Vasantika. Custom duties and duties on sales, taxes on trade and professions and direct taxes comprised the taxes on commerce. The non-tax revenues consisted of produce of sown lands, profits accuring from the manufacture of oil, sugarcane and beverage by the State, and other transactions carried on by the State. Commodities utilised on marriage occasions, the articles needed for sacrificial ceremonies and special kinds of gifts were exempted from taxation. All kinds of liquor were subject to a toll of 5 precent. Tax evaders and other offenders were fined to the tune of 600 panas.           Kautilya also laid down that during war or emergencies like famine or floods, etc. the taxation system should be made more stringent and the king could also raise war loans. The land revenue could be raised from 1/6th to 1/4th during the emergencies. The people engaged in commerce were to pay big donations to war efforts. Taking an overall view, it can be said without fear of contradiction that Kautilya's Arthasastra was the first authoritative text on public finance, administration and the fiscal laws in this country. His concept of tax revenue and the on-tax revenue was a unique contribution in the field of tax administration. It was he, who gave the tax revenues its due importance in the running of the State and its far-reaching contribution to the prosperity and stability of the Empire. It is truly an unique treatise. It lays down in precise terms the art of state craft including economic and financial administration. History of Taxation post 1922   1. Preliminary :            The rapid changes in administration of direct taxes, during the last decades, reflect the history of socio-economic thinking in India. From 1922 to the present day changes in direct tax laws have been so rapid that except in the bare outlines, the traces of the I.T. Act, 1922 can hardly be seen in the 1961 Act as it stands amended to date. It was but natural, in these circumstances, that the set up of the department should not only expand but undergo structural changes as well.   2. Changes in administrative set up since the inception of the department:            The organisational history of the Income-tax Department starts in the year 1922. The Income-tax Act, 1922, gave, for the first time, a specific nomenclature to various Income-tax authorities. The foundation of a proper system of administration was thus laid. In 1924, Central Board of Revenue Act constituted the Board as a statutory body with functional responsibilities for the administration of the Income-tax Act. Commissioners of Income- tax were appointed separately for each province and Assistant Commissioners and Income-tax Officers were provided under their control. The amendments to the Income tax Act, in 1939, made two vital structural changes: (i) appellate functions were separated from administrative functions; a class of officers, known as Appellate Assistant Commissioners, thus came into existence, and (ii) a central charge was created in Bombay. In 1940, with a view to exercising effective control over the progress and inspection of the work of Income-tax Department throughout India, the very first attached office of the Board, called Directorate of Inspection (Income Tax) - was created. As a result of separation of executive and judicial functions, in 1941, the Appellate Tribunal came into existence. In the same year, a central charge was created in Calcutta also. 2.1     World War II brought unusual profits to businessmen. During 1940 to 1947, Excess Profits Tax and Business Profits Tax were introduced and their administration handed over to the Department (These were later repealed in 1946 and 1949 respectively). In 1951, the 1st Voluntary Disclosure Scheme was brought in. It was during this period, in 1946, that a few Group 'A' officers were directly recruited. Later on in 1953, the Group 'A' Service was formally constituted as the 'Indian Revenue Service'.    2.2 This era was characterised by considerable emphasis on development of investigation techniques. In 1947, Taxation on Income (Investigation) Commission was set up which was declared ultra vires by the Supreme Court in 1956 but the necessity of deep investigation had by then been realised. In 1952, the Directorate of Inspection (Investigation) was set up. It was in this year that a new cadre known as Inspectors of Income Tax was created. The increase in 'large income' cases necessitated checking of the work done by departmental officers. Thus in 1954, the Internal Audit Scheme was introduced in the Income-tax Department.    2.3 As indicated earlier, in 1946, for the first time a few Group A officers were recruited in the department. Training them was important. The new recruits were sent to Bombay and Calcutta where they were trained, though not in an organised manner. In 1957, I.R.S. (Direct Taxes) Staff College started functioning in Nagpur. Today this attached office of the Board functions under a Director-General. It is called the National Academy of Direct Taxes. By 1963, the I.T. department, burdened with the administration of several other Acts like W.T., G.T., E.D., etc., had expanded to such an extent that it was considered necessary to put it under a separate Board. Consequently, the Central Board of Revenue Act, 1963 was passed. The Central Board of Direct Taxes was constituted, under this Act.    2.4 The developing nature of the economy of the country brought with it both steep rates of taxes and black incomes. In 1965, the Voluntary Disclosure Scheme was brought in followed by the 1975 Disclosure Scheme. Finally, the need for a permanent settlement mechanism resulted in the creation of the Settlement Commission.    2.5 A very important administrative change occurred during this period. The recovery of arrears of tax which till 1970 was the function of State authorities was passed on to the departmental officers. A whole new wing of Officers - Tax Recovery Officers was created and a new cadre of post of Tax Recovery Commissioners was introduced w.e.f. 1-1-1972.    2.6 In order to improve the quality of work, in 1977, a new cadre known as IAC (Assessment) and in 1978 another cadre known as CIT (Appeals) were created. The Commissioners' cadre was further reorganised and five posts of Chief Commissioners (Administration) were created in 1981.     2.7 Tax Reforms : Certain important policy and administrative reforms carried out over the past few years are as follows :-         (a).  The policy reforms include :- Lowering of rates; Withdrawls/reduction of major incentives; introduction of measures for presumptive taxation; simplification of tax laws, particularly relating to capital gains; and widening the tax base.          (b). The administrative reforms include :- Computerisation involving allotment of a unique identification number to tax payers which is emerging as a unique business identification number; and realignment of the available human resources with the changed business needs of the organisation.      2.8 Computerisation : Computerisation in the Income-tax Department started with the setting up of the Directorate of Income tax (Systems) in 1981. Initially computerisation of processing of challans was taken up. For this 3 computer centres were first set up in 1984-85 in metropolitan cities using SN-73 systems. This was later extended to 33 major cities by 1989. The computerized activities were subsequently extended to allotment of PAN under the old series, allotment of TAN, and pay roll accounting. These computer centres used batch process with dumb terminals for data entry. In 1993 a Working Group was set up by the Government to recommend computerisation of the department. Based on the report of the Working Group a comprehensive computerisation plan was approved by the Government in October, 1993. In pursuance of this, Regional Computer Centres were set up in Delhi, Mumbai, and Chennai in 1994-95 with RS6000/59H Servers. PCs were first provided to officers in these cities in phases. The Plan involved networking of all users on LAN/WAN. Network with leased data circuits were accordingly set up in Delhi, Mumbai and Chennai in Phase-I during 1995-96. A National Computer Centre was set up at Delhi in 1996-97. Integrated application software were developed and deployed during 1997-99. Thereafter, RS6000 type mid range servers were provided in the other 33 Computer Centres in various major cities in 1996-97. These were connected to the National Computer Centre through leased lines. PCs were provided to officers of different level upto ITOs in stages between 1997 and 1999. In phase II offices in 57 cities were brought on the network and linked to RCCs and NCC.   2.9           Restructuring of the Income-tax department : The restructuring of the Income-tax Department was approved by the Cabinet in its meeting held on 31-8-2000 to achieve the following objectives :- Increase in effectiveness and productivity; Increase in revenue collection; Improvement in services to tax payers; Reduction in expenditure by downsizing the workforce; Improved career prospects at all levels; Induction of information technology; and Standardization of work norms The aforementioned objectives have been sought to be achieved by the department through a multi-pronged strategy of : a. redesigning business processes through functionalisation; b.                  increasing the number of officers to rationalise the span of control for better supervision, control and management of workload and to improve tax-payer services and c.                  re-orient, retrain and redeploy the workforce with appropriate incentives in the form of career advancement.

Guidance Note on Clause 17A- Form 3CD

Guidance on clause 17A in the Form No.3CD 38A. Clause 17A- Amount inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006 This is a new clause inserted by the Central Board of Direct Taxes through its Notification No. 36/2009 dated 13-4-2009, in the Form No.3CD in Appendix II of the Income-tax Rules, 1962 . The tax auditor is required to state the amount of interest inadmissible under section 23 of the Micro, Small and Medium Enterprises Development Act, 2006. The Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) is an Act to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises and for matters connected therewith or incidental thereto. Section 23 of the MSME Act lays down that an interest payable or paid by the buyer, under or in accordance with the provisions of this Act, shall not for the purposes of the computation of income under the Income-tax Act,1961 be allowed as a deduction. The inadmissible interest has to be determined on the basis of the provisions of the MSME Act. Section 16 of the MSME Act provides for the date from which and the rate at which the interest is payable. Accordingly, where a buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall , notwithstanding anything contained in any agreement between the buyer and the supplier or any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed date or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. Section 15 of the MSME Act, requires the buyer to make payment on or before the date agreed upon in writing, or where there is no agreement in this behalf, before the appointed day. It also provides that the period agreed upon in writing shall not exceed forty five days from the day of acceptance or the day of deemed acceptance. Section 22 of the MSME Act provides that where any buyer is required to get his annual accounts audited under any law for the time being in force, such buyer shall furnish the following additional information in his annual statement of accounts, namely:- i. The principal amount and interest due thereon (to be shown separately) remaining unpaid to any supplier as at the end of each accounting year. ii. The amount of interest paid by the buyer in terms of Section 16, along with the amount of payment made to supplier beyond the appointed date during each accounting year. iii. The amount of interest due and payable for the delay in making payment (which have been paid but beyond the appointed day during the year) but without adding the interest specified under this Act. iv. The amount of interest accrued and remaining unpaid at the end of each accounting year; and v. The amount of further interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprise, for the purpose of disallowance as a deductible expenditure under section 23. Where the tax auditor is issuing his report in Form No.3CB, he should verify that the financial statements audited by him contain the information as prescribed under section 22 of the MSME Act. If no disclosure is made by the auditee in the financial statements he should give an appropriate qualification in Form No.3CB, in addition to the reporting requirement in clause 17A of Form No. 3CD. The tax auditor while reporting in respect of clause 17A should take the following steps: (a) The auditor should seek information regarding status of the enterprise i.e. whether the same is covered under the Micro, Small and Medium Enterprises Development Act, 2006. Where the information is available and has been disclosed the same should be reported as such in Form No. 3CD. Where the information is not available the auditor should also mention the same in the Form No.3CD. (b) Since Schedule VI and Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006 requires disclosure of information, the tax auditor should cross check the disclosure made in the financial statements. (c) Obtain a full list of suppliers of the assessee which fall within the purview of the definition of "Supplier" under section 2(n) of the Micro, Small and Medium Enterprises Development Act, 2006. It is the responsibility of the auditee to classify and identify those suppliers who are covered by this Act. (d) Review the list so obtained. (e) Verify from the books of account whether any interest payable or paid to the buyer in terms of section 16 of the MSME Act has been debited or provided for in the books of account. (f) Verify the interest payable or paid as mentioned above on test check basis. (g) Verify the additional information provided by the auditee relating to interest under section 16 in his financial statement. (h) If on test check basis, the auditor is satisfied, then the amount so debited to the profit and loss account should be reported under clause 17A. Where the tax auditor, upon due verification, finds that the auditee has neither provided for nor paid any interest payable under the MSME Act, the no amount is inadmissible under section 23 of MSME Act. In such a case 'Nil' can be reported against clause 17A. A question may come up, as to what would be disallowance, in case the auditee is liable to pay any interest under MSME Act, but he has not provided the interest in his accounts. In such a case, there can be no disallowance, as he has not claimed the same in his accounts. But whenever he pays and claim such interest, the same will be disallowable in year of payment. In case the auditee has adopted mercantile system of accounting, the non-provision may affect true and fair view and the auditor should give suitable qualification. The relevant extracts of the MSME Act are as follows: "appointed day" means the day following immediately after the expiry of the period of 15 days from the day of acceptance or the day of deemed acceptance. "day of acceptance" means the day of actual delivery of the goods or the rendering of service or where any objection is made in writing by the buyer regarding the acceptance of goods or services within 15 days from the day of delivery of goods or rendering of services, the day on which the objection is removed by the supplier. "day of deemed acceptance" means , where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of deliver of the goods or rendering of services, the day of the actual delivery of goods or the rendering of services. "Buyer" means who so ever buys any goods or receives any services from the supplier for a consideration. "Supplier" means a micro or small enterprise, which has filed a memorandum with the authority referred to in section 7(1)(a). "Micro Enterprise" means: a) In case of enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries(Development and Regulation) Act, 1951 an enterprise, where the investment in plant and machinery does not exceed twenty five lakh rupees; b) In case of enterprises engaged in providing or rendering services, an enterprise, where the investment in equipment does not exceed ten lakh rupees. "small enterprise" means: a) In case of enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries(Development and Regulation) Act, 1951 an enterprise, where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees. b) In case of enterprises engaged in providing or rendering services, an enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; "Medium enterprise" means a) In case of enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries(Development and Regulation) Act, 1951 an enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees. b) In case of enterprises engaged in providing or rendering services, an enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees;

5-minute Management Course [6 Hilarious Lessons]

5-minute Management Course  [Hilarious but True!]Lesson 1: A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs. When she opens the door, there stands Bob, the next-door neighbour. Before she says a word, Bob says, 'I'll give you $800 to drop that towel.' After thinking that she has a chance earning $800 within a minute, the woman drops her towel and stands naked in front of Bob, aftera few seconds, Bob hands her $800 and leaves. The woman wraps back up in the towel andgoes back upstairs. When she gets to the bathroom, her husband asks, 'Who was that?' 'It was Bob the next door neighbour,' she replies. 'Great,' the husband says, 'Did he say anything about the $800 he owes me?' Moral of the story: Do not share any critical information unless you understand the need of opposite person. It may or may not help him but surely won't help you. Lesson 2: A priest offered a Nun a lift. She got in and crossed her legs, forcing her gown to reveal a leg. The priest nearly had an accident. After controlling the car, he stealthily slid his hand up her leg. The nun said, 'Father, remember Psalm 129?' The priest removed his hand. But, changing gears, he let his hand slide up her leg again. The nun once again said, 'Father, rememberPsalm 129?' The priest apologized 'Sorry sister, but the flesh is weak.' Arriving at the convent, the nun sighed heavily and went on her way. On his arrival at the church, the priest rushed to look up Psalm 129. It said, 'Go forth and seek, further up, you will find glory.' Moral of the story: If you are not well informed in your job, you might miss a great opportunity.   Lesson 3: A sales rep, an administration clerk, and the manager are walking to lunch when they find an antique oil lamp. They rub it and a Genie comes out. The Genie says, 'I'll give each of you just one wish.' 'Me first! Me first!' says the admin clerk. 'I wantto be in the Bahamas, driving a speedboat, without a care in the world.' Puff! She's gone. 'Me next! Me next!' says the sales rep. 'I want to be in Hawaii , relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life.' Puff! He's gone. 'OK, you're up,' the Genie says to the manager. The manager smiles and say, 'I want those two back in the office after the lunch-time.' Moral of the story: Always let your boss have the first say. Lesson 4: An eagle was sitting on a tree resting, doing nothing. A small rabbit saw the eagle and asked him,'Can I also sit like you and do nothing?' The eagle answered: 'Sure, why not.' So, the rabbit sat on the ground below the eagle and rested. All of a sudden, a fox appeared, jumped on the rabbit and ate it. Moral of the story: To be sitting and doing nothing, you must be sitting very, very high up.   Lesson 5: A Turkey was chatting with a Bull. 'I would love to be able to get to the top of that tree' sighed the Turkey, 'but I haven't got the energy.' 'Well, why don't you nibble on some of my droppings?' replied the Bull. They're packed with nutrients.' The Turkey pecked at a lump of dung, and found it actually gave her enough strength to reach the lowest branch of the tree. The next day, after eating some more dung, she reached the second branch. Finally after a fourth night, the Turkey was proudly perched at the top of the tree.. She was promptly spotted by a farmer, who shot her out of the tree. Moral of the story: Bull Shit might get you to the top, but it won't help you stay there for long. Lesson 6: A little bird was flying south for the winter. It was so cold the bird froze and she fell to the ground into a large field. While she was lying there, a cow came by and dropped some dung on her. As the frozen bird laid there in the pile of cow dung, she began to realize how warm it was. The dung was actually thawing her out! She lays there all warm and happy, and soon began to sing for joy. A passing cat hears the bird singing and comes to investigate. Following the sound, the cat discovered the bird under the pile of cow dung, and promptly dug her out and ate her. Morals of the story: [1] Not everyone who shits on you is your enemy. [2] Not everyone who gets you out of shit is your friend. [3] And when you're in deep shit, keep your mouth shut!

Retention of Working Papers for Audit

Announcement on Amendment to SQC 1 - Retention Period for Engagement Documentation (Working Papers) - (21-08-2009) ANNOUNCEMENT   Amendment to SQC 1 - Retention Period for Engagement Documentation (Working Papers)     Paragraph 83 of the Standard on Quality Control (SQC) 1, Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements, states as follows:   "83.     The needs of the firm for retention             ……………….             ……………… In the specific case of audit engagements, the retention period ordinarily is no shorter than ten years from the date of the auditor's report, or, if later, the date of the group auditor's report." (emphasis added)   The Council of the Institute of Chartered Accountants of India, at its 289th meeting held on August 19, 2009 at New Delhi, pursuant to the provisions of Rule 12 of the Chartered Accountants (Procedures of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007, has decided to amend paragraph 83 of the SQC 1 as follows:   "83.     The needs of the firm for retention             ………………………………             ............................................... In the specific case of audit engagements, the retention period ordinarily is no shorter than seven years from the date of the auditor's report, or, if later, the date of the group auditor's report." (emphasis added)