business advisor - march 10, 2013 - preview

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Volume II Part 5 March 10, 2013 1 Business Advisor

BusinessAdvisor

(Fortnightly inputs for professionals and executives)

Volume II Part 5 March 10, 2013


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Contents

Tokenism in taxing the superrich

T. N. PandeyTaxing people on capacity-to-pay taxis a well-recognised

principle in tax jurisprudence. If considered necessary, it should have beendone with adequate homework.

Report on annual general meeting: New provision

Dr S. ChandrasekaranThe Bill provides that every listed public company

shall prepare a report on each AGM. The report will also include the

confirmation to the effect that the meeting was convened, held and

conducted as per the provisions of the Act and rules made thereunder.

Budget: Focused on fundamentals but hits out at citizens

Dr Sanjiv AgarwalOn the indirect taxes side, while there is no change in

peak rates of customs, excise and service tax, the hike in rates of a few

items like SUVs, imported vehicles, cigarettes etc., cannot be criticised.

On expected lines and little to cheer

Dr B. Yerram RajuThe supply side issues, as were made out to be the

key factors for food inflation at the current growth in agriculture, found little

mention in the budget.

Budget 2013: Round up of changes in the direct tax laws

V. K. SubramaniWhere an immovable property other than agricultural

land is transferred by a resident, the transferee must deduct tax at source

at 1% of the apparent consideration.

(Cover page cartoons: Bimbadhar Mishra)

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Tokenism in taxing the superrich

T. N. Pandey

There was considerable debate over a few weeks

preceding the presentation of the Budget for the F.Y.2013-14 concerning the income and wealth-tax

assessments of persons described as superrich. In this

context, suggestions were made, inter-alia, for

increasing income tax and wealth tax for such persons,

review of the Wealth-tax Act and re-introduction of

Inheritance Tax (earlier called Estate Duty). Even the

FM, Shri P. Chidambaram mentioned, in some of his

addresses, the revamping of Wealth-tax Act and initiating debate regardingInheritance tax.

Arguments in favour of and against the

proposal

Such suggestions got mixed responses

some supporting the suggestions and some

opposing the same. The persons favouring

the proposal felt that this needs to be done:(i) to augment Governments revenue; (ii) to

fulfil the mandate of the Constitution for

preventing concentration of income and

wealth in fewer hands; (iii) for adhering to the

principle of capacity to pay based taxation;

and (iv) bringing equity in the tax system. The persons opposing it argued

that the suggestion is unacceptable because: (i) this would result in lowering

the tax revenue; (ii) discourage entrepreneurship; (iii) halt economicdevelopment in the country; (iv) depress demand; (v) lead to flight of talent

and capital; and (vi) create incentive for tax evasion. Such assumptions are

apparently mere conjectures and surmises, un-backed by any empirical

studies in favour or against the proposal.

Support for the proposal

The issue has been debated in India and abroad. Shri C. Rangarajan, Key

Economic Advisor to the PM, Dr Manmohan Singh, supported the proposalsaying that the Government should consider imposing a marginal tax rate

higher than the current 30% on those with substantially higher income.

Shri Azim Premji, Chairman of Wipro said that there is merit in the idea of

Azim Premji has

said that there is

merit in the idea of

having a highermarginal tax rate for

the very wealthy.


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having a higher marginal tax rate for the very wealthy. He posed the issue,

how one can say that rich people should pay more taxes and replied saying

that one has to be fair in a country with this kind of poverty and expressed

the view that the rich people are bringing it upon them with their

conspicuous consumption, which has reached a state of absurdity.

Shri Azim Premji, prima-facie, echoed the feelings of billionaire WarrenBuffett, when he suggested to the Congress the levy of more taxes on the

nations wealthiest individuals to cut the US budget deficit. He suggested

that tax rate should be raised for those making more than $ one million,

including on dividends and capital gains. According to Buffett, such

increase in taxes is not destructive of growth and development. He said that

the notion that high taxes discourage hiring and investment is false.

Referring to his experience of working with investors for 6 years, he said

that he did not come across one individualnot even, when capital gain taxrates were 39.9% in 1976-77shying away from a sensible investment

because of the tax rate on potential gain.

According to him, for people who invest to

make money, potential taxes have never been a

scare.

FMs half-hearted response

The FM has half-heartedly responded to such

suggestions while presenting his budget for the

year 2013-14. Para 130 of the budget speech

reads thus:

I believe there is a little bit of the spirit of Mr

Azim Premji in every affluent taxpayer. I am confident that when I ask the

relatively prosperous to bear a small burden for one year, just one year, they

will do so cheerfully.

The proposal, apparently, for higher tax on the so-called superrich in para

126 of the budget speech is just for one year.

Fiscal consolidation cannot be effected only by cutting expenditure.

Wherever possible, revenues must also be augmented. When I need to raise

resources, who can I go to except those who are relatively well placed in

society? There are 42,800 personslet me repeat, only 42,800 persons

who admitted to a taxable income exceeding Rs 1 crore per year

(For the full issue, subscribe athttp://bit.ly/ShriMagz)

Warren Buffett has

said that the

notion that high

taxes discouragehiring and

investment is false.
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Budget 2013: Round up of changes in

direct tax laws

V. K. Subramani

There is no change in basic exemption limit for personal

taxpayers. However, for individual resident assessees

where the total income does not exceed Rs 5,00,000, a

rebate of income-tax of Rs 2,000 or 100% of the tax

whichever is less, is allowable. This is provided by

insertion of section 87A.

Agricultural land chargeable to capital gains has been

redefined by dispensing with the requirement of notifyingthe municipalities. Hereinafter, agricultural lands beyond

all municipal limits subject to certain distance based on the population of

the municipality would be chargeable to tax.

The requirement for ascertaining the distance has been clarified as aerial

basis and not by road distance. Decision such as CIT v. Lal Singh (2010) 195

Taxman 420 (P&H)advocating road distance measurement henceforth will

not be applicable.

Amounts received from keyman insurance policy is chargeable to tax.

However, when such policy is assigned in favour of employee it gets

converted into an ordinary policy and thus the amount received on maturity

was held as not taxable in CIT v. Rajan Nanda (2012) 18 taxman.com 98

(Del). Now, the Finance Bill, 2013, proposes to nullify the impact of the

decision by holding that the assignment of policy will not be tax-free.

The annual premium on life insurance policy when it exceeds 10% of thecapital sum assured, the amount received on the maturity of the policy is

chargeable to tax, as exemption under section 10(10D) will not be

applicable. The Finance Bill, 2013, extends the cap for annual premium to

15% in the case of persons having disability or severe disability referred to

in section 80U or in the case of persons suffering from disease or ailment as

Decision such as CIT v. Lal Singh (2010) 195 Taxman 420(P&H)advocating road distance measurement henceforth will

not be applicable.


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specified in the rules made under section 80DDB.

To promote industrialisation, a new section 32AC is proposed to be

inserted to allow 15% of the actual cost of plant and machinery installed by

the assessees during the period from 01.04.2013 to 31.03.2015. This

deduction is in addition to additional depreciation and regular depreciation

prescribed in section 32. This allowance will not reduce the actual cost ofasset and there are certain conditions attached for availing the allowance.

In the case of banks (not being banks incorporated outside India),

provision for doubtful debts in respect of rural advances is maintained

separately. There is no provision for doubtful debts with regard to non-rural

advances. When bad debt is written off with regard to rural advances, any

excess over and above the provision maintained is deductible. With regard

to non-rural advances, any bad debt write-off is deductible without makingany reference to provision for doubtful debts which are maintained only in

respect of rural advances. The Finance Bill, 2013, proposes to remove the

distinction, whereby any bad debt write-off is deductible only when it

exceeds the provision maintained. In other words, though the provision for

doubtful debts is maintained for rural advances, when bad debts of non-

rural advances are written off it is not deductible unless such write-off

exceeds the provision maintained. This would upset the interpretation and

clarity provided by the apex court in the case ofCatholic Syrian Bank Ltd v.CIT (2012) 18 taxman.com 282 (SC).

In the case of immovable property held as stock in trade, upon their sale

the stamp duty valuation does not have any significance since the

provisions of section 50C meant for adopting stamp duty valuation would

deal with transactions in the nature of capital asset. In order to tax

transactions in immovable properties held as stock in trade chargeable

under the head profits and gains of business or profession the Finance Bill,

To promote industrialisation, a new section 32AC is

proposed to be inserted to allow 15% of the actual cost of

plant and machinery installed by the assessees during the

period from 01.04.2013 to 31.03.2015. This deduction is in

addition to additional depreciation and regular depreciation

prescribed in section 32.


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2013, proposes to insert section 43CA. The impact would be that, even

where the immovable property is held as stock in trade and is transferred,

the sale consideration vis--vis the stamp duty valuation whichever is

higher would be adopted for the purpose of computing income chargeable

under the head profits and gains of business or profession.

Where an immovable property is transferred for inadequate consideration

the transferor is chargeable to tax based on stamp duty valuation under

section 50C. This does not impact the transferee in any manner.

The Finance Bill, 2013, proposes to tax the transferee where the apparent

consideration is less than the stamp duty value of immovable property by

more than Rs 50,000. Even cases where there is no consideration, the

stamp duty value if it exceeds Rs 50,000 it is chargeable to tax in the hands

of transferee as income under the head other sources.

For those who do not own any house property and who resort to

acquisition of house property by availing loan from financial institution an

extra incentive is proposed in the Finance Bill, 2013.

It is applicable to individuals in respect of interest on housing loan and it is

one-time incentive of Rs 1 lakh.

Where the interest payable for the financial year 2013-14 is less than Rs 1lakh then the difference between Rs 1 lakh and the actual amount of

interest is deductible in the financial year 2014-15.

This deduction seems to be in addition to the regular deduction available

under section 24. The character of asset must be residential house and not

necessarily self occupied residential house.

Where an immovable property other than agricultural land is transferred

by a resident, the transferee must deduct tax at source at 1% of theapparent consideration at the time of payment to the transferor in cash or

by way of cheque or by any other mode.

This is proposed to be brought in by insertion of section 194-IA. Where the

apparent consideration does not exceed Rs 50 lakh, this tax deduction at

source provision will not be applicable.

The Finance Bill, 2013, proposes to insert section 271FA whereby persons

who are liable to furnish annual information return and fail to furnish suchreturn within the prescribed time may be directed to pay by way of penalty

at Rs 500 for every day during which failure continues.

(V. K. Subramani is Chartered Accountant, Erode)


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List of contributors to this issue

T. N. Pandey, Former Chairman, CBDT, Noida

Dr S. Chandrasekaran, Chandrasekaran Associates, Delhi

Dr Sanjiv Agarwal, Agarwal Sanjiv & Company, Jaipur

Dr B. Yerram Raju, Regional Director, PRMIA, Hyderabad

Bimbadhar Mishra, Andhra Bank, Hyderabad

V. K. Subramani, Chartered Accountant, Erode
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Published by:Shrinikethan, Chennai http://bit.ly/ShriMap

Edited by:D. Murali http://bit.ly/dMurali http://bit.ly/TopTalk

March 10, 2013
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business advisor - march 10, 2013 - preview

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