PART – A
1. COMPANY SECRETARY MAY BE INCLUDED IN THE DEFINITION OF “ACCOUNTANT” AND “ACCOUNTANT MEMBER” UNDER THE CODE [REFER CLAUSES 314(2), 182(3) AND OTHER APPLICABLE CLAUSES OF THE CODE]
The Institute of Company Secretaries of India is a premier professional body established under an Act of Parliament, i.e., the Company Secretaries Act, 1980. Company Secretary, a competent professional comes in existence after exhaustive exposure provided by the Institute through compulsory coaching, examinations, rigorous training and continuing education programmes, and is governed by the Code of Conduct contained in the Company Secretaries Act, 1980.
We wish to apprise that the curriculum of Company Secretaryship Course includes, inter-alia, detailed study of Direct Taxation, Indirect Taxation and Financial Accounting. Thus, vast exposure is provided to the Company Secretaries in the areas of taxation and accounts, enabling them to acquire proficiency in taxation and other related subjects.
Secretary of a company has been recognized as a principal officer of the company responsible for its affairs under a host of legislations including Companies Act, 1956, Customs Act, 1962, Central Excise Act, 1944, etc. This Code also recognizes Secretary as Principal Officer [vide Clause 314(200)].
The Company Secretaries in Practice have been recognized to act as Authorized Representative before –
a) The Customs, Excise and Service Tax Appellate Tribunal under the Customs Act, 1962 [Clause 146A(2)(d)] read with Customs (Appeals) Rules, 1982 [Rule 9(c)] and The Central Excise Act, 1944 [Clause 35Q (2)(c)] read with Central Excise (Appeals) Rules, 2001[Rule12(c)].
b) Service Tax vide Authority for Advance Ruling (Procedures) Rules, 2003-Rule 2(d)(i)
c) Income-Tax Act, 1961 vide Clause 288(2)(v) read with Rule 50(2A) of the Income Tax Rules,1962
d) Securities Appellate Tribunal vide Clause 15V of the SEBI Act, 1992
e) Central Electricity Regulatory Commission vide the Central Electricity Regulatory Commission (Miscellaneous Provisions) Order, 1999- Explanation to Order No.6(i)
f) Telecom Regulatory Appellate Tribunal vide the Telecom Regulatory Authority of India Act, 1997-Clause 17
g) National Company Law Tribunal vide Clause 10GD
h) Competition Commission of India Competition Act, 2002 – Clause 35(b)
i) Wealth Tax Authorities vide Wealth Tax Rules – Rule 8A(7)
j) State VAT Legislations.
k) Reserve Bank of India – Diligence Report for Banks Vide Circular DBOD No. BP.PC. 46/08.12.001/2008-09
l) SEBI – Internal Audit of Stock Brokers / Trading Members / Clearing members Vide Circular No. MRD/DMS/CIR/-29/2008
Clause 314(2) of the Direct Taxes Code Bill, 2010 define “Accountant” as follows:
(a) a chartered accountant within the meaning of the Chartered Accountants Act, 1949, and
(b) any person who is entitled to act as an auditor of companies under sub-Clause (2) of Clause 226 of the Companies Act, 1956
Clause 182(3) of the Direct Taxes Code Bill, 2010 define “Accountant member” as follows:
“An accountant member shall be a person—
(a) who has for at least fifteen years been in the practice of accountancy as a chartered accountant under the Chartered Accountants Act, 1949; or
(b) who has been a member of the Indian Revenue Service and has held the post of Additional Commissioner of Income-tax or any equivalent or higher post for at least three years”.
The three Institutes, namely, the Institute of Company Secretaries of India (ICSI), the Institute of Chartered Accountants of India (ICAI) and the Institute of Cost and Works Accountants of India (ICWAI) have been constituted under the statutes of Parliament, i.e., the Companies Secretaries Act, 1980, the Chartered Accountants Act, 1949, and The Cost and Works Accountants Act, 1959 to develop and regulate the profession of Company Secretaries, Chartered Accountants and Cost and Works Accountants, respectively. Further, these three Institutes function under the administrative control of the Ministry of Corporate Affairs, Government of India and thus stand on equal footing.
We, therefore, request the Hon’ble Committee to recommend inclusion of –
A) “Company Secretary within the meaning of the Company Secretaries Act, 1980 (Central Act 56 of 1980)” in the definition of “Accountant” and “Accountant Member” so as to give them the same privilege as given to the Chartered Accountants.
B) Specific entry in respect of Company Secretary under Clause 304 (3) on “Appearance by authorized representative” or in other applicable provisions be made to define Authorised Representative specifically.
The proposed amendment will provide the entrepreneurs, specially the SMEs, a wider and cost effective scope for selection of professionals and will be an important initiative towards simplified tax compliance regime.
PART – B
2. CHAPTER III – COMPUTATION OF TOTAL INCOME
I – Heads of Income
(A) Income from Employment:
1) Leave Travel Concession: The Code is silent on the exemption of LTC as exist in the Income Tax Act, 1961.
2) Expenditure actually incurred on travel and stay abroad of one attendant who accompanies the patient in connection with such treatment appears to be fully taxable perquisite as not mentioned in clause 314(191)(b)(vi) of the Code.
3) Payment from an approved superannuation fund in the form of refund of superannuation fund contributions received on the death of the beneficiary is proposed to be taxable in the Code.
As salaried class people have fixed source of income, the taxability of the above three items would create undue hardship.
1. The existing exemption limit for leave travel concession in Income Tax Act, 1961 may be retained.
2. Actual expenditure incurred (travel, stay, etc.) for one attendant accompanying the patient in connection with treatment in a foreign country may be fully exempted in the hands of employee.
3. Taxing the refund amount of superannuation contributions received on the death of beneficiary, is very painful. The amount received whether in the form of refund or otherwise may be exempted.
4. Standard deduction may be re-introduced for the salaried class in order to encourage upgradation of skills through higher/technical studies and training compatible with the current business requirements and latest technological changes.
(B) Income from House Property:
Deduction From gross rent: The deduction of expenses for repair and renewals in regard to property income has been reduced from 30% (Income Tax, 1961) to 20% (Code).
As the cost of maintenance is increasing day-by-day, this amount is not sufficient to meet the requirements of repair. The reduction of maintenance allowance from 30% to 20% does not seem to be justified.
The limit may be retained to 30% according to the increased cost of construction/renewal/repair.
II – TAX INCENTIVES
(A) Deduction under Clauses 70, 71 & 72 and limit on deductions under Clause 73:
The aggregate amount of deduction for life insurance premiums, tuition fees, contribution to CGHS scheme is limited to Rs.50,000. Further, the option with the assessees for investment is limited to 4 or 5 approved funds only while presently the list is around 19 investments.
Most of the individuals see life insurance policies as one of the best investment option for savings. The proposed provision will circumscribe the choice of taxpayers as the number of options has been restricted to a very small list.
The limit of Rs.50,000 for insurance premium, tuition fees and contribution to CGHS scheme may be removed. Further, the list of investment funds as present in the existing Act may be extended.
(B) Life Insurance:
a) Under Clause 70(2), deduction for life insurance is allowed as payment of Life Insurance premium if the premium paid is less than 5% of capital sum assured.
b) As per Clause 59(3)(d), the amount received at the time of maturity shall be exempt from tax if the premium paid or payable for any of the years during the term of the policy does not exceed 5% of the capital sum assured.
c) TDS is proposed to be deducted on the maturity proceeds on death of policy holder. Further, the liability to deduct TDS would be attracted for every payment made by insurer.
There is apprehension for taxing of the policies taken under the Income Tax Act, 1961.
TDS provisions are not in harmony with tax provisions proposed under the Code, as the amount received on the death of policy holder is exempt from tax but liable to TDS.Online GST Certification Course by TaxGuru & MSME- Click here to Join
The limit of less than 5% of capital sum assured will be eligible for tax incentive against the existing limit of 20% of capital sum assured in the Income Tax Act, 1961 seems to be unjustified.
a) TDS provisions need to be suitably amended according to the proposed tax proposal in the DTC.
b) The limit may be raised to 20% or some other higher percentage from the proposed 5% of the capital sum assured in case of tax incentive and exemption provisions of the DTC.
c) The Code may contain a provision prescribing therein, that the provisions of the Code shall not be applicable on the policies which were taken prior to 1st April, 2012.
3. CHAPTER IV- SPECIAL PROVISIONS RELATING TO THE COMPUTATION OF TOTAL INCOME OF NON-PROFIT ORGANISATIONS
(A) Non Profit Organisation (NPOs):
1. Application and accumulation of income:
The proposed provisions in DTC have re-affirmed that the NPOs have to apply 100% of their income for charitable purposes. Under Income Tax Act, 1961, NPOs can transfer 15% to their income to corpus fund every year.
According to clause 94(f), the accumulation of income which can be carry forward to future years is restricted to 15% of total income or 10% of gross receipts whichever is higher, which should be utilized within a period of 3 years. While, as per the present law 85% of unspent amount can be accumulated and can be spent in the next five years.
This provision will create hardship to NPOs engaged in long term projects. For example, in a disaster rehabilitation project, the NPO may receive contribution for constructing houses which can not be completed in one year. The NPO have to apply 85% of its income in the year of receipt itself.
The DTC should allow reasonable time for execution of projects which can not be completed in one year. Further, a provision should be there to allow in some cases for accumulating the 100% of the receipts for next three years.
2. NPOs not permitted to claim depreciation under the Code:
The term outgoings as defined in Clause 94 of the Bill does not include depreciation as expenditure towards charitable purposes. NPOs also require capital assets to carry out its permitted welfare activities.
The rationale of discriminating NPOs is unfair and discriminating.
The NPOs may be allowed to claim depreciation as expenditure.
4. CHAPTER IX- CHARGE OF BRANCH PROFITS TAX
(A) Branch Profit Tax:
As per Clause 111 of the Code, foreign companies having any form of Permanent Establishment in India are liable to pay branch profit tax @15% in addition to corporate tax of 30%.
It will increase the tax liability on foreign companies as compared to the existing rate of 40% plus surcharge and education cess. This would have adverse affect on foreign investment in India.
Under the proposed DTC, Indian corporate tax rate and foreign companies tax rate is same which provide parity. This parity between the Indian Companies and Foreign Companies may be maintained by removing the Branch Profit Tax.
5. CHAPTER XI- SPECIAL PROVISIONS RELATING TO
AVOIDANCE OF TAX
General Anti Avoidance Rules (GAAR) :
This provision has been introduced to curb the practice of tax avoidance. Clause 154 of the Code empowers the Commissioner to declare any arrangement as covered in Clause 123 of the Code, entered into by a person as an impermissible avoidance arrangement.
The GAAR provisions are silent on arrangement which have already been entered into before the enactment of the Code.
1. The Code may provide that provisions of GAAR shall be applicable only on those arrangements which will enter on or after 1st April, 2012.
2. The Code may allow tax payer to obtain advance ruling, to determine whether a transaction is hit by GAAR or not.
3. ‘Safe harbour’ rules should be introduced in such a manner that it provides guidelines as to when an arrangement will be considered as an impermissible avoidance arrangement. For example, safe harbour rule detailed out the factors which can lead to rechracterisation of debt into equity such as period of holding, interest rate, participation in profit or not, etc.
4. The provisions of GAAR may be made applicable to arrangements entered with related parties as defined under AS-18 read with IAS 24. Alternatively, it may apply to associated enterprises or associated persons. It may not apply to arrangements entered with unrelated parties.
6. CHAPTER XIII- COLLECTION & RECOVERY OF TAX
Tax Deducted at Source
1. No provision for furnishing Declaration for non-deduction of TDS from Interest income
The Code does not contain any provision for furnishing declaration for non deduction of TDS on interest income where such interest income plus the other income are below the exemption limit as currently exist in Clause 15G/15H of income tax Act, 1961.
It will create undue hardship for small interest earners including senior citizens, widows and agriculturists. Further, it will create burden on the tax deducters, deductees and even the tax department in handling all related procedures of deducting and paying TDS, Issuing TDS certificates, filing tax returns for making refund claims and granting them back along with interest.
Clause 197 of the Code provides for obtaining a certificate from Assessing Officer for deduction of tax at lower rate or no deduction of tax. For obtaining a certificate the assessee needs to make an elaborate application to the Assessing Officer who has been empowered to grant the same if he is satisfied that the total income of the deductee justifies no deduction of tax, which in the practical context, is more difficult task than filing a simple tax return. Moreover, it will take lot of time and create huge workload on the Department.
To mitigate all such problems, the Code may contain a Clause for furnishing a declaration for non deduction of TDS on interest Income.
2. No threshold limit for TDS on Payment of Professional Fees:
Clause 200 of the Code, which prescribes threshold limits for deduction of tax at source in respect of payments made to residents, does not provide any such limit in respect of fees for professional or technical services. In such case, the TDS liability in respect of such fees would get attracted even on payment of Rs.1 during the financial year.
It will create unnecessary burden on tax deducters, deductees and even the tax department in handling all related procedures of deducting and paying TDS, Issuing TDS certificates, filing tax returns for making refund claims and granting them back along with interest.
The Code may provide threshold limit for deducting TDS on Income from Professional or Technical fees.
3. TDS on Service Contracts:
The Code requires deduction of tax on service contracts. This is a new provision which is not there in the current Income Tax Act, 1961.
The service contract has not been defined in the Code. According to Clause 200, read with third Schedule, the payer (other than individual and HUF not liable to tax audit) needs to deduct tax at prescribed rate of 2%.
It is not clear whether the services of telephone, internet, electricity, gas consumption, air tickets, hotel stay, etc. shall fall within the category of `service contract’. If it is so, it is practically very difficult to deduct tax on each and every service of basic need and deposit the same to Exchequer.
The Code may define the term ‘Service Contract’ i.e., on which type of service contracts TDS needs to be deducted.
7. CHAPTER XVIII- GENERAL
Double Taxation Avoidance Agreements (Treaty):
The Code provides that the treaty or provisions of the Code whichever is more beneficial to the assessee is to prevail except in the following :
a) General Anti Avoidance Agreements (GAAR)
b) Levy of Branch Profit Tax
c) Control Foreign Company Rules
This provision would have adverse impact on the foreign business dealings.
These caveats from this provision may be removed and keep the law same as in Income Tax Act.
8. FOURTH SCHEDULE- RATES FOR DEDUCTION OF TAX
AT SOURCE IN THE CASE OF NON-RESIDENT DEDUCTEE
Royalties and Fees for Technical Services (FTS) :
The rate of tax for non-residents on income from royalties and FTS has been doubled in the Code as compared to the existing Act. It is proposed to be 20%.
The proposal may adversely affect import of technology in the country.
10% rate of tax may be kept in order to derive the best technology from outside India.
9. TWELFTH SCHEDULE – COMPUTATION OF PROFITS OF THE BUSINESS OF DEVELOPING OF A SPECIAL ECONOMIC ZONE MANUFACTURE OR PRODUCTION OF ARTICLE OR THINGS OR PROVIDING OF ANY SERVICE BY A UNIT ESTABLISHED IN A SPECIAL ECONOMIC ZONE
Special Economic Zone:
Under the DTC Bill, 2010 the profit linked deduction will continue only for developers whose SEZs are notified before 31March, 2012 and for SEZ units who commenced their operation before 31st March, 2014. Sunset clause has been introduced in the Code as against the Income Tax Act, 1961.
Further, DTC also propose to impose MAT & Dividend Distribution Tax on SEZ developers and MAT on SEZ units.
1. Due to the proposed provisions for SEZ developers and SEZ units the exports out of the country, investment in SEZ units and employment in the country may get down.
2. The time period till March, 2014 for setting up of SEZ units is insufficient.
3. According to SEZ Act, 2005 the SEZ developers are exempt from MAT and DDT while the SEZ units are Exempt from MAT.
1. The DTC Bill is in contrast to the SEZ Act, 2005.
2. SEZ scheme has done extremely well so far in achieving its objectives of increasing exports, creating employment and attracting investments therefore the scheme may be nurtured as it got international acceptability as well.
10. TWENTIETH SCHEDULE – COMPUTATION OF INCOME ATTRIBUTABLE TO A CONTROLLED FOREIGN COMPANY
Controlled Foreign Company (CFC):
The Concept of CFC proposed in the Direct Taxes Code, 2010 to limit artificial deferral of tax by using offshore low taxed entities.
The CFC rules are needed only with respect to income of entities which is not taxed in the hands of owners of the entity. However the proposed CFC rules under DTC would result in taxing of income of certain overseas subsidiaries in the hands of owners, even before such income is distributed. This would cause double taxation of income in the hands of owners as there is no provision for claiming foreign tax credit on such income.
For such income, a provision for claiming foreign tax credit may be introduced.
PART – C
11. DEDUCTION FOR EXPENDITURE ON CORPORATE
SOCIAL RESPONSIBILITY (CSR)
CSR is required to be taken as an integral part of the corporate activities and Indian corporate sector has to play a vital role to achieve the objective of ‘inclusive growth’. Large Indian companies are aware and discharging their responsibility in this regard by embarking upon the social welfare programmes in their respective catchments. However, the task is huge and every entity, big or small, has to assume this responsibility across the length and breadth of the country.
A weighted deduction of 150 per cent of the total expenditure incurred during the year on CSR initiatives as certified by a social audit conducted by a Practicing Company Secretary may be provided to encourage the entrepreneurs to undertake CSR initiatives.