(Fortnightly inputs for professionals and executives) Volume II Part 5 March 10, 2013
Volume II Part 5 March 10, 2013
Tokenism in taxing the superrich T. N. Pandey – “Taxing people on ‘capacity-to-pay tax’ is a well-recognised principle in tax jurisprudence. If considered necessary, it should have been done with adequate homework.” Report on annual general meeting: New provision Dr S. Chandrasekaran – “The 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 Agarwal – “On 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 Raju – “The 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. Subramani – “Where 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 regarding Inheritance tax. Arguments in favour of and against the proposal
Azim Premji has Such suggestions got mixed responses – said that there is some supporting the suggestions and some opposing the same. The persons favouring merit in the idea of the proposal felt that this needs to be done: having a higher (i) to augment Government’s revenue; (ii) to marginal tax rate for fulfil the mandate of the Constitution for the ‘very wealthy’. 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 economic development 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 proposal saying 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
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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 Warren Buffett, when he suggested to the Congress the levy of more taxes on the nation’s 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 individual – not even, when capital gain tax rates were 39.9% in 1976-77 – shying 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 Warren Buffett has scare.
said that the notion that high taxes discourage hiring and investment is false.
FM’s 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 persons – let me repeat, only 42,800 persons – who admitted to a taxable income exceeding Rs 1 crore per year…”
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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 notifying the 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 the capital 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 of asset 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 making any 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 nonrural 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 of Catholic 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-à-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 1 lakh 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 the apparent 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 such return 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
Volume II Part 5 March 10, 2013
Published by: Shrinikethan, Chennai http://bit.ly/ShriMap Edited by: D. Murali http://bit.ly/dMurali http://bit.ly/TopTalk March 10, 2013 Volume II Part 5 March 10, 2013 9 Business Advisor