Court rejects move to tax dividend stripping

The Bombay High Court has ruled that losses arising from the purchase and subsequent sale of mutual fund units, soon after receiving dividend on the units, can be allowed as an expense for deduction from taxable income.
In all its tax claims, the I-T department was of the view that losses arising from such transactions amounted to artificial or coloured transactions for evading taxes and was not a sound commercial decision.
For the assessment year 2001-02, Mumbai-based broking firm Walfort Share, purchased 4.55 billion units from Chola MF on March 23, 2000, at Rs 17.57 per unit totalling Rs 8 crore. On the same day, Chola MF distributed a dividend amount of Rs 1.8 crore.
On the next day (March 27, 2000), the assessee sold the units by way of redemption and Chola MF repurchased them at Rs 12.97 each and paid Rs 5.90 crore as the repurchase price. The assessee (Walfort) had also received Rs 2.3 crore as an incentive for purchase and sale of such units.
At the same time, on the units sale, the broking firm made a loss of around Rs 2.1 crore (Rs 8 crore less Rs 5.90 crore). Since the dividend income was exempt from tax under Section 10(33) of the I-T Act, the assessee claimed business loss of around Rs 2.1 crore to be set off against other income.
However, the tax authorities were of the opinion that the loss was created through pre-designed set of transactions to avoid paying tax and added it back to the trading income of the assessee. However, HC in its ruling in August was of the view that such transactions need to be seen with reference to Section 94(7) that deals with tax avoidance transactions.
The section provides that where the units are purchased and sold within a stipulated time and the income from such units is exempt, then, while computing losses of such persons, the losses to the extent of the income received should be ignored.
Thus, losses in excess of the income should be allowed for deduction.

RBI cuts cash reserve ratio

In a bid to ease the current cash crunch in the financial system, the Reserve Bank of India on Monday announced a percentage point reduction in the cash reserve ratio (CRR) to 7.5 per cent from 8.5 per cent.
The revision in CRR, which will come into effect from the fortnight beginning October 11, 2008, will release Rs 60,000 crore into the system, RBI said in a statement.
CRR is the portion of the deposits banks have to keep with the Reserve Bank of India.
The CRR cut will now increase the lendable resources of banks, which had been tightening their loan taps as liquidity came under pressure.

March payments: TDS relief for tax-payers

Taxpayers are to get relief on their tax deducted at source (TDS) obligations with regard to their payments for expenses in March — the last month of the financial year for income-tax purposes.
“They will now get six months time to deposit the TDS related to payments made in March and also escape disallowance of expense under the Income-Tax law.
This relief forms part of the amendments moved to the Finance Bill 2008, which has been passed by Parliament recently. The important thing is disallowance of expenses will not be there in such cases,” Mr G. Ramaswamy, Central Council Member, ICAI, told.The amendments to the TDS provisions have been made on a retrospective basis from assessment year 2005-06.

Petrol, diesel prices hiked by Rs 5, 3 a litre

The government on Wednesday hiked petrol and diesel prices by Rs 5 and 3 a litre and that of LPG by Rs 50 a cylinder, while sparing poor man's cooking medium kerosene from any increase.
The government also announced customs and excise duty cuts on petroleum products with immediate effect. These cuts would entail a revenue implication of Rs 22,660 crore for the remaining 10 months of this fiscal. However, the hike was far less than the required Rs 21.43 per litre on petrol and Rs 31.53 per litre on diesel. The actual increase in LPG price necessary was Rs 353 per cylinder, Oil Minister Murli Deora told reporters.

Vital amendments in service tax vide Finance Act 2008

Some Vital amendments have been notified in the Service Tax Act vide Finance Act, 2008.

1) The definition of ‘input service' has been amended to provide that ‘clearance of final products up to the place of removal' will alone be considered as input service. It has also substituted the words ‘from the place of removal', used earlier, by ‘up to the place of removal'.

2) The definition of ‘output service' has been amended to exclude the taxable service of goods transport agency (GTA) from its purview. Since GTA service is no longer an output service, a GTA service provider cannot utilise input CENVAT credit towards the service tax payable by him on such GTA services.

3) Another amendment about the duration of removal of capital goods to any place by the service provider for output services. Now, there is no time limit for return of such goods. Earlier, a limit of 180 days was stipulated

RBI guidelines on FCEBs

The RBI is likely to come out with guidelines on Foreign Currency Exchangeable Bonds (FCEBs) within a month, a move that would give corporate more options to raise money from overseas markets.FCEBs are financial instruments similar to Foreign Currency Convertible Bonds (FCCBs) in nature and allow corporate to raise money by issuing bonds.While funds raised through FCEBs cannot be invested in capital markets and real estates in the domestic market, corporate will be able to use the funds for their operations overseas.

Notice Period u/s 143(2) slashed :

Any kind of discrepancy (like understating income) in your IT return form furnished after 1 April 2008 would be brought to your attention, soon. The IT department has virtually halved the period on this, from the earlier 12 months to the current six.
It asks for a notice to be issued under Section 143 (2) to the assessee within a period of 12 months of furnishing the returns. This made the notices received after the 12-month period invalid.
However new section 292 BB has been inserted to iron out such implications. Once the assessee has appeared in any of the IT proceedings or co-operated in any inquiry related to assessment or reassessment, such assessee cannot take objection to any proceedings or inquiry under the pretext that:
1) That the notice was not served upon him;
2) Not served upon him in time;
3) Served upon him in an improper manner.

CST slashed to 2% from 1st June

The central government on Friday notified reduction in central sales tax (CST) to 2% with effect from June 1, 2008 compared to the current 3%. Elimination of CST is crucial to implementation of unified goods and service tax (GST) from April 1, 2010. CST was to be reduced from 4% to 3% on April 1, 2007. Reduction was not carried out then as Centre and state governments failed to agree on the compensation package. States are estimated to lose Rs. 12,000-13,000 crore in revenue due to the reduction in CST rate from 3% to 2%

Donations Disallowable Expenditure?

Donations to trusts can not be treated as business expenditure, the tax tribunal said while giving a ruling in a case involving an advocate and the tax authorities. The Income Tax Appellate Tribunal (ITAT) recently gave this ruling in a case pertaining to an advocate from Indore who claimed tax benefit on donation made to a charitable trust with instructions to use the money for buying books for the court library. Turning down the argument of the advocate that the money donated was business expenditure, the ITAT held, “No direct nexus has been established between the expenditure by way of donation and the profession of the assessee, such expenditure cannot be allowed deduction under section 37 of the IT Act (business expense).”

TDS on Service Tax on Rent paid....Dilemma resolved

CBDT has clarified in its latest circular that TDS will not be deducted on the service tax element included in rent paid. The Circular clarifies that “Service tax paid by the tenant does not partake the nature of income of the landlord. The landlord only acts as the collecting agency for government for collection of service tax. Therefore, it has been decided that tax deduction at source (TDS) under section 194-I of the I-T Act would be required to be made on the amount of rent paid/payable without including the service tax.” This comes as a major relief to a large section of tax payers.