May-2015

TAXATION
Non-resident taxation has always been riddled with
uncertainties. The advance ruling, which was expected to
be binding both on taxpayer and revenue is no longer final,
thanks to the Supreme Court decision in Columbia
Sportswear Company v. Director of Income-tax [2012]
346 ITR 161 (SC), so that it has lost its effectiveness to
forestall disputes. This could have been easily remedied
by making Authority for Advance Ruling a wing of the
Central Board of Direct Taxes. But the uncertainty hangs
fire till date.
While nothing has been done to make the law more
humane, the black money bill is another law following
the same ineffective policy just being a showcase on paper
not capable of being enforced not likely to have any significant
impact on revenue by way of expected voluntary
disclosures. It will be used only by those who are already
in the net on information in possession of the Income Tax
Department.
The mere statement that India is not a tax haven or
that its demands raised in regular assessment do not have
terrorist character does not carry conviction in the light
of astronomically untenable demands, which have been
raised.
This black money bill has made amendments to Securities
Transactions Act, Money Laundering Act and Foreign
Exchange Management Act with the announcement of
another bill to amend Benami Transactions Act all with
the sole object of providing for confiscation under these
laws, which have apparently been brought to back up
black money bill. Law is not a solution in such cases. It is
not businessmen alone at fault, if there is tax evasion. It is
largely due to the law with loopholes as for example a law,
which spares non-resident Indian from foreign exchange
law while the odd category of a resident but not ordinarily
resident being immune from tax or even duty to file
return or furnish particulars, if he has no taxable income
in India. These provide gaping loopholes with every family,
whether in business or profession or in senior civil or
other services having a member as non-resident Indian to
facilitate dodging of not only tax in India but also other
laws in India. Tax evasion has largely been with the connivance
of the men in power either in service or politics.
Reform to be proposed by a committee of experts with
participation from trade and industry, profession and administration
is long overdue. The piecemeal solution by
various amendments to law and new laws will only provide
ammunition for abuse by unscrupulous law enforcement
agencies without any positive benefit to revenue.
More on charities
The High Court in India Trade Promotion Organisation
v. Director General of Income-tax (Exemptions) [2015]
371 ITR 333 (Del) has elaborately considered the validity
of the proviso to section 2(15) inserted by the Finance
Act, 2008 which withdrew right to exemption to charities
with the object of general public utility with the
exception under second proviso, if the business income
does not exceed Rs.10 lakhs/ Rs.25 lakhs. A large number
of charities including Government companies were
affected. Constitutional validity of the amendment was
challenged in this case. The High Court in this welcome
decision has held that the provision has to be read down
to accord with the Constitution. If it is so read down,
the proviso would be ineffective, since there can be no
discrimination against those trusts and institutions with
the object of general public utility.
The Finance Bill, 2015 now proposes to substitute
both the provisos by a single proviso, which would now
exempt the business income, where the activity “is undertaken
in the course of actual carrying out of such advancement
of any other object of general public utility”,
so that it recognises all the activities consistent with the
objects, where the objects are not prompted by profit
motive, from the purview of liability bringing the law on
par with exemption for other classes of objects, viz. relief
of the poor, education and medical relief.
In another case, the Supreme Court in Queen’s Educational
Society v. CIT [2015] 372 ITR 699 (SC)
reversing the decision of the High Court in CIT v.
Queens’ Educational Society [2009] 319 ITR 160
(Uttarkhand) has decided that the fact that the profit
is large does not justify the inference that the educational
institution is run for profit. It was also pointed
out that the decision of the Supreme Court in S.RM.
M.CT.M. Tirupani Trust v. CIT [1998] 230 ITR 636
(SC), that the plough back of profit for the same educational
object makes it a charity “not for profit”. In
fact, the requirement of application of 85% within
the permitted period of accumulation itself should
avoid any adverse inference.
s.rajaratnam@vsnl.com
46 the MANAGEMENT ACCOUNTANT MAY 2015
www.icmai.in