To provide more time to taxpayers and tax administrators to address issues relating to the General Anti-Avoidance Rules, the Finance Minister, Mr Pranab Mukherjee, has deferred its implementation by one year (it will now be effective from April 1, 2013).
The amended Finance Bill 2012 also shifts the onus of proof from the taxpayer to the revenue department before any action is initiated under GAAR. Additional comfort has been provided to both resident and non-resident taxpayers by allowing them to approach the Authority for Advance Rulings to ascertain if any planned arrangement is permissible under GAAR provisions.
Further, the Minister has introduced an independent member, not below the rank of Joint Secretary from the Ministry of Law, in the GAAR approving panel to ensure objectivity and transparency. These amendments should alleviate some of the taxpayers' fears on the misuse of GAAR provisions.
The Reserve Bank of India has now permitted authorised dealer banks to release foreign exchange up to $25,000 (earlier limit was $5,000) for miscellaneous current account remittances without any supporting documents (including form A-2).
Only a simple letter would be required containing basic information such as the name and address of the remitter, amount to be remitted and purpose of remittance.
However, from an income tax perspective, in addition to documents supporting the need and nature of such payments, a Chartered Accountant's certificate in Form 15CB would still be required.
The rate at which tax is deducted and an undertaking in Form 15CA from the payer to the tax authorities that it would be liable in case of short or non-deduction of tax at source will also be required. Copies of these forms are to be submitted to the authorised dealer banks prior to the remittance.
Preference shares on par with equity
The Bombay High Court recently ruled that the benefit of indexation provided under section 48 of the Income Tax Act, 1961, which is denied to bonds or debentures, would be available for computing capital gains on redemption of non-cumulative redeemable preference shares.
The Court held that such shares cannot be characterised as debt merely because they have a fixed period of holding and rate of return. Preference shares form part of the share capital of a company carrying certain preferential rights, whereas bonds/debentures are interest-bearing instruments in the nature of a loan.
It is interesting to note that while redeemable preference shares would be classified as ‘debt' for exchange control (only compulsorily convertible preference shares would be considered as equity), for income tax they would continue to be treated on par with equity.
Interesting turn on CENVAT credit
Rule 14 of the CENVAT Credit Rules, 2004, provides for recovery of credit along with interest if such credit has been “taken or utilised” wrongly. The apex court in Ind-Swift Laboratories Ltd's case had held that if the said provision was read as a whole, there was no reason to replace the word “or” occurring in the expression “taken or utilised” with “and”. Accordingly, interest became leviable under any of the aforesaid circumstances. However, the principle that interest is compensatory in character and hence not leviable merely on incorrect availment of credit without its utilisation seemed to be overlooked.
Rule 14 has now been amended (from March 17) to read as “taken and utilised”, which is welcome. This is because the interest would trigger upon utilisation and not merely on availment of wrong credits, of which there can be subsequent reversal.