Free samples to doctors to be now considered as taxable income

Doctors getting free samples of medicines, gifts or foreign trips from pharmaceutical or healthcare companies should now be prepared to pay tax as such freebies will be calculated as taxable income.

Similarly, drug makers and allied healthcare companies will also be no longer get tax exemptions on expenses for such promotional activities, according to a Central Board of Direct Taxes (CBDT) notification last week. It has also asked its officials to take "necessary action" to implement the guidelines.

There is a rampant practice of drug makers giving freebies to doctors in forms of gifts, sponsoring foreign trips and sight seeing in return for prescribing a particular company's brand of drug over its competitors. This expenditure is embedded in the cost of medicines and borne by consumers.

Last month, following a directive from the prime minister's office (PMO), department of pharmaceuticals held a meeting with representatives of the drug industry, Medical Council of India (MCI) and finance ministry to respond to allegations of violations of the guidelines by doctors. The rules are currently not applicable to pharmaceutical companies, but considered unethical. CBDT said it has to its notice about freebies being doled out illegally to doctors.

Gulhati said it was difficult to estimate the impact on earnings of companies because expenses on such tax deductable promotional activities are not separately disclosed. But according to chief of an Indian drug company, the drug industry spends about 5% of its revenues on such promotional activities.

Indian Drug Manufacturers' Association secretary general Daara Patel said the government needs to be flexible with its rules to ensure introduction of new drugs are not restricted. "Why will a doctor take sample of new medicines or simple medical instrument if he will be taxed for it?" He said that IDMA will take up the matter with department of pharmaceuticals and MCI to exempt drug samples or medical equipment for promotion of their brands.

According to Indian Income Tax Act, expenditure from the income is eligible for tax deduction if it is spend for promotion of business or profession. But since the amended guidelines of MCI of 2009 make such freebies and promotional activities illegal, this provision was no longer applicable in the pharmaceuticals and allied health care industry, the CBDT release said.

IRDA license not required for selling in India medical/accident insurance policies of foreign insurer which is operative and enforceable only outside India

Insurance : IRDA license not required for selling in India medical/accident insurance policies of foreign insurer which is operative and enforceable only outside India

• There is no indication of the intention of the legislature to give extra-territorial operation to the Insurance laws of India. The Indian laws do not apply to insurance business outside India.

• The business of Foreign Insurance Companies of covering risks incurred outside India, cannot be said to be insurance business in India (within the meaning of Insurance Act), even if the premium for such insurance is paid in/from India and Insurance Policy is issued in India.

• The essence of the business/contract of insurance is the coverage of risk and if the policies issued by the foreign insurer do not cover the risk as long as the insured remains in India, mere issuance thereof cannot be said to be carrying on insurance business in India. There cannot be said to be an insurance business only in effecting a contract which is contingent and is to be operative and enforceable not in India and only outside India.

• Without the contract being operative and enforceable in India, mere ministerial act of issuance of the contract in India cannot be said to be amounting to carrying on insurance business in India. - [2012] 21 taxmann.com 189 (Delhi)

CPC commences issue of refunds for AY 2010-11 returns.

Centralized Processing Center (CPC), Bangalore has begun processing of returns for AY 2010-11. As on 31/1/2011 it has processed over 31.3 lakh e-filed returns of AY 2010-11 in ITRs 1, 2, 3, 4 and issued refunds in over 8.3 lakh cases. The processing of ITR 5 and 6 has just been commenced.

Source: incometaxindiaefiling.gov.in

Online Submission of Rectification Request

Department introduces new facility for online submission of rectification request in cases where processing was completed by CPC Bangalore. Please review the guide for common errors to first rectify the return submitted and generate the rectification xml using excel utility (same utility is to be used). Taxpayer can log in My Account > Rectification > Rectification upload and follow instructions to upload the rectification xml file. The rectification request will be processed at CPC and if found acceptable, then a rectification order u/s154 will be issued.

Please see manual for submission of rectification request.


Please note that this facility is only for E-returns processed at CPC.

10 things to do before 31 March

1. If you are claiming deduction for house rent allowance on account of actual rent paid, collect the rent receipts from the owner and keep them in your possession.

2. If you received any gifts during the year, please collect the gift deeds. The deeds should clearly state that you received the gift without any consideration

3. In case you have changed employment during the financial year, you have to go back to your previous employer and collect the Form 16.

4. If you have donated to charitable trusts, obtain a receipt and also a certificate saying the trust is an approved one under Section 80G of the Income Tax Act, 1961.

5. Collect all your bank statements and TDS certificates, if any. This will help you calculate your earnings from bank interest and deposit advance tax if required

6. If you have a running home loan, you must collect the certificate of repayment of principal amount and the interest paid during the financial year from the bank

7. If you are claiming an interest-paid deduction on an educational loan, get a certificate of repayment made in the financial year where the interest is stated separately.

8. Keep all receipts for contributions made to schemes listed under Section 80C, such as insurance payment, PPF, ELSS, and children's tuition fees.

9. In case you are claiming a deduction for any medical disability under Section 80U, do not forget to collect a certificate of disability from an authorised doctor

10. If you are claiming deduction for payment of health insurance premium, you need to keep the premium receipt indicating that the premium was paid in cheque.

Case Laws applicable for May 2011 and November 2011 CA Final

TO RECEIVE SUCH LATEST CASE LAWS ON YOUR MOBILE PHONE FOR FREE, SEND ON TAXALERTS TO 9870807070.
 Direct Tax Cases

Indirect Tax Cases

In addition to this, students are also advised to go through the Institute's Journal, Newsletter and most importantly, RTPs for latest decisions and amendments. Note that only those amendments which are made 6 months before the examination are relevant for that particular attempt.


Send ON TAXALERTS to 9870807070 to receive free tax updates daily to your phone!

“Goodwill” is an “intangible asset” u/s 32(1)(ii) & eligible for depreciation

CIT vs. Hindustan Coca Cola Beverages Pvt Ltd (Delhi High Court)

The High Court, on hearing an appeal made by the assessee, has held that:

(iii)... any right obtained for carrying on business with effectiveness comes within the sweep of meaning of “intangible asset”. Goodwill, being the positive reputation built by a person over a period of time is of “similar nature” as the other items enumerated in the definition of “intangible assets".

Read full judgement here


Send ON TAXALERTS to 9870807070 to receive free tax updates daily to your phone!
A free service by Google Labs.

Check your IT Refund Status Online

Still waiting for the income tax refund after months of filing your tax return?

You can check your income tax refund status from the website of Tax Information Network (TIN) by Income

Tax Department powered by NSDL.

Click on the link below to check your IT Refund status with your PAN.

CLICK HERE TO CHECK YOUR REFUND STATUS

Send ON TAXALERTS to 9870807070 to receive free tax updates daily to your phone! A free service by Google Labs.

IT Dept releasing 3 new services on the e-filing portal

Income Tax Department is releasing 3 new services on it's e-filing portal. These services are being made available from the 'Services' menu on the Menu Bar on top. The said three services are available without requiring any login procedure also. The said three services are:

e-Filing Help Portal of the ICAI

The Institute of Chartered Accountants of India has introduced a separate web portal to provide assistance on e-filing.

Click here to open the portal.

Amount transferred from Revaluation Reserve includible u/s 115JB: Supreme Court

Amount withdrawn from revaluation reserve & credited to P&L A/c cannot be reduced from book profit even if in year of creation of reserve, the P&L A/c was not debited

In AY 2000-01 the assessee revalued its fixed assets by Rs. 288.58 crores and credited the said sum to the revaluation reserve. In AY 2001-02, the assessee debited Rs.127.57 crores towards depreciation and in accordance with Accounting Standard AS-10 & AS-6 transferred Rs. 26.11 crores from revaluation reserve & set it off against the depreciation resulting in a net depreciation charge of Rs.101.45 crores. In computing the book profits u/s 115JB, the assessee claimed that the amount of Rs. 26.11 crores transferred from the reserves had to be excluded and the depreciation charge had to be considered at Rs. 127.57 crores*. The AO, CIT (A), Tribunal & High Court rejected the claim of the assessee.

On appeal to the Supreme Court, HELD dismissing the appeal:

(i) The assessee’s argument that as the creation of the revaluation reserve was not debited to the P&L A/c, the withdrawal from the reserve should be excluded from the P&L A/c in terms of clause (i) of the Explanation to s. 115JB(2) read with the Proviso is not acceptable because had the assessee deducted the full depreciation from the profit before depreciation in AY 2001-02 it would have shown a loss and could not have paid the dividends. Therefore, the assessee credited the amount to the extent of the additional depreciation from the revaluation reserve to present a more healthy balance sheet to its shareholders enabling the assessee possibly to pay out a good dividend. It is precisely to tax these kinds of companies that MAT provisions had been introduced. The object of MAT provisions is to bring out the real profit of the companies. The thrust is to find out the real working results of the company. Thus, the reduction sought by the assessee under clause (i) to the Explanation to s. 115JB(2) in respect of depreciation has been rightly rejected by the AO;

(ii) Further, clause (i) of the Explanation to s. 115JB(2) permits the net profit to be reduced by the amount withdrawn from reserves only if in the year of creation of the reserves, the book profits had been increased. As in the year of creation of the reserves (AY 2000-01), the amount of Rs.288.58 crores or Rs.26.11 crores had not gone to increase the book profits there is no question of reducing the amount transferred from such revaluation reserves to the P & L Account. The argument that creation of the reserve did not impact the profits of that year is also not acceptable because though the profit was not impacted, depreciation was impacted and by the inter play of the balance sheet items with P&L A/c the assessee had projected a loss of Rs.7.38 crores (before transfer from reserves) as profit of Rs.18.73 crores.

Income Tax Return Forms (A.Y. 2010-11)

Download the Income Tax Return forms and blank acknowledgement for the assessment year 2010-2011 (Financial Year 2009-10)

Note:
The forms below are in pdf format. To see those forms, you will need to have pdf reader installed in your system. You can download the Adobe Pdf Reader from here.

SARAL - II (ITR-1)     Instructions	For Individuals having Income from Salary / Pension / Income from One House Property (excluding loss brought forward from previous years) / Income from Other Sources (Excluding Winning from Lottery and Income from Race Horses.
ITR 2  Instructions	For Individuals and HUFs not having Income from Business or Profession
ITR 3  Instructions	For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship
ITR 4 Instructions	For individuals & HUFs having income from a proprietary business or profession
ITR 5 Instructions	For firms, AOPs and BOIs
ITR 6 Instructions	For Companies other than companies claiming exemption under section 11
ITR 7 Instructions	For persons including companies required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or section 139(4D)
ITR V  Instructions	Where the data of the Return of Income in Forms Saral-II (ITR-1), ITR-2, ITR-3, ITR-4, ITR-5 & ITR-6 transmitted electronically without digital signature.
Acknowledge -ment	Acknowledgement for e-Return and non e-Return

Note: The author of this blog does not take any responsibility whatsoever regarding correctness or otherwise of these forms and their contents.

TDS Rates for FY 2010-11

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Tax net widened for foreign firms working in India - ITAT on Linklaters

The Income Tax Appellate Tribunal (ITAT), Mumbai has found that Linklaters – the UK based law firm having its operations in India should pay income tax in India on all Indian profits after applying a retrospective amendment in section 9(1) of the Income Tax Act made by the Finance Bill 2010. This judgment is going against the latest decision in the Clifford Chance tax battle that is currently in the Indian Supreme Court.

This will result in tax demand of Rs 2.12 crores to Linklaters for the year 1995-1996. Apart from this, all previous India-billings of Linklaters or other such foreign firms would also now be covered by this decision.

Referring to the Ishikawajima Harima Heavy Industries Ltd. vs. DIT (288 ITR 408) case, the ITAT ruled:

"It is thus unambiguous that the judgment of Hon’ble Bombay High Court rests on the legal premises that, under section 9(1)(vii), “services, which are source of income sought to be taxed in India, must be (i) utilized in India; and (ii) rendered in India” and the conceptual premises that “territorial nexus for the purpose of determining the tax liability is an internationally accepted principle”.

"These legal premises, however, do no longer hold good in view of retrospective amendment w.e.f. 1st June 1976 in section 9 brought out by the Finance Act, 2010 […]"

"The conclusions arrived at by Their Lordships were thus entirely based on their reading of the scope of Section 9(1) of the Income Tax Act, but in view of the retrospective amendment in Explanation to Section 9(1), the scope of this provision does no longer permit the interpretation adopted by Their Lordships. The very conceptual foundation of Hon’ble Bombay High Court’s decision in the case of Clifford Chance (supra) ceases to hold good in law.  When the legal provisions considered in the judicial precedent, vis-à-vis the legal provisions prevalent when that precedent is sought to be applied, are not in pari materia, the judicial precedent cannot have precedence value.

"18. It is, therefore, free from any doubt that Hon’ble Bombay High Court’s judgment in the case of Clifford Chance is no longer good law, as there have been amendments in law in consonance with the school of thought discussed above and these amendment unambiguously negate the principle of territorial nexus which is the understructure of line of reasoning adopted by the Hon’ble Courts above.  It is no longer necessary that, in order to invite taxability under section 9(1)(vii) of the Act, the services must be rendered in the Indian tax jurisdiction  

"19. In view of the above discussions, we are of the considered view that the entire fees for professional services earned by the assessee, in connection with the projects in India and which is thus sourced from India, is taxable in India under the domestic law."

Linklaters had worked on twenty one Indian matters in 1995-96, of which fifteen were for the banks or financial institutions. Permanent establishment under the Double Taxation Avoidance Agreement (DTAA) between India and the UK arises once services are rendered on the ground in India for at least 90 days, which the AO found Linklaters had done.

"It was submitted that the income of the PE [permanent establishment] is computed on the basis of actual man hours devoted in India to a particular client and charged at the rates would have been charged by the Indian lawyers for similar services," said the ITAT but ruled that the actual fees charged by Linklaters should be the amount that is subject to tax.

The latest ruling follows Clifford Chance's Bombay High Court decision last year, in which it decided that only the fees that the firm incurred directly in India should be taxable in India.

Bangalore Income Tax department, Central Processing Center (CPC) Helpline Number

To assist taxpayers, a limited call center service with two agents has been established at ITD-CPC, Bangalore. Taxpayer queries on status of ITR-V receipt at CPC, Bangalore will be answered on 080-43456700 between 9:30 AM to 6 PM. The service will be available in English, Hindi and Kannada.