Direct Tax but indirect Amendments

By R Raman, Senior Manager (Accounts), Wheels India Limited, Chennai 

OUR thanks to FM for giving a relief of Rs.2000/- to the tax payers whose income is in between Rs.2,20,000/- and Rs.5,00,000/-. This budget seems to be more towards welfare angle than finance angle.

ADDITIONAL DEPRECIATION:

With an intention to promote Socio-Economic Growth, provisions to grant an incentive for acquisition and installation of new plant or machinery by manufacturing companies is proposed in the recent Finance Bill
2013. It is proposed to insert a new section 32AC in the Income Tax Act to provide for granting a deduction of 15% of aggregate amount of actual cost of new assets acquired and installed during the financial year 2013-14, if the cost of such assets exceeds Rs.100 Crores. This is applicable to manufacturing companies engaged in manufacture of an article and invests a sum of more than Rs.100 crores in new assets (Plant and Machinery) during the period beginning from 1 st April, 2013 and ending on 31 st March, 2015 (for 2 years).

In respect of FY 2014-15 (AY 2015-16) the deduction claimed for the investment is reduced by the deduction allowed, if any, for the assessment year 2014-15. Here also there is a chance of misinterpretation by treating the deduction as depreciation since it was also a deduction from cost of asset. By this the deduction can be reduced substantially. So it is better to clarify both Additional depreciation and current deduction provision to the benefit of assessee.

The above provision is nothing but Additional Depreciation @ 15% u/s 32(1) (iia) in addition to normal depreciation, in the form of incentive earlier inserted vide Finance Bill 2002 in which it was clearly stated that this additional depreciation for Investment in new Plant and machinery is to promote the same Industrial Growth and give boost to Manufacturing sector. Initially the same was subject to increase in installed capacity by not less than 25% but later the same was extended on investment itself in line with current proposal u/s 32AC.

This additional benefit in the form of additional allowance u/s 32(1)(iia) is one time benefit to encourage the industrialization and in view of the decision of the hon'ble Supreme Court in the case of Bajaj Tempo Ltd Vs CIT (1992) 196 ITR 188 (SC), the provisions related to it have to be constructed reasonably, liberally and purposive to make the provision meaningful while granting the additional allowance. This additional benefit is to give impetus to industrialization and the basic intention and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance 50% when the new plant and machinery were acquired and put to use for less than 180 days. One time benefit extended to the assessee has been earned in the year acquisition of new plant and machinery has been calculated at 15% but restricted to 50% only on account of usage of these plant and machinery in the year of acquisition. In section 32(1)(iia), the expression used is shall be allowed.

In the current scenario in spite of favourable decision to assessee in the case of DCIT Vs Cosmos Films Ltd by ITAT (DEL). There are so many contradictory opinions which affects the assesses to great extent for the past so many years which needs to be clarified by way of amendment/explanation/circular/notification or as the case may be. This issue I am representing for the past 3 years but till today no clarificatory feedback either through CBDT or Budget proposals to amend the section.

Now also I am of the view that definitely a clarificatory circular or amendment before approval of the bill is required to close the issue of Additional Depreciation u/s 32(1) (iia) in favour of industries which is also fully justified and based on intention of the statute. One side FM has taken so many steps to improve industrial growth especially the Incentive offered through deduction vide new provision of 32AC. It is really needed to set right the problem in existing benefits before introducing the similar benefit by way of new provision. On the other side new provision will take time to improve the industrial growth but existing section amendment in favour of manufacturing sector will improve the industrial growth spontaneously.

Interest u/s 244A:

In the recent Budget in the Finance bill (page 14) under the heading Clarification of the Phrase "tax due" for the purpose of recovery in certain cases" it was mentioned that :

"Section 179 of the Income-tax Act provides that where the tax due from a Private Company cannot be recovered from such company, then the director(who was the director of such company during the previous year to which non-recovery relates) shall be jointly and severally liable for payment of such tax unless he proves that the non-recovery tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. This provision is intended to recover outstanding demand under the Act of a private company from the directors of such company in certain cases. However, some courts have interpreted the phrase "tax due" used in section 179 to hold that it does not include penalty, interest and other sum payable under the Act.

In view of the above, it is proposed to clarify that for the purpose of this section, the expression "tax due" includes penalty, interest or any other sum payable under the Act. Amendments on the similar lines for clarifying the expression "tax due", is proposed to be made to the provisions of section 167C.

In the above proposal it is clearly expressed all amounts including penalty, interest or any other sum payable under the Act is treated as "tax due". But in the case of interest on tax and interest refund due it is interpreted that only in the case of tax refund interest is applicable and for interest due, no interest on interest is applicable by treating the interest not as "TAX REFUND" in spite of Sandvik Asia case. Now so many decisions came interpreting tax and interest as two different things and also it was stated that the interest is applicable only for inordinate delay which was specific to that (Sandvik Asia) case law. In the case of acceptance of deposit by Banks/Public Limited companies whether they can say they will pay interest to the deposit only if it is kept for more than a year or holding the deposit for 3yrs or more. Anywhere in the world it is absolutely clear that even for a one day delay interest is applicable and in the case of income tax it will round off 1 day to 1 month. So in case interpretation is favourable to department it is immediately clarified otherwise it is left as it is.

Disallowance u/s 14A wrt Rule 8D:

In the case of investment in sister concern by a promoter company out of the reserves and profit for current year available, in line with Government view on improving industrial growth is wrongly interpreted that the same is invested on profit motive. Even the investment is made a decade back and even fund borrowed in that year also repaid in full few years back, they interpret it is from borrowed funds and interest paid in full (without considering net interest after deduction of interest offered for tax by assessee) is considered for disallowance u/s 14A wrt Rule 8D along with Gross Assets after deduction of Current liabilities from Current Asset which is beneficial to department to boost the disallowance more than the dividend received claimed as exempted income. Even in the case of investment also, certain investments made for Windmill project to generate power for Government to avail a discount in power supplied by them for industrial use was treated as investment on profit motive without considering the power saving to Government at assessee's cost.

Here the scenario is one side we are paying DDT at higher rate by way of tax and surcharge for dividend declared and on the other side if we claimed deduction on dividend received the disallowance is made more than the claim applying Rule 8D with misrepresentation.

All these issues have been highlighted through various forums and TIOL for the last few years but response is not in favour of industrial sector. But Government intention is to improve industrial growth and dispose of the appeals as early as possible but execution got delayed and goes against the intention due to wrong interpretation.

If the above issues are handled by amendments or through suitable mode it will definitely result in improvement in industrial growth or at least the strength to industries to withstand this economical crisis.