The Hindu Business Line : Company can be punished

The only additional burden will be the 2 per cent cess which is to be levied across the board on the total corporate tax payable, including surcharge.

In computing book profits under Section 115JB of the Income-tax Act, 1961, one of the exclusions relates to items of income which are exempt under Chapter III of the Act.

Income arising from a venture capital company is exempt under Section 10(23G) and is entitled to exclusion in computing book profits. The proposal is now to tax such income as part of book profits effective from assessment year (AY) 2005-06.

To facilitate expansion of industries, additional depreciation of 15 per cent was introduced by the Finance Act, 2002 effective April 1, 2002. One of the conditions was that the assessee in question will have to increase his installed capacity by 25 per cent. This was in some cases impossible to achieve. It is proposed to reduce this requirement to 10 per cent to be entitled to the additional depreciation. Assessees seeking expansion by acquiring plant and machinery will now need to substantiate increase of installed capacity only to the extent of 10 per cent.

Default, whether wilful or otherwise, relating to TDS obligations under the existing law is saddled with interest and penalty depending on the nature and type of default. It is proposed to amend Section 40(a) to provide that where there is a TDS default, the related expenditure — interest, commission and brokerage, payment to contractors, and so on — will not be allowed as a business deduction.

In other words, the deduction will be claimed only in the year in which TDS is remitted. This is on the lines of the artificial disallowance that exists in the law — Section 43B of the Act, for instance.

Where offence is committed by a company, the question that was agitated in court was whether the individual in charge can be prosecuted. It is proposed to introduce a section to provide that when an offence is committed by a company, it shall be punished with a fine and the person in-charge and responsible for the business shall be liable for imprisonment.

The procedure for sending TDS certificates where tax is deducted to various payees will be dispensed with from April 1, 2005. The company will now send a quarterly statement to the assessing officer (AO). The credit for TDS will be given to the assessee without production of a certificate. The AO will, in turn, furnish an annual statement of TDS to the assessee. In effect, the job of the TDS compliance in this aspect is being taken over the by the I-T Department from the companies who are deducting tax at source.

The loophole on companies resorting to dividend stripping has been plugged. Section 94(7) has been amended to provide that the holding period for units and securities will be nine and three months respectively, to ensure that the losses are legitimately set off. Further, wherever units are issued and the original ones sold, the losses arising out of such sale will now be ignored for computation, if the units are sold months before.

Dividend distribution tax for mutual fund companies in respect of debt-oriented funds, which is now exigible to 12.5 per cent has now been increased to 20 per cent where the distribution of dividend is made to person other than individual and HUF. This comes into effect from July 9.

(The author is a Chennai-based chartered accountant.)