The Hindu Business Line : A wide ball from Jaswant

I AM aghast. Cricketers have been indulged again. Earlier, thanks to an antique circular they were insulated from tax liability on as much as 75 per cent of their match fees. Now the Finance Minister has announced that their world cup winnings would be exempt from tax. Does he really have the authority to do so? -- Anonymous

To the bet of my knowledge, the Government does not have this discretionary power under the income-tax law. Section 119 enables the CBDT to issue orders to its officers to take care of `genuine hardship' in any case.

Cricketers, of all people, can make no such case. But why blame the cricketers. At least they did not ask for this largesse from the Minister. It is our collective psyche that is to be blamed — we simply gush at our cricketers.

Korea query

I HAVE been working as a consultant in Korea. My fees are remitted to my bank account in India. What is my tax liability? -- Sanjay Saxena, e-mail

By receiving the payment in India, you have inextricably exposed yourself to tax liability in India assuming you were a non-resident for the relevant year. Of course it makes no difference if you were a resident because in that case your entire global income becomes taxable in India. If you were a resident of Korea, you would be governed by the Indo-Korean agreement on double taxation avoidance, if any, to the extent the terms thereof are more favourable vis-à-vis those of the income-tax law of India.

Export benefit

FOR being eligible for Section 80HHC benefit will exports to Nepal and Bhutan count? -- Saurab Aggarwal, e-mail

The accent under this section is on two things — export to a place outside India and receipt of convertible foreign exchange. If the Nepalese or Bhutanese importers pay the Indian exporter in dollars which is one of the convertible foreign exchange, the benefit is on.

ADR vs GDR

HOW does ADR differ from GDR? -- Kanhaiya Sinha, e-mail

Both are instruments denominated in foreign currencies but having for its underlying security, shares of Indian companies. While GDR is issued generally in the European markets and generally designated in US dollars, ADR is an all-American affair that must pass muster the exacting US GAAP norms.

Salary offshore

A FOREIGN company has a 100 per cent Indian subsidiary to which it has deputed a few employees for a couple of years. These employees are paid salary both by the Indian subsidiary as well as the parent. The parent pays the tax as well on behalf of these employees insofar as it relates to the salary paid by it. In the final analysis, however, it is the Indian company which picks up the tab for both the salary and tax paid by the foreign company because it has to pay off the debit note raised by its parent on this account. What are the tax implications? -- B. D. Rangachari, e-mail

There is no doubt that the entire salary has been earned in India and, therefore, taxable in India. The Supreme Court, in almost similar circumstances, held that the tax paid on their behalf would be taxable as income from other sources in the hands of the employees (Emil Webber vs CIT — 1993 200 ITR 483). In the query raised by you, this would be taxable under salary itself because ultimately the payment has been made by their employer, which was not the case in the case cited. But with effect from the assessment year (AY) 2003-2004, these employees can avail themselves of the exemption under Section 10(10CC) assuming they are covered by it, which I doubt because the foreign company possibly could not have granted any perks to its distant employees. And the exemption under this section is all about tax on perks paid by the employer on behalf of his employee.

MD P&L

A PERSON is the managing director of two companies — a loss-making public company within the limits laid down in Schedule XIII and a profitable private company as fixed by its articles. Can he do so? What is the significance of the admonition contained in the schedule that when a person is drawing salary from more than one company, the aggregate salary shall not exceed the maximum that he could have drawn from one of the companies? -- A. R. Jaikrishnan, e-mail

The aggregate remuneration from these two companies cannot exceed the limit prescribed by Schedule XIII with reference to the loss-making public company or the one laid down in the Articles of the private company, whichever is greater, as made clear by the admonition cited by you.

Rent composite

WHILE claiming exemption under Section 10(13A) for house-rent allowance, should any distinction be made between rent simpliciter and composite rent that covers electricity, water, and so on, as well? -- T. A. P. Krishnan, e-mail

In my view, the exemption has to be computed strictly keeping in mind the rent simpliciter, because the accent of the section and the related rule is on `rent', which term possibly cannot be stretched to encompass electricity charges, and so on. Moreover, if this is permitted, it would amount to giving an undue advantage (not sanctioned by the income-tax law) to those tenants who are able to enter into such convenient arrangements with their landlords vis-à-vis those who have willy-nilly to pay such charges themselves.

Secretarial certificate

IS AN auditor obliged to mention in his report the fact that secretarial compliance certificate in terms of Section 383A of the Companies Act has not been obtained though warranted? -- M.V. Jegannathan, Coimbatore

This is something which seems to be outside his general beat. There is no specific requirement either. Perhaps the MACARO order 1988 should be amended to bring this issue to the attention of the auditor so that the shareholders are apprised of the lapse, if any, in this regard.

PPF, old and new

THERE have been sharp reductions in the interest on PPF. From as high as 12 per cent in 1994, it has now come down to 8 per cent. Are these reductions applicable to fresh entrants alone or to the existing account holders as well? -- Anil Shenvi, Bangalore

These reductions apply as much to the existing holders as they do to the new ones. The PPF contributors are not locked to a fixed rate of interest.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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