The Hindu Business Line : When taxman snoops around, can the scent lead elsewhere?

IF THE assessing officer comes to know about another person's income during the course of raid, can he compel this another person to submit his books of accounts assuming he is not otherwise required to maintain one? -- Subramaniam, e-mail

All that Section 158BD says is that if any books are found during a raid belonging to some other person, the same can be handed over to the assessing officer (AO) having jurisdiction over such other person and that AO will proceed as if an independent raid was carried out on such other person.

Similarly, if during the course of raid, if it turns out that the unaccounted income is actually that of another person, the jurisdictional AO shall be brought into picture for a similar independent action. What thus can ensue for this person is block assessment proceedings initiated against him.

Holiday works

A COMPANY has two units — a 100 per cent export oriented unit eligible for 90 per cent tax holiday for the AY 2003-2004 and a unit which is not eligible for any tax holiday. The latter unit has got unabsorbed depreciation from the past. Can this be set off against the profit (remaining 10 per cent) of the EOU? -- C. S. Jagadish, e-mail

Yes. There is a prohibition on carry forward of losses from such units during the relevant assessment years. But there is no bar in using the profit from such units for setting off the losses and depreciation of other units assuming such set-off is in keeping with Sections 72 and 32(2) respectively. Assessment year 2003-2004 need not necessarily be the exceptional year in this regard. It may be possible that in future also when the benefit under this section is on, some of the profits from such units may enter the tax net may be because it is attributable to domestic sales.

Relief bonds

WE ARE partners. The firm wants to invest in Relief Bonds but it cannot and, therefore, has to invest in the name of the individual partners. Will this be all right? Will the AO deny the 12 per cent interest paid to the partners to this extent? -- S. Arjun, e-mail

Yes, this is all right. The AO cannot disallow interest to partners pro tanto because the funds admittedly have been invested not for the personal benefit of the partners but for the firm. I take it that the partners are mere name-lenders and will makeover the interest as well as the proceeds from Relief Bonds to the firm as and when received.

TDS doubts

WHETHER tax is required to be deducted at source under Section 194C in respect of payments to: i) mobile telephone operators and Internet service providers; ii) lessor towards lease rentals relating to machinery leased; and iii) premia to insurance company? -- B. K. Palaniappan, e-mail

First of all, an individual does not have to deduct tax at source under various sections including Section 194C, the subject matter of your query, unless his business turnover or professional receipts exceeded Rs 40 lakh or Rs 10 lakh respectively during the preceding previous year. And as far as others are concerned, well the drift of the section as amplified by departmental circulars is fairly clear — the contract of work must be customised and not general.

Thus, when one charters a plane one is required to deduct tax at source whereas when one buys a ticket in a regular flight in which any member of public as well can travel, no tax is required to be deducted. Therefore, tax is not required to be deducted when one pays telephone or ISP bills. Sale of machinery is pursuant to a contract of sale of goods and not pursuant to a contract for carrying on of a `work' and is thus outside the TDS net.

A lease rental is paid pursuant to a contract of financial arrangement and not pursuant to a contract for carrying out of a work and thus is also outside the TDS net.

Premia to insurance company too is out because the consideration for such payment is not carrying out of any work. An insurance contract does not contemplate any work being done by the insurer; rather it is a contract of indemnity — to compensate in the event of loss.

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

S. Murlidharan

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