• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

MY TAX liability is negligible, but being thrifty I save a lot. Can I park my savings in Section 88 instruments and claim refund for the tax rebate I am entitled to? -- Deepika Bannerjee, Kolkata

This is indeed getting too ambitious. Seriously speaking, you cannot. Because the rebate under Section 88 as well as under Sections 88B and 88C are on only to the extent of gross tax liability. If there is no tax liability, there is no rebate.

Therefore, my advice to you would be to look for better investment avenues because Section 88 schemes beget very small returns with their major attraction of tax rebate being of no interest to you. In this context, let me add that should you have TDS certificates representing tax deducted on income that is not taxable in view of there being no tax liability, you would be entitled for refund.

Bad debts

THE income-tax law allows provision for bad debts while computing income of banks and financial institutions but disallows the same in case of trading companies. Why this discrimination? -- Archana Deshpande, Pune

In case of manufacturing and trading companies, the problem of bad debts is taken care of by allowing them when actually written off. Whereas for banks, provision for bad debts subject to the prescribed limit is allowed. The apparent reason for this double standard is, banks deal in loans and advances whereas manufacturing companies do not.

In other words, for the former, loans form part of stock-in-trade. But I empathise with your reasoning. In my view, the system of accrual is a double-edged weapon. While it gets the benefit of deduction of an expenditure ahead of its payment, it also subjects to tax an income which has accrued all right but which has not been received. In the event, if an assessee is dealing with customers of suspect financial integrity, he would be better advised to follow the cash system of accounting.

MFs too many

I COME across different entities in the context of mutual funds. Don't too many cooks spoil the broth? -- Dipankar Gupta, New Delhi

The three-tier dispensation you are referring to has been adopted by us from the US. There is a sponsor. For example, a bank may sponsor a mutual fund. But it must not keep the powers of administering to itself. Therefore, there are trustees. And then trustees should keep away from day-to-day management of funds. Therefore, there is an asset management company (AMC).

This separation of duties is to foster accountability and, therefore, there is nothing wrong with it. The AMC is kept under leash with a cap on maximum fees that they can charge from the mutual fund it is administering — 2.5 per cent of the corpus.

Land to build

WILL I get tax rebate under Section 88 if I have just bought land and intend constructing in future? -- Ankit Jain, e-mail

Section 88 (2) (xv) talks both of purchase and construction of a house. Now, construction is not possible without purchase of land. In my view, therefore, whether it is purchase of land or purchase of a house rebate in terms of Section 88 is very much on.

Cum, ex

WHAT is dividend stripping? -- Priyanka Chadha, New Delhi

It refers to the practice of buying shares cum-dividend and selling them ex-dividend, using the resultant capital loss to abate against the sizeable dividend income. But this strategy is bound to come unstuck in India in view of the income-tax provision that disallows set off of loss under the head `capital gains' against income from other heads of income. Incidentally, dividend is taxable under "income from other sources" though it enjoys tax exemption with the company having to pay distribution tax.

Double act

THERE is a view that a statutory auditor doubling in as tax consultant or tax auditor amounts to conflict of interest. Can you elaborate how? -- Shankara Subramaniam, Erode

There is considerable truth in this view. A statutory auditor's quest is truth and fairness of accounts, whereas a tax consultant looks to minimising his client's tax liability. The conflict of interest is too palpable and clear to be missed.

In India, as elsewhere, surprisingly, the local laws do not nip this conflict in the bud by prohibiting the statutory auditor from donning more than one hat — statutory auditor's.

The argument in favour of such dual role is, it makes for economy and saving of time with the professional having already gone through the accounts with a fine-tooth comb for one purpose.

But to me this argument appears to be specious. When truth and fairness is involved no price is too big. Let there be duplication of expenses and time if only to get at the bottom of the truth.

A correction

SOMETIME past I saw your answer to a query relating to equity method of accounting for investments. Well, neither AS-13 nor AS-11 require accounting for investments on the basis of equity method. Will you kindly clarify? -- S. Ramachandran, e-mail

In all humility, I accept my mistake in not putting across my views clearly. There must have been an error in rephrasing the question or in answering. In either case, I owe an apology to the esteemed readers.

Actually, AS-23 requires equity method to be adopted in the prescribed circumstances when the investor has substantial interest in the investee — 20 per cent voting clout as a rule of thumb.

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

S. Murlidharan

Article E-Mail :: Comment :: Syndication

Stories in this Section
Cheer up if the ROCE is rosy

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line