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Monday, Oct 18, 2004

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Many mouths to feed with no tax succour

I AM an executive in a private sector company having a taxable salary income of Rs 2 lakh. I have a big family to support, including my ageing parents. I find the tax burden unbearable in view of my family commitments, especially because I am unable to invest in Section 88 securities to get tax rebate owing to the mounting family expenditures.

Can I seek any relief from the tax administration?

Gangadhar Dubey, Varanasi

As it is, there is no relief under the income-tax law for you and multitude of others in similar predicament. Indeed the concept of number-of-mouths-to-be-fed, a well-known canon of taxation in several countries, has sadly been lost on the policymakers in our country. One hopes with a Left supported Government at the Centre, there would be relief for people standing by their families. Of course, the move, if initiated, would draw flak from votaries of unadulterated capitalism.

But the Government which swears by reforms with human face would hopefully address the concerns of people like you. To be sure, this will render tax administration complex with the taxman having to plough through pile of papers in evidence of filial commitments. Black sheep will also try to misuse the regime.

The answer lies in handing out exemplary punishment to them rather than shutting the well-merited relief on the face of deserving ones.

Insurance broking in `company'

DOES Section 2(21) of the Companies Act, 1956 cover an insurance broking company registered with the IRDA?

R. M. Subramaniam, e-mail

Section 2(21) reads as follows: "Insurance company means a company which carries on the business of insurance either solely or in conjunction with any other business or businesses."

An insurance broking company admittedly does not carry on the business of insurance. Its role is to procure insurance business for its principal which carries on the business of insurance.

Therefore, an insurance broking company, in my view, is not covered by Section 2(21). That it is registered with the IRDA is of no relevance in this regard.

Additional directors

IN A public company there is an MD and two whole-time directors in charge of finance and operations respectively. Formerly, they were designated as Chief Executive-Finance and Vice President-Operations. Now we want to appoint them as directors in whole-time employment. Can we do so? If yes, what is the procedure?

S. Yogindunath, e-mail

Yes you can. They can be either inducted at the next AGM or if the Board feels that it is necessary to induct them forthwith, it can do so by appointing them as additional directors if the Articles so permit.

In either case, the drill prescribed for appointment of directors must be gone through except that in view of the exemption contained in Section 314, special resolution for appointment to office of place of profit need not be obtained.

Form 16

IN RESPONSE to a query in these columns, Sir, you have mentioned that giving of Form 16 is optional. If it is so, how will, for example, an employee whose salary is Rs 48,000 claim a standard deduction of 40 per cent that he is entitled to?

G. K. Unchithapatham, e-mail

An employer cannot shy away from issuing the TDS certificate in Form 16 if he has deducted tax from salary. What I said in the context of a specific query was in case tax has not been deducted because the taxable salary is below the tax-free threshold or the employee has made specified investments so as to be eligible for tax rebate under Section 88, he need not issue such certificate because Section 203 calls him upon to do so only where he has deducted tax at source.

It is another matter that in a computerised set-up, such a certificate is derived as a matter of routine by the financial and salary accounting system and, therefore, all employees are given this certificate no matter tax has been deducted or not.

One's claim for standard deduction is not conditional upon its validation by the employer though, admittedly, assessing officers often accept the computations shown in Form 16 at face value.

In the absence of Form 16, the AO may call upon the employee to produce his salary slip and other evidences such as appointment letter. In other words, while Form 16 comes handy in pre-empting a roving enquiry by the AO, the law does not make it obligatory for those employees who have not been subjected to TDS to produce one.

Indeed, it cannot because attachment of TDS certificate can be insisted upon only when tax has been deducted at source.

It is true that the Revenue has tacitly made the employers tax assessors-cum-collectors for the government but assessment of salary income is de jure still in the hands of the tax administration.

Thus, in a situation where the employer has not legitimately deducted tax at source from a person's salary and hence not issued Form-16, the Department cannot make a grievance out of it. Nor can the employee concerned.

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

S. Murlidharan

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