The Hindu Business Line : An escape route now closes for contractors

As it is, no tax is required to be deducted at source where the contract value does not exceed Rs 20,000. This latitude has been encouraging multiple contracts — one for levelling, one for foundation, one for sanitary fittings, one for electrifying, and so on.

It is proposed to close this escape route by requiring deduction of tax where a single payment to a contractor or sub-contractor is in excess of Rs 20,000 or where the annual payment is over Rs 50,000. Harried contractors will perhaps seek solace by taking contracts in various names.

Construction ethics

WE are civil engineering contractors operating in several States. We employ labour contractors and sub-contractors. Our association with them is only short-lived, during the period of the contract. Once the contract is completed, our contact with them comes to an end. These parties have virtual monopoly in their areas, and often dictate terms, which we are forced to follow. Our turnover has been far above the limit prescribed under Section 44AD. The rate of profit has always been much more than that of our competitors, at an all India level, for we do not indulge in any overt or covert avoidance or evasion of tax. Most of the labour and sub-contractors are uneducated, who do not issue any bills. Subsequently, one hundred per cent evidencing the expenditure is impossible. Payments above Rs 20,000 are made by crossed cheques. The I-T Department insists on our producing these parties personally during the assessment proceedings. Since our contact after completion of the contract is lost, and we do not have any physical control over the parties, we are unable to ensure their physical presence during the proceedings. The Department always turns down our request to issue summons to the parties. Instead, we are penalised by disallowing a considerable part of the payments to sub-contractors and labour contractors. Is there any remedy to this unethical response to our ethical conduct?

V. S. Iyer, Cochin

I am afraid you have none. And this is supremely ironical especially if we turn about and look at what the department does in ex parte assessments — it goes by industry average, past year ratio, and so on. A more reasonable regime should accept the realities and accept your claim of payments if such claim is reasonable on the touchstone of past ratios, industry average, and so on. But then one cannot force the departments hands on this score as the law stands because we haven't embraced the concept of presumptive taxation whole hog. In the event, you have no option but to provide hard evidence demanded by the tax administration.

Accounting method

WE are a firm of builders, not engaged in any manufacturing or trading activities. However, for a long period of time we have been preparing the trading account and profit and loss account, arriving at the gross profit and net profit separately. Since we are not engaged in any trading activities, can we dispense with the trading account and prepare profit and loss account, arriving at the net profit only? Will this be considered to be a change in the method of accounting, requiring qualification by the auditor?

M. Damodaran, Ootacamund

No, this is just a change in format — change in style without there being a change in substance. Go ahead.

Indian rent to NRI

A FRIEND of mine retired from government service and has now settled down in the US as a green card holder. He gets a pension of Rs 6,500 per month from the government. Besides, he has got a house in India from which he gets monthly rent. Is he liable to pay tax in India?

T. V. Rao, email

Very much. He might have become a non-resident. But non-residents too have to pay tax on income arising in India. Pension is one such. So is rent from house property located in India.

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

S. Murlidharan

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