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But then this particular exemption may pit the assessee and the Department in a protracted battle, especially if the donor does not retrace his steps even after a reasonable period after recovery.

Processing fee

I APPLIED for a home loan along with a processing fee of Rs 5,000. I did not utilise the loan. The bank is refusing to refund the processing fee. What shall I do?

Jeevan Johnny, Thiruvananthapuram

I am afraid you don't have a strong case, especially if you had kept mum even while your loan application was being processed. After all, the bank would have taken the trouble of processing your application and also incurred expenses in that regard.

I am sure the bank would have covered its ground well by making it categorical that the processing fee is not refundable.

Participatory notes

WHAT exactly is all the fuss about participatory notes (PNs) in the context of FII investment in India?

Achutha Menon, Eranakulam

According to SEBI norms, a foreign institutional investor (FII) can trade on the Indian bourses only if it is granted registration by SEBI.

There are a number of foreign outfits itching to get into action in the emerging markets that promise them better returns than at home. And they want to do this without the hassles of registration with SEBI.

Therefore, they approach an FII, which is already registered with SEBI, to invest on their behalf. This indeed is a backdoor entry into the Indian bourses by those who are otherwise denied entry.

The name of the instrument by which Indian bourses are vicariously accessed is participatory notes. One does not know why the registered FIIs oblige and play ball with the non-registered entities.

Perhaps, they do it for a price. Be that as it may, the Government has decided to phase out this practice in five years.

There are some who question the wisdom of such restriction. To them any hard currency into India is welcome and say that we should not be unduly worried about its source.

This view is of a piece with what the Chinese strongman Mao said — that is, the colour of cats does not matter so long as they catch mice! But others are genuinely concerned.

They feel that it is the black-money salted away abroad by Indian businessmen which is finding its way back.

To this also the counter is, `so what?' After all, they say, the money which went out is coming back and we must welcome it with two eager hands.

PPF of couple

A HOUSEWIFE with no source of income (now or in future) wants to open and operate a PPF account with a maximum contribution of Rs 70,000 in her name. Her husband is an income-tax assessee and pays for her PPF contribution.

The husband has his own PPF account and has been contributing to it every year. Can both husband and wife have independent a PPF accounts? Can she nominate her husband as a nominee and vice versa?

Anil, email

There is no bar on having two accounts — one in the name of the husband and the other in the name of his wife. But the PPF rules do not permit contribution to more than one account by a person. So, what the husband proposes to do is not legally tenable.

He can by all means contribute to his wife's account in which case he can claim the amount so contributed as deduction under Section 80C from his gross total income. But in that case he would be foreclosing his right to contribute to his own account.

Yes, they can nominate each other.

Payments to contractors

SHOULD the service tax amount be included while deducting tax at source from payments to contractors?

To be precise, if the bill for services is, say, Rs 100 and the service tax thereon, Rs 10.20, should tax be deducted at 2.04 per cent on Rs 100 or Rs 110.20?

Narendra, email

The departmental thinking seems to be that the deduction must be from Rs 110.20, the amount payable to the contractor for the simple reason that Section 194C talks of amount payable to the contractor.

The rival viewpoint is that tax must be deducted only from the amount paid as consideration for the services and that service tax is not a consideration payable to the contractor but an impost by the Government.

I think the departmental view is correct given the language of Section 194C. At any rate, TDS being an ad hoc tax payment, the contractor can always get the refund of the excess tax deducted if it comes to that.

Interest on interest

CAN an assessee entitled to refund claim interest on interest that is payable under Section 244A in case there is a delay in payment of such interest?

Bhoorchand Shah, email

Section 244A envisages payment of simple interest, thereby squelching any claim for interest on interest.

The interest payable to the Revenue under Sections 234C and 234B for non-payment or short-payment of advance tax is also a simple interest.

That makes them quits. But what is bound to rankle in the minds of assessees is the interest rate differential — 1 per cent per month by the assessee but only half per cent per month by the Department.

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

S. Murlidharan

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