The Hindu Business Line : TDS on foreign remittances

I am the proprietor of Interface Technologies and recently got associated with a US-based company, Fort Systems Ltd. That company has appointed me the master distributor for an antispam software.

My role is to market that software in India and collect payments from customers and send the money to Fort Systems. What taxes wouldI be liable to?

Should I deduct TDS while remitting the amount to the US? If yes what per cent?

Kabir Kajaria, email

You will be liable to tax in India in the normal course. The income you earn from the American company would be treated as any other business receipt.

As for the American company, you would do well to make an application to your Assessing Officer in terms of the right given to you by Section 195(2) because the tax authorities may treat your presence in India as business connection for the non-resident enabling him to receive his income outside India from you.

The Assessing Officer would tell you the amount that can be considered as profit after taking the non-resident into confidence. You would do well to intimate the American company of your intention to do so lest there are bad vibes on this account.

Alternatively, you may make an application to the Authority for Advance Ruling, once again after taking the American company into confidence. The latter course is preferable as the opinion given by the AAR is binding on the Department.
Inter-company FBT

If a company reimburses travelling and food expenses to the employee of another firm that is a contractor/adviser for the former, will FBT on trips/work done for the first company be paid by it or the latter?

Abdur Rehman Musba, e-mail

The substantive provisions dealing with FBT admittedly target benefits given to employees but no distinction is drawn between expenses incurred for the benefit of employees and others as one gets down to the nuts and bolts provisions. So much so, FBT has to be paid on 20 per cent of the expenses referred to by you by the first company. The second outfit obviously is not required to pay FBT on these reimbursements because the expenses have been paid by the first.
Donation in return

I am a PSU employee with a taxable salary of Rs 2.8 lakh and with savings under Section 80C of Rs 96,000. I made a donation to ISKCON of Rs 14,000 and claimed deduction under Section 80G. But my employer says I have to claim this deduction in my return. What should I do?

J. V. L. N. Raju,

Vishakapatnam

Your total income is Rs 1.84 lakh after allowing deduction under Section 80C. The qualifying amount under Section 80G is 10 per cent of such total income. Since the donation is less than this figure, you will be eligible to consider the entire donation as a qualifying amount. Therefore, Rs 7,000 would be deductible under Section 80G, which you should claim in your return. The tax deducted by your employer in excess would be refunded to you on the basis of the return filed.
special auditor

Within what time the special auditor appointed under Section 233A has to submit his report?

N. R. K. Marimuthu, email

Parliament has wisely kept this issue flexible because the time required may vary depending upon the gravity of the issues involved. Indeed the very fact that a special audit, which is an extraordinary step, has been resorted to warrants such flexibility because no ‘one-size-fits-all’ approach can be adopted. Therefore, the Centre itself would give a reasonable time depending upon the gravity of the situation, which may warrant more of less time. The auditor can, of course, seek more time to which the Centre would be amenable if this request is justified.
Non-voting shares

Why non-voting shares are not popular in our country?

Abishek Rangachary,

Pondichery

In fact, they are not popular anywhere. In India, shares with differential voting rights are permissible which implies non-voting shares can also be issued. Conceptually, the idea should appeal to investors who have no interest in control of the company. For them voting rights should not be of any interest except to the extent their economic rights are affected. But then they have in any case absolutely no say in decision-making when it comes to their economic interests, such as dividend, rights and bonus issue. There is no reason why they should not settle for the more alluring non-voting shares because they carry a few percentage points more dividend vis-À-vis shares with voting rights. However, in a takeover tussle, such s hares would be given thumbs down by the market because for the one taking over, such shares are simply useless. And this could be the reason for the lukewarm reception given to such shares the world over.
Service tax levy

Why is the service tax levied selectively?

Mridula Deshpande, Pune

When goods can be taxed, so should be the services more so because India is becoming more and more a service economy with services contributing the lion’s share to its GDP. But as you rightly point out, the service tax regime right from the inception has been ad hoc. First, it continues to be administered by the Finance Act, 1994. There is no reason why Parliament cannot enact a special legislation for the purpose. Be that as it may, piecemeal addition of services year after year smacks of ad hoc approach. There is no reason why all the services should not be brought under its purview with a small negative list a la the one protecting declared goods under the CST. Exemptions and selectiv ity are the bane of any fiscal law. It is expected that the promised comprehensive GST (goods and services tax) regime would end ad hocism in the matter of indirect taxation but then it is only a wishful thinking given the federal char acter of our polity.
Vacant property

In addition to my self-occupied residential house property, I have a small commercial office, which is lying vacant. In case of a vacant commercial property, will the notional annual value will be added as property income and municipal tax paid can be deducted from this and thereafter 30 per cent standard deduction be made and the net balance will be house property income, or else, as the property is lying vacant throughout the year, there will be nil income as house property income from both these properties.

Vijay, email

No, when a property that is meant for letting out remains vacant, to that extent there is abatement in the annual value. There is now no need to go through the farce of letting out the property at least for a day because now there is no bar on claiming the vacancy benefit even for the entire year.

S. MURLIDHARAN
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