‘To err is human, even for an assessee’

| Updated on October 14, 2012 Published on October 14, 2012


The Supreme Court in a recent ruling held that calibre and expertise had nothing to do with inadvertent errors. The return of income should be filed with due care; however, in case of a human error, it cannot be construed that the assessee is attempting to conceal income or is furnishing inaccurate particulars.

In the present case, the assessee filed return of income and omitted a disallowance on provision for gratuity, which also appeared in the tax audit report. This aspect was also overlooked by the tax officer during assessment. Subsequently, the tax officer reopened the case, disallowed the expenditure and levied penalty. The officer had contended that the assessee was a well-known Chartered Accountant firm and tax consultant, and such mistakes were not expected of it; it, therefore, imposed penalty. The SC held it was a computation error that all humans are prone to make. It also iterated that the tax officer had also made the same mistake during assessment. Accordingly, it deleted the penalty.

Going easy on software transfer

According to a Government notification, from July 1, 2012, section 194J would not apply to transfer of software by a resident if it is a subsequent transfer and is in the original form without any modification by the transferor. Further, to gain exemption from withholding tax liability, the transferee must obtain a declaration from the transferor that taxes have been deducted on the previous transfer under section 194J or 195 of the Income-tax Act.

Service tax chugs into parcel traffic

The Ministry of Finance has imposed service tax for rail transportation of parcel traffic (leased or non-leased) and merchandise items (for commercial use) from October 1, 2012. However, baggage of travelling passengers has not been included. It provides 70 per cent abatement — that is, service tax will be charged on 30 per cent of the freight charges at 12.36 per cent; therefore, the effective service tax rate would be 3.708 per cent on the total freight charges.

Further, some items such as relief material, defence or military equipment, postal mail, household effects, newspaper or magazine registered with Registrar of Newspaper, agricultural produce, and certain foodstuff have been exempted from service tax. The Railways will deposit the tax collected with the Ministry of Finance.

Fineprint of tax residency certificate

Finance Act 2012 inserted a new provision for the non-resident taxpayer to obtain a tax residency certificate, or TRC, at the country of residence and submit it to the Indian tax authority for tax relief under the relevant tax treaty.

The Central Board of Direct Tax has prescribed the particulars required to be mentioned on the TRC. According to the notification, these include name, status, nationality, country, tax identification number, residential status, address and the period for which the certificate is applicable.

This aspect is also important for withholding tax implications on the payment made by resident to non-resident.

Published on October 14, 2012
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