T N Pandey: Kelkar panel's suggestion on standard deduction unfair

CHAT ROOM

The recommendation is most unjust and unfair. It is a retrograde view, which will affect voluntary compliance. One of the reasons given for abolishing this deduction is that suggested lower rates of tax may not be fully matched by gains in compliance.

"Therefore, this should be simultaneously accompanied by the elimination of the standard deduction for salaried employees to address revenue consideration. This will augment tax revenue by an estimated Rs 4,000 crore."

A queer logic! The standard deduction is allowed to salaried employees for meeting employment-related expenses""conveyance allow-ance, being only one such expenditure, which has been taken into account for recommending abolition of this deduction on the ground of its being tax exempt in some cases.

There are various other expenses such as on books, journals, training, travelling, computer and Internet, which are necessary to keep an employee updated for his work if he has to survive in the employment. It is not being given as a charity or donation to employees.

It is as good and valid as standard deduction for computing property income or host of other expenses concerning incomes from profession, business and other sources.

Why should salaried employees be only discriminated for being taxed on gross receipts ? To do so would be wholly wrong and unjustified.

Subjecting employees, who are like "captive" taxpayers to more taxes and not doing almost nothing to those, who are taxevaders, would be highly detrimental for healthy tax culture and voluntary compliance. One should hope that such a prima-facie unreasonable proposal would not be accepted by the government.

The education cess of two per cent is applicable from April 1, 2004. Does this mean that it applies to the assessment year 2004-05, relevant to the previous year ended March 31, 2004? If so, are the assesses and tax deductors supposed to pay the cess on tax already paid, and deducted or collected at source, during the period April 1, 2003 to March 31, 2004.

Serial No 2 of the Explanatory Memorandum to the Finance Bill, 2004 in the beginning itself clarifies that changes in the provisions of tax laws should ordinarily be made to operate prospectively in relation to the current incomes and not in relation to the incomes of past years.

Hence, the question of charge of the education cess in regard to tax already paid, deducted or collected at source during the financial year 2003-04 does not arise.

Further, it has also been clarified that in respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 2004-05, the rates of income-tax have been specified in Part-I of the First Schedule to the Bill and are the same as those laid down in Part-III of the First Schedule to the Finance Act, 2003, for the purposes of computation of "advance tax", deduction of tax at source from "salaries" and charging of tax payable in certain cases during the financial year 2003-04.

This also confirms that no two per cent cess/surcharge will be payable in respect of past taxes.

We are publishers of educational books. In regard to law books, specially books relating to income-tax, yearly revision is necessary and each year a new edition is required to be brought out. We get the books revised by paying lumpsum amounts to the authors or somebody else if the author cannot do the revision. My questions are:

Whether the tax deduction at source is deductible on such payments

Whether such services can be considered "intellectual property services" for levy of the service tax as per the provisions of Finance Bill, 2004?

First Query: The payment, requiring deduction at source, have been specified in Section 192 to 196D of the Income Tax Act, 1961. The payment of the nature mentioned by the queriest are not covered by any of these sections.

The payments will also not be covered by Section 194J, which provides for the tax deduction at source from fees for professional or technical services.

These terms have been defined in Section 194J and the persons, who are receiving payments for revising the books, cannot be said to be rendering any professional or technical services.

Hence, no tax at source is deductible while making payments for revision of books.

Second query: No service tax would be payable on such services. The terms "intellectual property right" and "intellectual property service" have been defined in the Finance Bill in clause 80 thus :-

"(55a) 'intellectual property right' means any right to intangible property, namely, trade marks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright ;

"(55b) intellectual property service" means-

transferring, whether permanently or otherwise, or

permitting the use of enjoyment of, any intellectual property right".

Obviously, the people, who are revising the books and receiving the payments are not rendering any "intellectual property service". Hence, would not be liable for payment of service tax.