While presenting the Budget for 2011-12, the Finance Minister has announced some important measures which will help in tackling the problem of black money kept by Indians outside India. The measures cover change in substantive law as well as in the procedure for assessment.
The measures proposed are:
- Introduction of the concept of Notified-Jurisdictional Area
- Extension of time limit for completion of assessments
- Power to summon/call information on request from Overseas Authorities
Notified-Jurisdictional Area (NJA):
In order to discourage transactions by Indian residents with persons located in any country or jurisdiction which does not effectively exchange information with India, anti-avoidance measures have been proposed in the Income-tax Act.
It is proposed to insert a new section 94A in the Act to specifically deal with transactions undertaken with persons located in such countries or areas.
Central Government has been empowered to notify any country or territory outside India which does not effectively exchange information with India as Notified Jurisdictional Area.
Transfer Pricing provisions will apply to transactions, where one of the parties to the transaction is located in NJA.
Payments made to financial institutions located in NJA shall be allowed as deduction only if the assessee furnishes authorisation to the Board/Income-tax Authorities to seek relevant information from such institutions.
Any sum received from persons located in such NJA shall be deemed to be income unless the recipient establishes the source of payer.
TDS at a minimum rate of 30 per cent will apply on any sum payable to persons in NJA.
This amendment may however lead to confusion as to whether these prov-isions will override the rates specified in the Double Taxation Avoidance Agr-eement or not.
Time limit for completion of assessments:
Section 153 of the Inco-me-tax Act provides for the time limits for completion of assessment and reassessment. In Explanation 1 to section 153 of the Income-tax Act, certain periods are to be excluded while computing the period of limitation for completion of assessment and reassessment.
Accordingly, in order to achieve the objective of curbing black money, it is proposed that time taken in obtaining information from overseas tax authorities shall not be included in the time limits prescribed. However, such period shall not exceed six months.
Power to summon/call information:
Under the existing provisions of section 131(1) of the Income-tax Act, certain Income-tax authorities have been conferred the same powers as are available to a Civil Court while trying a suit.
It is proposed in the budget to facilitate prompt collection of information on requests received from tax authorities outside India in relation to the agreement for exchange of information.
In order to achieve the aforesaid objective, it is proposed to insert sub section (2) in section 131. The effect of the said amendment will be that If request is received from a country outside India, the Notified Income-tax Authority may exercise powers u/s 131(1) i.e. summon, inspec-tion etc., whether any proceeding against that person is pending or not.
All the three amendments discussed above will take effect from June 1, 2011.
It is clear that vast powers have been given to Income-tax Authorities in India to make use of the information collected from abroad. This is particularly important in the light of the fact that Government of India is making serious efforts to put in place the machinery for effective exchange of information with foreign countries.
The budget proposals have also taken into consideration a possible situation that some of the countries, despite the tax-treaty being in existence, may not fully co-operate with Government of India. Therefore, the provisions relating to Notified Jurisdictional Area will enable the Government to declare any country or territory outside India as Non Jurisdictional Area if there is lack of effective exchange of information with such country.
Let us hope that the anti-avoidance tax measures as discussed above will effecti-vely deal with the problems of generation and circulation of Black Money.
(Author is a Sr. Partner in S.S. Kothari Mehta & Co.)
Email: hp.agrawal@sskmin.com
