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E-filing woes of FIIs, foreign cos
October, 28th 2006


"Though the move of the Government towards e-filing of return appears to be in a right direction, there are certain practical problems that are likely to be faced by the assessees and the tax department."

 E-filing or electronic filing of tax return has all the ring of felicity. One such effort is the latest form No. 1 from the CBDT (Central Board of Direct Taxes) prescribed for companies.

The new form has many pluses. Such as, allowing digital signing, and not demanding the submission of supporting documents. Also, the form is designed with a view to capturing many details, through 3 parts and 25 schedules. For instance, the form requires quarter-wise computation of fringe benefit tax (FBT), details of TDS (tax deducted at source) on the basis of Form 16A and so forth. Yet, it has been drawing flak from professionals.

"Though the move of the Government towards e-filing of return appears to be in a right direction, there are certain practical problems that are likely to be faced by the assessees and the tax department," says Ms Anjana Singh, Manager, Deloitte Haskins & Sells, Mumbai. Here is her take on a few questions from Business Line.

Do you see a conflict between different sections of the Income-Tax Act in the matter of submission of reports?

Yes. For example, Section 44AB and Section 92E of the Income-Tax Act require the assessees to furnish tax audit report and transfer pricing report, respectively on or before the due date of filing of return of income. Failure to furnish such reports on the due dates attracts penal consequences. Though the new form dispenses with such filing, the law still requires the assessees to furnish such reports.

Has there not been clarification from the CBDT?

Circular No. 9 of October 10 from the Board clarifies that the transfer pricing report is required to be filed separately. However, tax audit report can be retained by the assessee and produced for verification at the time of assessment.

No enclosures. Is that a blessing or a curse?

A blessing, in normal times. But, when there are contentious items, which are subject to different interpretation, the company may wish to make the claim by putting appropriate notes in the return, or disclose certain facts in the return in order to avoid any penal consequences for concealment. Now, how to make these claims, as no enclosures are permitted to be filed with the return of income?

That should await a notice from the taxman?

That, perhaps, is what the recent CBDT circular says. The assessee may, in pursuance to the first notice issued under Section 143(2), take the opportunity to file documents, furnish reasons, and make disclosures in support of various claims made by him, in the return filed in new form.

Any examples of new difficulties in tax administration?

One example is this: A criterion for selection of return for scrutiny by the assessing officer is the value of international transactions. The new form, however, does not require the providing of any details with regards to the international transactions with the associated enterprises. In the absence of such information in the return, how the assessing officer will decide on the selection of return for scrutiny is an issue to be looked into. Possibly, the officer may have to examine the transfer pricing report filed separately, which may at times be overlooked, as the same would not form part of the return.

Are there `fringe' worries, too?

The form requires quarter-wise computation of FBT, which would be certainly different from what was computed by the companies, while making the advance payment of FBT based on certain estimates.

In such a case, companies would have to specifically work out quarter-wise FBT based on the audited accounts. The task can only lead to duplication and unnecessary burden on the assessee.

Matters that concern the FIIs and foreign companies?

Companies such as the FIIs (foreign institutional investors) hold investments on large scale.

Statement showing income from `capital gain' is likely to be voluminous, running into number of pages.

Filing these details in the form would be tedious and may be impractical.

In the case of foreign companies, having no activity in India and filing return of income in India, only on the basis of receipt of certain income liable to tax in India, say technical fees, or royalty, having digital signature of the directors would be an issue.

Such companies may have to follow a two-step procedure for furnishing the return, i.e., filing of e-return without digital signature, followed by paper return with physical signature.

D. Murali

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