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Tales of taxmans success
February, 06th 2009

A laudable first from the much-despised taxman is Let us Share, a compilation of best practices and orders of the Income Tax Department (www.incometaxindiapr.gov.in). Interestingly, the book is the result of what began as an internal exercise to pool the good work done for the benefit of the departmental officers.

The idea was to create an institutional memory by capturing all the excellent work done in the department over the past few years which could inspire the workforce, especially the younger ones, writes Saroj Bala, Member (Revenue), CBDT in the intro.

The first best practice featured in the book is the e-filing project, which won the National e-Governance Silver Award for outstanding performance in citizen-centric service delivery in 2007-08. Wish the initiative also won some carbon credits for the reduction in paper usage; for, it is estimated that 21.93 lakh e-returns have saved in excess of 2,92,56,329 pages that would have been required under paper-based filing.

Those who commonly criticise that e-returns account for only 8 per cent of the number of all returns may not know that in terms of tax paid or refund claimed, they account for over 65 per cent. Cost-savings of e-filing, due to reduction of requirement of return receipt counters and elimination of return data transcription/digitisation, currently pegged at around Rs 5 crore, are expected to grow as the volume of e-returns increases.

A must-read section in the book is the one on ITPS (integrated taxpayer profiling system) which churns out a 360-degree view of high-net-worth entities with data pulled from internal databases (such as PAN, e-TDS, and OLTAS), and external information sources (as in AIR, CIB, and STT). The result, therefore, is actionable intelligence for officers, even if the starting point of the investigation were just a mobile number or a car number. Also, a total profile, including that of family members and related parties, can be constructed by ITPS in a couple of hours!

Professionals will benefit from technical discussions such as about slump sale vs sale of assets and liabilities, filters to select comparables, royalty payments in captive units, and arms length compensation for creating marketing intangibles.

A hot issue that the book wraps up with is the Vodafone case, in which the Bombay High Courts verdict on December 3, 2008, went in favour of the Department. A significant argument of the Revenue before the court was that the subject matter of the deal was not the innocuous acquisition of shares of the Cayman Islands Company (M/s CGP Investments (Holdings) Ltd.) but in effect transfer of interests, tangible and intangible, in Indian companies of the Hutch Group in favour of the Vodafone International Holdings.

Accepting the argument, the Court also observed that even though the transaction took place in a foreign country between two non-residents, and related to the assets of a foreign entity, it is taxable under the Indian tax law if it leads to a transfer of the assets located in India.

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