SUBMITTED BY

Ramesh. [Link]

Aaglave

SUBMITTED To Prof. Santosh Sir

A)

DEFINATIONS: 1) PERSON: - Sec.2 (31)

The word person is used in definition of assessee. Person in general, means a living human being. Whereas in income tax the expression is as under. Person includes: An individual; A Hindu undivided family; A company; A firms; An association of a person or body of individuals whether incorporated or not ; A local authority; and Every artificial person not falling within any of the preceding categories. 1) INDIVIDUAL Means a living human being. This term Includes male, female, major, minor and person of unsound mind. 2) A HINDU UNDIVIDED FAMILY consists of all persons descended from a common ancestor and includes their wives and unmarried daughters Though there are many number the HUF is considered as a distinct entity or unit for assessment till a partition takes place. 3) A FIRM is a taxable entity separate from its partners. A firm means partnership firm within the meaning of section 4 of the partnership Act 1932. It does not matter whether the firm is registered or unregistered. 4) A COMPANY is defined in section 2(17).It may be. Indian company or a foreign company. 5) When persons come together to form a joint venture or join with a common purpose other than in the form of partnership , it is called as

Association of Persons (AOP).Normally on the death of a person, the group of his successors is called as Body of individuals. 6) LOCAL AUTHORITY mans municipality, municipal council, and municipal committee, district board of body of port commissioners or any other authority legally entitled to the control of management of a municipal/local fund. 7) ARTIFICIAL JURIDICIAL PERSONS covers deities statutory corporations which are artificial in nature. As this is the residuary category, it does not cover those falling within the above classifications, and includes all those who are not covered by the above classification. Explanation to the above section clarifies that an Association of person, Body of Individuals, Local Authority or an Artificial Juridical Person shall be deemed to be a person, whether or not; it was formed, established or incorporated with the object of deriving income, profits or gains. 2) INCOME: - SEC 2 (24) Incomes include: 1) Profits and Gains. 2) Dividend, 3) Voluntary contributions received by a charitable trust, Religious Trust (Wholly or partly for such purpose), approved scientific research association or Research Association, University or other Education institution established in India, institution established in India for control, supervision, regulation or encouragement of specified sports or games activity in India or trusts established for protecting monuments of archaeological importance or public religious trust owning temples 4) The value of any perquisites or profits in lieu of salary taxable under clauses (2) and (3) of section 17.

5) Any special allowance or benefit specifically granted to the assessee to meet his expenses wholly, necessarily & exclusively for the performance of his duties of an office. 6) Any allowance granted to the assessee either to meet his personal expenses at the place where he performs his duties of an office or at a place where he normally resides or to compensate him for the increased cost of living. 7) The value of any benefit or perquisite, whether convertible into money or not obtained from a company by; a) Director of a company. b) Person holding substantial interest in the company (i.e.20% or more share holding) c) Relative of any person explained as above, and any expenditure or obligation incurred by company on behalf of the above mentioned persons is also considered as perquisites. 8) The value of any benefit or perquisite, whether convertible into money or not obtained by any representative assesses mentioned in section 160 or beneficiary (which the beneficiary would have ordinary been required to pay). 9) 10) Profits on sale of import license. [section28 (iii) (a)]. Cash assistance under any export scheme of the central government [section 28(iii)(b)]. 11) Any refund of excise or custom duty under any scheme of export of the central government [section28(iii)(c)]

12)

The value of any benefit or perquisite chargeable to income tax under section 28(iv)

13) 14) 15) 16)

Any sum chargeable to income tax under section 28(iv) Any sum chargeable to income tax under clause (v) of section 28. Any capital gain chargeable under section 45. Profits and gains of insurance carried on by Mutual Insurance Company or by a co-operative society computed as per provisions of section44.

17)

Any winnings from lotteries, crossword puzzles, races including horse races, card games or other games or any sort of play, gambling or betting of any form or nature whatsoever.

18)

Any sum received by the assessee from his employees as contribution to any provident fund or superannuation fund or any fund set up under employees state insurance act,1948 or any other welfare fund.

19)

Any sum refered to u/s.28 (Val) i.e. compensation for non-compete agreements.

20)

Any sum received under a key man insurance policy including the sum allocated by way of bonus will be regarded as income.

21)

Section 2(24) clauses (v) has been inserted in section 56(2) from the A.Y.2006-2007 onwards. Any sum received by and individual or a HUF during the previous year exceeding rs50000 without consideration on or after 1st Sep 2004.

EXCEPTION Any sum received from any relative is not chargeable to tax. Definition of income is inclusive and not an exhaustive one. In this definition, what is income or what are the characteristics of income is not explained. Section 2(24) only lists out various receipts which are to be treated as income chargeable to income tax, However, the definition of income has been given in many court judgments .The privy Council in the Shaw Wallace case 1932 explained the term income as under:Income connotes a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources. The above inclusive definition of income does not explain what income is. It only states that the above mentioned receipts are covered by the definition of income. This shows an unclear meaning of the word income. So there is lot of litigations on various items as to whether it is income or not. Hence the decisions of high courts & Supreme Courts decide the issue. One idea is to classify the receipts into two categories namely 1) Capital Receipts. 2) Revenue Receipts. I) CAPITAL RECEIPTS: Generally capital receipts are not income For e.g.: a) b) Share premium received on issue of shares by company. Sale of trees of spontaneous growth.

However, capital receipts on sale of capital asset resulting into capital gain is income.

II)

REVENUE RECEIPTS: Normally all revenue receipts are income. Based on various decisions of Supreme Court from time to time. The following points can be considered as a guide to decide whether a receipt is income or not 1) Income is normally from a regular & a definite source. 2) Income may be legal or illegal. 3) Income may be in cash or in kind. 4) Income may be moral or immoral

5) Income may be permanent or temporary. 6) Income may be in lumpsum or in periodical payment form. 7) Income includes losses. 8) To treat a receipt as income there must be give & a receiver. 9) Transfer of income is not an income to transferee. 10) The source of income must exist in the previous year
.

11) Title disputed income is treated as of the receiver. 12) Pin money or pocket money is not income. 13) Savings made from the money received from the household expenses is not an income. 14) Currency fluctuation related with business are income

15) Awards received by professional sportsman are income. 3) PREVIOUS YEAR :- Sec.2(34) Income earned in a year is charged to tax in the immediate next year. The year in which the incomes are earned is known as previous year & the immediate next year is called as assessment year. Sec.2 (34) defines previous year as previous year means the previous year as defined in sec.3. The summary of provisions of section 3 is as under :1) Previous year means the financial year immediately preceding the assessment year. Therefore the position of previous year and assessment year is as under: PERIOD OF 1.4.2007 1.4.2008 PREVIOUS YEAR TO31.3.2008 TO31.3.2009 ASSESSMENT YEAR 2008-09 2009.10

B)

NON-TAXABLE INCOME U/S 10

INTRODUCTION: Section 5 of income Tax Act,1961 says that income tax is leviable on total Income. Total income includes all incomes whether Indian or non-Indian. Except those incomes referred to in Section 10. Therefore, the Income mentioned in Section 10 are non taxable incomes or are exempt from Income Tax or , to be more specific, incomes not forming part of total income. The following incomes are exempt from tax as mentioned in Section 10. 1) Agriculture income: sec (10)1 Agriculture income means a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes; b) Any income derived from any building situated in the farm let out for agricultural activity like store house stay for farmer, etc c) Income derived in any form from the land situated in India which is used for agricultural purposes. 2) Receipts from H.U.F.: Sec 10(2) Any Sum received by an individual as a member of a H.U.F. where such sum has been paid out of the income of the family which is exempt from tax or taxed. Such receipts are not chargeable to tax in the hands of an individual member. 3) Income from Partnership Firm: sec10 (2a) In case of person who is partner of a firm which is separately assessed, the amount of his share in the profits of the firm ascertained as per the partnership deed is exempt from tax.

4)

Scholarships: Sec 10(16) Scholarships granted to meet the cost of education are fully exempt from Income Tax.

5)

Income of minor: Sec 10(32) In case of the income of a minor child which is clubbed with that of the parent u/s64 (1a), such income is exempted from tax upto Rs.1,500/- in respect of each minor child whose income is clubbed.

Note: There are many other items which are exempt from Tax. They are discussed under respective heads as per the specification in syllabus of [Link].. C) 1) INCOME FROM SALARY: When salary is taxable: Basic of Charge: To tax income under this head the basic requirement is that there must be a relationship of employer and employee. Even if a person gets a regular remuneration but without a contract of employment then the same cannot be considered as salary income. The employment may be either a full time assignment or a part time job. Likewise, a person may have more than one employment. The salary taxable irrespective of the intervals at which it is received, like daily basis, monthly basis weekly basis etc. The remuneration received for rendering personnel services under express or implied contract in the capacity of employee is taxable as salary income. Let us analyse some relationship and decide whether it is of employer and employee and amount received is taxable as salary income or not.

SCOPE OF SALARY INCOME; SECTION15: Following income shall be chargeable to income Tax under the head salaries 1) Due Basis: Any salary due from an employer or a former employer to an assessee in the previous year whether paid or not 2) Receipts Basis: Any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it becomes due to him. 3) Arrears: Any arrears of salary paid or allowed to him in the previous year by or behalf of an employer or former employer if not charged to income tax for any earlier previous year. NOTE: SALARY TAXABLE ONLY ONCE: If advance salary is paid it is taxed on receipt basis and it will not be taxed again on accrual.

2)

GRATUITIES :- SECTION10(10) a) For Government employee: Death- cum retirement gratuity from Central Government or State government and member of Defence services or from a local authority is fully exempt; Section10 (10) (I) b) Employee covered by payment of Gratuity Act 1972: 1) A person working in any factory, mine, oil field, plantation, port, railways and a shop or establishment (employing 10 or more persons) is covered under the payment of gratuity Act, 1972. 2) Any gratuity calculated and paid in accordance with the provisions of Section 4 of payment of Gratuity Act is Exempt to the extent of least of the following amounts i) ii) Rs.3, 50,000/15days salary based on last salary drawn for each completed year of service or part of the year in excess of 6month. iii) c) Gratuity actually received.

In case of any other employee :i) Half months salary for each completed year of service.( fraction of the year ignored) ii) iii) Rs.3,50,000/Actual amount of gratuity received.

Salary means average salary received in 10months immediately preceding the month in which gratuity is paid/payable.

3)

COMMUTATION OF PENSION :- SECTION10(10A) 1. Government of pension received from Central government State Government, Statutory Corporation and Local Authority are fully exempt. 2. In case of Non- Government employee:I) If the employee receives Gratuity also then one third of the pension which he is entitled to receive(i.e. Amount commuted x 100) % of pension commuted ii) In any other case (i.e the employee is not in receipt of gratuity) one half of the pension which he is normally entitled to receive. (I.e Amount commuted x100 ) % of pension commuted 2

4) LEAVE SALARY:- SEC.10(10AA) ( At the time of retirement) a) Government employee:Any payment received by an employee of the central government or state Government by encashment of leave at the time of his retirement or annuation b) Is exempt.

In case of other employees:Leave salary is exempted from tax to the extent of least of the following;1) Cash equivalent of the leave to the credit of employee at the time of Retirement (calculated at 30days credit for each completed year of service) 2) 3) 10 months salary (on the basis of Average of last 10months salary) The amount specified by the government. Rs. 3, 00,000/-

4) D)

Leave encashment actually received.

INCOME FOR HOUSE PROPERTY (ANNUAL VALUE U/S.23) : Income from house property is determined on the basis of Annual value. It is the annual value of house property which is charged to tax after following certain deductions there form. Section 2(2) defines the term Annual Value. Annual Value in relation to any property means its annual value as determined under section23. Section 23 states how annual value is determined. According to this section, the annual value of the house property let out shall be:

I.

The sum for which the property might reasonably be expected to let out from year to year, i.e. Reasonable Letting Value. Reasonable letting value is the inherent capacity of the property to yield income from House Property. It can be ascertained having regard to fair Rent and Municipal Rateable Value of the House property. The Fair Tent can be ascertained by taking the following factors into consideration: a) Locality in which property is situated; b) Rent payable for similar property in the same or similar locality; c) Owners obligations discharged by the tenant: d) Tenants obligations discharged by the owner: e) If Rent control Act is applicable, the standard rent as fixed by the Rent Controller. After taking into consideration the above factors relating to the house property the fair rent is determined. The Municipal Rateable value is one of the important tests to be taken into consideration for determining the annual value. Municipal Rateable Value is

being ascertained by the local authorities such Municipal Corporation or Municipal Council or Grampanchayat. On the basis of the Municipal rateable value, local taxes are levied by the existing percentage after arriving at net rateable value. This net rateable value is determined after arriving at net rateable value this net rateable value is We are required to take gross ratable value into consideration for determining Annual Value. For example, if Net Municipal Rateable Value Happy Home at mulund, Mumbai-81 is Rs.9000/-, then we will be taking the Gross Municipal Rateable Value as Rs.10,000/- (i.e. Net R.9,000+1/9 th Rs. 9,000/- into consideration for determining the annual value. Thus, Fair Rent or Municipal rateable value which is greater is taken as Reasonable Letting Value (Gross Annual Value) u/s23 (1) (a) OR II. If the property or part of the property is let out and actual rent received/receivable after excluding unrealized rent and rent pertaining to vacancy period, is more than Reasonable Letting Value as above, the rent actually received/receivable after excluding unrealized rent and vacancy period is taken as Gross Annual Value u/s 24(1)(b). OR III. If the property or part of the property islet out and actual rent received /receivable after excluding unrealised rent and rent pertaining to vacancy period, is less than the reasonable letting value as above and as such a decline is caused only due to vacancy and not by any other factor (such as property let out at less than expected rent) such rent received/receivable after excluding unrealized rent and rent pertaining to vacancy period is taken as Gross Annual Value u/s 23(1) (c). However if the rent received/receivable is lower than reasonable letting value due to factors other than vacancy, Gross annual value would be Reasonable letting value as determined u/s24(1)(a).

Property may be letout or may be occupied by the assessee himself, i.e. self-occupied. It may also happen that the property is partly self-occupied and aprtly let out. In both cases, income is required to be ascertained on the basis of annual value. However, the mode of ascertaining the income from house property is different in case of house property which is either let out or self-occupied. Therefore, we can divide the computation of taxable income into two groups,i.e.: a) Income from House Property Let Out and b) Income from Self-Occupied House Property. A)

COMPUTATION OF INCOME FROM LET OUT HOUSE PROPERTY:-

Gross Annual Value (GAV)

XXX

LESS: Property taxes (municipal taxes) Paid to local authority NET ANNUAL VALUE LESS: Deduction u/s24 a) 30%of NAV (net annual value) b) Interest of loans /borrowings XXX XXX INCOME PROPERTY FORM HOUSE

XXX

XXX

XXX XXX

B) COMPUTATION OF SELF-OCCUPIED PROPERTY:

G.A.V(GROSS ANNUAL VALUE) LESS : MUNCIPAL TAXES NAV :(NET ANNUAL VALUE) LESS: STANDARD DEDUCTION INTEREST ON BORROWINGS INCOME FROM HOUSE PROPERTY

XX XX XX XX XX XX XX

E)

PROFIT OF BUSINESS/PROFFESION

1)

BUSINESS: - SECTION 2 (13) Business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. any adventure or concern in the nature of service, trade commerce or manufacture, whether or not the engagement in such service, trade, commerce, manufacture, adventure or concern is with a motive to make gain or profit and whether or not any gain or profit accrues from such service, trade, commerce, manufacture, adventure or concern.

Explanation: 1) The activity of raising of manmade forest or rearing of seedings or plants shall be deemed to be business. 2) A persons buying shares of a company for the purpose of resale is said to be carrying on a business. 3) If a person purchased a plot for the construction of his own house, but later sells the same being unable to construct the house, though earns profit, has not conducted business. Hence, essential criteria is carrying on any activity with an intention to earn profit, it is immaterial whether the same has resulted in profit or loss. It is also immaterial whether the same is repetitive or not. Likewise, the business may be legal or illegal. In short Business can notes some activity which is carried on by devoting time, attention and labour of a person either by himself or through 2) PROFFESSION: Profession is defined to include vocation The word Profession implies professed attainments in special knowledge which is to be acquired only after patient study and application. If a person carried any activity on account of inborn talents/skill and attributes any income derived there from, it shall also be considered as professional income for e.g. income earned by rendering discourses on philosophy, religion, etc. F) INCOME FROM CAPITAL GAINS

INTRODUCTION Capital Gain is a part of the Taxable Income. It is not an income in general sense as Capital Gains is the profit earned on sale of capital asset or an investment. Capital Gain in fact is brought to tax net by the deeming fiction created u/s2 (24) (vi) while defining the term Income. Thus in order to invoke the provisions of Capital Gains the following ingredients should be present. 1) the existence of Capital Asset 2) the transfer of such Asset and 3) Profits and Gains from Transfer of such asset. BASIC OF CHARGE (Section 45) Any profit or gain arising from the sale or transfer of capital asset, effected in the previous year is chargeable under the head Capital Gains. It is considered to be the income of the previous year in which transfer of capital asset has taken place. Any profits or gains arising from receipt of money or other assets under insurance from an insurer on account of damage to, or destruction of, any capital asset, as a result of 1) 2) 3) 4) Flood, typhoon, hurricane, cyclone, earthquake or other Convulsions of nature or Riot or civil disturbance or Accidental fire or explosion or Action by an enemy or action taken in combating an enemy shall be deemed to be income chargeable to income tax under the head capital gains, in the previous year when such Money or asset was received Any profits or gains arising from transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock in trade of a business carried on by him, is chargeable to tax in the previous year in which such stock in trade is sold or otherwise transferred by him. TRANSFER OF CAPITAL ASSET SECTION 2(47):-

The definition of transfer is very important as it is only when a capital Asset (as defined above) is transferred that the gains are taxable under this head. As per Section 2(47) of the Income Tax Act 1961 Transfer in relation to a capital Asset, includes:a] b] c] d] e] Sale, exchange or relinquishment of a capital asset, or Extinguishments of any rights therein ,or Compulsory acquisition of a Capital Asset under any law,or Conversion or treatment of a capital Asset into/as stock in-trade, or Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of Transfer of Property Act, 1882 or f] Any transaction whether by way of acquiring shares in or by way of becoming a member of a co-operative society, company or other association of persons or by way of any arrangement or agreement or in any other manner which has the effect of transferring or enabling the enjoyment of, any immovable property. g] Maturity or redemption of a Zero Coupon Bond.

CAPITAL GAIN IN RELATION TO DEPRECIABLE ASSET: SECTION 50: Depreciable asset means those assets which are used in business and depreciation claimed on them as a deduction from business income u/s 32. There are two cases of calculation of capital Gain on depreciable Asset. 1] When some of the assets in a block are sold then the provision of section 50(1) will apply as follows. A] Calculate the W.D.V qualified for depreciation

Particular Opening W.D.V of block of Asset Add|: cost of asset purchased during The previous year purchased Less: Sale proceed Asset disposed During the previous year W.D.V Qualified for depreciation

Amt xx xx xx

xx

If the w.d.v qualified for depreciation is positive depreciation will be allowed on it and no capital gain will arise. If the w.d.v qualified for depreciation is negative then dep will not be allowed on it and capital Gain will arise calculated as follows. Computation of capital Gain Particular Full value of consideration (sale proceed) Less: opening w.d.v of block of Asset Cost of asset purchase during the Previous year Expenses on transfer Short term capital Gain xx xx xx xx Amt Amt xx

2] A]

When all the asset in the block is sold then the provision of section 50(2) will apply. There is no need to calculate the w.d.v qualified for depreciation and capital/loss will arise calculated as follows.

Computation of capital gain Particular Amt Amt

Full value of consideration (sale proceed) Less: opening w.d.v of block of Asset Cost of asset purchase during the Previous year Expenses on transfer Short term capital Gain/Loss xx Note: A]. B] C] xx xx

xx

xx

Only short term capital gain can arise when provision of section 50(1) will apply . Short term capital gain /loss can arise when provision of section 50(2) can apply. In case of Depreciable asset indexation as well as the option 1.4.81 is not available.

SECTION 55 COST OF IMPROVEMENT (1)B It is an expenditure incurred by the assessee which is of capital nature, Such expenditure may be for additions or alterations of capital asset after the date of acquisition. Thus, the cost of improvement under specific situation as described U/S55(1) (b) is as follows:Following are the types of asset whose cost of acquisition shall be NILL and also cost of improvement shall be NIL. 1) Self Generated Goodwill 2) Tenancy Right 3) Stage Carriage permits 4) Loom Hours 5) Bonus Shares 6) Right to subscribe for right shares 7) A trade mark or brand name 8) Any right to manufacture/ produce or process any article or thing G) DEFINE GOODS &SALE PRICE UNDER MVATACT,2002:-

GOODS: - [S.2 (12)] Goods means every kind of moveable property not being newspapers, actionable claims, money stocks, shares, securities or lottery tickets and includes live stocks, growing crop, grass and trees and plants including the produce thereof including property in such goods attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. GOODS [S.2 (12)] 1 INCLUDES 1. 2. Every Kind of movable Property 1. Livestock 2. 3. 2 EXCLUDES Newspaper Actionable Claims Money

3. Growing Crops, Grass, Trees, Plants; their Produce 4. Things Attached to Land, severed Before/Under Agreement

4.

Shares, Stocks Securities

5.

Lottery Tickets

Goods have been defined as any kind of moveable property. Goods includes live stock, growing crops, grass and trees and plants, includes property in such goods and all other things attached to or forming part of the land which are agreed to be cut before sale. However, a goods does not include Newspapers, Actionable claims, money, stock, shares and securities and lottery tickets. Goods should be marketable. It is not necessary that goods should be generally available in the market. What is required is that goods should be marketable I,e. This could be bought and sold in the market. Even one purchase is enough to make it marketable. SALE PRICE [S.2 (25)]

 Sale price means the amount of valuable consideration paid or payable to a dealer for any sale mad e including any sum charged for anything done by the seller in respect of the goods at the time of or before delivery thereof , other than the cost of insurance for transit or of installation, when such cost is separately charged; EXPLANATION I: The amount of duties levied or leviable on the goods under the Central Excise Act, 1944 or the customs Act, 1962 or the Bombay Prohibition Act, 1949, shall be deemed to be part of the saleprice of such goods whether such duties are paid or payable by or on behalf of the seller or the purchaser or any other person. EXPLANATION II: Sale price shall not include tax paid or payable to a seller in respect of such sale. EXPLANATION III: Sale price shall include the amount received by the seller by way of deposit, whether refundable or not, which has been received whether by way of a separate agreement or not in connection with or incidental or ancillary to the said sale of goods; EXPLANATION IV The amount of valuable consideration paid or payable of a dealer for the sale of Drugs specified in entry 29 in Schedule C shall be the maximum retail price printed on the package containing the Drug.

SERVICE TAX ON MANDAP KEEPER [SEC.65 (66)]

Taxable service in this case, means service provided to a client, by mandap Keeper in relation to use of Mandap in any manner including:The facilities provided to the client in relation to such use and also services, if any, rendered as a caterer. This service became taxable will effect from 01-07-1997. 1] Mandap : Section 65(66) defines Mandap as, any immovable property as defined in sec 3 of Transfer of property Act 1882 and includes any furniture, fixtures, light fitting and floors coverings therein let out for a consideration for organizing any official, social or business function. 2] Caterer: It refers to person supplying, directly or indirectly, any food, edible preparations, alcoholic or non alcoholic beverages or crockery and similar articles or equipments for any purpose or occasion. 3] Mandap Keeper: It means a person who allows temporary occupation of a mandap for a consideration for organizing any official, social or business function. SCOPE 1] Mandap: The meaning of mandap is very wide, it includes all immovable properties let out for organizing social, official or business functions. Its includes marriage halls, banquet halls, conference halls, hotels and restaurants providing such facilities etc. service tax would apply in all these cases. 2] Hotels:

If Hotels and restaurants let out their banquet halls, rooms, garden etc. for organizing marriage, parties, conferences etc. they would come into the definition of mandap, hence taxable. 3] Clubs: Services provided by clubs, by way of making premises available to their members on payment of charges would come under the category of Mandap Keeper hence are taxable. 4] Banquet Halls: Renting of banquet halls for seminars of conferences are liable for payment of service tax as they come under the category of mandap keeper. 5] Dance/Drama/Music Programmes: Renting out halls/ premises for purpose of holding a dance, drama and music programmes or competition is chargeable to service tax, as the same are social functions. VALUE OF TAXABLE SERVICE:The value of taxable service shall be the gross amount charged by the mandap keeper for such services rendered by him. The value of taxable service is a gross amount charged by mandap keeper from client for use of mandap including facilities provided to the client in relation to such use and also the charges for catering, if any. The service tax would fall not only on hire charges for mandap but also for electricity charges. The mandap keeper may also bill the client for other services rendered by him such as charges for providing furniture, fixtures , lighting , fittings, crockery, cutlery etc.

EXEMPTION AND EXCLUSIONS: Sales tax and expenditure tax are statutory levies thus they cannot be included here. The charges of furniture, decorations etc provided by 3 rd party other than mandap keepers are not included in taxable value of mandap keepers. Shooting of film/TV serial cannot be considered as official, social or business function so it is not included in services of mandap keeper. Giving theatre on rent showing premire shows of movies would not attract service tax. Where a Mandap Keeper also provides catering services, in addition to letting out of mandap and charges the customer for supply of food, an abatement of 40% of total amount charged has been provided while computing value of taxable service. In other words service tax will be levied on 60% of total amount billed. The mandap Keeper should not avail of cenvat credit on inputs and capital goods. Sometimes booking is made for mandaps and are cancelled. In such case, question of service tax does not arise. Art galleries for exhibition are exempted.

H)

SERVICE CLASSIFIED

TAX

INTRODUCTION

TAXABLE

SERVICE

MANDAP KEEPER TRANSACTION SHOULD BE BETWEEN TWO PARTIES At the outset, the essential character of taxability is a service transaction which implies duality of entities. Thus, if an entity renders service to itself (one branch providing service to another branch or department). There can be no incidence of service tax. Similarly, in situations where the mutuality principle can be squarely applicable, there can be no incidence of service tax. Being on a selective approach the law also prescribes for the exact definitions of the service provider and the service recipient. Such definitions have undergone change from time to time. Based on the language used,

there may be a further reduction in the scope of coverage of the impugned service. The following table summarises the date-wise position of the definition of service provider and service recipient: Period Upto 15.05.2008 From 16.05.2008 Service Provider Mandap Keeper Mandap Keeper Service Recipient Client Any Person

The current position of applicability of service tax vis--vis the definitions of service provider and service recipient are discussed below. For principles highlighting the historic position, please refer the general commentary laid out in Part 1. The term mandap keeper is defined under section 65(67) of the finance Act, 1994 as under: Mandap keeper means a person who allows temporary occupation of a mandap for consideration for organizing any official, social or business function. The essential attributes as can be analyzed from the above definition would be as unde

SERVICE TAX ON CHARTERED ACCOUNTANTS PRACTISING CHARTED ACCOUNTANT:-sec 65(83)

Chartered Accountant means a person who is a member of the institute. The Service Tax under this category is leviable not on the profession of Chartered Accountancy but on the services of a practicing Chartered Accountant, This service became taxable with effect from 16th October 1998. Taxable service in this case, means any service provided:to any person by a practicing Chartered Accountant In his professional capacity In any manner

Section 65(83) of the Act defines practicing Chartered Accountant as :- a person who is a member of the institute of Chartered Accountant of India and is holding a certificate of practice granted under the provisions of the chartered Accountants Act,1949 and includes any concern engaged in rendering services in the field of Chartered Accountancy. Section 2(2) defines Chartered Accountant in practice as:A member of the institute shall be deemed to be in practice when individually or in partnership with chartered accountants in practice he renders services in consideration of remuneration received or to be received:1] 2] Engages himself in practice of accountancy, or Offers to perform or performs services incvolving auditing or verification of financial transactions, booksof accounts, verification etc or holds himself out to the public as on accountant, or 3] Renders professional services relating to accounting procedures or certification of financial facts, or 4] Renders such other services as in the opinion of the council are or may be rendered by a chartered accountant in practice.

SCOPE:
The service of practising chartered Accountant includes Auditing Services, Accounting Services, Statutory Certification work, Taxation consultancy, investigation, Share Valuation etc. VALUE OF TAXABLE SERVICES:-

In case of Practicing Chartered Accountant, Value of taxable Service shall be the gross amount charged by the services provider for such services rendered by him. EXEMPTION AND EXCLUSIONS: The Statutory representative services provided or to be provided by a practising Chartered Accountant in his professional capacity are exempt if all of the following conditions are fulfilled:1] 2] 3] 4] Such services are representative service. The representative service should be before any statutory authority on behalf of the client. It should be in the course of any proceeding under any law. The proceedings have been initiated by issue of a notice.

TRANSACTION SHOULD BE BETWEEN TWO PARTIES

At the outset the essential character of taxability is a service transaction which implies duality of entities. Thus, if an entity renders service to itself (one branch providing service to another branch or department), there can be no incidence of service tax. Similarly, in situations where the mutuality principle can be squarely applicable, there can be no incidence of service tax. Being on a selective approach, the law also prescribes for the exact definitions of the service provider and the service recipient. Such definitions have undergone change from time to time. Based on the language used, there may be a further reduction in the scope of coverage of the impugned service. The following table summarises the date-wise position of the definitions of service provider and service recipient: Period Upto 15.05.2008 Service provider Service recipient Practicing chartered Client

From 16.05.2008

Accountant Practicing

Chartered Any person

Accountant The current position of applicability of service tax vis--vis the definitions of service provider and service recipient are discussed below. For principles highlighting the historic position, please refer the general commentary laid out in Part I. The service has to be provided by a practicing chartered accountant. The term practicing chartered accountant is defined under section 65(83) of the finance Act, 1994 as under: Thus form the definition above, it is amply clear that two types of entities are covered under the scope of levy for practicing chartered accountants: 1. Any person who is a member of the institutes of Chartered Accountant of Indian and is holding a certificate of practice granted under the provisions of the Chartered Accountant Act, 1949 2. Any concern engaged in rendering services in the field of chartered accountancy. As already stated the profession of chartered accountancy is regulated by the Chartered Accountants Acts, 1949. Thus, the profession of chartered accountancy is open only to the member of the institutes in their individual capacity or to partnership firms which exclusively have chartered accountancy cannot be conducted in the corporate form.

VALUATION
The value of the taxable service shall be the gross amount charged to the client. Thus, no deduction is available for various expenses incurred while providing the taxable service. The Service Tax (Determination of Values) Rules, 2006 have been prescribed with effect from 19.04.2006. These rules very clearly enunciate

situations in which an assesse may claim the exclusion of expense recoveries on the ground of reimbursement of expenses. Primarily, the expenses will have to be incurred by the service provider as an agent of the service recipient. The service provider will also have to satisfy eight conditions specified in rule 5(2). For a details discussion refer part I. During the currency of Notification 59/1998, many chartered accountants found that the gross value of taxable service during a year was below Rs 400000 and hence the y were not liable for service tax in view of the basic exemption provided Notification 6/2005, dated 01.03.2005. In view of the withdrawal of the Notification 59/1998, such chartered accountants are likely to see an increase in the value of the taxable service eventually resulting in the denial of the benefit of Notification 6/2005 at some stage. However the exemption under Notification 59/98 is granted at the stage of rendering the taxable service while the exemption under Notification 6/2005 is granted at the stage of realization of consideration. Due to this dicongruent situation, one will have to maintain detailed records to offer the amounts correctly due for service tax. Typically, a chartered Accountant will have to keep a track of the cumulative aggregate realizations towards taxable services. This will includes realizations towards specified services rendered upto 28.2.2006 and realization towards all services rendered thereafter. The date when this aggregate amount during a financial year crosses 4 lakhs shall be taken as the cut-off date for determination of liability towards service tax. On the cut off date, the assessee will be required to compile his outstanding and bifurcate the outstanding into two components: taxable outstanding (specified services rendered upto 28.2.2006 and all services thereafter) & exempted outstanding. Whenever, these outstanding are realized at a later date, one will have to appropriate towards either taxable services or exempted services if the amounts

are realised after the cut-off date for specified services rendered prior to the cut-off date, the same shall also be liable for service tax.