Taxation of Limited Liability Partnership

LLP is a new corporate form that enables professional expertise and entrepreneurial initiative to combine, organize and operate in an innovative and efficient manner. In India, this need has long been recognised for businesses which may require a framework that provides flexibility suited to requirements of service, knowledge and technology based enterprises. Services sector is playing a major role in the national economy and there is a growing diversity in the range of services being offered. The services sector also finds this form very useful. 

2. Government had introduced the Limited Liability Partnership Bill, 2006 in the Rajya Sabha on 15th December, 2006. It was later referred to the Department Related Parliamentary Standing Committee on Finance for examination and report. The Committee submitted its recommendations in its report to both Houses of Parliament on 27th November, 2007. Keeping in view the recommendations made by the Standing Committee and other relevant inputs, the Government had finalized the LLP Bill, 2008. Based on such report the Ministry of Corporate Affairs revised the LLP Bill and the revised LLP Bill, 2008 was introduced in the Rajya Sabha on 21st October, 2008. This was passed by the Rajya Sabha on 24th October, 2008. The Bill was passed by Lok Sabha on 12th December, 2008. The President gave assent to this Bill on 7th January, 2009. 3. The rules in respect of registration and operational aspects under the LLP Act, 2008 viz. LLP Rules, 2009, were issued on 1st April, 2009. The rules in respect of conversion of a partnership firm, a private company and an unlisted public company into LLPs were made effective w.e.f. 31st May, 2009. The Government has also launched a website namely, www.llp.gov.in on 1st April, 2009 for operationalization of various processes provided under the LLP Rules, 2009. The rules under LLP Act, 2008 in respect of winding up and dissolution of LLPs are also under preparation and would be prescribed shortly. Taxation of LLPs 4. Since the taxation related matters in India are provided under Tax Laws, the taxation of LLPs was not provided in the LLP Act. The Finance Bill, 2009 has made provisions in this regard, pursuant to which the taxation scheme of LLPs has been proposed to be introduced in the Income Tax Act. It has been proposed to tax LLPs on the lines similar to general partnerships under Indian Partnership Act, 1932, i.e. taxation in the hands of the entity and exemption from tax in the hands of its partners. The Finance Bill, 2009 has accorded a “limited liability partnership” and a general partnership the same tax treatment. Consequent changes in the Income-tax Act, 1961 like (i) the word ‘partner’ to include within its meaning a partner of a limited liability partnership, (ii) the word ‘firm’ to include within its meaning a limited liability partnership and (iii) the word ‘partnership’ to include within its meaning a limited liability partnership as these terms have been defined in the Limited Liability Partnership Act, 2008 have also been proposed in the Finance Bill, 2009. 5. It has also been proposed in the Finance Bill, 2009 that the designated partner shall sign the income tax return of an LLP, or, where, for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return. The Finance Bill has also proposed that in case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. 6. The Bill further provides that as an LLP and a general partnership is being treated as equivalent (except for recovery purposes) in the Income-tax Act, the conversion from a general partnership firm to an LLP will have no tax implications if the rights and obligations of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. The Finance Bill, 2009 also provides that if there is a violation of these conditions, the provisions of section 45 of Income-tax Act shall apply. The Finance Bill, 2009 has further proposed to make the amendments effective from the 1st day of April 2010 i.e. assessment year 2010-11. Ministry of Corporate Affairs, Government of India New Delhi, Asadha 19,1931, July 10, 2009

Sources:Press Information Bureau

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CA STUDENT TO GET COPY OF ANSWER SHEET

The Central Information Commission under the Right to Information Act has decided against the stand of the ICAI and upheld the request of CA Final student for a copy of exam answer sheet.  

The CIC decision dt. 13.7.2009 is linked herewith.

Just click here:CIC Decision

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Proposed TDS provision in the budget with there effective dates

A] Section 194-I

Existing provisions :

TDS on rental payments is prescribed at the rate of

(a) 10% for the use of any machinery or plant or equipment,

(b) 15% for the use of any land or building or furniture or fittings, if the payee is an individual or HUF

and

(c) 20% if the payee is other than an individual or HUF.

Proposed Provision :

(a) 2% for the use of any machinery or plant or equipment,

(b) 10% for the use of any land or building or furniture or fittings for all persons.

* The rate of TDS will be 20 per cent in all cases, if PAN is not quoted by the deductee w.e.f. 1.04.2010.

B] Section 194-C

Existing provisions :

2% on payment for a contract.

1% in the case of a sub-contract

1% in the case of payment for an advertising contract

Proposed Provision :

On payment for a contract & even for sub-contract and advertising contracts :

(a) 1% where payment for a contract are to individuals/HUF

(b) 2% where payment for a contract are to any other entity.

* The nil rate will be applicable if the transporter quotes his PAN. If PAN is not quoted the rate will be 1% for an individual/ HUF transporter and 2% for other transporters upto 31.3.2010.

** The rate of TDS will be 20 per cent in all cases, if PAN is not quoted by the deductee w.e.f. 1.04.2010.

C] Other TDS Provisions (w.e.f. 01.10.2009)

Some of the rates of TDS specified for resident taxpayers have been reduced and converged to 10 per cent.

No surcharge and cess on tax deducted on non-salary payments made to resident taxpayers.

D] Provisions for payments and TDS to transporters (w.e.f. 01.10.2009)

Existing provisions :

U/s. 194C, TDS is required to be deducted on payments to transport contractors engaged in the
business of plying, hiring or leasing goods carriages. However, if they furnish a statement that they do not own more than two goods carriages, tax is not to be deducted at source.

Proposed Provision :

It is proposed to exempt payments to transport operators (as defined in section 44AE) from the
purview of TDS.
However, this would only apply in cases where the operator furnishes his Permanent Account
Number (PAN) to the deductor. Deductors who make payments to transporters without deducting TDS (as they have quoted PAN) will be required to intimate these PAN details to the Income Tax Department in the prescribed format.

Note : The format is awaited and the time by which this information needs to be submitted will be notified.

It is proposed to raise the limit of cash payment to such transport operators to Rs 35,000/-
from the existing limit of Rs 20,000/- u/s. 40A(3).

E] Clarification regarding "work" under section 194C (w.e.f. 01.10.2009)

There is ongoing litigation as to whether TDS is deductible under section 194C on outsourcing
contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is
proposed to provide that "work" shall not include manufacturing or supplying a product
according to the requirement or specification of a customer by using raw material purchased
from a person other than such customer as such a contract is a contract for ‘sale’.

This will however not apply to a contract which does not entail manufacture or supply of an
article or thing (e.g. a construction contract). It is also proposed to include manufacturing or
supplying a product according to the requirement or specification of a customer by using
material purchased from such customer, within the definition of ‘work’.

It is further proposed to provide that in such a case TDS shall be deducted on the invoice
value excluding the value of material purchased from such customer if such value is
mentioned separately in the invoice. Where the material component has not been separately
mentioned in the invoice, TDS shall be deducted on the whole of the invoice value.

F] Compliance with provisions of quoting PAN(w.e.f. 01.04.2010)

It is proposed that any person whose receipts are subject to deduction of tax at source i.e. the
deductee, shall mandatorily furnish his PAN to the deductor failing which the deductor shall
deduct tax at source at higher of the following rates
(i) the rate prescribed in the Act;

(ii) at the rate in force i.e., the rate mentioned in the Finance Act; or

(iii) at the rate of 20 per cent.

TDS would be deductible at the above-mentioned rates will also apply in cases where the
taxpayer files a declaration in form 15G or 15H (under section 197A) but does not provide his
PAN.

Further, no certificate under section 197 will be granted by the Assessing Officer unless the
application contains the PAN of the applicant.

These provisions
will also apply to non-residents where TDS is deductible on payments or credits made to them.

To ensure that the deductor knows about the correct PAN of the deductee it is also proposed to
provide for mandatory quoting of PAN of the deductee by both the deductor and the deductee
in all correspondence, bills and vouchers exchanged between them.

G] Processing of statements of tax deducted at source(w.e.f. 01.04.2010)

It is proposed to provide for electronic processing of TDS statements on the same lines as
processing of Income-tax returns.

Following adjustments can be made during the computerized processing of statements of tax
deducted at source:

(i) any arithmetical error in the statement; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information in thestatement, for example, in respect of rate of deduction of tax at source where such rate is notin accordance with the provisions of the Act.

It is proposed to provide that after making adjustments, tax and interest [e.g. u/s 201(1A)]
would be calculated and sum payable by the deductor or refund due to the deductor will be
determined.

An intimation will be sent to the deductor informing him of his tax liability or
granting him the refund due within one year from the end of the financial year in which the statement is filed
. It is also proposed that the processing of these statements can be undertaken in a centralized processing centre.

H] Filing of TDS and TCS statements(w.e.f. 01.10.2009)

It is proposed to modify the existing provisions so as to allow the Government to prescribe
periodicity of TDS statements besides prescribing their form and manner.

Under current provisions, TDS statements are filed on quarterly basis.

I] Providing time limits for passing of orders u/s 201(1) holding aperson to be an assessee in default(w.e.f. 01.04.2010)

Currently, the Income Tax Act does not provide for any limitation of time for passing an order
u/s 201(1)
It is proposed that an order u/s 201(1) for failure to deduct the whole or any part of the tax as
required under this Act, if the deductee is a resident taxpayer shall be passed within two
years from the end of the financial year in which the statement of tax deduction at source is
filed by the deductor.

Where no such statement is filed, such order can be passed up till four years from the end of
the financial year in which the payment is made or credit is given.

It is proposed to provide that such proceedings for a financial year beginning from 1st April,
2007 and earlier years can be completed by the 31st March, 2011.

However, no time-limits have been prescribed for order under section 201(1) where—

(a) the deductor has deducted but not deposited the tax deducted at source, as this would be
a case of defalcation of government dues,

(b) the employer has failed to pay the tax wholly or partly, under sub-section (1A) of section
192, as the employee would not have paid tax on such perquisites,

(c) the deductee is a non-resident as it may not be administratively possible to recover the tax
from the non-resident.

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Attention Students (CS) Send Response sheets by email

ATTENTION STUDENTS !!

RESPONSESHEETS BY E-MAIL

As the Student Communityis well aware, the Institute has always strived to absorb the power of information technology in its day to day activities so that the students areprovided with hassle-free and effective services at all times. Inthis scenario, it has been decidedto introduce a Pilot Project of E-Response Sheets wherein Response Sheets will be accepted from the students through E-Mail asagainst the conventional method of accepting the same in physical form. Thedetails are as under : -

                                                        

Eligibility of Students  to be covered under Pilot Project	Students of Executive  Programme who have either :       (i)   Passed CA/ICWA   Final  Examinations;       OR      (ii)   Having with 4-5 Years of Work  Experience
Subject covered under  Pilot Project	‘Company  Law’  (Code No.224) covered under Module-II of Executive Programme
Process involved	F   Step  1	Click on the link  “Students” and then “E-Response Sheets” to download the Word  Document containing Question-Cum-Answer Paper.
	F   Step  2	Fill in the Particulars  of Student in the Template which is also available in the Word Document.
	F   Step  3	Type the Answers for  each Question at the relevant space in  the Word Document.
	F   Step  4	Send the E-Response  Sheet to response_cl@icsi.edu
	F   Step  5	While sending the  E-Response Sheet by E-Mail, please also attach scanned copy of certificate  pertaining to qualification (CA/ICWA) or work experience.

Students fulfilling theeligibility criteria are requested to follow the above steps. Incase of any difficulty, students maycontact Directorate of Information Technology (psdit@icsi.edu)for technical problems and Directorate of Student Services (dss@icsi.edu) for any other query likeeligibility, etc.

Please note that dependingupon the success of the PilotProject, this facility will be extended to all the remaining subjects/ stages ina phased manner. The present systemof submitting the response sheets inphysical form will not be affected and will continue as usual.

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Sucham Finance & Investments Pvt. Ltd. v. ACIT

Allowability of credit
for tax paid as provided in section 115JAA before charge of interest under
sections 234B and 234C of IT Act, 1961

Explanation
as substituted by Finance Act, 2006 in sections 234B and 234C does not say that
tax credit should not be allowed as a set off while computing assessed tax
prior to the date of such substituted Explanation coming into force.

ITAT,
MUMBAI BENCH ‘E’, MUMBAI
Sucham
Finance & Investments Pvt. Ltd.
v.
ACIT
ITA
No. 6868/M/2006
November
21, 2008

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **
6. We have heard the rival contentions and
carefully perused the orders. The short question here is whether credits for tax paid as provided in section 115JAA of the Act has to be given beforecharging of interest u/s 234A & 234B or after charging of interest u/s 234A and 234B of the Act, in the later years, when such credit is claimed. Even,before the substitution of Explanation 1 to section 234B and the unnumbered
explanation to section 234C, through Finance Act 2006, no doubt various Benches of this Tribunal had held that credit for such MAT tax paid had to be first allowed before charging interest under section 234B and 234C of the Act. Decisions of the Chennai Bench in the cae of Chemplast Sanmar Ltd. v/s. DCIT, 83 TTJ 427, Jodhpur Bench of this Tribunal in Synthetic Industrial ChemicalsLtd. v/s. DCIT, 90 ITD 851, Chandigarh Bench of this Tribunal in Philips India Ltd. v. ACIT, 92 ITD 441 were all in favour of this treatment. However, the contention of the Department now is that after substitution of Explanation in section 234B and 234C of the Act, by which tax credit u/s 115JAA has been specifically allowed to be set off before for arriving at the assessed tax for charging interest under the respective section, it is implied that prior to the date of such substituted explanation coming into effect i.e. from 1-4-2007, credit of tax u/s 115JAA could not be allowed before interest was computed u/s 234B and 234C of the Act on the assessed tax. However, we do not find this argument to be attractive. Explanation as substituted by Finance Act 2006 insections 234B and 234C does not say that tax credit should not be allowed as a set off while computing assessed tax prior to the date of such substituted
explanation coming unto force. Reliance placed on the explanatory memorandum
states that representations were received pointing out such tax credits under
115JAA to be not different from tax paid in advance and hence credit should be
given the tax liability determined as on an assessment while calculating
interest payable by the assessee under sections 234A, 234B and 234C of the Act.
It does not say that the treatment prior to that date should have been
different or was different. The issue of treatment of MAT credit brought
forward u/s. 115JAA of the Act prior to the date had come before various
Benches of this Tribunal which through the decisions mentioned (supra) had
clearly laid down that such credit had to be given while computing the assessed
tax for the purpose of levy interest under the respective sections. In any
case, the explanatory memorandum which is appended to a Finance Bill has to be
used with great circumspection as held by the Hon’ble Apex Court in
Ashwinikumar Ghosh v. Arvind Boss, AIR 1952 SC 369. Justice Patanjali Shastri,
the then Chief Justice of India held as under:-

“As regards the property of the reference to the statement of Objects and Reasons, it must be remembered that it seeks only to explain what reasons induced the mover to introduce the Bill in the House what objects he sought to achieve. But those objects and reasons may or may not correspond to the objective which the majority of members had in view when they passed it into law. The Bill may have undergone radical changes during its passage through the House or Houses, and there is no guarantee that the reasons which led to its introduction and the objects thereby sought to be achieved have remained the same throughout till the Bill emerges from the House, as an Act of the Legislature, for they do not form part of the Bill and are not voted upon by the members. We, therefore, consider that the Statement of Objects and Reasons appended to the Bill should be ruled out as an aid to the construction of the statute”.

Again
in the case of Shashikant Laxman Kale v. Union of India, AIR 1990 (SC) 244 ithas been held that an explanatory memorandum is easily not an accurate guide of a Financial Act. Therefore, in our opinion, there can be no logical conclusion,drawn by implication from an explanatory memorandum, to the effect that prior to the date of substituted explanation coming into effect, the position would have been opposite. On the other hand, it could be more correct to say that
such substituted explanation was to give a legislative recognition to the rule of the law with regard to carry forward of tax credits u/s 115JA of the Act aslaid down by various Benches of this Tribunal referred (supra). Therefore, inour opinion, the introduction of the substituted Explanation did not have anyon the position as it held forte priori. In the result, we are inclined to follow the decision of the co-ordinate Benches on carry forward of MAT credit
u/s 115JAAS of the Act with regard to charge of interest u/s. 234N and 234C of
the Act. Therefore, the assessee’s ground No. 1 is allowed and A. O. is
directed to give the assessee MAT credit available to it under law before
charging interest u/s 234B and 234C of the Act. Result is that assessee’s
appeal stands allowed.

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CIT vs. Grasim Industries (Bombay High Court)

U/s 260A, High Court has no power to condone delay

S. 260A permits the filing of an appeal to the High Court within 120 days. In CIT vs. Velingkar Brothers 289 ITR 382 (Bom) (FB), The Full Bench held that the Court had power to condone delay u/s 260A. However, in Hongo India 236 E.L.T. 417 and Chaudharana Steels 238 E.L.T. 705, the Supreme Court held in the context of sections 35H & 35G of the Excise Act, that in the absence of specific powers, the High Court has no power to condone delay. On the question whether the said judgement of the Supreme Court would apply to s. 260A as well, HELD:

S. 35 G of the Excise Act is pari materia with s. 260 A of the I. T. Act. S. 260 A (7) as well as s. 35 G (9) of the Excise Act provide that the provisions of the Code of Civil Procedure, 1908 relating to appeals to the High Court shall as far as may be, apply to the appeals filed under the respective provisions. No such provision is to be found in Section 35 H of the Excise Act. Therefore, the argument advanced by the Counsel for the revenue that s. 35 G and s. 35 H of the Excise Act are materially different cannot be said to be wholly without substance. However, once the Apex Court has held that the High Court has no power to condone delay in filing Appeal under s. 35 G of the Excise Act, we have no option but to hold that this Court has no power to condone delay under s. 260 A because s. 260 A is pari materia with s. 35 G of the Excise Act. As the appeals were delayed, they had to be dismissed.

 

Note: The Finance Bill, 2009 has proposed to amend ss. 35G & 35H of the Excise Act to supercede the said judgements of the Supreme Court. However, no amendment has been proposed to s. 260A so far.

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ICAI Starts Toll Free Lines to Serve Members, Students Better

*ICAI Starts Toll Free Lines to Serve Members, Students Better*  

 With a view to serve the members and students better, Institute of Chartered Accountants of India is starting two toll-free help lines - one dedicated to the members and another dedicated to students to answer their queries and resolve their problems vis-à-vis the Institute, if any. The toll free number

*for Members will be 18002002500* while the toll free numbers

*for students will be 18002002501*.

Members & Students will be happy to note that the calling party (Members & Students) calls free of charge and the subscriber (The Institute) pays for the call charges. Duration of every call shall only be for 3 minutes. Hence Members & Students are requested to frame the QUERY & be specific before making a call. These lines will become operational from 1st September 2008. All the calls received on these telephone numbers will be recorded to ensure good quality of services and necessary follow-ups and resolution of problems. *Solutions to Students' Queries Through Toll Free Mode and Direct E-mail - ( **27-08-2008**) *  

------------------------------   BOS/ANNOUNCEMENT/TOLL-FREE-2008 August 27, 2008 SOLUTIONS TO STUDENTS' QUERIES THROUGH TOLL FREE MODE AND DIRECT E-MAIL

The Board of Studies is happy to inform the CA students that the following facilities have been provided by the Board of Studies for facilitating quick solutions of CA students' queries:

1. Toll Free Number : 1800-200-2501

2. Individual telephone numbers of respective faculty members

3. Individual e-mail i.d. of respective faculty members

4. Facilitating of answering through Gyandarshan Lecture Channel – Toll free number 1800-11-2345 and e-mail i.d. gyandarshan...@icai.org(during studio timings only) Students may ask queries of general as well as technical nature through toll free number (on Monday to Friday between 2.00 P.M. to 4.00 P.M.). Students are advised to use toll free facility for short answer questions. Queries requiring elaborate answers should preferably be addressed to the respective faculty members through e-mail.

*S.no* *Subject* *Name* *Contact no.* *Email-id* *day* *COMMON PROFICIENCY TEST*

1. Fundamentals of Accounting

Aditya P. Tripathi 0120 3045937 *tkadi...@icai.org.in* * * Monday 

2. Mercantile Law Ms. Nisha Gupta 0120 3045923 *giridha...@icai.org.in*  Tuesday 

3. Economics Mrs. Prem J. Bhutani 0120 3045911 *p...@icai.org.in** * Tuesday

4. Mathematics& Statistics Dr. N.V. Ravi/T.Muthu Kumar 0120 3045939 *tmku...@icai.org.in* * * Tuesday *PROFESSIONAL COMPETENCE COURSE* 

5. Advanced Accounting CA. Shilpa Aggarwal 0120 3045921 *shi...@icai.org.in* * * Monday 

6. Auditing & Assurance CA. Vikas Gupta 0120 3045925 *vikas.ku...@icai.org.in* * * Wednesday 

7. Business Corporate Laws Mr. Alexander Samuel 0120 3045939 *giridha...@icai.org.in* * * Tuesday 

8. Business Ethics Mr. Alexander Samuel 0120 3045939 *giridha...@icai.org.in* * * Wednesday 

9. Business Communication Dr. Naveen Mehta 0120 3045938 *giridha...@icai.org.in* * * Wednesday 

10. Cost Accounting Dr. N.N. Sengupta / Mr. A.P. Kar 0120 3045919 nnsengu...@icia.org.in Thursday

11. Financial Management CA. Ashish Gupta 0120 3045914 *ashish.gu...@icai.org.in* * * Thursday 

12. Taxation CA. Priya Subamanian / CA. Ruchika Sabharwal 0120 3045913 *pr...@icai.org.in* * **ruch...@icai.org.in* * * Friday 

13. Information Technology Mr. Manna Dey 0120 3045924 *manna...@icai.org.in* * * Wednesday *FINAL COURSE* 

14. Strategic Management Mr. Shaleen Suneja / Dr. Ruchi Gupta 0120 3045912 0120 3045926 *ssun...@icai.org.in* * * Wednesday 

15. Financial Reporting CA. Seema Gupta / CA. Shilpa Agarwal 0120 3045916 se...@icai.org.in * **shi...@icai.org.in* * * Monday 

16. Strategic Financial Management Dr. S.Z.H. Zaidi 0120 3045910 *za...@icai.org.in* * * Thursday Wednesday Tuesday 

17. Advanced Auditing CA. Vikas Gupta 0120 3045925 *Vikas.ku...@icai.org.in* *

18. Corporate & Allied Laws Ms. Megha Goyal 0120 3045935 *giridha...@icai.org.in* **

19. Advanced Management Accounting Mr. A.P. Kar / Dr. N.N. Sengupta 0120 3045919 nnsengu...@icia.org.in Thursday

20. Information Systems Control & Audit Mrs. Indu Arora 0120 3045904 *i...@icai.org.in* * * Wednesday 

21. Direct Tax Laws CA. Priya Subamanian / CA. Ruchika Sabharwal 0120 3045913 *pr...@icai.org.in* * **ruch...@icai.org.in* * * Friday 

22. Indirect Tax Laws CA. Smita Mishra / Mr. Ashish Bhansali 0120 3045920 *sm...@icai.org.in* * **ashish.bhans...@icai.org* * * Friday  Note: In case of non-receipt of any response within three days please e-mail to ps...@icai.org.in CA. R. Devarajan Additional Director of Studies (SG)

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