INTERPRETATIONS AND CONSTRUCTIONS-Definition of accountant

[Kaustubh patel]

CHAPTER - XVII – INTERPRETATIONS AND CONSTRUCTIONS

Clause 314 - Interpretations in the Code

Definition of accountant

17.1 Clause 314(2) of the Direct Taxes Code Bill, 2010 define “Accountant” as follows:

“Accountant” –means (a) a chartered accountant within the meaning of the Chartered Accountants Act, 1949, and

(b) any person who is entitled to act as an auditor of companies under sub-Clause (2) of Clause 226 of the Companies Act, 1956.

17.2 Clause 182(3) of the Direct Taxes Code Bill, 2010 define “Accountant member” as follows:

“An accountant member shall be a person—

(a) who has for at least fifteen years been in the practice of accountancy as a chartered accountant under the Chartered Accountants Act, 1949; or

(b) who has been a member of the Indian Revenue Service and has held the post of Additional Commissioner of Income-tax or any equivalent or higher post for at least three years”.

17.3 Provision as per the existing Act:

288(2) Explanation.—In this section, ‘accountant’ means a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State. Provides for computation of income from business. Income of distinct and separate business to be computed separately.

17.4 The Committee has received representations from ICWAI and ICSI demanding changes in the definition of accountant and accountant member. ICWAI has suggested that since these are exclusive domain of Cost Accountants as per sec 2(2) of the Cost and Works Accountants Act, 1959, the Cost Accountants should be included in the definition of Accountants as per Clause 314(2) of the DTC Bill, 2010. Segmental reporting including ascertainment of cost and profitability should be introduced to ensure correctness of product-wise, unit-wise profitability as per clause 31(2) which should be certified by Cost Accountant in practice as per meaning of Cost and Works Accountants Act, 1959.

17.5 ICSI has suggested that ‘Company Secretary within the meaning of the Company Secretaries Act, 1980(Central Act 56 of 1980)’ in the definition of ‘Accountant’ and ‘Accountant Member’ so as to give them the same privilege as given to the Chartered Accountants.

Specific entry in respect of Company Secretary under Clause 304(3) on ‘Appearance by Authorized representative’ or in other applicable provisions be made to define Authorised Representative specifically.

The Institute of Company Secretaries of India is a premier professional body established under an Act of Parliament, i.e., the Company Secretaries Act, 1980. Company Secretary, a competent professional comes in existence after exhaustive exposure provided by the Institute through compulsory coaching, examinations, rigorous training and continuing education programmes, and is governed by the Code of Conduct contained in the Company Secretaries Act, 1980.

The curriculum of Company Secretaryship Course includes, inter-alia, detailed study of Direct Taxation, Indirect Taxation and Financial Accounting. Thus, vast exposure is provided to the Company Secretaries in the areas of taxation and accounts, enabling them to acquire proficiency in taxation and other related subjects.

Secretary of a company has been recognized as a key managerial personnel of the company under the Companies Bill, 2011 and principal officer of the company responsible for its affairs under a host of legislations including Companies Act, 1956, Customs Act, 1962, Central Excise Act, 1944, etc. This Code also recognizes Secretary as Principal Officer [vide Clause 314(200)].

The Company Secretaries in Practice have been recognized to act as Authorized Representative before-

a) The Customs, Excise and Service Tax Appellate Tribunal under the Customs Act, 1962 [Clause 146A(2)(d)] read with Customs (Appeals) Rules, 1982 [Rule 9(c)] and The Central Excise Act, 1944 [Clause 35Q (2)(c)] read with Central Excise (Appeals) Rules, 2001[Rule12(c)].

b) Service Tax vide Authority for Advance Ruling (Procedures) Rules, 2003-Rule 2(d)(i)

c) Income-Tax Act, 1961 vide Clause 288(2)(v) read with Rule 50(2A) of the Income Tax Rules,1962

d) Securities Appellate Tribunal vide Clause 15V of the SEBI Act, 1992

e) Central Electricity Regulatory Commission vide the Central Electricity Regulatory Commission (Miscellaneous Provisions) Order, 1999- Explanation to Order No.6(i)

f) Telecom Regulatory Appellate Tribunal vide the Telecom Regulatory Authority of India Act, 1997-Clause 17

g) National Company Law Tribunal vide Clause 10GD

h) Competition Commission of India Competition Act, 2002 – Clause 35(b)

i) Wealth Tax Authorities vide Wealth Tax Rules – Rule 8A(7)

j) State VAT Legislations.

k) Reserve Bank of India – Diligence Report for Banks Vide Circular DBOD No. BP.PC. 46/08.12.001/2008-09

l) SEBI – Internal Audit of Stock Brokers / Trading Members / Clearing members Vide Circular No. MRD/DMS/CIR/-29/2008

17.6 The Ministry has replied that the definition of accountant as appearing in the DTC is the same as that in the IT Act. An accountant for the purposes of tax matters is required to deal with all financial matters and audit all financial ledgers, books, records and statements of a company or firm etc whereas a cost accountant deals primarily with estimates of cost for projects and monitoring the project to ensure that these are within the budget. Therefore, a cost accountant may not have the expertise to deal with all the financial statements and matters. Accordingly the suggestion is not acceptable.

17.7 Further, the question here is not of giving privilege to any particular profession rather the most suited profession for dealing with the matters relating to direct taxes has to be assigned the work. Accordingly, the suggestion is not acceptable.

17.8 Under clause 304(3) (F) of the DTC, the Board may prescribe any person with specified educational qualification to act as an authorized representative. The same procedure is followed under the current Act. Accordingly, this will be considered at the time of framing of subordinate legislation.

17.9 The Committee observe that the Ministry’s reasoning for non-inclusion of related professionals in the definition of accountant is a very strict construction of the term. In the view of the Committee, the suggested amendment may provide the Small and Medium Enterprises (SMEs) a wider and cost effective scope for selection of professionals and will be an important initiative towards simplified tax compliance regime. The Ministry may therefore re-consider the suggestion to widen the scope of the definition of “accountant”.

17.10 Definition of  ‘Business Connection’

314. (40) “business connection” in relation to a non-resident shall include a permanent establishment;

Provision as per the Income Tax Act, 1961

Section 9. (1) Explanation 2.—For the removal of doubts, it is hereby declared that ‘business connection’ shall include any business activity carried out through a person who, acting on behalf of the non-resident,—

(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non resident; or

(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c) habitually secures orders in India, mainly or wholly for the nonresident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business:

Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.

17.11 On this sub-clause, the following suggestion has been received:

a. The definition of “business connection” can be done away with and nexus in India can be ascertained with respect to the concept or PE which should be exhaustively defined. (Bombay Chartered Accountants)

b. The inclusion of the term ‘permanent establishment‘ in the definition of the term ‘business connection‘ should be removed, if not, then a threshold limit should be prescribed in relation to the various situations proposed to be included within the definition of Permanent establishment.

c. Specific exclusion should be provided for activities which are preparatory or auxiliary in nature. (Bombay Chamber of Commerce)

17.12 The Ministry have furnished their replies as under:

Business connection includes permanent establishment. Accordingly, the term has been defined to indicate the same. The term  “permanent establishment” has been defined in clause 314(183) in an exhaustive manner. The Double Taxation Avoidance Agreements also contain an article (clause) on Permanent Establishment (PEs) wherein the types of PE to be recognized for taxation of business income of a non resident in the two contracting States is enlisted. The time period for which a particular activity should exist in a year to be recognized as PE for taxation of business income of a non resident is negotiated by the two countries to ensure their taxing rights taking into account the nature of activity. Accordingly, the time period for a service PE or construction PE varies from treaty to treaty. It is a settled principle that scope of taxation under domestic law should be wider than that of treaty.

Source:http://164.100.24.219/BillsTexts/LSBillTexts/asintroduced/DTC%20%28110%20of%202010%29%20To%20be.pdf