Companies & Sectors
Income Tax dept slaps Rs557 crore notice on BPO firm WNS

The tax demands, which include taxes on income and services, are for financial years 2003 to 2010, WNS had said in its annual report for 2012-13 given to the US Securities Exchange Commission

 
After Vodafone, Nokia and Shell, WNS is the latest multinational company (MNC) that has come under the tax scanner on transfer pricing issue. The outsourcing major has received demands of additional tax of about Rs557 crore on income with regard to acquisition of UK-based Aviva’s BPO services.
 
The company, however, has challenged the income-tax notices in courts of law.
 
The tax demands, which include taxes on income and services, are for financial years 2003 to 2010, WNS had said in its annual report for 2012-13 given to the US Securities Exchange Commission.
 
Among India's leading pure-play BPO providers, WNS had a headcount of 25,520 as of March 2013. It has delivery centres across nine countries—Costa Rica, India, the Philippines, Poland, Romania, South Africa, Sri Lanka, the UK and the US.
 
“We may be required to pay additional taxes in connection with audits by the Indian tax authorities,” WNS said in its annual report. “These orders assess additional taxable income that could in the aggregate give rise to an estimated Rs282.73 crore ($52.1 million based on exchange rate on 31 March 2013) in additional taxes, including interest of Rs102.94 crore ($19.0 million). From time to time, we receive orders of assessment from Indian tax authorities assessing additional taxable income on us and/or our subsidiaries in connection with their review of our tax returns. We currently have orders of assessment for fiscal 2003 through fiscal 2010 pending before various appellate authorities.”
 
The company follows April-March financial year.
 
The assessment orders allege that transfer prices applied by WNS to certain global transactions between WNS Global, one of its Indian subsidiaries, and other wholly-owned subsidiaries were not on “arm’s length terms, disallow a tax holiday benefit claimed by us, deny the set-off of brought forward business losses and unabsorbed depreciation and disallow certain expenses claimed as tax deductible by WNS Global,” it added.
 
Transfer pricing deals with a technique where parent companies sell goods and services to subsidiary entities at an inflated price to deliberately reduce profits and tax liability.

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COMMENTS

dinesh doshi

4 years ago

I strongly feel that next to politicians and beureaucrats, the most corrupt community is doctors.Doctors directly or indirectly tell patients that if do not accept what I say, you are going to die. Patients generally consider doctors as friendly well wisher. But in many cases it is not so.Fear of death is the biggest fear and doctors cash on that fear.Only a doctor can testify whether doctor is wrong. And doctor will not do that

The draconian LBT: Local Body Tax explained

LBT is a draconian Act, especially with key words like ‘goods’, ‘dealer’, ‘business’ loosely defined in the legislation, giving enough scope for the administrators to stretch their imagination to fanciful limits to the common man’s harassment and dismay

 
LBT, local body tax, draconian Act, common man, transport of goods, goods, dealer, business, Octroi, Cess, LPT, Local Panchayat TaxWith the wedding season round the corner, imagine you are going in your car from Navi Mumbai to Mumbai to attend a marriage with your wife who is wearing gold ornaments and a silk saree; please do not be surprised if a government officer stops you and demands LBT on the car, saree and gold ornaments. Your luck may run out further, if he invokes the provision saying that you have failed to take a registration under LBT (Local Body Tax Act). He may demand, in the name of penalty, a compounding fee, that may exceed the cost of the ornaments or the car or the saree itself. You may, along with your wife, be convicted for the offences you may have deemed to have committed under LBT.
 
Take another situation. Your dabbawala gets your tiffin box daily to your office in Fort area from your house in Thane. As the financial year comes to an end, one fine day, after December, a LBT officer lands in your office instead of the dabbawala with a warrant to arrest you for having brought into the city limits the goods exceeding the prescribed turnover limits. 
 
These may look too fictitious and simplistic or some may call these situations “beyond the wildest stretch of one’s imagination”. Well, going by the experience of dealing with the department, you might have come across officers trying to levy tax on flats situated in Navi Mumbai, purchased from a builder in Mumbai, arguing that the flat was brought into the city limits from Mumbai where the builder’s office was situated. With this kind of background, the LBT looks like a draconian Act, especially with key words like ‘goods’, ‘dealer’, ‘business’ loosely defined in the legislation, giving enough scope for the administrators to stretch their imagination to fanciful limits to the common man’s harassment and dismay. 
 
LBT stands for Local Body Tax, which has been introduced in most of the municipalities and corporations in Maharashtra,  in lieu of Octroi or Cess. It is a levy under entry 52 in the State list of Schedule VII of the Constitution of India, on the entry of goods into a city limits for the purpose of consumption, use or sale therein. Thus, the recent agitations against LBT, a levy, which is constitutionally valid, have given rise to questions as to the root cause of the agitations. 
 
Octroi is a levy which was prevalent in Roman times. It was extensively used as a tax tool in Europe till World War II. Now, it is almost extinct except in Ethiopia and Maharashstra (a true reflection of comparable development of the economy or the situations of drought). Other states in India have done away with this levy and they share a portion of the Value Added Tax (VAT) or Sales Tax (ST) with the local bodies.
 
Municipalities, with a share from the state government and other tax collection methods like property tax, entertainment tax, etc, can run the administration with a decent budget.  A power to use (more likely abuse), does not necessarily warrant a situation to use. However, the greed to have extravagant budgets, in the name of development (personal development of bureaucrats and ministers as actual development remains a mirage), is the driver that makes the local bodies and the state government stick to their guns in implementing the LBT despite protests.
 
Being the representatives of the people, our corporators, MPs and MLAs have forgotten that they have a duty to echo public opinion and ensure that government is run as per the wishes of the public. At the time of introduction of VAT in 2005 the Government of Maharashtra had promised that Octroi would be removed and there will not be any additional tax burden on citizens but now they have introduced  the LBT. Thus, LBT is not a good system of tax collection suited for the 21st century, and when there are many other better options available with the government.
 
LBT, local body tax, draconian Act, common man, transport of goods, goods, dealer, business, Octroi, Cess, LPT, Local Panchayat TaxAnother reason which goes against LBT is the exorbitant compounding fees. The Bombay Provincial Municipal Corporations Act, 1949,  the Act that gives right to levy LBT, as such does not have a penalty-limit prescribed for any violations relating to LBT, though there is an elaborate Annexure prescribing the various penalties. That shows that penalty cannot be levied legally.

However, the Rule 48  framed under this Act, quantifies the penalty that can be levied in different cases. Thus, the said Rule is ultra vires the Act. 
 
Further, the compounding fees, is payable, only if the dealer is convicted. However, the administration is collecting the compounding fee as tax at the time of assessment itself making it a dubious source of revenue for the Government. 
 
Another point against LBT is the cascading effect of teh Tax. Unlike excise or service tax or VAT, there is no concept of set-off or input credit. In other words, every time the goods cross the city limits they will be liable for LBT and levy of LBT may exceed the value of goods itself. A simple reading of the Act would necessarily warrant a LBT when goods are imported from one city to another (as the goods are purchased from another registered dealer under the Act), the corporations interpret that the LBT is leviable in such cases as each city corporation is a different entity despite the fact that the legislation empowering the levy is same. This shows that legislators have not applied their mind while framing the law; else they have done so with full knowledge that it will fill the Governments and their own coffers through corruption.
 
Another reason that frightens the businessmen is the LPT or Local Panchayat Tax.  Like the areas near Bhiwandi or Khopoli, which adjoin Mumbai, but are outside the city limits and hence octroi-free zones, are now allowed to levy a similar tax on the entry of goods into the village limits. Thus, now this may be looked as a gold mine for extracting LPT by the Panchayats as many businesses have set their shop in view of enjoying the tax-benefits. In absence of such benefit, which may be a reality, if LPT is introduced, these panchayats may not have any attraction to retain the existing business, leave alone attracting the business. Many of the businessmen have started thinking of shifting to neighbouring states, especially Gujarat.
 
Another reason against LBT is that there is no time-limit that is specified for completing the assessment of the firms. In such situations, the dealers may be kept in suspense as to their liability to maintain books and records. Further, the appeal process is against the principles of natural justice for the simple reason that in case you decide against the order of the LBT officer or commissioner, you are required to deposit the entire tax demanded before filing the appeal. Draconian and unconstitutional, I would think, isn’t it?
 
LBT, local body tax, draconian Act, common man, transport of goods, goods, dealer, business, Octroi, Cess, LPT, Local Panchayat TaxThe Act is not a comprehensive Act that is well worded or suited for taxation. With lot of alternative avenues open for collecting enough revenues for the corporations, the political class should respect the difficulties of the businessmen and common men, and help them to reach the sane voices (if there are any!) in the government. They should bring in the changes in legislation to repeal LBT and make suitable changes in VAT so that the local bodies do share  revenues the state government derives from VAT. This will ensure that the administration frees itself from the task of collection of addition tax and other related administrative work. This will also help the dealers of additional hassles of payment of tax, filing of return, surveys, raids, check posts, assessments, appeals etc. and also dealing with one more Government body prone to corruption. 
 
(The author is a partner at Borkar & Shenoy, Chartered Accountants)

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COMMENTS

Dekho ji.com

3 years ago

If people of Maharashtra had the Right To Recall their representatives, such laws would not even be tabled in Parliament / Legislative Assemblies, forget about the Govt forcing it onto the people. We need Right to Recall, else people everywhere in India will spend the rest of their lives (as they have done for past 65 yrs) firefighting against such bad laws.

KISHOR

4 years ago

Why didnt goverment recover losses of scam from corrupt politician instead of recovering LBT FROM Mumbai

REPLY

CA PRADEEP AGARWAL

In Reply to KISHOR 4 years ago

Dear Sir,

This is for the public to decide whether they will keep the present Govt. in power and then equate the recovery process.

jaideep shirali

4 years ago

The implementation of LBT should be modified to make it user friendly. If there is no LBT, local bodies would have to beg the State Govt for funds for every road and gutter in our cities, which is ridiculous. Traders oppose LBT because many are not used to declaring their income, leave alone paying taxes on it. Clubbing LBT with another levy makes no sense,for example,many businessmen maintain duplicate accounts for lower tax payments. And let us not blame netas and babus, we have introduced them to the practice of "setting".

CA PRADEEP AGARWAL

4 years ago

Actually the Govt. has taken there election for granted, filing of a caveat in SC is must. But I reside in NCR if at any time any help needed most welcome!

Arun Mehta

4 years ago

Traders are in for long haul with bad timings.'Akhaya Triya' broke the momentum of strike by the reopening of the shops, and now media both at the centre and state too busy with a yet another major 'national crisis','Match Fixing' at IPL6. Meantime,Malls and other big retailers are assured of a jackpot time and praying that the LBT stalemate continues further.

REPLY

CA PRADEEP AGARWAL

In Reply to Arun Mehta 4 years ago

Actually, traders have a problems also, they defer eyesores for future action and not immediate action, whether Akshaya Triti or any other thing the business will down shutters, so it will help everybody and bring administration to where it belongs.

CA PRADEEP AGARWAL

4 years ago

HOW HAS THE PRESIDENT SIGNED THE ACT, INSPITE OF SO MANY INBUILT PROBLEMS. FRANKLY CONGRESS GOVT. IS LIKE THAT WHETHER IN CENTRE OR STATE

CA PRADEEP AGARWAL

4 years ago

Feel Maharashtra has fallen towards Bad Times hence Mechanism is being devised to garner personal and official revenues by hook or crook.

SuchindranathAiyerS

4 years ago

A typical post 1947 Indian Law, LBT is designed to harass, intimidate and extort money from hapless Indians for the ruling scum:

Arun Mehta

4 years ago

The trading community has raised scarecrow courtesy fancy interpretation by some CA's.Whya not they file a PIL in court and get the act struck down.Why the MLA's who voted the bill ever bothered to dissect the Bill word by word.Why the Malls who are doing a Roaring business in Mumbai thanks to the traders strike ever raised this scare as their stakes are much higher than the traders,investment wise.

REPLY

CA PRADEEP AGARWAL

In Reply to Arun Mehta 4 years ago

A joint effort has to be made for getting the law struck off, an application in SUPREME COURT, will bring black and white to the doorsteps.

Shama Zaidi

4 years ago

a neta-babu tax amounting to 25% of their stated annual income should be put in place instead. only if netas and babus can prove to the lokpal that in the previous financial year they have not taken bribes or other material benefits will this amount be returned. otherwise they will have to forgo the 25% plus 80% of their ill-gotten gains.

pankaj parekh

4 years ago

Income Tax & Excise deptt are coming under President, Highest post in India. Even President have no right to seize PPF, but such Power is given to these babus in LBT !
As per C.M. :
Increasing VAT is going to extra burden on small villages/ towns etc. When Congress increased VAT from 4% to 5% then? Have they thought of same at that time ? Now what is harm today? Collection of VAT from said area is hardly 10% to 15%. Not going to make much difference to them.
LBT applicable to Big Cities only. So it is not going to effect Villages/ Towns. All villages / small town, have to depend upon big cities. They have to buy most of the requirements from big cities only. Thus indirectly they are paying LBT.

CA PRADEEP AGARWAL

4 years ago

Though this is not the Forum for such things but a request to MLF team regarding an article on-WHISTLE BLOWERS

Desai Bhavesh

4 years ago

At lest somebody took pain to dissect the suspense subject, discussed by everybody!
Keeping pro and cons of LBT aside, basic and fundamental question- Is Municipal Corporation is geared up to implement dynamic nature taxation at such micro level? BMC record is not so good in handling static tax like property tax, water bill and octroi? Law passed without adequate implementation machinery and understanding will be breeding ground for corruption and harassment to traders, whose cost, ultimately will be borne by us.
Sad part about entire episode is poor communication from Government.

REPLY

Poornima mepani

In Reply to Desai Bhavesh 4 years ago

D MCGM is Asia's largest local body, I am told. By personal experience, can vouch for the fact that it is the world's most corrupt one and is a darling of I

Poornima mepani

In Reply to Poornima mepani 4 years ago

sorry, posted an incomplete reply above by mistake.... India's most corrupting industry i.e. telecom. Seen MCGM's new property tax system esp for the calculation of tax on telecom towers.If the revenue issue was truly the reason behind LBT, why didnt it levy a huge tax increase on towers. Aha, the DoT and the GoI love telecom operators, MCGM joined the great Indian telecom party instead of taking them on to make extra hay.

CA PRADEEP AGARWAL

In Reply to Desai Bhavesh 4 years ago

But, what will the citizens do? Traders can't protest, public out of bounds. Govt./Executive Machinery supporting the Govt. of the day, Then what to do? Fail to understand.

jaykayess

4 years ago

I have heard first hand from a known person who was present in multiple meetings with CM Prithviraj Chauhan, that the traders body is not only being aggressively targeted and harassed, but their voice is also being muzzled - all prominent newspapers in Mumbai have been coerced by the govt NOT to print anything from the traders. Newspapers are not even being allowed to accept paid advertisements from trade associations, stating their point of view. Have you seen a single ad from the trade associations? So it is clear that there is tremendous pressure from the govt to ensure that LBT gets implemented, any way or anyhow.

What this article does not highlight sufficiently is that the focus of the traders agitation is NOT against levy of LBT itself - it is purely against the MODE of collection of LBT. All they want is that the additional tax amount should be collected as a surcharge on VAT, without having to file separate returns or be subject to harassment by yet another authority.

The very fact that the govt is not agreeing to such a rational demand proves that the govt has vested interests which are far more and deeper than the mere revenue.

After all, octroi provided so much unauthorized income to the octroi officers, so this is sought to be replaced by this underhanded route.

REPLY

Poornima mepani

In Reply to jaykayess 4 years ago

India's rulers are wolves in sheep clothing and the protesters are sheep in wolves clothing !!!! A muzzled media can do nothing to reveal the true identities.

CA PRADEEP AGARWAL

4 years ago

Actually all the Acts of Centre and States have one thing in common...what is that?

REPLY

Arun Mehta

In Reply to CA PRADEEP AGARWAL 4 years ago

Both the central and state acts provide enough loop hole in the law for interpretation by professional lawyers,CA's to the advantage of their Clients.As long as we have 'incompetent' law makers or Tax lawyers and tax consultants will never starve in this great country of ours.

CA PRADEEP AGARWAL

In Reply to Arun Mehta 4 years ago

These loopholes are kept intentionally for the benefit of ruling elite but when exploited by all then they try to plug those loopholes, in the guise of social reforms and those are highlighted. Why do they have to make stringent LGT, can also issue a heavy penalty challan but they will not do it, because there cannot extricate the amount as demanded. Sorry to say this---but can't help it.

Kapil Sibal gets additional charge of law, Joshi gets railway portfolio

Prime minister Manmohan Singh has written to president Pranab Mukherjee recommending the changes, a day after Bansal and Kumar resigned in the wake of allegations of bribery and interfering with the CBI probe in the Coalgate scam

 
Telecom minister Kapil Sibal will get additional charge of the law ministry and road and transport minister CP Joshi the railway portfolio in the wake of resignations of incumbents Ashwani Kumar and Pawan Bansal, respectively.
 
Sibal and Joshi will be in charge of these portfolios in addition to their existing ministries of telecom and IT and road and transport respectively.
 
Prime minister Manmohan Singh has written to president Pranab Mukherjee recommending the changes, a day after Bansal and Kumar resigned in the wake of allegations of bribery and interfering with the CBI probe in the Coalgate scam, official sources said.
 
Joshi had earlier held temporary of railways last year after Trinamool Congress leader Mukul Roy resigned when his party quit the UPA coalition government.
 
The changes in the portfolios notwithstanding, there is speculation that there could be a re-shuffle of the Union council of ministers to fill up some vacancies caused by the DMK's exit from the government and placing new nominees in the departments being held as additional charge.

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