Taxing software & satellite channel income of the years when there was no satellite and hardly any software exported!
Moneylife Digital Team 19 March 2012

In its zeal to make everyone a tax evader, an imperious UPA government has made a ridiculous amendment to the Income Tax law with retrospective effect

The Union Budget for the year 2012-13, presented by Pranab Mukherjee on Friday was generally void of any major reforms. However, there has been one major change to the income tax law, which found no mention in the finance minister’s speech. The government has tweaked an important section of the law, which relates to “Income deemed to accrue or arise in India.” The “retrospective amendment” to Section 9 of the Income Tax Act, will come to effect from this year. This means any entity which has adhered faithfully and legally to the law prior to the amendment will now have to pay taxes and other royalties, no matter what.

According to the Finance Bill 2012, the government has made the following changes to the Section 9 of the Income Tax Act, which will be effective from 1 June, 1976;
1)    it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.
2)    it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not—
a)    the possession or control of such right, property or information is with the payer;
b)    such right, property or information is used directly by the payer;
c)    the location of such right, property or information is in India.
3)    it is hereby clarified that the expression ‘process’ includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret.

What are the implications of this? According to Ameet Patel, tax expert who spoke at Moneylife Foundation’s seminar on the Union Budget, “This is very relevant for foreign software companies, who sell their software in India. Also, the definition has been widened to include transmission of satellites. So, all foreign media and broadcasting companies which are allowing their satellites to be used for viewing various TV channels into your homes and offices are going to be affected.” Why has the government gone back in time is unclear but in one stroke, it has effectively empowered income tax officials to retrieve “missing income”. The officials will now be at liberty to target whichever software and media entity falls under the purview of the amendment.

The government has targeted software, information technology and media firms, by taxing them retrospectively. However, it is funny to note that most Indians did not have televisions or computers, much less cables or fibre optics in those days. In its zeal to discover missing income and unleash harassment of taxpayers, an imperious government has obviously lost all sense of proportions, time and place.

Comments
malq
10 years ago
It is common knowledge that the STPI scheme was misused by many entities to juggle expenses and proceeds of huge fiddles pertaining to so-called software exports from India and expenses incurred therein. Looted money flowed out and returned as software income, tax-free in both directions, and this is just one of the scams sought to be caught and taxed retrospectively.

Genuine exporters will probably have nothing to worry about. Likewise genuine importers. But certainly, the scope for harassment remains.

Humbly submitted/vm
K B Patil
10 years ago
This aspect of the budget has been totally ignored by the business channels. Thanks to Moneylife for exposing this buffoonery. Does serving in the government make one float with delusions of grandeur.
dayananda kamath k
10 years ago
retrospective changing of laws were govt has lost judicial scrtiny is nothing but contempt of justice which is greater offence than contempt of court. supreme courtshold intervene and commence contemprt of jstice and contemet of court proceedings against finance minister imeedietly. becasue of tthe political compulsions if the parliament passes the finance bill entire parliament will become party to this offence. this is nothing but misuse of legislative power.what you can expect from a party which has imposed emergency and passed the retrospective law to protect the interest of imposer of emergency. the people of this country may have to think twice before reelcting the the outgoing members of this parliament. they have shown their attitude that they are supreme and can do anything once you elect them during discussion on lokpal bill. they are more concerned with their right than their duty to pass a good law.
PPM
10 years ago
When 1.2 billion Indians can not have a Indian as the head of ruling party, having a person who is worried more about Foreign investors as Prime Minister and a 80 year old person as Finance Minister....what can be expected?
malq
10 years ago
VDIS 1997 was something like this retrospective law, but in reverse, favoured the bad guys. They really did not crib then, did they?

B V KRISHNAN
10 years ago
Ratan Tata made the most appropriate remark on this year's budget: "India is fast slipping into becoming a banana republic.." I would like to add: this govt has already become a bunch of jokers. It is painful to think that we have to endure their performance till 2014.
surendra
Replied to B V KRISHNAN comment 10 years ago
Very appropriate and befitting.
Sai
10 years ago
Other than the Income Tax related issues relating to retrospective amendment declaring 'Software is Royalty', the 2012 Budget has implications on the Service Tax front too w.r.t the software industry. Already the industry is suffering on account of dual taxes on software from 2008. Some wordings relating to Service Tax on software have been changed in the Guidance Note issued by Tax Research Unit of CBEC after Budget 2012, so once again its time to run back to the offices of Tax Consultants.
Ravindra
10 years ago
Making a Law with retrospective effect is a clear Admission of lack of foresight over the past years and after realising that making the correction with retrospective effect is the Zenith of stupidity.
Sreepathi
10 years ago
How about taxing the East India Co. and British Govt for the income generated during the british raj ?
I think I like this.
sanjay doshi
Replied to Sreepathi comment 10 years ago
You forgot the Dutch East India company
surendra
10 years ago
It would have been more paying if govt. would have tax birth and death of the people with retrospective date, many of the generations have gone without paying tax.
Prakash
10 years ago
This is most ridiculous. Implication of this seems that anyone, be it a Dealer of a software or even an end user. If he buys a ready made, shrink wrapped software from outside India, he is supposed to be paying 'royalty' and thus withold tax. So, if one buys a software worth $100 and witholds tax on it, thus paying that much less to the seller in say, USA who does not have any PE (permanent establishment) in India. How is that seller going to accept less payment for his product and yet ship the software to the buyer ? Secondly, the software seller may not be even the manufacturer, he may be just a dealer in USA of that software. Why should he accept less payment from any buyer from India ?
Please correct me if I have interpreted it wrongly. If not, then this wins the award for being completely illogical, irrational and senseless.
Sai
Replied to Prakash comment 10 years ago
Bingo.. you have hit the nail on the head.
Prakash
Replied to Sai comment 10 years ago
This effectively means that no one can actually buy a (even a ready made shrink wrapped) foreign software such as even a Anti Virus, or CRM, etc. because no seller (a mfr or a delaer) will accept to the buyer paying cost of software after letting the buyer deduct (or withhold) tax.
TD Sharma
10 years ago
I am afraid, the Govt. and its bureaucrats have really no respect for the principles underlying jurisprudence.
Ravindra
Replied to TD Sharma comment 10 years ago
Our Government is learning the Chinese ways of business which are despised all over the world. In fact one of the official had the guts to officially state something like "the Chinese do it so why not we?"
And the Govt wonders why the Foreign Direct Investment is not picking up.
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