Specials

Union Budget 2001-2002

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I. Income Tax on foreign telecasting Channels:

a) Para 117 on page 36 of FM's speech (Part B) says

177. The foreign telecasting channels will henceforth be taxed in India, on their income computed in accordance with the provisions of the Income Tax Act.

b) Circular No. 742* dated 2 May, 1996 whereunder guidelines for computation of income tax for foreign telecasting companies is now been withdrawn w.e.f. 1 April 2001. Details of the circular** can be accessed below..

II. Inclusion of Broadcasting in Service sector :

a) Para 119 of FM's speech (Part B) says

119. Structural changes have taken place in the economy with the service sector growing faster that other sectors. I am expanding the net of service tax and I propose to add the following services to the list of taxable services :

- Broadcasting Services.

b) Explanatory notes - service tax***

c) Chapter V (service tax) of Finance Bill 2001

130. In the Finance Act, 1994, with effect from such date as the central government may, by notification in the Official Gazette, appoint, -

(a) for section 65, the following section shall be substituted, namely - '65 in this chapter, unless the context otherwise requires -

(13) "broadcasting" has the meaning assigned to it in clause (c) of section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990

(72) (zk) to a client, by a broadcasting agency or organisation in relation to broadcasting, in any manner

III. Central Excise :

a) From Explanatory notes : Basic Excise duty on Vacuum and Gas filled bulbs of retail price not exceeding Rs 20 per bulb, falling under sub-heading no. 8539.10, increasing to 16 per cent Ad Valorem. However, these goods would attract effective excise duty of 4 per cent adv. Subject to the condition that the manufacturer of these goods would not be eligible to take cenvat credit of duty paid on inputs or capital goods. Excise duty exemption on black and white TV receivers set (Heading no. 85.28) has been withdrawn. However, the effective rate of Basic Excise Duty (BED) for the same will be 4 per cent Ad Valorem if no Cenvat Credit of the duty paid on inputs and capital goods is taken.

b) Notification no 3/2001(Excise tariff) dated 1 march 2001

G.S.R. (E) In exercise of the powers conferred by sub-section 5A of the Central Excise Act, 1944 (1 of 1944), the central government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the table below or specified in column (3) of the said table read with the concerned List appended hereto, as the case may be, and falling within the Chapter, headed No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table -

S.No.
Chap. or heading/sub heading no.
Description of goods
Rate under the First Schedule
Rate under the second Schedule
Condition No
1
2
3
4
5
6
223
85.29
Television chassis (populated printed circuit board) used for the manufacture of broadcast television receiver sets (Monochrome) other than video monitors, video projectors and projector and television sets.
Nil
-
4
262
Any Chapter
e) Monochrome television receivers
Four per cent ad valorem
-
49

c) From Explanatory notes :

Chapter 84 & 85 (Electronics & IT)

85.2 The excise duty exemption on Black & White TV receiver sets (heading no.85.28) has been withdrawn. However, the effective rate of basic excise duty (BED) for the same will be 4 per cent ad valorem subject to certain conditions. (s.no.262 of notification No.3/2001 - Central Excise refers) For details please see para 98.

d) Notification 5/2001-Central Excise (N.T)

G.S.R (E)

S.No.
Chap. or heading/sub heading no.
Description of goods
Abatement as a percentage of retail sale price
1
2
3
4
74
85.25
Pagers, cellular or mobile phones
40 %
75
8527.10
Radio sets, including transistor sets, having the facility of receiving radio signals and converting the same into audio output with no other additional facilities like sound recording or reproducing or clock in the same housing or attached to it.
35 %
76
8527.90
Reception apparatus for radio-broadcasting, whether or not combined, in the same housing with sound recording or reproducing apparatus or a clock
40 %
77
85.28
Television receivers (including video monitors and video projectors) other than monochrome, whether or not incorporating radio broadcast receivers or sound or video recording or reproducing apparatus
35 %

e) Finance Bill 2001, pertaining to chapter 85

(47) in chapter 85,-

(ii) for note 6, the following note shall be substituted, name lt -

"6. Records, tapes and other media heading 85.23 or 85.24 remain classified in those headings when presented with the apparatus for which they are intended.

This note does not apply to such media when they are presented with articles other than the apparatus for which they are intended."

(x) in heading No. 85.25 -

(1) in column (3) for the words "STILL IMAGE VIDEO CAMERAS AND OTHER VIDEO CAMERA RECORDERS", the words "STILL IMAGE VIDEO CAMERAS AND OTHER VIDEO CAMERA RECORDERS: DIGITAL CAMERAS"

(2) in sub heading no 8525.40 for the entry in column (3), the following entry shall be substituted, namely

"-still image video cameras and other video camera recorders; digital cameras"

(3) (49) in chapter 90, -

(i) in note 1, in clause (h) for the words, brackets and figures"still image video cameras video and other video camera recorders(heading 85.25); radar apparatus, radio navigational aid apparatus or radio remote control apparatus (heading 85.26);" "still image video cameras video, other video camera recorders and digital cameras; ......." shall be substituted.

IV. Customs Duty :

(a) Budget synopsis

Basic customs duty on telephone sets, cordless phones, videophones , fax machines, teleprinters, telephonic or telegraphic switching apparatus, other apparatus for carrier current line systems or for digital line systems and other apparatus (8517.11, 8517.21, 8517.30, 8517.50 and 8517.80) reduced from 25% to 15% (.) Basic customs duty on specified loudspeakers for telecommunication use (other than come type) (8518.29) reduced from 20% to 15% (.) Basic custom duty on telephone answering machines (8520.20) is being reduced from 20% to 15% (.)

Basics customs duty on transmission apparatus (other than apparatus for radio-broadcasting or television) (8525.10) and transmission apparatus incorporating reception apparatus (8525.20) reduced from 25% to 15% (.) Basic custom duty on digital still image video cameras (8525.40) reduced from 20% to 15%.(.)

S.No.
Chap. or heading/sub heading no.
Description of Article
Rate of duty

Standard
Rate of duty

Preferential areas
1
2
3
4
5
 
8542.21
Digital
Free
-
S.No.
Chap. or heading/sub heading no.
Description of goods
Rate under the First Schedule
Rate under the second Schedule
Condition No
1
2
3
4
5
6
281
85 or any other chapter
Photographic, filming sound recording and radio equipment, raw films, video tapes and sound recording tapes of foreign origin, if imported into India after having been exported thereform
Nil
-

59

286
8525.10
Transmission apparatus other than apparatus for radio broadcasting or television
15 %
-
-
300
8536.90
Connection and contact elements for wires and cables
15 %
-
-
303
8540.11
All goods other than colour television picture tubes
25 %
-
-

V. Foreign Investment:

44. Progressive liberalisation has taken place in the provisions relating to foreign investment. I propose to take the following further measures:

Foreign Institutional Investors (FIIs) can invest in a company under the portfolio investment route up to 24 percent of the paid up capital of the company. This can be increased to 40 percent with the approval of the General Body of the shareholders by a special resolution. I propose to increase this limit to 49 percent.

******

*Circular No. 742

Subject : taxation of foreign telecasting companies - Guidelines for computation of income-tax.

1. A number of representations have been received from foreign telecasting companies regarding their taxability and the extent of income that could be said to accrue or otherwise to them from their operations in India. A consequent issue raised is the method of computation of profits from their Indian operations, especially in the cases of those companies which do not have any branch office in India or have not maintained countrywise accounts of their operations.

2. The matter has been examined in the Board and assessment records of some of these companies have also been looked into. Since this is a new area of commercial activity, no uniform basis is being adopted by the assessing officers at different stations for computing the income in the absence of country-wise account of the foreign telecasting companies. It has, therefore, been decided by the board to prescribe guidelines for the purpose of proper and efficient management work of the assessment of foreign telecasting companies.

3. It is seen that out of the gross amount of bills raised by a foreign telecasting company, the advertising agents retains commission at 15 percent. or so. Similarly, the Indian agent of the foreign telecasting company retains his service charges at 15 per cent or so of the gross amount. The balance amount of approximately 70 per cent is remitted abroad to the foreign company. So far as the income of India, advertising agent and the agent of the non resident telecasting companies which are not having any branch office or permanent establishment in India, tax has to be deducted and paid at source in accordance with the provisions of the section 195 of the Income tax Act, 1961, by the persons responsible for paying remitting the amount of them.

4. In the absence of country-wise accounts and keeping in view the substantial capital cost, installation charges and running expenses, etc., in the initial years of operation, it would be fair and reasonable if the taxable income is computing at 10 per cent of the gross receipt (excluding the amount retained by the advertising agent and the Indian agent of non-resident foreign telecasting company as their commission/charges) meant for remittance abroad. The assessing officers shall accordingly compute the income in the cases of the foreign telecasting companies which are not having any branch office or permanent establishment in India or are not having any branch office or permanent establishment in India or are not maintaining country-wise accounts by adopting a presumptive profit rate of 10 per cent of the gross receipts meant for remittance abroad or the income returned by such companies, whichever is higher and the subject the same to tax at the prescribed rate, i.e., 55 per cent at present.

5. It has also been decided that while assessing the income in the aforesaid manner, penalty proceedings may not be initiated in the cases in which taxes due along with the interest are paid voluntarily within 30 days of the date of issue of this circular .

6. It is clarified that these guidelines would be applicable to all pending cases irrespective of the assessment year involved until 31st March, 1998, after which the position with regard to the reasonableness of the rate of profits of such companies will be reviewed.

**Circular no. 6/2001

F.No.500/50/1996-FTD

Ministry of Finance Department of Revenue

Central Board of Direct Taxes

New Delhi, dated the 5th March, 2001

To

All chief Commissioners/Directors General of income-tax.

Subject: Taxation of Foreign Telecasting Companies (FTCs)- Reg.

The Central Board of Direct Taxes vide Circular No. 742 dated 02.05.1996 had laid down certain guidelines for the computation of profits FTCs from advertisement payments received by them from India. These guidelines were extended till further orders by Circular no. 765 dated 15.04.1998 . The Central Board of Direct Taxes hereby withdraws the above Circular with effect from 31.03.2001.

2. The total income of FTCs from advertisements, hitherto computed on a presumptive basis shall now be determined by the Assessing Officers in accordance with the other provision of the income -tax Act, 1961 in relation to assessment year 2002-2003 and subsequent assessment years. In case accounts for Indian operations are not available, the provisions of Rule 10 of the income-tax Rules, 1962 may be invoked. Where an FTC is a resident of a country with whom India has a Double Taxation Avoidance Agreement (DTAA) , its business income ( including receipts from advertisement) can be taxed only if it has a Permanent Establishment in India. Therefore, the taxability of an FTC in this regard shall be determined on the facts and circumstances of each case. Taxation of FTCs who are residents of countries with whom India does not have a DTAA shall be governed by provisions of section 5 read with section 9 of the income-tax Act, 1961.

3. It may be reiterated that the guidelines for computation of profits of FTCs in Circular No. 742 and 765 were applicable only to the income stream from adverting. Other kinds of income like subscription charges receivable from cable operators in respect of pay channels and income from the sale or lease of decoders etc. shall continue to be taxed in accordance with the paragraph 2 above.

4. The contents of this Circular may be brought to the notice of all the officers in your region.

Yours faithfully,

(Gangadhar Panda)

Under Secretary (FTD),

Central Board of Direct Taxes

Copy to:-

1. Reserve Bank of India, Exchange Control Department , Central Office Building, Mumbai-400 023.

2.Director of income-tax (RSP&PR), Mayur Bhawan, New Delhi , for publication in the quarterly tax bulletin and for circulation as per his usual mailing list.

3. Comptroller & Auditor General of India (40 copies).

4. Joint Secretary & legal Advisor , Ministry of law, Advice-B, Shastri Bhawan , New Delhi.

5.All Directories of income-tax.

6. I.T.C.C.

** EXPLANATORY NOTES - SERVICES TAX

1. Service tax on new services

1.1 It has been proposed in the Finance Bill to extend the levy of services tax to certain new services rendered in relation to scientific testing and consultancy, photography, convention, telegraph, telex, facsimile (fax), on line information and database access or retrieval, video-tape production, sound recording, broadcasting, insurance auxiliary activity, banking and other financial services, port and automobile service or repair, Services provided through leased circuits by the telegraph authority are also being covered now under the tax net. For details regarding the scope of the levy, clause 130 of the Finance bill, 2001 may kindly be referred to.

1.2 The rate of service tax is 5% of the value of taxable services. As in the previous years, the services tax on these new services will come into force with effect from a date to be notified by the Government after the passing of the Finance Bill.

1.3 Certain changes have been made in service tax legislation (chapter V of the Finance Act, 1994), and these changes also would come into force from a date to be notified later. The major changes are summarized below.

2. Self-assessment

2.1 The facility of self assessment is being provided in the case of service tax. The assesses will himself assess the tax due and file the return to the Superintendent of Central Excise who will verify its correctness. In case the Superindent find that the tax has escaped assessment or has been under-assessed he will refer the matter to the Assistant Commissioner / Deputy Commissioner for appropriate action under the Act.

3. Adjudication

All original adjudication in service tax matters will be done by the Assistant Commissioner / Deputy Commissioner of Central Excise. Commissioner of Central Excise will have only powers of revision.

4. Penalty and interest

4.1 A new section 75A has been inserted to provide for penalty of Rs.500/- for non registration. Existing penalty provision for failure to file a return by due date has been modified to provide for a penalty not exceeding Rs 1000 only. Rate of interest for delay in payment of service tax has been increased from one and one-half per cent per month or part thereof to 24% per annum.

5. Other changes

In a number of sections of chapter V of the Finance Act, 1994, the officer who will undertake the function prescribed therein has been specified by designation. These may be carefully gone through. Consequently, the definition relating to "central excise officer" has been omitted.

6. Commissioners of Central Excise are requested to examine carefully the new provisions, especially those relating to new services. Further, they may also undertake a survey to ascertain the number of new assesses, revenue potential of new services, etc. Any problem likely to arise in the implementation of the proposed levy may be brought to the notice of the Board along with their suggestions to resolve the problem. If any legislative changes are required to be made in the definition of new services, either to clarify the scope or to remove any inconsistency, the same may be communicated in writing by name to shri. T.R. Rustogi, Joint Secretary (TRU) so as reach latest by the 31st of March 2001.

******

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