Zero tax certification for foreign remittances under I-T lens

Income tax seeks explanation from a dozen chartered accountants on issuing TDS certificates

The international arm of the income tax (I-T) department is examining the tax deduction at source (TDS) certification issued by chartered accountants (CAs) in case of remitting money abroad.  

According to a senior tax official, the I-T department suspects that entities have colluded with CAs to obtain “zero” TDS certificates and hence, remitted taxable income abroad without paying taxes.

“We have sought an explanation from CAs in certain cases and asked them to file replies. The queries are based on the criteria upon which they had issued TDS certificates,” said the official mentioned above.

About a dozen of Mumbai-based CAs could come under scrutiny. In normal circumstances, a typical large or mid-sized accounting firm would clear such TDS certificates for 40-50 clients.

The government had last year simplified forms 15CA and 15CB, which are to be filled by entities in case of taxable foreign remittance. The positive list of payments was specified by the tax department which requires submission of these forms. It had also clarified that all remittances abroad were not liable to tax; for example, contribution of capital to a foreign joint venture or payment of commission for exports.

In practice when remittances are made, either a CA’s certificate is enclosed along with form 15CB or the tax office gives a withholding tax certificate (either nil or otherwise). However, people remitting funds abroad prefer the CA option as a certificate from the tax department is time consuming with uncertain outcome as the tax officer may say it is taxable in case there is the slightest doubt.

Foreign remittances comes under I-T scanner

 

•  I-T examining TDS certification issued by CAs
•  Looking at nature of payment, compliance in filing foreign remittance form
•  Seeks CAs explanation on ‘zero’ TDS certificates issued in certain cases
•  10-12 CAs have come under tax department lens
•  Typically, each CA firms clears 40-50 cases on a regular basis
•  I-T suspects collusion between entities and CAs to obtain certificate

What is form 15 CA and CB?
 

An individual/entity required to furnish information in Form 15CA and 15CB in case of taxable foreign remittances. Form CA is for declaration of remitter.  This is for collecting information in respect of payment which is chargeable to tax.  Form CB is an alternate channel of obtaining tax clearance apart from certificate from assessing officer

“The accounting firm’s job comes at the time of signing form 15CB. He analyses the nature of the payment to be made, residence status of the payee and if the tax has been appropriately deducted under the I-T Act. The firm will also look at jurisprudence related to the transaction and the relevant double taxation avoidance agreement if any between India and the country of residence of the payee,” says Amit Maheshwari, partner, Ashok Maheshwary & Associates.

Despite adequate clarity in disclosures, the nature of payment made in the cases showed irregularities which may be done advertently, claimed an assessing officer. According to him, any objection on the mode of remittances should hold merit.

Some experts believe that the irregularities could be due to difference of opinion between taxable and non-taxable transactions.

“The form 15CB which is a certificate by a chartered accountant puts the CA in an unfortunate position, since there are several controversies relating to items being taxable or non-taxable, and in a manner of speaking, the so-called certificate often contains an element of an opinion on a matter which could go either way,” said Ketan Dalal, managing partner, Katalyst Advisors LLP.

According to Dalal, the CA always has the option of inserting an appropriate caveat in the certificate, where there is a doubt. However, in practice, bankers may not then agree to remit the payment, he added.

Some remittances by way of interest, royalty or technical service fees still get misconstrued even if they are taking place on a regular basis, said a CA, who often faces these issues.

The TDS matter in case of foreign remittances had first come in the spotlight after the government filed a case against Vodafone International Holdings in 2012.  Vodafone Essar had filed a writ petition in the Bombay High Court challenging a notice from the I-T department, where the department had said that Vodafone was guilty of not deducting TDS while paying Hutchison Telecommunications International for a majority stake in Hutchison Essar.