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Irrational And Illogical

Akhilesh Bhargava

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The normal situation in India is that, in response to a crime or violation that may have been committed by a miniscule few, heavy handed measures are initiated, that end up harassing the majority, who did nothing wrong and it is they who end up suffering the most. The saga of shell companies and bogus capital as the government alleges is one such instance, where due to a miniscule number of shell companies, the entire corporate world has suffered. Almost 3 lakh entities have been closed down in this manner. To detect and close down alleged shell companies and to tax share capital, on sheer suspicion, the most irrational and illogical measures have been initiated. To start with, if a company did not file its ROC returns for three years or more, it was deemed to be a bogus shell entity, whose name was struck off and it simply ceased to exist. Due to this rough and ready measure, very often, running entities, with bank loans to repay, tax dues, pending court cases and other proceedings, have been struck off and closed, to the utter dismay of the government itself, which is now itself seeking to revive such entities, to pursue pending tax recovery and other government dues.


Yet another such summary dismissal measure, has been where a company has directors, who are not its shareholders too (which is the key distinctive feature of the corporate structure and law), and do not hold commensurate educational qualifications as the government thinks appropriate. Such companies too, despite running legitimate businesses, have been held to be bogus and benami and have been closed down.

 

Such laws have been enforced even in the matter of receipt of share capital by a company, under the suspicion that all share capital received is bogus. So even if a company receives share capital from its existing promoter shareholders, who may own 100% of its shareholding, yet if such shares are not at a valuation as prescribed by one Rule 11UA of the Income Tax Rules, it will be deemed bogus, even if its source etc. is totally genuine. In such cases, it is the shareholders who have promoted, managed the company, they know what is in the best interests of the company and they are investing their own funds, but if it is at a premium etc. that is not valued as per this Rule 11UA, then the share capital is deemed bogus and is subject to tax penalty and perhaps prosecution too. So the genuineness of a transaction of receipt of share capital by a company from its own promoters, and their wisdom and experience is replaced by the theoretical academic presumption of the tax law and even a bonafide and legal transaction becomes illegal and malafide. The section even overrules genuine market dynamics, where share valuations are done by private negotiation, between private parties and are totally bonafide and genuine, but are held bogus, because they differ from the valuation under the said Rule 11UA.

 

In many cases, the courts have held such deemed income taxed by the Income Tax Department to be wrong, but yet there is no end to such harassment inflicted on companies and their entrepreneurs. Merely because one bureaucrat is found to be corrupt, that does not mean that all others are. But this logic is sadly not applied to companies and entrepreneurs in India, and they are all deemed to be tax violators.

 

 

Business Tit-Bits

The Diamond Cheats

Akhilesh Bhargava

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We take a look into the glamorous diamond industry in India, said to be the largest in the world. Being a very close-knit one in terms of belonging to a particular community and often only within family members, the scope for manipulation becomes easy. The diamond industry has become tainted with bogus exports, money laundering practices, massive NPAs, round-tripping of money etc. Names such as Jatin Mehta, Mehul Chokshi and Nirav Modi have become synonymous with the industry and hence banks are now restricting their exposure to the sector and implementing tougher conditions for lending money to the beleaguered diamond traders.

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Business Tit-Bits

Why Mr. Jaitley should stop the reckless tax prosecution?

Akhilesh Bhargava

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As many industry and tax associations approach the Revenue Secretary for help to prevent income tax authorities from unfairly harrasing and prosecuting them for minor discrepencies, we ask Mr. Arun Jaitley why is this being done. This culture of “prosecution raj” is hurting small and big businesses alike and is sending the wrong message to India Inc. Giving arbitary powers and setting not only revenue, but also prosecution targets for income tax officers is unfair and businessman are bearing the brunt of this. In addition to penalty and interest, other prosecution punishment is being handed down for the most minor of offences which is leaving a bad taste in the mouth of industry at large.

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Business Tit-Bits

Why the middle-class feels bamboozled with Arun Jaitley’s approach?

Akhilesh Bhargava

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With elections on the cards, it is hardsell time for Mr.Jaitley, as he keeps writing about the achievements, of the five year rule of the Modi government. In one of his recent blog posts,
he says that government has given a Rs.2 lacs crore annual benefit to the middle class, without a single tax being raised. He says that includes the reduction of GST on many commodities, which will make them cheaper, at a loss of Rs.1 lac crore to the revenue. The FM says that since July 2017, the GST on 350 items and 66 types of services has been lowered, such that almost 97.5% of goods now attract GST at 18%. He then refers to the loss of Rs.97000 crores to the exchequer due to the tax rebates on account of small savings investments, PPF, insurance premium etc. and the standard deduction of Rs.40000 given to
all salary earners. The problem is that with all this, why is it that the middle class feels bamboozled with Arun Jailtey’s approach? Mr. Akhilesh Bhargava, Business Editor of HW News Network shares his insights on the matter.

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