INCOME TAX CONFUSION IN SIKKIM PERSISTS

IT confusion not only limited to non-exempted category
Assessee stares at penalties

Amalendu Kundu
GANGTOK, September 2: Although the Centre has implemented the Central Income Tax Act (1961) into Sikkim after a gap of 18 years, all the stakeholders including the state government seems to be confused over the assurances made by the Union Finance Minister for ‘prospective implementation’ of the order for assessing the non Sikkimese from the accounting year 2007-08.

The state government has already ceased its Sikkim Income Tax Manual 1948 on June 16 this year.

As per the amendments made in the Central Income Tax Act, Sikkim Subject holders have been exempted from paying Direct Taxes.

The confusion among those non-exempted people stems from the amendments made in the Central Act itself and assurances given by Union Finance Minister himself in the Parliament.

Enacted section 10 (26 AAA) is not in conformity with the Finance Minister’s statement that the Central Act would be applicable here with ‘Prospective Effect’ since the enacted section suggest that the tax is applicable from April 1, 1991.
After various representations, Central Board of Direct Tax (CBDT) issued a notification on July 29 this year in which it clarified that the Act would be applicable from April 1, 2007.

Unfortunately again one has to understand here complications which would arise by virtue of the aforesaid notification.

Problem seen here is that the financial year 2007-08 (period from which tax has been levied) has already concluded on March 31, 2008. The last date of submitting Income Tax returns for assesees not covered by statutory provisions of ‘AUDIT’ being July 31, 2008 has already lapsed and the assessees covered by Audit is fast approaching on September 30 this year.

Defaulters will have to face penalties under various provisions of Central Income Tax Act.

Secondly, as per the provisions of the Act, tax has to be deducted at source (TDS) while making payments to employee (salary), contractors, freight, commission, rents, royalty, interest and others. The said TDS has to be deposited with the Central Government within the due date, latest by the end of the financial year.

In case no TDS is made or if made but not deposited by the end of the financial year, then the entire expenditure is to be disallowed u/s 40(a) (ia) of the Central Income Tax Act and the assessee (if govt or non govt) is liable to pay tax to the same.

As Central Income Tax Act has introduced recently none of the assessee in the state of Sikkim have deducted tax under the Act and depositing the same to the credit of Central government one has to obtain a Tax Deduction Number (TAN) and a PAN, which no one has obtained.

Now the question raised is whether the entire claim of such expenditure will be disallowed and the assessee would be asked to pay tax and penalties?

If we go by the language of section 10 (26 AAA) and subsequent Notification dated September 29, 2008, the exemption granted is to ‘Sikkimese Individual’ and the ‘Non Sikkimese Individual’ (upto AY 2008-09).

The question arises to the taxation of persons ‘other than individuals’ those being HUF's, Firms, Corporates. Will such entities face taxation retrospectively?
It is opined that the spirit of the Union Finance Minister was not to exclude such ‘other persons’. A clarification in this respect should come from the CBDT to avoid litigations and future complications.

According to renowned chartered accountants from Kolkatta, all the government or non government organizations will be entitled to deduct tax on payments made to persons whether Sikkimese or a non Sikkimese. Such payments may be of various natures like salary, Contractual, Rent, Commission, Consultancy, Interest etc.

Such Individuals will have to file their Income Tax Returns under the provisions of the Income Tax Act, 1961 and can claim refund of tax if it is proved to the satisfaction of the Income Tax Department that their income is exempt by virtue of sec 10(26AAA) or otherwise.

So now it is understood that every individual will face the doors of the Income Tax Department. Needless to say that large scale confusion remains unsorted with both the salaried as well as business organization community about implementation of deduction or non deduction of tax as source, said the chartered accountants.

Similarly the amendments made for Sikkim never mention any concession for the exempted Sikkimese people as to whether Wealth Act 1957 would also be applicable.
Even non deduction of TDS during financial year 2007-08 by government organization, semi government organization and non government organization will entail disallowance of expenditure and consequent levy of taxes and penalties.

Sikkim Chamber of Commerce has already submitted a memorandum to Union Finance Minister through Gangtok Income Tax Office requesting exemption for old business community at par with Sikkim subject holders and prospective implementation of the Central Income Tax Act on a later date to prepare the people who have to pay taxes mentally.
Source: Sikkim Express)