DIRECT TAX CODE, 2013 – SCOPE FOR COMPANY SECRETARIES IN PRACTICE

[Mr. M. GOVINDARAJAN]

Introduction

The Chartered Accountants plays a vital role in the Income Tax matters.   The Income Tax Act, 1961 provides for various types of audit such as statutory audit, internal audit, special audit etc.,  Further the Chartered Accountants and Advocates only could appear before the Appellate Tribunal.   The Income Tax Act, 1961 has become much complex.   National Tax Tribunal Act, 2005 was enacted in which the powers of High Court in respect of Income Tax matters have been vested with the Tribunal.  Before the Tribunal a Chartered Accountant can be appeared.  The Company Secretary in practice may be a consultant to his client in income tax matters but he could not conduct any audit or appear before the Tribunal.  The Company Secretary in practice may file returns on behalf of the assessee.

Direct Tax Code Bill

The scenario has now been changed.  Direct Tax Code was introduced by the Government in 2009 with the intention to repeal the present Act.  A discussion paper was also released in this regard.   In August 2010 the Government issued a revised discussion paper  incorporating several changes in Direct Tax Code Bill, 1999 for comments from the stakeholders.  The Government placed a revised version in the form of Direct Tax Code Bill, 2010 in the Lok Sabha.   The same was referred to the Standing Committee of Finance for its review and comments.  The Committee submitted its report to the Parliament on 09.03.2012 after deliberating with the recommendations given by various stakeholders.  Khelkar Committee during September 2012 gave report suggested a comprehensive review of DTC.  The Government has revised the Code and the revised version is in the Parliament.  

Scope for Company Secretaries

The new Direct Tax Code, 2013 (‘Code’ for short)  paves the way new areas in Income Tax for the Company Secretaries in practice.  The Company Secretary is included in the definition of ‘accountant’ which has not been done in the existing Act and the Direct Tax Code, 2009.    

Clause 320 (2) of the Code defines the term ‘accountant’ as a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 and who holds a valid certificate of practice under Section 6(1) of that Act and shall include-

• A Company Secretary within the meaning of the Company Secretaries Act,1980;
• A Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959; or
• Any person having such qualifications as the Board may prescribe, for the purposes specified in this behalf.

Auditing of International transactions          

Clause 87 (2) of the Code provides that every person who has entered into an international transaction or specified domestic transaction shall keep and maintain such information and documents in respect thereof, as may be prescribed.

Clause 88 of the Code provides that every person, who is required to keep and maintain books of account under section 87 shall get his accounts for the financial year audited—

• where the person is carrying on one or more professions , the aggregate gross receipts of such profession or professions exceed twenty-five lakh rupees in the financial year;
• where the person is carrying on one or more businesses , the aggregate total turnover or gross receipts, as the case may be, of such business or businesses exceed one crore rupees in the financial year.

The audit of the accounts shall be carried out by an accountant and the report of audit be obtained in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.   The person shall furnish the report of audit to the assessing officer on or before the due date, in the manner as may be prescribed.  The above shall not apply to the business where the income there from is determined under paragraph 1 of the Eleventh Schedule.

A person shall be deemed to have complied with the above, if the person—

• gets the accounts of his business audited as required by, or under, any other law for the time being in force, before the due date; and
• obtains by the due date the report of the audit as required under such other law and a further report by an accountant in the form prescribed.

A person referred to in Section 87(2) shall furnish a report of the international transaction or the specified domestic transaction entered into during the financial year to the Transfer Pricing Officer and the Assessing Officer on or before the due date, in the manner as may be prescribed.   The report shall be obtained by an accountant in such form duly signed and verified in such manner as may be prescribed.

Tax Audit

Clause 98 of the Code provides  for maintenance of books of accounts and tax audit for non profit organizations.  According to this clause the non profit organizations shall keep and maintain such books of account in the manner as may be prescribed.  The non profit organization shall maintain separate books of account in respect of business incidental to charitable activity.

The non profit organization shall obtain a report of audit in such form as may be prescribed, from an accountant before the due date of filing the return of tax bases, if the gross receipts referred to in Section 93 in any financial year exceed ₹ 25 lakhs. This report shall be furnished to the Assessing Officer on or before the due date in such manner as may be prescribed.

Computation of book profit

Clause 103 of the Code provides that where the regular income tax payable for a financial year by a company is less than the tax on profit, the book profit shall be deemed to the total income at the rate specified in Paragraph A of Seventh Schedule.  Clause 103(2) gives the procedure for computation of book profit.

Every company to which this section applies shall obtain a report in such form as may be prescribed from an accountant certifying that the book profit has been computed in accordance with the provisions of this section and furnish such report on or before the due date, in such manner as may be prescribed.  This clause is not applicable to any income accruing or arising to a company from life insurance business.

Special Audit

Clause 162 of the Code provides for special audit.  The following is the procedure of conducting special audit by an accountant:

• The Assessing Officer may direct the assessee to get his accounts audited by an accountant, if, at any stage of the proceedings, he is of the opinion that, having regard to the nature and complexity of the accounts, volume of the accounts, correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee and the interests of revenue, it is necessary to do so.
• The Assessing Officer shall not issue any direction unless the assessee has been given an opportunity of being heard and prior approval of the Chief Commissioner or Commissioner has been obtained.
• The special audit shall have effect irrespective of the fact that the accounts of the assessee have been audited under any other law for the time being in force or otherwise.
• The accountant shall, be nominated by the Chief Commissioner or the Commissioner.
• The accountant shall furnish a report of the audit in such form, duly signed and verified by him, and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require.
• The accountant shall furnish the report within the time allowed by the Assessing Officer.
• The Assessing Officer may extend the time allowed under sub-section (6) by such further period or periods as he thinks fit, for reasons to be recorded in writing.
• The aggregate of the period allowed shall not exceed one hundred and eighty days from the date on which the direction under  is received by the assessee
• The accountant shall furnish the report to the Assessing Officer and a copy of the same to the assessee.
• The remuneration of the accountant and other expenses of any audit shall be determined and paid by the Chief Commissioner or the Commissioner in accordance with such rules as may be prescribed.

Accountant Member

Clause 194 of the Code provides for the constitution of appellate Tribunal in which Judicial Members and Accountant Members shall be appointed.  But for the purposes of this section the term ‘Accountant Members’ is defined in a different way from the definition of the term ‘accountant’.   The said clause provides that the Accountant Member shall be a person-

• who has for at least fifteen years been in the practice of accountancy as a chartered accountant under the Chartered Accountants Act, 1949; or
• who has been a member of the Indian Revenue Service and has held the post of Additional Commissioner of Income-tax or any equivalent or higher post for at least three years.

Appearance before Appellate Tribunal

Clause 309 of the Code provides who can appear before the Appellate Tribunal.   The said clause provides that any assessee who is entitled or required to attend before any income-tax authority or the Appellate Tribunal, in connection with any proceeding under this Code, may attend through an authorized representative.  “Authorized representative” means a person authorized by the assessee in writing to appear on his behalf, being —

• a person related to the assessee in any manner, or a person regularly employed by the assessee;
• any officer of a scheduled bank with which the assessee maintains a current account or has other regular dealings;
• any legal practitioner who is entitled to practice in any civil court in India;
• an accountant;
• any person who has passed any accountancy examination recognised in this behalf by the Board; or
• any person who has acquired such educational qualifications as may be prescribed.

Third Schedule

Clause 10 of the Code provides that subject to the provisions of this Code, the total income of a financial year of a person shall not include the income enumerated in the Third Schedule.

The Third Schedule of the Code deals with income not included in total income in accordance with clause 10 and 18(3).   Clause 27 of the third schedule deals the income of political party.   The said clause provides that any income of a political party which is computed under the heads “Income from house property” or “Capital gains” or “Income from residuary sources” or any income by way of voluntary contributions received by it from any person, if—

• the political party keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly deduce its income there from;
• the political party keeps and maintains a record of such contributions in excess of twenty thousand rupees, along with the name and address of the contributors;
• the accounts of such political party are audited by an accountant; and
• the treasurer of such political party or any other person authorized by that political party in this behalf submits a report under sub-section (3) of section 29C of the Representation of the People Act, 1951 for the financial year.

Conclusion

It is evident that the Code provides the new areas for the Company Secretaries in practice.  When will the Code be effective?  Answer for this question cannot be correctly given.   It is based on the priorities of the policies of the Government.   The Code will come effective as per the present code or it may face changes.   The Institute is also taking various initiatives in this regard.