TIOL-DDT 2629
29 06 2015
Monday

RBI Governor Raghuram Rajan is reported to have said in London on 25 June,

I do worry that we are slowly slipping into the kind of problems that we had in the thirties in attempts to activate growth….

And, I think it's a problem for the world. It's not just a problem for the industrial countries or emerging markets, now it's a broader game.

The question is, are we now moving into the territory in trying to produce growth out of nowhere we are in fact shifting growth from each other, rather than creating growth. Of course, there is past history of this during the Great Depression when we got into competitive devaluation.

Now, the RBI clarifies that the Governor has been misquoted. An RBI Press Release states,

A section of the press has mis-characterized Governor Dr.Raghuram G. Rajan's remarks at the AQR conference at London Business School on June 25, as saying "the world is at risk of a Great Depression". What Governor Rajan did say, in his remarks made off the attached written text, was that the policies followed by major central banks around the world were in danger of slipping into the kind of beggar-thy-neighbour strategies that were followed in the 1930s. He then called for new rules of the game in the international monetary system, a call that he has made before, and is gaining some traction. The Great Depression was a period of great turmoil, caused by many factors and not just beggar-thy-neighbour policies. Governor Rajan did not imply or suggest that there was any risk of the world economy, which is in steady recovery notwithstanding uncertainties like those in the Euro area, slipping into a new Great Depression .

Beggar-thy-neighbour is a policy attempts to cure a country's balance of trade, inflation, and unemployment problems by practices that harm the economic interests of its trading partners, usually by restricting imports by quotas or by raising tariffs, currency devaluation that makes imports more expensive and exports cheaper, and/or currency appreciation that reduces domestic inflation but makes its products more expensive in the importing countries.

This was explained by the British Economist Joan Robinson as early as in 1937. According to her,

1. An induced increase in exports compared to imports leads to more jobs for any country. In addition to the initial increase in employment, there is a further increase from the money spent by the newly employed workers.

2. The snag is that an increase in the exports of one country leads to a decline in exports of other countries, other things being equal.

3. It leaves the level of employment for the world as a whole unaffected and perhaps reduces it.

4. as soon as one country succeeds in increasing its trade balance at the expense of the rest, others retaliate and the volume of international trade sinks as a proportion of world activity.

5. Political, strategic and sentimental considerations add fuel to the fire and the flames of economic nationalism blaze higher and higher.

The four beggar-my-neighbour weapons according to her are:

1. officially induced exchange depreciation,

2. wage reductions,

3. export subsidies and

4. import restrictions.

No Breakfast? In a recent paper, Tim Worstall, Fellow at Adam Smith Institute in London writes about a situation where a morning News Bulletin announces:

It's 7 am. Currently there is food in the fridges of the nation for breakfast. But in two hours time that will be eaten, gone, there will be no more. Therefore everyone will die because NO BREAKFAST."

Mineral reserves are disappearing at an alarming rate. Official figures show that within 30 years most of them will be used up and there are no more reserves. Industrial civilisation will crash, billions die, because NO MINERALS.

But Worstall counters this ‘No Breakfast fallacy' as there is a vast industry dedicated solely to replenishing that breakfast before 7 am tomorrow.

He questions, "Are we likely to run out of any of the minerals or metals that we like to use in anything of a timescale that should be of concern to us today?" And the answer is an emphatic NO.

Telangana wants back Rs. 1274 crores taken away from RBI by Income Tax Department

THIS case has all the intaxication that a dispute involving two States of the union, the Income Tax Department and the RBI, can provide.

It all started with the bifurcation of the Andhra Pradesh State last year into Andhra Pradesh and Telangana. And like in all States, in Andhra Pradesh, the State Government was seriously into the noble business of selling liquor, for which it had created the AP Beverages Corporation (APBCL). And when the family gets divided and the property is shared, the liquor business also had to be shared. So, a new Corporation called the Telangana State Beverage Corporation came into existence. The Beverages Corporation had huge Income Tax arrears and the Income Tax Department had calculated the share of Telangana Beverages Corporation in the arrears as Rs. 1469 crores. To recover this amount, the Income Tax Department on 27.2.2015 attached the properties of the Telangana Beverage Corporation and restrained them from selling the liquor stock.

The Telangana State Beverage Corporation filed a writ in the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh - that is how the High Court in Hyderabad is known as now.

The High Court noted that as per the Bifurcation Act, the assets, rights and liabilities of APBCL stand apportioned between the State of Andhra Pradesh and State of Telangana. The Telangana State Beverage Corporation has not acquired nor can acquire any property from APBCL nor the liability thereof. The State of Telangana has acquired these assets and properties and liability of APBCL.

"Therefore", the High Court observed, "it is absurd to contend that the writ petitioner is the successor in interest of APBCL. It is absolutely separate legal entity, that it has not started business nor any income has been derived. It does not appear from object clause of Memorandum of Association that it has acquired any rights, assets and properties of APBCL. Thus, the question of shouldering liability by the writ petitioner also does not arise."

The High Court held that the actions taken by the Revenue against the writ petitioner are without jurisdiction and wholly illegal. So, the orders and notices issued against Telangana State Beverage Corporation were quashed.

However the High Court granted liberty to the Income Tax officials to recover the dues from the State of Telangana, if it is not paid, and that can only be done after issuance of notice under Section 226 of the Act, 1961.

The Income Tax Department went ahead and recovered the dues from the State of Telangana through the Reserve Bank of India. Obviously RBI like any other Bank obliged the Revenue Department and transferred the money to the Income Tax Department.

Understandably the State is worried; 1200 crores is big money even for a State. The State Chief Secretary and Finance Minister met the Union Finance Minister and urged him to ask the RBI to re-credit that amount to the State coffers. The State argues that RBI had transferred the money illegally and suddenly without any notice or court order.

What will the FM do? Will Telangana get its money back?

We reported the High Court order in 2015-TIOL-1303-HC-AP-IT

Please also see Ahead of Holi, AP and Telangana go dry as Income Tax seizes Liquor Depots in DDT 2551 04 03 2015

Cairn Energy's Arbitration Plea rejected - Taxation Outside Arbitration

NEWSPAPERS all over the world reported that government has rejected Cairn Energy UK's plea for arbitration over a Rs 10,247-crore tax dispute saying taxation is not covered under the UK-India Investment Promotion and Protection Treaty.

But Cairn claims that it has not raised taxation under the treaty but is contending that by the government's action it has not been able to conduct its business in India.

After raising the tax demand over alleged capital gains it made on transfer of its India assets to a new company - Cairn India - in 2006, the Income-Tax Department barred it from selling its remaining 9.8 per cent stake in Cairn India.

The move, Cairn says, is hampering it from conducting its business, which includes sale of its remainder stake.

FTP - Onions - Minimum Export Price hiked sharply

DGFT has increased the Minimum Export Price of onions from USD 250 to USD 425 F.O.B. per Metric Ton.

DGFT Notification No. 13/2015-2020, Dated: June 26, 2015

Gold Missing from Delhi Customs too?

PTI has reported that seized gold worth nearly Rs. 3 Crores is missing from the Customs airport warehouse at Delhi. An FIR has been registered. It seems there were several cases of missing gold registered last year. Missing gold seems to have become a regular feature in Customs warehouses.

Please see 16 kgs of Gold stolen from Customs office (DDT 2580) & DDT 2583

Uniform Allowance Taxable?

THE assessee paid Wear-Allowance to the employees and the same was claimed exempt u/s 10(14) of the Income-tax Act. Therefore, the allowances paid to the employees were not included in salary for the purpose of deduction of tax at source u/s 192. The Assessing Officer was of the opinion that the Wear-Allowance is not exempt u/s 10(14) and therefore, ought to have been included in the salary for the purpose of deduction of tax at source. On appeal, the CIT(A) sustained the order of the Assessing Officer.

In a cases decided last week, the Ahmedabad Bench of ITAT observed,

For the purpose of getting exemption of any allowance u/s 10(14), two conditions must be satisfied.

1. That the allowance has been given to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office;

2. The expenditure must be actually incurred because the exemption is limited to the extent of expenses actually incurred.

In this case, the assessee is unable to satisfy any of the conditions. When there was no dress code and the employees were free to wear any dress, how the wear-allowance can be said to be granted to meet the expenses wholly, necessarily and exclusively in the performance of duties of an office.

The assessee's appeal was rejected.

In the Central Excise Department, Inspectors, Superintendents, Assistant Commissioners and Deputy Commissioners are paid a uniform allowance, but we rarely see them in uniform. Uniform is adorned only by protocol officers. Now are these officers liable to pay income tax on the uniform allowance?

Greek Debt Crisis - Banks Closed

THE Greek government has announced that banks will be closed all week, after a decision by the European Central Bank not to extend emergency funding. Cash withdrawals will be limited to €60 (66USD) a day for this period. Greece has to pay €1.6bn payment to the IMF on Tuesday. While the Athens Stock Exchange will be closed today, the BSE reacted with a fall of 500 points. What the RBI Governor must have meant.

WCO Photo Competition 2015 - Poland Entry

Until Tomorrow with more DDT

Have a nice day.

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