Some proposals of the Finance Bill (No.2) 1998 could result in increased litigations and problems, rather than revenue receipts. The bill proposes to disallow illegal expenditure through the insertion of an explanation after Sec 37(1). Thus disallowing expenditure incurred for any purpose which is an offence or which is prohibited by law.

The proposed amendment will thus result in a disallowance of the claim, made on account of among others protection money and extortion. Asks Rajesh Kothari-a CA, can payments made for protection of life and/or property be prohibited by law?

Among the other issues which the Bombay Chartered Accountants Society considers to be of little consequence are the amendments regarding-the Gift Tax and the Kar Vivad Samadhan Scheme.

Gift Tax: All movable and immovable property received by a person on or after October 1, 1998, will be treated as income of the assessee. Making the distinction between capital and revenue receipts an issue of past. Thus postOctober, 1998, receipts and not income will be taxable. Any inheritances (except through a will) will be regarded as income of recipient and taxed.

Further the draconian powers bestowed on assessing officers (AO) complicates matters even more. For example even a medical expense for the treatment of a dependent relative, will have to be judged as reasonable by the AO. The same applies for expenditure incurred by parents on the education of child.

Even aid granted by a charitable organisation to a person will be treated as income and taxed accordingly. The gift of 7 per cent Capital Investment Bonds will also be taxable, despite the fact that subscriptions were solicited on an exemption from Gift Tax platform. Also under Sec 47 (iv) any transfer of a capital asset by a holding company to its wholly owned subsidiary is exempt from tax (provided the relationship is maintained for at least at eight years), however this will no longer be the case.

Kar Vivad Samadhan Scheme: Applicable to direct and indirecttaxes, the real beneficiaries of the scheme will be those who have not paid their disputed dues (as the scheme applies only to tax arrears as on March 31, 1998).

Kishore Karia -- VP Taxation Committee of the BCA has pointed out a host of anamolies in the scheme. For example -- what would be the outcome in the event of a revision in tax arrears (being reduced to nil) after March 1998? The logic of excluding assessees who have paid tax/interest in full, due to coercive measures of the department, but have preferred to appeal is not known.

If the "tax arrears" is partly recovered, the appeal will be pending in respect of gross demand. Grey areas also exist on the treatment of disputed income on which tax is paid, but an appeal is pending. Importantly payments have to be made within 30 days of passing of the order, but given postal delays what would be the recourse?

Service Tax: The imposition of service tax on professionals does not make any sense as majority of them are tax payers anyway. Another exampleof the poor thought process, is the fact that CAs are covered under gamut of a service tax, but tax practitioners (lawyers, income tax consultants) are excluded.

Tata Chemicals

Given the recessionary economic background, Tata Chemicals results for the year ended March, 1998 are encouraging. While turnover has marginally improved by 1.5 per cent, expenditure has increased disproportionately by 2.08 per cent to Rs 999.02 crore.

A result of which has been a measly hike in operating profits by 0.65 per cent to Rs 649.33 crore and stagnation of the margins at 39.39 per cent. A buoyant bottomline up 14.36 per cent to Rs 288.55 crore, has been primarily fuelled by a 200 per cent jump in the other income to Rs 13.15 crore and better financial management which has led to a 12.16 per cent dip in interest charges.

Interestingly the government's refusal to subsidise, those urea units which operate above 115 per cent capacity and manufacturing cost above Rs 7,000 per tonne for a period between 1st October,1997 and 31 March, 1998, has hit Tata Chemicals the most. Despite production going up, the company witnessed a 3 per cent dip in sales volumes to 9,72,693 tonnes.

The cement business has also taken a hit due to production losses caused by the plant not being in operational condition. A glut in the Gujarat market also led to depressed clinker prices.

The company's saving grace however, has been the soda ash business. Where volumes increased to 6,66,450 tonnes and the sales by 7 per cent to Rs 637.24 crore. This is a very good performance considering the reality of dumping, lower prices and sluggish offtakes witnessed by the industry as a whole. The budget however, seems to be a mixed bag for the company.

The imposition of the 4 per cent import duty would help plug soda ash imports more effectively. However, the urea price hike roll back has been a major dampener.

A good move

Profitability of IPP's has been curtailed by the power ministry vide a notification on June 9, 1998. The variableportion of tariff was calculated on normative basis but as a result of notification, only the actual and not the ceiling as specified in norms would be considered for calculating tariff.

Simply stated, if the tariff is built on heat rate of 2,500 Kcal and the IPP manages a lower heat rate due to higher calorific content of the fuel, the actual consumption cost will be considered for tariff and not the norm. Thus lower tariff will result in lower dues for IPPs as unless SEBs are reformed, only outstandings will mount. It is an excellent move of ministry of power.Emcee (With contributions from Urmik Chhaya and Vikram Bhat)