Salient Features in the Kerala Finance Bills, 1991

(Relating to Sales Tax with particular reference to Hire Purchase, Leasing and Works Contract)

(R. Krishna Iyer, B.Com., F.CA., Chartered Accountant, Ernakulam)

The Hon'ble Finance Minister has presented the Finance Bills for 1991-1992 and Government has issued notifications to regularise the budget proposals. In this article it is proposed to enlighten the salient points relating to the Sales Tax, particularly the Sales Tax on Works Contract, Hire Purchase and Leasing.

In the last year budget the Finance Minister had given importance and lot of concessions to the industries with the object of development of Indus tries in the State. Government had felt that only by the development of Industries, the most important . problem of unemployment can be solved. The development of Industries have not only the advantages of employment generation but also holds significant part of the State's economy, it improves average incomes and living standards, develop indigenous skills, reduces regional imbalances. With this object the Kerala Government in 1990-1991 budget reduced the sales tax rates of various industrial products. The exemption limit for the investment in machineries by small scale industries was increased to 100%. But of course for some reason, the concession for the investment in land and building was reduced. For the purpose of concession, the interstate sale was also included. Another important change in the reduction in the CST to 2%, in the case of new, large and small scale industries.

In the year 1991-92 budget, the Government has given further reduction/ concession for the industries. The important amendments are:

1. Purchase of goods by Industrial Units in the State.

As per the Budget for 1990-1991 the State and Central Government Undertakings has to pay only 4% Sales Tax on the purchases from local Manufacturers. These undertakings could purchase goods at 4% by issuing 'C Forms and this amendment was made in order to encourage purchases from the manufacturers of Kerala State.

As per the 1991-92 Amendment all the Industrial Units can purchase goods at 4% Sales tax. Therefore by this Amendment, the concessional rate has been extended to all the industrial units in the State. This is really a welcome change. Since the word 'Use of goods' is used in the notification it can be contended that the consumables can also be -purchased at 4%. There are two conditions:-

a) The goods manufacturered should be for sale. It is not necessary the goods have to be sold in the State (locally) and it can be for interstate sales also.

b) A Certificate has to be issued by the purchaser to the Seller in the prescribed form. The form can be issued by the purchaser. This form is very simple and the Certificate is only a declaration to the effect that the purchase is for use in manufacture.

Of course by this notification, the concession should not be enjoyed for the stock transfer of goods. There is a definite prohibition u/s.5(3)of the K.G.S.T. Act the purchase of raw-materials etc. at concessional rate by issuing Form No. 18 for export sales. Therefore even if the finished products are exported the benefit under the current notification can be availed, since there is no such express prohibition in the present notification.

There is a doubt whether in the case of industries who avail the benefit of exemption can avail this concessional purchase. In this cases, the Sales are not completely exempt. The Sales tax due on this turnover is computed and deduction is made on some basis, the effect is, as if they have paid the tax. This Sales are not completely exempt or they are not Non-taxable goods. Therefore those units can purchase goods at 4% Sales tax.

As per Section 5(3) of the K.G.S.T. Act, the Industrial Units can purchase raw-materials, component parts and Packing materials at a concessional rate of 2% if the good-are used in manufacture of Finished Products inside the State. But only 3 types of materials (Component Parts, Raw- materials and Packing materials) can be purchased by issuing Form 18 whereas, by the current notification, all the goods can be purchased, the only condition is the goods manufactured should be for Sale. Therefore the Industrial Units can still avail the benefit u/s. 5(3) for the purchase of these 3 items by issuing Form No.18.

II. Interstate Sales tax on certain items

1. Fibre foam                                                  --                     2%

2. Goods manufactured by SSI Units                  --               4%

3. Readymade Garments, brassiers and hosiery goods   4%

4.   Granite Slabs and Granite Tiles               .      -               2%

Coir and Coir Products are already exempted from Tax. But Coconut Fibre is taxed at 2% and Rubber packed coir products at 4%. However Coconut Fibre and rubberised coir is also completely exempt from tax as per the Amendment.

In the case of Fibre foam the rate of tax on Interstate sales is reduced to 2%. Similarly the goods manufacturered by SSI Units on interstate sales is 4%. It is a very welcoming change. It may particularly to be noted that this rate of 4% is for any goods, the only condition is they must be manufactured by SSI Units. As such no 'C Form is required on the sale of goods sold by SSI Units. The small scale industries are perhaps the most important sector of the country. SSI Units would prevent the encoders from the rural area in search of jobs. Enormous unemployment co-existed with the growing industrialisation of the country. The Government is paying greater attention to small scale sector to achieve the objectives of jobs to a larger number of people, balancing regional growth to reduce poverty and narrow the disparity in income. This amendment would to a greater extent benefit to promote the small scale units.

III. Complete exemption of Sales Tax

1. Coconut Fibre

2. Rubberised coir products other than fibre foam

3. Pappad

4. Paddy straw etc.

As mentioned earlier, the Interstate Sales tax (C.S.T.) is reduced to 4% for SSI Units. Therefore 'C Forms are not required in interstate sales. Further that the said manufacturers are completely exempt for a period of 3 years if their turnover is less than 10.00 lakhs a year. Further if they can export not less than 50% of their product, they will get a full exemption from Sales Tax irrespective of their turnover (even if the turnover exceeds Rs. 10.00 lakhs they will get a complete exemption for a period of 3 years). The view of the Government is to encourage small and cottage industries and to provide employment opportunities.

Rate of tax on Bamboo Ply, Mosaic Tiles, Glaced Tiles

The rate of Sales tax on Bamboo Ply is reduced to a normal levy of 1%. Considerable reduction has been made in the rate of tax on Mosaic Tiles, Glaced Tiles etc. The reduction in Sales Tax of these items would certainly help the increase in collection. The tendency to purchase goods from neighbouring States will be reduced to a certain extent by reduction in the rates.

The rate of Sales Tax on Biscuits manufactured in the State is reduced to 5%.

Coconut Oil and Coconut Oil Cake

The rate of Sales Tax on Coconut Oil and Coconut Oil Cake sold inside the State (locally) is reduced to 2% from 5%.

The purchase of Coconut or Copra by an Oil Miller for production of Coconut oil and Oil Cake in the State for sale, the rate of tax is reduced to 1% from 4%, provided the sale attracts sales tax (local or interstate). If the sale does not attracts sales tax, the rate of tax is 3% from 4%.

The Oil Millers also are exempted from payment of Additional Sales tax and Surcharge on the Copra crushed.

Sales tax on Works Contracts

From 20-8-1987 onwards 4th Schedule was also included in the Act, exclusively for the rates for the Works Contracts. There were 21 items in the said schedule. The contracts were classified under 21 items. However, the rate of Sales tax was only 5% for all the items.

As per the 1991-1992 Amendment, there is substantial increase in the rate, maximum is 15%. There was some doubt earlier whether for the goods included under 1st and Ilnd Schedule, deductions can be given and the tax has to be paid only on the balance amount. Of course by this amendment it has been made clear that the deduction is possible, if the tax is levied on the earlier sale. After the decision of the Supreme Court, in the case of the Works Contracts, in short, the tax has to be paid by the Contractor only on the following 2 items.

1. On the goods included in 1st or Ilnd Schedule, if they are purchased from outside the State.

2. Multipoint items.

Before the 46th Amendment, in the case of indivisible contracts, the State Governments could not levy Sales tax on the goods involved in the execution of contract. The very object of 46th Amendment is that the State Government are given power to levy Sales tax on those goods. The goods are not sold as It is, they can be called as 'no sale' transactions and they are treated as deemed 'Sales'. There is an attempt to compute the taxable turnover on works contract, from the total contract receipts deducting the items of 1st. Ilnd and Vth Schedule and again by deducting labour charges .

For Example:

Total Contract Receipts                                                                          Rs.1,00,000

Less: Items like Cement, MS Roads etc. already suffered

tax in the State. (Included in 1st, Ilnd & Vth Schedule)         Rs.50,000

2. Labour charges                                                                  Rs.20,000

                                                                                                         -----------------------

                                                                                                                    Rs.70,000

                                                                                                                     ---------------

Total turnover                                                                                              Rs. 30,000

                                                                                                                      ========

This amount of Rs.30,000/- is comprising of the multipoint items, profit margin and the overhead expenses of the Contractor. This method of assessment is incorrect and against the very object of the Amendment. It is only possible to levy taxes on the items of 1st, Ilnd and Vth scheduled goods if they are not suffered tax on the first sale in the State and on the multipoint items. It is not expected to levy tax on profit or on the overheads of the Contractor.

Of course retreading charges of tyres also come under the purview of 'Works Contract'. All the materials used in the process are items included in the 1st Schedule. The balance amount represents labour charges, overhead charges, profit etc. Therefore if the materials are purchased locally have suffered tax, the dealer s not liable to pay any Sales tax. However-there is an attempt of levy Sales tax on the balance turnover, deducting the value of materials and labour charges from the gross turnover. This method is absolutely incorrect since the purpose of the amendment is to levy sales Tax on the value of materials which could be escaped assessment being 'Works Contract'.

Similarly there is a view that all the leasing contracts are taxable. This is also not correct. The object of the amendment is to levy tax on the goods manufactured by a dealer, who leases the goods to various parties and finally disposes of the same, then he gets only a scrap value of the goods and tax can be levied only on that scrap value. Before the amendment, the leasing charges, the manufacturers collects his sale value by way of leasing charges, since the leasing charges do not come under the purview of sale, the Government was losing the sales tax and the amendment is only to levy the Sales tax on such circumstances. Therefore if an item which is included in the 1st Schedule and tax is levied on the first sale in the State, such equipment if it is leased by the buyer, no tax has to be levied on the leasing charges.

However there is doubt if the rate of tax in the point of levy of the leasing equipment is multipoint and if the leasing equipment is leased out in the same State, whether a levy of Sales tax is necessary on the leasing charges received. Of course, it can be contended that the leasing charges also are treated as 'deemed sales' after the amendment and if so, the levy of Sales tax is necessary since it is a multipoint item. The leasing charges include finance charges and other overhead expenses and therefore, if the levy is made, it is made on these items also. As already stated, the object of the amendment is to levy Salestax on the manufacturers when he leases the equipment by which it cannot be treated as a sale and Government loses revenue.

Similarly there are two types of hire purchase transacts - The manufacturer of an equipment/machinery sells the same on hire purchase basis. Since the hire charges could not be treated as sale, before the amendment it could not be brought under the purview of Sales tax. After the Amendment, such type of transactions can be brought under the purview of Sales tax. The second type is financing companies like Sundaram Finance etc., advances money on the security of Machinery/Equipment. In those cases Sales tax has been paid on the purchase value (Invoices may be drawn in favour of the buyer or financing Company). Apparently such financing Companies become dealers since the so called hire charges come under the purview of Sales tax. Therefore there is a doubt whether the said financing Companies are dealers and whether they are liable to pay Turnover tax if the goods are included in the 1st Schedule. It is to be noted that if the whole transactions and the clauses of the agreement are looked into, it is very clear that the financing companies have no intention either to take possession or sell the goods except when the hirer fails to pay the installments/hire charges. The power of taking possession of the goods is only to safe guard the interest of the financing Company. This is very clear from the fact that in all the Hire purchase agreements, if the installments are paid, the hirer is given the option to purchase the asset by payment of a nominal amount of Rs. 1 (Rupee only). This nominal amount also shows that there is no intention of sale of goods, but only to regularise the legal title of the assets. Those transactions are only financing transactions as per the decision of the Courts and if so, they are not dealers or not liable to pay the turnover tax. Again if they are multipoint items the problems as in leasing also would arise.

Certain rules have been amended by a notification dated 16-3-1991. Any works executed through a contractor by Government, local authority etc., they are called as 'Awarder'. It is particularly to be noted that a partnership firm has also been included in 'Awarder', Therefore, even if a 'Partnership firm constructs a building for factory, godown, office etc. or when a Partnership firm executes some works through a Contractor, the firm is an 'Awarder' and liable to comply with all the amended rules and regulations. The present amendment makes it clear that, the labour charges and the value of material included in the 1st Schedule for which tax has been suffered, can be deducted from the total turnover and the tax has to be paid only on the balance turnover. In the original act, there was also a doubt whether the goods supplied by the Contractor (Awarder) can be deducted. This has also been clarified and as per the amended rules the goods supplied by such awarder can be deducted. However there is some doubt the method of deduction proposed is not clear in 4(C) of the Rules. There are two types of Contracts:

1. There are free supply of certain material to the Contractor.

2. The materials supplied to the Contractors are deducted at particular rates from their bills.

In the first case the value of such materials will not form part of the turnover and therefore the question of deduction does not arise. In the second case, the value of goods supplied is correctly known and therefore such amount can be deducted to arrive at the taxable turnover. It is suggested that the rules maybe modified accordingly to avoid misinterpretations.

It has also been made clear in the amended rules that the contract for the earth work alone or does not involve in transfer of goods is completely exempt.

The title is passed from the Contractor to the 'Awarder* as per the majority agreements, only after the completion of the work. Therefore, the question of 'Sales' takes place only in that year and as such the tax can be levied only in that year. However it has been made clear in the amended rules that when system of Progressive billing is stipulated then the amount received or receivable for the year will be the turnover of that year. If there is no provision for progressive billing the turnover will be the portion of the work completed during that year. It is only correct to treat the turnover for the year of the bill amounts received in that year. But as per the rules, 'receivables' is also included and therefore the department may take a view that the 'work-in-progress' or the bills issued by the Contractor which has not been accepted or paid can also be included in the turnover of that year. There may be chances for reducing the bill by the 'Awarder'. Further it will be difficult to correctly ascertain the amount receivable or the portion of work completed during the year. It will cause unnecessary litigation for estimating the amount, especially in view of the fact that the contractor has a right to collect Sales tax and he has to remit the amount only when the amount is received and only such amount can be treated as 'Sale'.

Provision has also been made in the amended rules to insist for the Clearance Certificate from the assessing authority. Even though the 'Partnership Firm' is also an 'Awarder' for the payment and recovery of tax 'the partnership firm and body of individuals' are not included. Therefore the provision for payment or recovery in their cases do not arise. Probably this may be a*n omission in the rules. As per the amended rules the 'Awarder' has to insist for a Clearance Certificate before making the Ilnd or subsequent installments or the final payment to the Contractor. As such for the 1st payment of the bill, no clearance certificate has to be produced. The Certificate should be to the effect that the tax due in the previous instalments has been paid by the Contractor. Therefore the contractor has to obtain certficate from the Sales Tax Authority except for the 1st bill and if he has number of contracts or more than one bills are paid in the same month, he has to obtain number of certificates from the assessing authority. This is a very impracticable proposition. As per the Sales Tax Act, the dealer is liable to file the monthly return on or before 15th day of succeeding month and to remit the tax. There is no provision in the act or rules to make the payment of the tax due for one month in installments. Again it has been specified in the rules that in the absence of such a Certificate the 'Awarder' has to recover tax equal to the tax due on the contract amount. 'Contract Amount 'has not been defined. However it is meant that total contract value. In case the total contract value is 3 crores and the amount in the Ilnd bill is Rs.10.00 lakhs, the tax on the contract value will be more than the bill amount. Probably the intention is to recover the tax on the previous bill amount only. However this has to be clarified.

As per the Amendment the Works Contracts have been classified under 23 items. In the case of a building contract, includes supply and fixing, laying of glazed tiles, granite tiles, painting and polishing etc. and the rates for each items are different. Of course there is an item 'Civil works like construction of building' etc. It is not clear from the rules in such circumstances where the 'Contract amount' is total value of the contract or each item of the work has to be classified under different heads and the tax has to be computed separately for each item, or 5% tax has to be worked out on the total amount, treating the work as a composite work under Civil works. Almost all the States have made a provision to compound the payment of tax in the case of Contractors. In Karnataka Sales Tax Act only 2% tax is to be paid on civil works like construction of building etc., and in other cases at 4%, on his total turnover and in that case no accounts have to be produced. The only point is that such 2% or 4% has to be paid on the total value without deduction for labour charges etc.

The Government has to seriously consider this compounding system in Kerala also, by which most of the assessment can be completed without any difficulty and collection of tax would be easier. If the contractor has opted for composition, he can obtain a Certificate from the Sales Tax Department to that effect, that the said Contractor has applied for composition and therefore, it is sufficient if the tax at 2% is recovered from his bills and in that case no Clearance Certificate is to be insisted. This will reduce the work load of the Department as well as the unnecessary work for the Contractor for obtaining Clearance Certificates.

Photograph on the Application of Registration

It has been made in the amended rules that the application for registration shall be accompanied by a Passport Size Photograph. Of course this is required only in the case of individuals and Partnership Firms.

Security Bond

There are instances where the Appellate Assistant Commissioner or the Appellate Authority are granting stay on making part payments and on furnishing securities for the balance amounts. One of the mode of security is furnishing a Security bond in a particular form with two sureties. As per the amended Rules, the sureties must be solvent enough for the amount assured. Further they should execute a bond which should also be registered along with title, possession and valuation certificate of the Tahsildar. The value of the property should not be less than the amount as per the Bond. Therefore even if the stay is granted by the appellate authorities, they have to obtain two sureties who holds property as per valuation of the Revenue Department and property should be mortgaged. Normally 2 to 4 weeks time are granted for furnishing the security. During the period the dealer has to find out two sureties who hold the properties, they should get possession and legal opinion regarding the title, valuation certificate from the Tahsildar so as to enable him to mortgage the property and execute the deed. No provision has so far been made regarding the authority for releasing the bond. As per the existing practice the excess amount paid if any is not refunded on the ground that the department is filing a second appeal before the Tribunal or appeal is filed before the High Court. Even if the 1st Appellate Authority modifies of allows the appeal if the Department file an appeal, it has to be seen whether the Sales Tax Department will release the property based on the order of the First Appellate Authority. The effect of this provision in the mode of security by executing bond will become infructuous. In almost all the cases the dealers are furnishing security in the form of bond only.'

Form No. 25 Declaration:

This Form relates to a declaration to be furnished by the purchasing dealer. When goods taxable at the point of last purchase in the State, the dealer has to furnish this declaration from his purchaser by which he will be given exemption on the said purchases, since he has proved that he is not the last purchaser in the State. The said declaration has to be submitted on or before 25th of the succeeding month. There is substantial change in the wordings of the form. As per the amended form, the purchasing dealer has also to certify that he has filed his monthly return and the tax due for the goods is paid or he has to declare that he has claimed exemption and he has filed declaration in Form No,25. The effect of this declare Lion is the purchasing dealer has to certify either i£ has paid the tax or he has filed the declaration for exemption. This declaration is also to be submitted on or before 15th of the succeeding month or in other words the effect is he has to submit the same along with his monthly return. This declaration can be filed only when the goods purchased by the purchasing dealer are sold before 15th of Next month. If the goods are in stock or if it is sold after 3 or 4 months it is not possible for the purchasing dealer to furnish the declaration before 15th of the succeeding month. Suitable amendment has to be made in the form. Further this declaration should hereafter to be submitted in duplicate.

Form No. 25(a)- Declaration:

This is a new form introduced in the Finance Act, 1991-1992. Rule 32(13A) has also been introduced by the Amendment. This declaration has to be furnished by the Purchasing Dealer to the Selling Dealer, when the goods are taxable at the point of last sale in the State.

Turnover Tax:

As per the amendment the dealer is liable to pay Turnover Tax shall maintain separate accounts for the goods liable for turnover tax.

Monthly/Annual Returns:

There were separate forms for furnishing monthly and annual returns (Form No.8&9). As per the amendment there is only one form (Form No.9) which can be used for monthly and annual turnover. The important point to be noted is that a copy of the inventory as on 31st March should also be attached along with the Annual Return. This -provision is not applicable when the dealer maintains a day-to-day Stock Register.

The Plight of the Woman Lawyer

(D. Jameela Devi, Advocate, Ernakulam)

The issue:--The Year of the 'Girl Child' (1990) has spurred me to write these lines. Women have always been kept under constant servitude and viewed in contempt for centuries together. From the pages of history we can recollect the dominance of the male over the female. In India, once there existed female infanticide and 'Sathi'. Of late, these crude practices have revived again. Manu's Dharmasasthra proclaims 'Na Sthri Swathanthryamarhathi' -- that no woman deserves freedom. She is always under the surveillance of a man--of her father, as a daughter; or her husband, as a wife; and of her son, in her old age!

Though the symbol of Justice is a blind-folded woman, the fact is that Justice is a system created, fostered and continuously shaped by man. The emergence of women in this field has been new and relatively slow, as the advancement of education among women has remained at a low key owing to the acceptance and adoption of human values by the people at large in a traditional way.

Let us now trace the entry of women into the legal profession. In the United States, Myra Bradwell fought her case right upto the Supreme Court and lost in 1872, and the first woman was admitted to the Harvard Law School in 1950, after a prolonged struggle - social, political and legal, extending over a period of 80 years. This sensitive controversy was however resolved in India much earlier by the United Provinces Act 1923 which ordained that women could be enrolled as legal practitioners and could not be debarred from the practice of law merely because of their sex. The women in England also, however, successfully fought their way out and compelled the Government to amend the laws and permit the entry of women in the profession of law in terms of equality with their male counterparts, by the enactment of the Sex Disqualification (Removal) Act, 1919. Indian women also were denied of this right until the High Court of Allahabad took the lead and allowed the application of Miss Cornelia Sorabji to practice law, by its epoch making judgment of August 1921. She was the first women to have been enrolled as an advocate in India.

Now the study of professional occupations has become so increasingly popular that people consider it as a process of institutionalism, as a formalisation and standardisation of education. The objective of such professionalisation is to achieve for any occupation a higher level. Consequently, emancipation of women in the field of legal practice also has increased.

The sex-wise distribution of different categories of legal professionals in India clearly indicates a complete male dominance at all levels, and records a decline in the proportion of women lawyers over the decade 1961-71. However, according to Bar Council of India, in 1981, the total number of lawyers was 2,21,280, of which 5,779 were women, comprising 2.5% of the total. Very many comparative studies of different States reveal that women lawyers are only in the thin minority. An analysis of membership pattern at the Punjab and Haryana High Court Bar reveals? the occurrence of a substantial increase in the entry of women to the Bar during the last five years. In 1982-83, there were only 16 women lawyers in a total population of 713, making up 2.24% of the total. In 1986, there were 35 women lawyers in a total population of 932, making up 3.86%of the total. However, it was observed during the field work that not all the lawyers enrolled at the Bar are practising lawyers. Quite a few drop out of the profession after few years, or take up other occupations, and many of them allegedly enroll themselves for extraneous considerations, such as keeping a status symbol or evasion of income tax.

Why women drop practice after a few months? The reasons are many, of which some are given below.—

Entry: A woman's entry in the legal profession is dependent on her aspirations, expectations and beliefs about the nature of rewards offered by the occupational group and on her own capacity. Her choice becomes still more difficult in view of the complete male dominance of the profession. The truth is that it is much easier to enter the legal profession than to survive in it. At present, the legal profession has assumed the character of a keenly competitive trade, in which professional efficiency stands second to ability to acquire professional work with dexterity, in which the rule of the jungle prevails. Therefore, it is said that success in the present legal profession requires" the mind of a jackal, the tongue of a parrot, the heart of a lion and the hide of an elephant." Consequently, those who have the courage to join the profession and continue with it are mostly those who have close relatives such as father, husband or uncle, who can not only protect them from unnecessary harassment and criticism but also launch them into the profession in the initial stages.

(2) Procurement and retention of work: Procurement of work is the most difficult task for lawyers. The traditional mode of procuring work is through their personal reputation and standing at the Bar and through their network of social relationships; especially through the colleagues at various levels. Such being the case, the legal profession becomes the monopoly of a few seniors, and this is the constant feature of the profession at all times, which encourages the juniors to resort to unethical practices in the procurement and retention of work. Gandhiji points out that touting is a typical and representative character of the Bar because of its practical utility in the rise of a lawyer to the higher echelons of professional hierarchy.

Under these circumstances, procurement of work becomes more problematic for women lawyers, as a woman cannot be as daring and outgoing as a man. The cultural limitations such as segregation of sexes, the early socialisation effects on appropriate sex role behaviour and attitude, and later deferential expectation from girls and boys all through their adolescence and adult life, make them unable to adopt such practices. Hence, most of them are contented with being tagged on to their seniors or relations within the profession. Therefore, procurement of work is comparatively more difficult for women because of their in-built and inhibited patterns of socialisation behaviour on the one hand and the male-dominated highly competitive and generalised nature of the occupation of independent practitioners, on the other.

(3) Practical difficulties: In our country, the progress of public awareness and education is so primitive that the traditional approach to women and their natural function has not undergone much change. Adding fuel to fire, men in the profession do not lack some of the 'qualities' that are traditionally ascribed to women. Jealousy, intrigue and pettiness, nowadays, are not peculiar to the female members of the Bar. Ordinarily, successful men are traditionally chauvinistic and having a deep-down feeling of resentment towards a competent woman lawyer, who has fought her way into the profession, without pleading for their patronage or paying their obeisance. Some, however, are said to be 'smoother' in their behaviour, that is say, instead of outright brow-breating, they are meanly provocative, maliciously amusing or deliberately denunciatory. Very few confront a woman lawyer, with the respect they would accord to their male equals.

Attitudes of Judges and judicial officers are quite encouraging to begin with. Though, generally, it is felt that some of them are of the view that a woman lawyer is not required to be treated any differently than her male counterpart in a similar situation, the position in Kerala is very much different. It is sarcastically said that "a persistent women lawyer embarrasses the Judge, a timid woman lawyer oppresses the Judge, and a meritorious woman lawyer baffles the Judge"; with a question in his mind, 'Hasn't she anything better to do?' The pages of 'THE LAWYERS' (a legal periodical published by Mrs. Indira Jaisingh, Advocate) offer dismal reading in this respect, if what is published is correct.

(4) Competence: Some women lawyers have come up with remarkably ingenious ideas to overcome cultural constraint they suffer from. Levels of competence vary from person to person. In spite ofall the obstacles in the field, some women lawyers have reasonably high reputation in various aspects of practice, such as dealings with clients, drafting and pleading, and presentation in court. They also get work independently, ie. work comes to them on the basis of their reputation and standing at the Bar. The rest are those who cannot boast of such accomplishments as they stick on to their patron-seniors to hand over the work to be done. The more influential the patron, the greater the amount of work. This category often relates to the wives and daughters of senior lawyers, businessmen and bureaucrats.

Suggestions: Though not exhaustive, I give below some possible steps which would help women lawyers:-

(i) Though girls are being encouraged to enter professions, they are given less freedom of movement than boys at the domestic level. This kills their initiative and makes them dependent on the malefolk. The girls should be given deserving freedom.

(ii) At times, educational investment is symmetrical, but higher expectations are placed on the sons - the daughters are expected to be married off. This gender discrimination at the family level is not justifiable.

(iii) In the legal profession itself, women lawyers often experience disruption of practice and detrimental effects during the period of advancement pregnancy, childbirth and lactation. There should be a group insurance scheme from which periodical payments should fee made available to the concerned woman lawyer during such period, just as maternity benefits are granted to women in employment.

(iv) Organizational and State support systems can encourage women in the profession - through nominations on various State panels, appointments as Law Officers and other such avenues in the legal system --and they can compete with men successfully.

(v) The introduction of duel system in the management of briefs will also minimize the difficulties in the procurement of work for women lawyers.

Conclusion: Women in the legal field have to wage a relentless war for their emancipation from the age-old bounds and bonds. The structure of the family, the nature of women, the nature of the legal profession, are all immutable and inscrutable factors. But it is said that once women are given the opportunity to show their merit, then, inspiteof the cultural and institutional constraints, they rise to the occasion and show that they can compete with men on equal basis. Organizational reforms are also urgently required. The emergence of legal firms, with men and women lawyers as partners, will not only help women lawyers but curb the malpractices in the profession and uphold its dignity. Moreover, the availability of specialised and standardised legal services will also help relieve overcrowding and contribute to the autonomy of the profession, and at the same time make it ideologically neutral and independent. However, women who prove their mettle in both the domestic and professional spheres, may, in a course of time, help to overcome and even change the primitive, traditional male superiority-complex and bring about a real acceptance and recognition for women in the legal profession.

Maintenance of Books of Accounts under S. 44-AA of Income Tax Act by Professionals and Businessmen

(R. Krishna Iyer, B.Com.,F.CA., Chartered Accountant, Cochin)

A new Section has been inserted in the Income Tax Act by which certain category of tax payers have to maintain books of accounts. The object of the new provision is to enable the Income tax Officer to compute the correct income of the assessee and before the introduction of this section the assessee could also estimate the Income on some basis. The new Section casts an obligation on tax payers carrying on the Professon of Law, Medicine, Engineering, Architecture, Accountancy, Technical Consultancy, etc. to maintain books of accounts irrespective of the Income earned. In the case of persons who are in Profession whose Gross Receipts exceeds Rs. 60,000/- have to maintain books of accounts. Similarly in the case of persons from business whose turnover or Gross Receipts exceeds Rs.2,50,000/- have to maintain books of accounts. From the above it is very clear that the maintenance of books of accounts have no connection with the Income earned by the persons it depends on their Gross Receipts irrespective of their expenses, for earning such income or their Net Income. Therefore if the Gross Receipts of an Advocator a Doctor or any other Professional person exceeds Rs.60,000/- per year which works out only Rs.5,000/- per month, he is liable to maintain the books. Similarly in the case of a businessman or a Contractor whose contract receipts exceeds Rs.2,50,000/- per year (average daily sales works out to Rs.700/-) has to maintain books of accounts. The result is, taking into account the inflation and the price level, any moderate Professional or businessman would be liable to maintain books of accounts.

There are specific objects in introducing this provision in the Income tax Act. Recently in the Income tax Act certain provisions have been introduced restricting payments by cash for claiming deductions from Income. Individual payments exceeding Rs. 10,000/- has to be made by crossed cheques/drafts, otherwise such expenses would not be considered for the purpose ot deduction. Similarly the Loan repayments or receipts have to be made by Account Payee Cheques/Drafts when the payment exceeds Rs. 20,000/-. There is also a provision in the Income tax Act for the Compulsory Audit of accounts under certain condition. All these provisions are laid out in the Act in order to regulate, the transactions and to bring more and more assessees under the net of Taxation and also to control the circulation of black-money. One of the main reasons for inflation is the increases in prices due to the use/circulation of black-money and the Government is taking all possible measures to control the said circulation.

One of the measures to control the circulation of black money is to press for mandatorily maintaining books of accounts by the tax payers. An assessee may be correctly disclosing his turnover and his income in his return, but if no books of accounts are maintained, there are enough chances or facility for him to circulate either his or others black-money. Though he is declaring his correct income in the return, it cannot be said that he is not evading Income tax in such circumstances. By introducing the compulsory maintenance of accounts the department would be able to find out/restrict such type of circulation of black-money to a certain extent. Moreover the restrictions in payments etc. can be enforced only when books of accounts are maintained.

This new Section was introduced in the Income tax Act in the year 1976. The following books of accounts have to be maintained by the Professionals:

(a) Cash Book

(b) Journal (where the accounts are maintained on Mercantile System)

(c) Ledger

(d) Carbon copies of bills, serially numbered wherever the sum exceeds Rs.25/-

(e) Original Bills, Receipts for expenditure, vouchers exceeding Rs.50/-

In the case of Doctors:

(a) A daily case Register.

(b) An inventory on Stock of Medicines etc. as on first and last day of the previous year.

In the case of businessmen and contractors, no books of accounts have been specified but the books of accounts should be maintained as may enable the Income tax Officer to compute the total Income in accordance with the Provision of the Act.

Non-maintenance of books of accounts would attract penal action. Earlier in case the return of income of the assessee is accepted and the tax computed by the Income Tax Officer and the tax as per the return of Income is same, even in the absence of books of accounts the Income Tax Officer was not able to levy penalty and the position prevailed till 1-4-1989. In other words, if the Return of Income is accepted, non-maintenance of accounts would not attract levy of penalty. As per the existing policy, the Income Tax Department is accepting 97% of the Income Tax Returns without calling for the presence of assessee, or the records. In other words, only 3% of Returns are scrutinised in detail for which Income Tax Officer calls for the evidences. As mentioned earlier, for 97% of the cases, the Return are accepted and as such there will not be any additional demand on completion of these assessments. The amount of penalty is reckoned as a sum which shall not be "less than 10%" but which shall not exceed 50% of the amount of tax, if any, which would have been avoided if the Income returned by such person has been accepted as the correct income. For Example:

If the tax due as per the Return of income of the Assessee is Rs.2,000/- and after the scrutiny if the Income Tax Officer accepts the Return and there is no further demand, the penalty for the non-maintenance of accounts cannot be levied till 1-4-1989, but if as per the assessment, if there is an additional demand of Rs.1,000/- and if the assessee has not maintained books of accounts, the Incometax Officer would be able to levy a penalty, minimum of Rs.100/- (10% of Rs.1,000/-) or a maximum of Rs.500/- (50% of Rs.1,000/-).

In short till 1-4-1989 the penalty of non-maintenance of accounts could be levied only on the difference in Income Tax as per the Return and assessment.

However this provision has been amended w.e.f. 1-4-1989. If any person fails to keep and maintain books of accounts as per the Act or Rules, the Income Tax Officer can levy a minimum penalty of Rs.2,000/-(which can be extended uptoRs.1.00 lakh).

Therefore after the Amendment it is not necessary that there must be difference in Income Tax to levy penalty. It may also be noted that the levy of penalty has nothing to do with the Income. If the Statements of Accounts are not attached along with the Return, and the Income Tax Officer, finds that the assessee who is liable to maintain books of accounts, have not done so could initiate penalty proceedings. There is every chance that the Income Tax Officer would levy penalty, even in the first year of assessment itself. He may impose only minimum penalty in the first year but if default is continued he may impose the maximum penalty in the subsequent years, and in the case of Advocates, they may not get a lenient view from the Income Tax Officer. Moreover, eventhough the Section says: "may" it may be interpreted as "shall", in view of the fact that there is no provision in the Act, to condone if there is reasonable cause. Eventhough this provision was introduced as early as 1976, for the reasons stated above, there were some difficulties in levy of penalty for the non-maintenance of books of accounts, but after the amendment, the department has started initiating penalty proceedings and therefore it is absolutely necessary that the professionals and the businessmen should maintain books of accounts in order to escape from levy of penalty.

The amount of Rs.60,000 and Rs.2,50,000 was fixed in 1976. Considering the inflation and consequent increase in fees to the professionals it is high time that the Government may increase the limit of Rs.60,000 and Rs.2,50,000 to atleast Rs. 1,20,000 and Rs.5,00,000 respectively.

Regular books of accounts would not only help the assessee to prepare his Return of Income, but in case of scrutiny assessments, and if the Income Tax Officer is insisting to prepare the Wealth Statement of the assessee, this could also be helped. Suppose the assessment year is 1989-90 it relates to the financial year 1-4-1988 to 31-3-1989, the Income Tax Officer will call for the Assets & Liability Statement of the assessee as on 31-3-1988 and 31-3-1989, in order to ascertain the increase in wealth of the assessee in the year. The increase in Wealth should correspond to the Income returned and the excess if any would be treated as unaccounted Income of the year. Thus regular books of accounts are maintained, it would be easier to prepare the statement of wealth. Similarly, the assessee would be liable to pay Wealth Tax if his Assets exceed Rs.2,50,000/-, subject to certain exemptions. In the absence of regular books of accounts, it will not be possible to ascertain his net wealth to file the Wealth Tax Returns. Therefore regular books of accounts certainly helps the assessee in this respect. The assessee may also invest amounts in NSC, Fixed Deposits etc. and in his busy schedule of his/her Profession, there are possibilities of misplacing the receipt and he may forget to renew or encash the same on the due dates. The books of accounts should help him or remind him of the existence of such deposits. In the case of businessmen and contractors, one of the main sources of funds is Bank finance, and it has become necessary to furnish the Assets of the assessee to the Bank along with the Application for Loan and for the renewal of the same. The Professional people also may require loans from Banks or financial institutions to purchase cars, equipments, or flats, etc. for which also along with the Application, financial statements have to be attached.

From the above it is very clear that proper maintenance of books of accounts are essential and helpful not only for the purpose of Income Tax and Wealth Tax but also would serve the individual professionals in their own interests.

Beneficiaries under the New Motor Insurance Law

(M.N. Srinivasan, Advocate, Banglore)

The provisions of the Motor Vehicles Act 1939 and in particular those of Chapter VIII relating to the Insurance of Motor Vehicles have been quite familiar to the members of the legal world connected with the dispensation of justice since over fifty years. During these years the provisions of this Chapter have suffered major amendments two or three times mainly on the lines of the changes in the English Road Traffic Acts. This was quite natural as the original provisions of Chapter VIII of 1939 Act itself was on the basis of English Act of 1930.

2. This Act has again been extensively overhauled by the 1988 consolidating and amending Act. Here again the changes in the provisions of the Chapter relating to Insurance of Motor Vehicles has been to some extent on the lines of the changes made in the English Act of 1972. All the while this process of adjusting our Laws from time to time to the changes in the corresponding English Acts has been partly with a view to get the benefit of the interpretation of those provisions by the superior English Courts.

3. Confining our attention to S.95, of the 1939 Act, which lays down the requirements of policies to satisfy the provisions of Chapter VIII and the corresponding provisions namely S.147 of the 1988 Act which is word for word the same as that of the old Act except for the deletion of one proviso to the section, it is interesting to examine whether the provisions of the section could at all have been drafted more elegantly. At any rate it appears from what follows that there is avoidable overlapping and consequent want of clarity.

4. S.147(l)(b)(i) is the same as S.95(l) (b)(i) of the old Act and refers to the requirement that the policy should cover the risk of death or injury "to any person of a Third party caused by the use of the vehicle" Third party has been construed as any person other than the Insurer and the Insured, who are the two parties to the Policy (Viscount Simon L.C. in Digby v. General Accident (1942) 2 All. E.R. 319 HL). Here the words 'person' and 'vehicle' are both unqualified.

Hence this clause is comprehensive enough to include risks caused by the use of any kind of vehicle, that is, whether it is a private Motor vehicle or a public service vehicle which is defined as one used for the carriage of passengers for hire or reward etc. It is also comprehensive enough to include the risk to 'any person' other than the Insurer and the Insured, that is, whether he is a passenger in the vehicle or not and whether he is a gratuitous passenger, or one being carried for hire or reward or whether he is an employee of the Insured or not. It may therefore be safely said that apart from liabilities under the Workmens' Compensation Act 1923 the amplitude of this clause (l)(b)(i) of S. 147 by itself is quite comprehensive to cover the Act liability in respect of all persons other than the Insurer and the Insured caused by or arising out of the use of all kinds of motor vehicles for which the Act intended to make provision.

5. If what is stated above is correct we will have to examine in what way the second clause of S.147 (l)(b) adds to or takes away from what clause (i) of S.147 (l)(b) comprehensively provides. In the first place it must be pointed out that the opening words of clause (ii) "against the death of or bodily injury to" made no sense as no policy of insurance can be taken against the death or injury but only against any liability that may be incurred in respect of the death of etc.

6. Now clause (ii) of S.147(l)(b) states that the policy must cover the risk of injury to any passenger of a public service vehicle caused by the use of the vehicle. This it is already seen above is covered under clause (i) itself, because clause (i) covers the case of injury of all persons by the use of all kinds of vehicles. Hence this clause (ii) is redundant, unless it can be held that' vehicle in clause (i) does not include public service vehicles. This cannot be. Again Clause (ii) is silent about the case of the public service vehicle causing death of or injury to a third party who is not a passenger that is not being carried in the vehicle. For this again recourse is to be had to clause (i) as pointed out above. Thus in both ways cl. (ii) is ill conceived and serves no purpose.

7. Proviso (ii) to S.95(l) of the old Act stated that the liability to passengers also must be covered only in the case of vehicles in which passengers are carried for hire or reward or by reason of or in pursuance of the contract of employment. In view of this proviso it was held in Pushpabai v. Ranjit G. and P. Company 1977 SC 1735, that gratuitous passengers in private cars are not required to be covered for death or injury. Now that this provision (ii) is omitted altogether in the 1988 Act it follows that passengers in private cars as well as in public service vehicles are also to be covered whether they are gratuitous or fare paying passengers. It must be pointed out here that the question whether ticketless passengers in buses are entitled to be covered or not was left open by the Supreme Court in MPSRTC v. Zenabai, 1977 SC 2206 under the 1939 Act.

8. If there is any ambiguity in the legislation the "question has to be resolved having regard to the under lying purpose of the provisions of Chapter 8(now Chapter XI). That is a sensitive process which has to be accommodate the claims of society as reflected in the purpose". Please see Motor Owners Insurance Co. v. J.K. Modi, 1981SC 2059.

9. Such defective drafting of Legislation when pointed out should be examined early and corrections suggested by the Executive or the Law Commission in order to avoid wasteful litigation. Arecent PTI report of 12-ll-1990shows that Motor accidents which caused 5106 deaths and 37731 injuries in 1960 were responsible in 1988 for 255278 accidents in which there were 49218 deaths and 206060 severe injuries.

10. It therefore appears quite in order to interpret thedeletioninthel988Act of Proviso ii to S.95(i) of the old Act as an indication that the purpose of the legislation is that all passengers being carried in private cars or in public service vehicles whether they are gratuitous or fare paying should be covered by compulsory insurance policies required under Chapter XI of the 1988 Motor Vehicles Act and paid just compensation for the suffering caused to them.

International Law - Time of Reckoning

(By M. Mathew, Advocate, Ernakulam)

The United States of America is rapidly approaching the point in the Middle East crisis where a choice must be made. America cannot afford to let its first post Cold War act of global leadership drift into a stalemate between a war of controversial purpose or the abandonment of goals so adamantly reiterated by both President George Bush and the entire International Community.

Arab neighbours of Iraq will surely note that none of the proposals in the public discussion would reduce Iraq's military pre-eminence or restore Kuwait completely. If they conclude that they will be condemned to live with a dominant Iraq they will begin their own negotiations. Recent remarks by Saudi Arabian Defence Minister Sultan Ibn Abdul Aziz suggest that the haggling has already began.

The common feature of all the schemes leading to negotiations is that they undermine the military option by consuming time, exact no penalty for aggression, looting, a country or taking hostages, and leave as the only disputed issue the extent of the aggressor's gains. Once Iraq has faced down U.S. and U.N. terms, such a force would sooner or later become hostage to revolutionary Iraq, fundamentalist Iran and events substantially out of everybody's control. Saddam Hussein's intransigence may well reflect the calculation that every passing week erodes the likelihood that the forces assembled in the desert can be used against him and that if war appears imminent he can always defuse the crisis by opening negotiations.

Choosing a war will be neither easy nor attractive and Washington is waiting for a suitable provocation. It is hard to see what more Iraq might do to justify military action than to engage in naked aggression to destroy the nation of Kuwait and take thousands of hostages.

The World has no interest in weakening Iraq to a point where it becomes a tempting target for covetous neighbours. If war proves unavoidable, our objective should be not to destroy Iraq but rather to raise the cost of occupying Kuwait to unacceptable levels while reducing Iraq's capacity to threaten its neighbours.

Without doubt the military option would prove painful. It might trigger major demonstrations in many Muslim countries. It could well evoke the next wave of terrorism. Saddam Hussein might also spread the conflict. But these dangers must be weighed against the risks of an even larger conflict later on if a demonstration of American impotence leads to a collapse of moderate governments and the disintegration of all order.