Service tax rules leave India Inc vexed

Many taxation issues pertaining to inter-state delivery of services are being envisaged when states are given the power to tax a set of services. Two principal questions that seem to arise are — whether revenue will go to the jurisdiction of production or that of consumption; and how to identify the place of supply and that of actual use of the services in the case of inter-state delivery of services. Tax authorities are mulling solution to the first question taking cue from the destination principle followed by most countries to tax international transactions with VAT imposed on imports and rebated on exports. The second question is much more complex, and its solution involves greater efficiency of administration. The state governments are making their demand for the power for levy of service tax more vociferous. Tax policy managers at the centre would, however, do well to put the necessary administrative systems in place before the states’ demand is met. Another vexed issue in regard to taxation of services is linked to how export of services is defined. The Export of Service Rules notified by the government are ambiguous and increasingly disputatious. The matter is relevant as exports are meant to be tax-neutral while consumption of specified services locally is taxable. Let us pore over a few niceties. Currently, only if the services rendered from India are ‘fully used’ outside India, the process qualifies as exports. In the BPO industry, there are different possibilities of partial use of some composite services rendered by an Indian entity within the territory of India and while part of the services is used outside India. If you go strictly by the wording in the Export of Services Rules, it would seem that even if 99% of the services rendered by an Indian entity in a particular transaction is used outside India and the balance 1% used by local entities, the transaction cannot be treated as exports. That means the relevant entity will not be eligible for refund of input taxes. There is already a spate of litigation over this question which is fundamental.

Another possibility— which is also real given the flurry of court cases that have come up of late— is certain cases where the service is rendered from or performed “outside” Indian territory as defined in the tax rules but by an India-based entity subject to Indian tax laws. For example, certain offshore oil and gas production could be construed to be performed outside Indian territory and there could therefore be a claim for refund/credit of input taxes. It is open to interpretation whether this claim is valid. Also, with the government adding more services to the service tax net, the scope of definition issues in relation to taxability of certain services have anyway become much larger in the recent years. (With Budget 2008-09, 106 services are under the tax net and scores of other services which are not taxable now are proposed to be taxed under the state list). There are also cases of the tax authorities failing to understand the subtleties of commercial world and as a result amplifying the scope of the tax to proportions that the industry would find onerous. Double taxation issues also come up before the adjudicatory and judicial bodies and this is sometimes harmful to even the well-meaning industry. The revenue department has already issued a master circular to address the growing incidence of service tax disputes, but the circular has still left some points unexplained. The scuffle between the authorities and assessees over service tax issues is increasingly recurrent. This is obviously because the stakes are huge and assessee base has considerably widened to the current number of 5 lakh-plus. No longer is service tax a marginal factor in the government’s revenue estimates. Service tax collections grew 33.6% to Rs 9,774 crore in the first quarter of this fiscal, while the growth required to reach the target of Rs 64,460 crore is 26.1%. The last four years have seen phenomenal growth in service tax collections. With this kind of growth, in the next few years, service tax could emerge as the largest component of the central government’s indirect tax revenue. It is imperative, therefore, that the room for interpretation of service tax rules is minimised. When the taxman is not too intrusive, compliance level would only move up.

Professional tax may rise by Rs 5,000

Doctors, lawyers and other professionals, both salaried and self-employed, may now have to pay a higher professional tax. Acceding a long-pending demand of the state governments, the Centre has decided to raise the ceiling on professional tax from Rs 2,500 to Rs 7,500 per annum. The Union Cabinet is expected to take up the proposal on Thursday. Professional tax is levied by state governments or local bodies on professions, trades, callings and employment. The power to levy the tax flows from Article 276 of the Constitution that also caps the tax amount. The Centre will amend Article 276 to raise the limit. Although Delhi does not impose the tax, states such as Karnataka, Maharashtra, West Bengal, Andhra Pradesh, Tamil Nadu and Gujarat do so. The limit was fixed in 1998 at Rs 2,500 per annum. Increase in tax has been a long-pending demand of the states, pointing at rise in income levels in the past few years. The Centre’s reluctance to state governments’ demand for a hike in the limit is borne out of the fact that taxpayers who pay professional tax are eligible for a deduction under the Income-Tax Act. So, while the state governments’ revenues grow, the Centre loses tax on this count. However, with the direct tax collections witnessing stupendous growth, state governments had intensified pressure on the Centre. Their argument is that the tax does not have a substantial impact on Centre’s total kitty as the collection under this head by states was only Rs 3,500 crore. Some state governments wanted the limit to be increased to Rs 10,000 per annum, but the Centre has agreed to raise it to Rs 7,500.

INFLATION

...............CONTINUED FROM YESTARDAY
Causes of inflation
In the long run inflation is generally believed to be a monetary phenomenon while in the short and medium term it is influenced by the relative elasticity of wages, prices and interest rates.[6] The question of whether the short-term effects last long enough to be important is the central topic of debate between monetarist and Keynesian schools. In monetarism prices and wages adjust quickly enough to make other factors merely marginal behavior on a general trendline. In the Keynesian view, prices and wages adjust at different rates, and these differences have enough effects on real output to be "long term" in the view of people in an economy.
A great deal of economic literature concerns the question of what causes inflation and what effect it has. There are different schools of thought as to what causes inflation. Most can be divided into two broad areas: quality theories of inflation, and quantity theories of inflation. Many theories of inflation combine the two. The quality theory of inflation rests on the expectation of a seller accepting currency to be able to exchange that currency at a later time for goods that are desirable as a buyer. The quantity theory of inflation rests on the equation of the money supply, its velocity, and exchanges. Adam Smith and David Hume proposed a quantity theory of inflation for money, and a quality theory of inflation for production.
Keynesian economic theory proposes that money is transparent to real forces in the economy, and that visible inflation is the result of pressures in the economy expressing themselves in prices.
There are three major types of inflation, as part of what Robert J. Gordon calls the "triangle model":
Demand-pull inflation: inflation caused by increases in aggregate demand due to increased private and government spending, etc. Demand inflation is constructive to a faster rate of economic growth since the excess demand and favourable market conditions will stimulate investment and expansion. The failing value of money, however, may encourage spending rather than saving and so reduce the funds available for investment.
Cost-push inflation: presently termed "supply shock inflation," caused by drops in aggregate supply due to increased prices of inputs, for example. Take for instance a sudden decrease in the supply of oil, which would increase oil prices. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices.
Built-in inflation: induced by adaptive expectations, often linked to the "price/wage spiral" because it involves workers trying to keep their wages up (gross wages have to increase above the CPI rate to net to CPI after-tax) with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle." Built-in inflation reflects events in the past, and so might be seen as hangover inflation.
A major demand-pull theory centers on the supply of money: inflation may be caused by an increase in the quantity of money in circulation relative to the ability of the economy to supply (its potential output). This is most obvious when governments finance spending in a crisis, such as a civil war, by printing money excessively, often leading to hyperinflation, a condition where prices can double in a month or less. Another cause can be a rapid decline in the demand for money, as happened in Europe during the Black Plague.
The money supply is also thought to play a major role in determining moderate levels of inflation, although there are differences of opinion on how important it is. For example, Monetarist economists believe that the link is very strong; Keynesian economics, by contrast, typically emphasize the role of aggregate demand in the economy rather than the money supply in determining inflation. That is, for Keynesians the money supply is only one determinant of aggregate demand. Some economists consider this a 'hocus pocus' approach: They disagree with the notion that central banks control the money supply, arguing that central banks have little control because the money supply adapts to the demand for bank credit issued by commercial banks. This is the theory of endogenous money. Advocated strongly by post-Keynesians as far back as the 1960s, it has today become a central focus of Taylor rule advocates. But this position is not universally accepted. Banks create money by making loans. But the aggregate volume of these loans diminishes as real interest rates increase. Thus, it is quite likely that central banks influence the money supply by making money cheaper or more expensive, and thus increasing or decreasing its production
TO BE CONTINUED TOMORROW..........................

Golden Quotes

“The movement you think of giving up ,think of the reason you Held so long ……..Do or Die is an old saying ,Do it before you die is the latest ….”

Buffet's Toll Bridge-MUST READ

BYLANES - Buffet's Toll Bridge
Imagine a river with a commercial district on one side and residential on the other. Now, imagine a bridge spanning the river, joining the two districts. And imagine that you own the bridge, and can charge a small fee for using the bridge. A few thousand cars pass over the bridge every day, and you charge each car a little something for using the bridge. I bet you have already started counting the money. Warren Buffet keeps this perspective in mind while choosing a stock. Some basic advantages of such a `toll bridge` should be understood. One is that the cash register keeps ticking without a stop. The other advantage is that there are no sundry debtors. Further, the maintenance and expenditure is low and the profits can grow at a predictable rate, and that too for a number of years. If you (that is. the owner) do not become irrationally greedy and maintain the fees for crossing at a reasonable level, the customers will continue to use your bridge, and you will make money for a number of years to come. Many businesses reach the status of a toll bridge because of the strong relationships their products build with the customers. The first sign of such a company is apparent when the customers demand the product by its brand name and don`t even know the name of the company that produces it. The second sign is that it has little, or no competition, and the third sign is that it is essential either as a necessity, or for its universal appeal, and, therefore, every store has to carry it.Let us consider some examples in the Indian context. `Cadbury`s` chocolate, `Cherry Blossom` shoe polish (how many know the name of the company? (Viz. Reckitt & Coleman), `Dettol` disinfectant, `Aspro` and `Anacyn`--the headache cures--and `Amul` butter easily come to mind. In pharmaceuticals, Glaxo is one such name, which has many products in demand. Can any store afford not to have these products on their shelves? If the store does not have it, the customer just walks over to the next store and gets it. Companies making such products are in a unique position. They have established the manufacturing process, people have accepted the quality and specifications, they do not have to invest large sums in the plant and machinery every year, and their supply chains and distribution network are well established. The net result is steadily growing profits. These companies have some more advantages. They do not need exceptional management, just an honest management capable of grabbing a good thing when they see it and not to make a mess of it. These companies do not require too much of research and development (R&D), as they invented the formula many years ago and their customers don`t want any change. Would you like Dettol to smell differently? A good friend of mine even used it as an after-shave for many years. The management may add a gift with the purchase of a bottle, or add a new flavor to the product range to grab a little extra of the market share, but a wise management will leave the main product untouched. In Dettol`s case, even the shape of the bottle is important. Such structurally sound and `in-demand` toll bridges are great businesses to own. They give rise to plenty of free cash, which can be invested in building or buying another such toll bridge. These businesses survive through economic downturns, and continue to give the same returns. This feature makes it easier to predict their profitability. Value investors love this.The return for the investor is on the one side the earnings per share (EPS) (or dividend) and on the other increase in the share price. If the annual EPS/dividend is predictable, and if the share is purchased at a low enough price, the investor is happy to get such a return year after year. Many times, we see such companies showing an increasing EPS trend. This is still better for the investor, because this increases the price of the share faster. Much has been said and written about the intrinsic value of the business and how it is to be arrived at, but with insufficient justice to the discipline involved. Value investors eye the company first, but their decision to buy is a function of the price. Everything else about the company may be perfect and the value investor may be itching to own a part of it, but a disciplined investor will wait for the right price. Once purchased, the stock is not sold for a long time. The argument is simple. Why give away something `good` till something `better` comes along? Remember that a good toll bridge has a minimum life of 25 years. If the EPS is in the region of 20% and above on the price you paid, calculate the compounded value at the end of those 25 years and see for yourself. Yet there is a sad side. Like everything else in this world, bridges also deteriorate. Weather and time take a heavy toll of steel, and the bridge becomes unsafe. Those car owners who drove to work over that bridge for a number of years realise that the bridge is no longer safe and avoid using it. Some competitor senses the unease and builds a new bridge, and the owner of the original bridge dies an unsung death. We know what happened to some automobile companies from the pre- liberalisation days. From the mid-50s to the mid-80s, Premier Padmini and Hindustan Motor`s Ambassador were the two cars ruling the market. For years, they continued to thrive without making any major changes in the models, and Indians had no choice but to buy those cars. Whatever was produced was sold, and that too against cash. Sub-standard goods were produced for years and dumped on the helpless customers. With little R&D and no improvement in the basic car, these plants were just waiting to receive a deathblow, and `Maruti` did just that. Customers had found another safer, newer, and cheaper bridge. Sometimes, some management decisions cause problems. Excess cash poses a problem. The management does not know what to do with it, and then instead of buying another toll bridge, or improving the existing one, it buys a pyramid, which is just a tourist attraction and a place for the dead. The pyramid bleeds the parent company, and finally both perish. Acquisitions and mergers are good, but only of the same kind. In the recent past, we have seen the merger of Times Bank with HDFC Bank. Synergy in operation was evident, and the balance sheet proved it. The market also appreciated it, and the shareholders have reaped the benefit.It is easy to say that one should invest in such `consumer monopolies`, as Warren Buffett calls them, but it is another thing to actually buy these shares. No one has monopoly over such a wisdom, and generally we find these shares selling at a high P/E multiple. Yet, occasionally, these shares sell at low prices. John Neff`s advice is worth following while waiting for a good price. He advices the investors to regularly scan the `New Lows` list in the financial newspapers. If you have earmarked a share, then this list alerts you when it starts coming down. Consider this example, In March 2000, Glaxo hit a new low of Rs 422. In August, it is trading at 480/490. Reckitt & Coleman hit a new low of Rs 192 in March. Now it is trading around 210/220. If someone had earmarked the share, then surely it was a good time to buy. Sometimes, a `consumer monopoly` company remains unnoticed for a long time. These are the companies engaged in manufacturing some product, without which the big guns cannot do. An example could be that of a company manufacturing some critical chemical required for steel making. This company may also own the patent for the product and, thus, the monopoly remains assured for a long time. Such companies spend very little on advertising and, hence, are not widely known. Some event of social or political nature makes it conspicuous, and suddenly the great value of the share gets unlocked, and the price starts climbing. Mario Gabelli, a well-known investor from the US calls the event a `catalyst`. Noticing such a company in advance and then waiting patiently for a long enough time is what is needed. The rewards are great. The best way to notice consumer monopolies is to visit various stores. If you find the same product on all the stores you visited, chances are that it is a consumer monopoly. Watch for the advertising campaigns. If there is a blitz, rest assured that the company is not confident about the demand. If the advertising is subdued and regular, just to tickle your memory cells, there is a good chance that the monopoly is operating. Some companies don`t advertise at all; for example, Amrutanjan, the headache balm. Many years ago in Pune, a man started stamping his name on all goods that entered the city. The stamp was inconspicuous, yet readily visible. He did not charge a farthing for stamping the goods. Traders let him stamp their goods thinking of him as some harmless eccentric person, and soon goods which did not have his stamp were overlooked by customers in the city. So the traders started coming to him for getting their goods stamped, and then he started charging a small fee. In due course, he became a rich man. He had created his own `Toll Bridge`.

MICRO ,SMALL AND MEDIUM ACT 2006

MICRO ,SMALL AND MEDIUM ENTERPRISE DEVELOPMENT ACT 2006
The micro, small and medium enterprises sector comprises 50% of India's total manufactured exports,45% of India's industrial employment, and 95% of all industrial units in the country. Despite its importance, the MSME sector has long faced extreme obstacles in accessing finance and markets. Therefore in order to facilitate promotion and development and enhancing the
competitiveness of the MSME sector the Micro, Small and Medium Enterprises Development Act 2006 was enacted which became operational from Oct 2006.The salient features of this Act are as follows:
1. Definition of MSMEs: It defines 'Enterprise' instead of 'Industry' to give due recognition to the service sector. The Category of an enterprise is dependent on the level of investment in Plant and Machinery/Equipment. (Sec.7)
Manufacturing Service Sector
Sector Investment in
Enterprise Investment in Equipment
Category P&M

Micro Upto 25 lacs Upto 10 lacs

Small More than 25 lacs More than 10 lacs
but less than but less than
5 crores 2 crores

Medium More than 5 crores More than 2 crores
but less than but less than
10 crores 5 crores
2. National Board for Micro, Small and Medium
Enterprises: A National Board has been constituted with its head office at Delhi for overseeing and regulating the development of MSMEs.

3. Filing of Memorandum: The earlier timeconsuming
registration process has been replaced by a simpler system of filing of memoranda by the enterprises. The enterprises just need to file a memorandum with the District Industry Centers (DICs) as follows: (Sec.8)
Type of enterprise Mfg/ Service Mandatory/optional
Micro and Small Both Mfg. and service Optional
Medium Service Optional
Medium Mfg. Mandatory

4. Credit facilities: The policies and practices for extending credit to MSME shall be progressive as per the guidelines issued by RBI. This will ensure timely and smooth flow of credit to such enterprises, minimize the incidence of sickness and enhance the competitiveness of such enterprises. (Sec.10)
5. Procurement Preference Policy: For facilitating promotion and development of micro and small enterprises the govt. will notify preference policy in respect of procurement of goods and services produced and provided by micro and small enterprises, by its Ministries, departments or its allied institutions and PSU.
6. Mechanism to check delayed payment: a. Where any micro or small enterprise (not the medium enterprise) supplies goods or services to any buyer, the buyer is required to make payment to the supplier on or before the agreed date between buyer and supplier. But in any case the credit period for payment agreed between the supplier and buyer shall not
exceed forty five days.(Sec.15)
b. If the buyer does not make payment as per the agreed terms of payment (maximum 45 days) he shall be liable to pay to the supplier compound interest with monthly rests at three times the bank rate notified by RBI. (Sec.16)
c. For recovery of the above amount due with interest, any party to dispute may make a reference to the Micro and Small Enterprises Facilitation Council who hall act as Arbitrator or Conciliator under Arbitration and Conciliation Act 1996.
d. The amount of interest payable or paid by any buyer in accordance with the provisions of this Act shall not be allowed as a deductible expenditure under the Income Tax Act 1961. (Sec.23)
7. Disclosure in audited accounts

a. Where any buyer is required to get his annual accounts audited under any law, such buyer is
required to furnish following additional information in annual statement of accounts:
i. Principal amount and interest due thereon remaining unpaid to any such supplier;
ii. The amount of interest paid by the buyer in terms of section 16, alongwith the amounts of
the payment made to supplier beyond the agreed day;
iii. The amount of interest due and payable for the period of delay in making payment (which have been paid but beyond the agreed day during the year) but without adding interest specified
under the Act;
iv. The amount of interest accrued and remaining unpaid at the end of each accounting year;
v. The amount of further interest remaining due and payable even in succeeding years, until such date when the interest dues as above are actually paid to the small enterprise. (Sec.22)
b. The corresponding amendment to the Schedule VI of the Companies Act 1956 in line with e above has been made w.e.f. 29th Nov 2007 vide Notification no. G.S.R. 719(E) dated 16.11.07. The earlier requirement of giving names of SSIs to whom company owes any
sum together with interest outstanding for more than 30 days has been dispensed with
8. Penal provisions: Contravention of section 8 (filing of memoranda) or 26 (furnishing of information on requisition) would entail a fine upto Rs.1000 on first conviction and a fine of Rs.1000 to 10000 for any second or subsequent conviction. Where a buyer contravenes
provisions of section 22 he shall be punishable with a minimum fine of Rs.10000. (Sec.27)
9. Repeals: The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act 1993 is repealed on enactment of this Act. (Sec.32)

E-FILING OF RETURNS

e-filing for AY 2008-09 is now available for all ITRs.Following important points can be kept in mind while uploading returns

• Userid by default is the PAN number for all users now.Earlier some users (in 2006-07) had created their own userid but that has been substituted by PAN now. The Password, however, will continue to remain the same as earlier ,as chosen by the user.
• Email id is now mandatory in the I-T return as well as at the time of registration since the ITR-V or Acknowledgement will be sent via email to the taxpayer after the taxpayer has submitted the return. Userid / password shall also be emailed to taxpayer after registration.

• Returns can be filed for AY 2007-08 and AY 2008-09 using the same 'Submit Return' button.
• Since the time limit for return filing for AY 2006-07 has expired, returns for AY 2006-07 can be filed only if notice under section 148 or 153A have been issued. Taxpayers will have to choose Return Filed under Section code corresponding to Return filed in response to notice u/s 148 (Code 14) or u/s 153A (Code 15) before uploading the xml for AY 2006-07.
• If you wish to file an I-T return for AY 2006-07 in response to a notice under Section 148 or under Section 153A,Please contact ITD call center to obtain the Return Preparation Software.

BENEFITS OF DESKTOP SEARCH ENGINE

What do you do when you don't have information on a particular subject? You refer to search engines offered by Yahoo!, MSN, Google etc…. After all, with the gaining popularity of the Internet, it has become easier for people to locate information on the Web. You can locate anything over the web including your own street, house, images that gels you, information about anything etc… Each of them is now known to offer desktop search engines for your PCs.
Does word find space in your vocabulary? If not then read on.

What are Desktop Search Engines?

Desktop search engines are tools that help in locating your entire hard drive in less than a second to pinpoint the right file, email, music or pictures. Be it Outlook Express, Word, Firefox, Excel, PDF, Powerpoint, Images, Instant Messenger or, Video, you'll take only a few seconds to run a search on them
How are desktop search tools different from search
engines?
A 'search engine' in a website helps you search the Web.Search engines take the information gathered by its bots and use it to create a searchable index on the Net. You can use keywords to seek information on any subject required. A desktop search tool, on the other hand, utilizes CPU,
memory, and disk space efficiently to ensure continued high levels of system performance. For instance, if, during a course of one year, your search index has grown to 50000 documents, you don't have to spend the whole morning to find out what you are looking for. With the
help of desktop search tools, your entire PC will be searchable whenever you want it to be.
One of the main advantages of desktop search programs is that search results come up in a few seconds; Windows search companion can be some help, but it searches through Windows files and folders only, not e-mail or contact databases, and unless you enable the Indexing Service (in Windows 2000 or XP), the Windows search tool is extremely slow. A variety of desktop search
programs are now available.
Which websites offer desktop search engines?
Google, Yahoo! and MSN have well deserved reputation as the top choice for desktop search engines. Apart from these, there are others like the Copernic Desktop Search and T-Online, HotBot and Ask Jeeves that also offer downloadable search engines.
Which desktop search engine should you download?
Be it Google, MSN or Yahoo!, there are pros and cons to all of them as far as desktop search application is concerned. Yahoo! on the surface appears superior in features and performance to those of Google and MSN. But, unlike other desktop search applications, Web search isn't still well integrated into Yahoo! Desk Search tools. Also missing from YDS is one of the most useful
features of Google's desktop search the automatic indexing and caching of web pages you've viewed with Internet Explorer. Even though Google Desktop's searches go through sites
you've visited in Firefox/Nestcape/Mozilla, it suffers from a fatal flaw: It treats your PC as if it was a Web, and so doesn't let you fine-tune your searches. So when it comes to the daily work of searching, MSN Desktop Search often comes out on top.Google Desktop Search is unique in the way that it presents your desktop search results in your web browser, in the same way as regular web search results. It will Index files in Microsoft Word, Excel, Power Point, as
well as plain text and PDF Files. It will also include your website history in internet explorer, your chat messages in AOL, the MS Outlook or any other email client etc…..The local Google database is updated continuously. Unlike Google, Yahoo! Desktop Search does not display
results in search engine results like manner in your web browser. This program has its own interface and its own windows. Yahoo! Desktop Search will try to guess your intentions as you type. Hence the program will start displaying results even before you have typed the whole
query. Moreover, this program will, like the Copernic desktop search program, give you a preview of most files in a separate window pane. Among other interesting options are the possibility to save searches, and set indexing options by file type, email client, and contacts.
This means that you can exclude certain files based on size, name or content. You can also limit searches to certain filenames, file types, file size, dates or directories/paths
How safe is it to download desktop searching tools?
Security experts say one should be careful while downloading search engines. Virus writers could actually use new desktop search tools to make their malicious software more efficient.
Since they are free, virus writers can use their brand names to get into your PCs and make their malicious software more efficient. Most industry watchers agree the products aid
productivity: From a single interface, users can quickly search the text of their e-mail, contacts, application documents, data files, multimedia files and more. The problem is the information these programs can find and potentially expose, such as documents on a shared file drive that are not properly secured or were supposed to have been deleted. Other potential problems with Desktop search applications are : conflict with other applications and performance issues.
There are various tools available, so you need to be very careful while downloading search tools. In IT nothing comes without problems. The faster you try to get (to increase your productivity) using IT, the more problems you would face. This goes by default, but you also need
to pace up with the growing needs of business, right?

Liquidation to soon get transparent

The way assets of sick companies are auctioned in India is likely to undergo a major change. In a bid to usher in transparency in the process of corporate liquidation, the government will soon give wide publicity to details of distressed assets that are put on the block. These are assets of companies which the official liquidators attached to various high courts auction, the proceeds of which are given to various stake holders in the company as per the sequence of priority.

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Where’s the windfall profit for a tax?

A windfall profit tax on oil companies now would be illogical and an unwise economic measure. The rationale for such a tax is suspect and can be challenged in the Courts. Those arguing in favour should look at the experience of other countries that have imposed such a tax , specifically the US, where it did more harm than good to the economy, says Raghuvir Srinivasan.

What is a windfall profit?
According to Wikipedia, the term “windfall profit” was first used in the colonial era. Subjects were prohibited from using lumber that was more than a foot in width except where due to an act of God, such as a storm, trees fell down in their own property. In such a case, they could use the wood or sell it. Needless to say, there were several such instances of acts of God and subjects reaped windfall profits by selling such wood. So, a windfall profit presupposes an act of God. It is profit earned through other than the ordinary course of business. Does this definition fit our oil companies? It appears not.

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