Thursday, October 26, 2006: The income tax department will insist on representatives of NRIs and foreign investors using PAN numbers to file returns on their behalf, reports Economic Times.

Consultancy organisations providing tax related services to overseas clients have raised the issue with the income tax department. The issue has cropped up this year, after the income tax department made e-filing mandatory for corporates from this year.

In the electronic forms the resident representative has to file the PAN number of the company or body he is representing, to be able to file in the details of the tax paid. The relevant entry asks for the status of the filer, that is whether he is a representative and then ask for the PAN details of the assessee.

Explaining the concept, Amitabh Singh, executive director, Ernst & Young said so far a representative assessee was filing a return in his name, using his PAN but relating to income of the non-resident. "The law fully allows this", he stated and said "This would affect lot of companies who have dealings with non-residents and who file returns as representative assessee".

But tax officials say that they have brought in no new columns in the electronic forms and said they had just transposed whatever was there in the paper format. They added that the relevant column was so far being often ignored by the resident representatives, by striking off the same, even though the paper form did ask for the NRI's PAN. But in the e-format, the striking off option is not available.

The column has to be filled in before the returns can be given in. But to make life easy the officials said the representatives could use a dummy number specified in the FAQ at the website of the department in place of the PAN. According to them the issue has arisen because many of the NRIs and investors are not keen to use the PAN as this allows for easy identification.

They also said the department cannot relax the requirement, since e-filing has been made mandatory as per law for al corporate bodies. Singh said, under the provisions of Income Tax law a resident can file the income-tax return of a non-resident in his own name, as a representative assessee for income earned by a non resident having some business nexus with that resident. This return is filed in the resident's own name in representative capacity.

A separate return is filed by resident for his own income. Hence a tax payer who has a business of his own and also takes on the role of a representative assessee ends up filing more than one return in his own, one return for his own business and one or more returns as representative assessee. In the era of paper returns, this was possible as the tax forms permitted this.

Under the e-return filing scheme, a return cannot be prepared unless Permanent Account Number ('PAN') is there. Further, the computer system recognises only one return per PAN per year. Any subsequent return under the same PAN could get rejected or overwrite the earlier return.

The system does not differentiate between the return filed by the resident in his own capacity or in the capacity of representative assessee.

Source: http://news.moneycontrol.com