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  • 126. “however” shall mean an alternative intention, or a contrast, with the previous section, sub-section, clause, sub-clause, item or phrase, as the case may be, and a modification of it under such circumstances as specified therein.
  • 71. Deduction in respect of maintainance of disabled Dependent an office, or establishment, of Central Government or the Government of a State an office, or establishment, of Central Government or the Government of a State; 245 A to 245 L of the income tax act deals with settlement comission
  • 298. “unincorporated body” means - (a) a firm; (b) an association of persons; or (c) a body of individuals; Capital Gains on Listed Equity Shares Long Term Capital Gains : If the Equity Shares are listed on a Recognised Stock Exchange are held for more than 12 months and sold after 01.04.2005, then the Long Term Capital Gains earned on it is exempt from Income Tax u/s 10(38) of ITA, 1961. Subject to the condition that Securities Transaction Tax (STT) has been paid on such sale of Shares. Short Term Capital Gains : If the Equity Shares are listed on a Recognised Stock Exchange are held for less than 12 months and sold after 01.04.2005, then the Short Term Capital Gains earned on it is subject to concessional rate of Income Tax u/s 111A of ITA, 1961 @ 10 %. Subject to the condition that Securities Transaction Tax (STT) has been paid on such sale of Shares iii. Capital gains on Unquoted Equity Shares Section 48 of ITA, 1961 provides for mode of computation, which is: a. Capital Gain (CG) is computed by deducting from the full value of consideration received or accruing as result of transfer of capital asset the following: Expenses incurred wholly and exclusively in connection with such transfer; Cost of Acquisition of the asset and the cost of improvement thereto. This includes expenses incurred in connection with the acquisition of the asset. b. In case of Non-resident assessee, CG from transfer of Shares of Indian Company is computed by converting the cost of acquisition, expenses connected thereto and the full value of consideration into same foreign currency as was initially utilized in the purchase of shares. And the CG computed shall be reconverted into Indian Currency. No benefit of indexation in this case will however be available in view of prohibition contained in the second proviso to Sec 48 of ITA, 1961. iv. Tax on Short Term Capital Gains a. On Short Term Capital Gains of Listed Equity Shares on which STT is also paid : 10 % plus applicable Surcharge & Education Cess (Sec 111A) b. On others it will be rates applicable to other income on the basis of quantum of Income. Generally 30 % plus applicable Surcharge & Education Cess iv. Tax on Long Term Capital Gains a. On Long Term Capital Gains of Listed Equity Shares on which STT is also paid : Exempt – No tax (Sec 10(38)) b. On others it will be rates applicable to other income on the basis of quantum of Income: 20 % plus applicable Surcharge & Education Cess (Sec 112 [A1]   ) v. Capital Gain is generally computed and tax charged on the apparent value of transaction unless it is found that the apparent is not real. There are no deeming fictions / provisions in computation of CG except in case of transfer of Capital Asset being Land or Building or both where value adopted by Stamp Duty Authority is imputed or a reference is made by the Assessing Officer to Valuation Officer for ascertainment of full vale of consideration for purpose of Capital Gains. (Sec 50C)   [A1] On LCG flat rate of 20 % is applicable and hence the first line may not be relevant. In the case of every co-operative society,— Rates of income-tax   (1)where the total income does not exceed Rs. 10,00010 per cent of the total income; (2)where the total income exceeds Rs. 10,000 but does not exceed Rs. 20,000Rs. 1,000 plus 20 per cent of the amount by which the total income exceeds Rs. 10,000; (3)where the total income exceeds Rs. 20,000Rs. 3,000 plus 30 per cent of the amount by which the total income exceeds Rs. 20,000.
  • laborating on how the gross assets tax met the “equity” considerations, Mr Modi said that the argument was those who control larger resources should be expected to earn larger incomes and, therefore, it was logical that they should pay tax. However, in India only about 50,000 companies pay some form of tax even as about 4.5 lakh income-tax returns are filed by corporates with the tax department. “Nearly four lakh companies don’t pay any tax even though they hold large volume of resources. About 80 per cent of companies are not reporting profits, but hold large resources. “Their quality of reporting is extensive. But they are inefficiently using their resources. So our proposed move to bring in gross assets tax could be considered as some form of penalty to bring about efficient use of assets. It is exactly like the public sector divestment argument”, Mr Modi noted. On the issue of why MAT was not being done away with now that most exemptions will go under the proposed regime, Mr Modi pointed out that the existing exemptions are only being grandfathered. Assets to be valued at cost which is contradictory to proposed IFRS where it requires assets to be valued at market value No credit to be allowed of MAT paid against tax as per normal provisions The value of gross assets referred to in Paragraph A of The Second Schedule shall, subject to the provisions of this Chapter, be computed in accordance with the formula - A+B+C-D-E Where A = the value of the gross block of fixed assets of the company as on the close of the financial year; B = the value of the capital work in progress of the company as on the close of the financial year; C = the book value of all other assets of the company as on the close of the financial year; D = the accumulated depreciation on the value of the gross block of fixed assets, claimed up to the last day of the relevant financial year; E = the amount of debit balance of profit and loss account, if included in the amount 'C‘ [ (1A) The amount referred to in sub-section (1) shall be reduced by,— ( i ) the amount of dividend, if any, received by the domestic company during the financial year, if— ( a ) such dividend is received from its subsidiary; 194. “pass-thru entity” means,- (a) the New Pension System Trust ; (b) mutual fund; (c) approved provident fund; (d) approved superannuation fund; (e) life insurance company; ( b ) the subsidiary has paid tax under this section on such dividend; and ( c ) the domestic company is not a subsidiary of any other company : Provided that the same amount of dividend shall not be taken into account for reduction more than once; ( ii ) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause ( 44 ) of section 10 .
  • PanAmSat International Systems Inc. vs. DCIT [103 TTJ 861] Use of comma after the words “secret formula or process” in the India – USA DTAA is a deliberate departure from section 9(1)(vi) of the Income Tax Act, 1961, implying that the process should be secret to qualify the payment as Royalty. Since, transponder technology is also available off the shelf, it is not a secret process (the said matter was not considered in Asia Sat). Whether payments by broadcasting companies to satellite operating companies for use of transponder to beam signals falls within the ambit of “royalty”? Payment by a non-resident to another for use of transponder to beam channels telecasted in India held to be consideration for use of “process”, chargeable to tax as royalty under section 9(1)(vi) of the Act Asia Satellite Telecommunications v. DCIT 85 ITD 478 (Del) Facts similar to AsiaSat’s case above; the word “process” in the India US Tax Treaty qualified by “secret” and hence should be interpreted narrowly as compared to the Act; payment held not to be for any “secret process” but for a service/facility; held not to be taxable as royalty/FIS PanAmSat International Systems v. DCIT 103 TTJ 861 (Del) Payments for use of transponder held not to constitute “royalty”/FTS for the following reasons: Definition of “royalty” under the Act for the relevant year was restrictive and did not include payment for use of equipment Transponder was per se not owned by the recipient No service, whether technical or otherwise is being rendered by the recipient ITO v. Raj Television Network Limited ITA Nos 1827 & 1828 (MDS/1998) Certain tax treaties such as treaties with US, Canada, Singapore specifically exclude rentals for ships and aircraft from the scope of “royalty” Recent decisions of the Chennai Tribunal: West Asia Maritime Ltd v. ITO 109 TTJ 617 : payment for bareboat charter demise (dry lease) regarded as royalty Poompuhar Shipping Corporation Ltd v. ITO 108 TTJ 970 : payment for time charter (wet lease) regarded as royalty
  • The questions which arose for consideration in these appeals were as to whether `commitment charges' payable by the assessee to a foreign company which had refinanced foreign currency loan obtained by assessee for its business activities from IDBI bank, could be allowed as deduction under section 36(1)(iii) of the Income-tax Act, 1961; and as to whether `charges' paid to foreign company was similar to payment of interest under section 36(1)(iii) of the Act and, therefore, was to be allowed as deduction.
  • Vodafone International Holdings BV (VIHB), a Dutchbased Vodafone entity, acquired a controlling stake in Hutchison Essar Limited (HEL, now known asVodafone Essar Limited), an Indian company, from Hong Kongbased Hutchison Telecommunications International Limited (HTIL) by acquiring shares of CGP Investment (CGP), a Cayman Islands company (which belonged to HTIL) in February 2007. CGP held various Mauritian companies, which in turn held a 67% stake in HEL. In September 2007, the Revenue Authorities issued a showcause notice to VIHB for failure to withhold tax on the amount paid for acquiring the said stake, as the Revenue Authorities believed that HTIL was liable for capital gains it earned from the transfer of shares of CGP, as CGP indirectly held stake in HEL. The holding structure of this transaction can be illustrated as in Diagram 1. VIHB filed a writ petition in the Bombay High Court challenging the notice, contending that the Revenue Authorities had no jurisdiction over the transaction The subject matter of the transfer in the instant case was not a mere or innocuous transfer of shares in CGP, but transfer of a bundle of interests/rights/property, both tangible and intangible, including controlling interests embedded in the Hutch Group. – VIHB, through its various declarations to regulatory and other bodies,made it apparent and clear that its real intention was to acquire a controlling stake in HEL of 67%. Thus, there is no need to pierce the corporate veil to find out the true economic transaction Foreign Investment Promotion Board (FIPB)  has been set up by the government of India in order to increase the flow of foreign direct investments into the country. By doing this, Foreign Investment Promotion Board (FIPB) has been able to give a major boost to the Indian economy. o quickly approve the foreign investment proposals. To review the foreign direct investment polices and to communicate with other agencies such as the Administrative Ministries in order to set up guidelines that are transparent and which encourage FDI into the various sectors of the country. To look over the implementation of the various proposals that have been approved by it.
  • In certain cases, authority to pass penalty order is also given to CIT and CIT (Appeals) • Penalty of amount upto INR 200,000 proposed for non-maintenance/nonfurnishing Of certain documents/information including those relating to international transactions and Accountant’s Reports • Commissioner’s power to reduce or waive penalty and grant immunity from penalty and prosecution has been removed • Every offence under the DTC is now punishable with the both imprisonment And fines a part from monetary penalties s by companies, etc. 242 .(1) If an offence under this Code has been committed by a company then, regardless of anything to the contrary contained in this Chapter, - (a) such company shall be punished only with a fine; and (b) every person, who, at the time the offence was committed, was in charge of,and was responsible to, the company for the conduct of its business, shall be punished with imprisonment and fine
  • Any amount on which tax is deductible at source under Chapter XI during the financial year shall not be allowed as a deduction in computing the total income if,- (a) the tax has not been deducted during the financial year; or (b) the tax, after such deduction, has not been paid during the financial year, or in the subsequent year, before the expiry of the time prescribed under sub-section of section 198. An assessee shall be allowed a deduction in respect of the amount referred to in sub-section (1) in any other succeeding financial year if,- (a) the amount of tax deductible at source is actually paid in the other financial year; and (b) such other financial year is not later than two financial years immediately succeeding the financial year in which tax was deductible at source under Chapter XI. 196. (1) For the purposes of section 195, the payment of income shall be deemed to have been made, if the amount payable has been settled- (a) in cash; (b) by issue of a cheque or draft; (c) by credit to any account, whether called “Suspense account” or by any other name; or (d) by any other mode as may be prescribed. ( ia ) any interest, commission or brokerage, 70 [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, 71 [has not been paid,— ( A ) in a case where the tax was deductible and was so deducted during the last month of the previous year, on or before the due date specified in sub-section (1) of section 139 ; or ( B ) in any other case, on or before the last day of the previous year:] 72 [ Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted— ( A ) during the last month of the previous year but paid after the said due date; or ( B ) during any other month of the previous year but paid after the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.]
  • Permitted Savings intermediary not defined
  • 71 194C. (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor 71a ) for carrying out any work 71a (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to— ( i ) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; ( ii ) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, (iv) “work” shall include— (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer. ]  
  • 97 [ ( a ) two per cent for the use of any machinery or plant or equipment; and ( b ) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings 235. “rent” in relation to a house property means any income derived, directly or drt indirectly, from letting of the property;

Dtcparti Dtcparti Presentation Transcript

  • Direct Taxes Code Bill, 2009 (DTC) PART I 17 th September 2009,Thursday Aparna Gurjal
  • Synopsis
    • Introduction
    • Rates of Tax
    • New Definitions
    • Residence
    • Income deemed to accrue in India
    • Scope of Total Income
    • Tax Deduction at Source
    • Branch Profit Tax
  • Introduction
    • Para 1.7 of the Discussion Paper
      • DTC is not an attempt to amend I.T. Act
      • Not an attempt to improve upon I.T. Act
      • CBDT has started with a clean drafting stage
      • Some assumptions held ground for many years discarded
      • Best practices in the world incorporated
      • Policies to promote growth with equity
      • Read the DTC without preconceived notion
      • Do not compare with the present
    • The Direct Tax Code (‘DTC’) 2011 is to come into force w.e..f 1April,2011,if enacted
      • Time space is given for thread bare discussion to crystalise clear view
    • No two concepts of “Assessment year” and “Previous Year” – Only “Financial Year”
    • The code has attempted to define anything and everything, as many as “318” definitions have been introduced
    • Even Term “However” has been defined !!
  • Introduction (Contd)…
    • Sec 283 “total income” of a financial year means the total income computed under section 71 for that financial year
    • Number of judicial pronouncements which were held in favour of the Assesee, have been attempted to be over ruled by bringing in specific provisions of law
    • Definition of person has been broadened to include even “Government”
    • Income Tax officer defined to include even transfer pricing officer
    • It appears that the DTC does not contain any provisions with respect to the Settlement Commission
    • Securities Transaction Tax is proposed to be abolished
  • Rates of Taxes in glimpse
    • Substantial increase in income tax slabs for individuals
    • No surcharge or Education Cess
    * 25,00,100 & above 5,00,010 & above 30% 10,00,100 – 25,00,000 3,00,010 – 5,00,000 20% 1,60,100 – 10,00,000 1,60,010 – 3,00,000 10% 0-160,000* 0-160,000* NIL Revised Slabs (Rs) Existing Slabs (Rs.)* Rate of Taxes
  • Rates of Taxes (Contd) …..
    • Partnership Firms & other unincorporated bodies – Income Tax at flat rate of 30%
    • No change in tax rates of co-operative societies
    • Companies tax rate reduced to 25% from 30% - No surcharge or Education Cess
    • Capital Gains chargeable to tax at higher rates
      • Residents at normal rates – Individual at slab rates, unincorporated bodies at 30%, Companies at 25%, NPOs at 15%
      • Non-residents at 30%
    • Tax rates for non-residents (including foreign companies)– Special Sources at flat rates
      • Interest (whether in foreign currency or rupees) 20%
      • Dividends not subject to Dividend Distribution Tax 20%
      • Capital Gains 30%
      • Other investment income 20%
      • Royalties & Fees for Technical Services 20%
  • Rates of Taxes (Contd) …
    • Foreign companies tax rate reduced to 25%
    • Foreign Companies also liable to Branch Profits Tax of 15% on income as reduced by income tax – effectively total tax of 36.25%
    • MAT rate 0.25% of gross assets for Banks, 2% of gross assets for others
    • Dividend Distribution Tax Rate unchanged at 15% -
      • Payable only by Resident companies and not by Mutual Funds
      • Exemption for SEZ Developers/Units no longer available
      • Set off for subsidiary dividend received continues
      • No Dividend Distribution Tax on dividend paid to pass-thru entity
    • Wealth Tax rates substantially reduced – 0.25% on wealth exceeding Rs.50 crores in case of individual, HUF & Private Discretionary Trust
    • Wealth tax liability to be discharged by payment of prepaid taxes.
  • New (Amended) Definitions [ Changes only ]
    • Royalty
      • ITA 9(1)(vi) : secret formula or process
      • DTC 284(24D)(b) : secret formula, process
      • Use of CS equipment – “including ship or aircraft”
      • Use or right to use of “transmission by satellite, cable, optic fiber or similar technology”
      • Transfer of all or any right (including grant of licenses) in respect of “live coverage of any event”
  • New (Amended) Definitions [ Changes only ] (contd) …
    • Fees for Technical Services (FTS)
      • consideration paid/payable “directly or indirectly” for ……
      • scope expanded to include development and transfer of design, drawings, plan or software or any other service of similar nature
    • “ development and transfer”
      • mere development covered in general definition
      • mere transfer – not FTS
      • pith and substance – “service” and not “supply”
  • New (Amended) Definitions [ Changes only ] (contd) ….
    • Interest means:
      • any “amount” payable
      • to any person
      • in any manner
      • in respect of
      • any borrowings or debt incurred
      • or any other similar right or obligation
  • New (Amended) Definitions [ Changes only ] (contd) ….
    • Interest Issues ??
      • ‘Arrangers’ fees
      • ‘Upfront fees’
      • ‘Commitment charges’
      • ‘Penalty for late payment’
  • Residence
    • Individual- Concept of “Resident and not ordinarily” done away
      • Exemption for foreign sourced income for two years
    • Indian Company- Resident
    • Foreign Company
      • its place of control and management, at any time in the year, is situated wholly, or partly, in India
  •  
  • Income deemed to accrue in India
    • ITA 9(1)(i) V/s DTC 5(1)(d)
      • Income shall be deemed to accrue in India, if it accrues, directly or indirectly, through or from :
        • “ the transfer, directly or indirectly, of capital asset situated in India”.
    • Besides salaries, dividend, interest, royalty and FTS - “transportation charges” also included.
      • TC accrued from Govt.
      • TC accrued from Resident - exception: Transport from a place o/s India to another place o/s India
      • TC accrued from Non-Resident, if - Transport to or from a place in India
  • Scope of Total Income
    • Resident
      • World income taxable
      • Income accruing/received outside India shall be included in TI, regardless of :
        • Income having been charged to tax outside India; or
        • Method of granting relief for double taxation under DTAA
  • Scope of Total Income (Contd) …
    • Non-Resident
      • Accrues in India
      • Deemed accrual in India
      • Received in India
      • Deemed received in India
  • Tax Deduction at Source - General
    • Third Schedule deals with types of payments & rates for payments to residents, Fourth Schedule deals with payments to Non-residents
    • If PAN not furnished - schedule rate or 20%,whichever is higher- A sort of discipline to acquire PAN
    • Point of time of deduction – on settlement of amount payable in cash, by issue of cheque/draft, by credit to any account (suspense or other) or by any other prescribed mode
    • No exemption for payments for personal purposes of the payer – Payments to Doctors, Payments to Contractors, etc.
  • Tax Deduction at Source – General Contd ….
    • No exemption for payments to Government
    • No provision for exemption on self declaration – Form 15G, 15H, etc. – difficulty for Senior Citizens
    • Deductee can make application to AO for certificate of no deduction – No provision for certificate of deduction at lower rate
    • Deductor can make application to AO for certificate of no deduction from payments to Non-residents - No certificate of deduction at lower rate
    • Time for payment, format of TDS certificate, periodicity and due dates of returns, format of returns etc. to be prescribed by CBDT
    • Amount not deductible in computation where tax is not deducted at source
  • Tax Deduction at Source - Salaries
    • Required to be deducted by all persons
    • At average rate of income tax
    • TDS on salary also on settlement on credit, not only on payment –Difficulty in respect of commission to directors based on profits
      • A departure from the present position !!!
    • No provision for declaration by employee of other salary received/salary received from previous employer during the year – Whether is it a slip or a considered decision ??
    • Clarity required for deductions for savings u/s.66 ?
    • Salary to Non-resident employees - covered by Fourth Schedule
  • Tax Deduction at Source - Interest
    • No distinction between interest on securities and other interest
    • Similar exemptions as currently available, except with minor modifications
    • No TDS on 8% Savings (Taxable) Bonds, 2003 as exception to Government Security not provided
    • Exemption for interest payable to banks (including Co-operative Banks), Financial Corporations, Insurance Companies, Mutual Funds and other notified Institutions, Associations, or Bodies
  • Tax Deduction at Source – Interest (Contd) ….
    • No exemption from TDS on interest exceeding Rs.10,000 paid by a co-operative bank to its members on time deposits
    • No exemption for TDS on interest payments by co-operative bank/society to cooperative society
    • Fortunately exemption for interest on income tax refunds !!
  • Tax Deduction at Source -Payments to Contractors
    • No distinction between payments to individual/HUF and others – common rate of 1%
    • TDS deductible on works contract, service contract, broadcasting & telecasting, supply of labour for works or service contract, advertising, carriage of goods and passengers by transport other than railways
    • Service contract – includes contract for job work – no specific exemption for manufacture of goods by customer specification where material not supplied by customer
    • Catering not specifically covered – whether service contract ?
  • Tax Deduction at Source -Payments to Contractors (Contd) ….
    • Service contract – broad scope
    • Definition of service – clause 252 of S.284 – service of any description to potential users including in connection with business of any industrial or commercial nature, such as accounting, banking, merchant banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging
  • Tax Deduction at Source - Commission or Brokerage
    • Combined rate for insurance, sale of lottery tickets as well as other commission of 10%
    • Brokerage or commission not defined
    • To include remuneration or prize
    • For rendering any services
    • No exemption for brokerage in relation to securities transactions
    • Exemption limit increased to aggregate of Rs.5,000
  • Tax Deduction at Source- Rent
    • Limit of Rs.1,20,000 unchanged
    • Rate reduced to 1% for use of machinery, plant or equipment
    • Definition of rent under clause 235 of s.284 – in relation to house property, any income derived directly or indirectly from letting of the property
    • No definition of rent for movable property
  • Tax Deduction at Source - Fees for Professional or Technical Services, Royalty
    • No exemption limit – tax deductible even on payment of Rs.100
    • No definition of profession or professional services
    • Fees for technical services defined under clause 105 of s.284
    • Royalty defined under clause 240 of s.284 –
      • Includes consideration for the use or right to use of transmission by satellite, cable, optic fiber or similar technology
      • Includes transfer of all or any rights (including grant of licence) in respect of live coverage of any event
      • Includes transfer of all or any rights in respect of cinematographic films
      • Ship and Aircraft hire (other than covered by table in Fourteenth Schedule) also covered
  • Tax Deduction at Source - Any other Income
    • At 10%
    • Whether would cover : For the time being let us scratch our heads !!!!
      • Capital gains ?
      • Purchase of goods ?
      • Donations ?
      • Incentives ?
      • Remuneration to partners by firm ?
      • Payment from Savings Schemes/Provident Fund ?
      • Exempt Incomes – payment of share of profit by firm to partners, compensation paid by Government on account of disasters ?
      • Payments to Government – Fees, etc.
  • Branch Profit Tax
    • Salient Provisions:
      • Applies to any Foreign Company
      • BPT @ 15% on “Branch Profits”
      • BP = TI – Income Tax on TI
      • No other definition of “Branch Profits”
    • Concept:
      • Subsidiary v/s Branch
      • Dividend equivalent e.g. applies on income taxed on net basis
      • Indo-US DTAA – Article 14
  • Branch Profit Tax (contd)
    • Issues
      • applies to all F.C., whether or not PE in India?
      • Applies to Special source Income like Royalty, FTS, Interest etc.?
    • Let us deal the rest in the next meeting
    • Thank You
    • Still Some more time !!!!
    IN DREAM