Amendments in Direct Tax

8/6/2019 Amendments in Direct Tax

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RATES OF TAX APPLICABLE FOR PY 2010-11

A. Individual, Hindu undivided family, association of persons, body of individuals,artificial juridical person

a. In case of an individual women who is a resident of India for theprevious year, who is below 65 years of age

Upto Rs. 1,90,000 Nil.Rs. 1,90,001 to Rs. 5,00,000 10 per cent

Rs. 5,00,001 to Rs. 8,00,000 20 per cent

Above Rs. 8,00,000 30 per cent

b. In the case of every individual(male or female) ,being a residentin India, who is of the age of sixty-five years or more( 65 years)at any time during the previous year:

Upto Rs. 2,40,000 Nil.

Rs. 2,40,001 to Rs. 5,00,00010 per cent

Rs. 5,00,001 to Rs. 8,00,00020 per centAbove Rs. 8,00,000 30 per cent

c. In the case of every other individual other than resident Womenand resident Senior citizen or Hindu undivided family(HUF) orassociation of persons(AOP) or body of individuals(BOI), whetherincorporated or not, or every artificial juridical person (AJP)

Upto Rs. 1,60,000 Nil.

Rs. 1,60,001 to Rs. 5,00,000 10 per cent

Rs. 5,00,001 to Rs. 8,00,000 20 per cent

Above Rs. 8,00,000 30 per cent

NOTE: No surcharge shall be levied in the cases of these persons

B. Co-operative Societies

Upto Rs. 10,000 10 %

Rs. 10,001 to Rs. 20,000 20 %

Above Rs. 20,000 30 %

.NOTE: No surcharge will be levied.

C. Firms

In the case of firms, the rate of income-tax a flat rate of 30% on total income .However, now no surcharge shall be levied in the case of a firm.

D. Local authorities

The rate of income-tax in the case of every local authority is a flat rate of 30% on totalincome. No surcharge is leviable on the local authority.

E. Companies

1. DOMESTIC COMPANY a flat rate of 30% on total income plus a surcharge of 7%on the amount of tax if total income exceeds 1 crore i.e no surcharge is levied onthe tax of a domestic company where the total income is below 1 crore.

2. FOREIGN COMPANY a flat rate of 40% on total income plus a surcharge of 2.5%, onthe amount of tax, if total income exceeds 1 crore i.e. no surcharge is levied on thetax of a foreign companywhere the total income is below 1 crore.

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Under sub-section (7) of section 10AA of the Income-tax Act, the exempted profit of a SEZ unit is theprofit derived from the export of articles or things or services and same is required to be calculated asunder :

the profit derived from the export of articles or things or services (including computer software) shallbe the amount which bears to the profits of the business of the undertaking, being the Unit, the sameproportion as the export turnover in respect of such articles or things or services bears to the totalturnover of thebusiness carried on by the assessee.

Simply stated, it means that the exempted profit of the SEZ unit is equal toProfits of the business of the unit export turnover of the unit Total turnover of the business carried on

by the assessee

This method of computation of the profits of business with reference to the total turnover of the assesseeis perceived to be discriminatory in so far as those assessees are concerned who were having multipleunits in both the SEZ and the Domestic Tariff Area (DTA) vis-a-vis those assessees who were having unitsin only the SEZ. With a view to removing the anomaly, it is proposed to amend the provisions of sub-section (7) of section 10AA of the Income-tax Act so as to provide that the deduction under section 10AAshall be computed with reference to the total turnover of theundertaking.

This amendment will take effect from the 1st day of April, 2010 and will accordingly, apply to assessmentyear 2010-11 and subsequent assessment years.

For Example: if the assessee has two buisnesses one for export of diamonds for whichhe has a sale of Rs 40 lacs and profit of Rs 3 lacs and Money brought into India uptil30/09/10 is Rs 30 lacs. He further has a business of manufacturing and selling cycleparts in India for which the turnover is Rs 60 lacs.

The deduction under earlier law would be = 3 x 30/100 = 0.90 lacs

The deduction as per the new law is = 3 x 30/40 = 2.25 lacs

Amendment by Finance Act 2010: However, the Finance (No.2) Act, 2009 had made thisamendment effective only from A.Y.2010-11, even though section 10AA was inserted witheffect from 10.2.2006 by the Special Economic Zone Act, 2005.

Therefore, the benefit of the amendment was not available for the assessment years betweenA.Y.2006-07 and A.Y.2009-10, which did not seem to be the legislative intention, since theamendment was clarificatory in nature.

Let us take the example of Mr.X, who has an undertaking in SEZ (Unit A) and an undertakingin the DTA (Unit B). For the previous year 2008-09, the total turnover of Unit A is Rs.60 lakh andUnit B is Rs.40 lakh. The export turnover of Unit A in respect of computer software is Rs.50 lakhand the profits of Unit A is Rs.20 lakh.

Assuming that the above figures of turnover and profit remain the same for P.Y. 2009-10 also,the deduction under section 10AA for the P.Y.2008-09 and P.Y.2009-10 is computed ashereunder

Deduction under section 10AA for

P.Y.2008-09 (A.Y.2009-10) = 20 x 50/100 = 10 lakh

P.Y.2009-10 (A.Y.2010-11) = 20 x 50/60 = 16.67 lakh

Thus, we can see that consequent to the amendment by the Finance (No.2) Act, 2009, thededuction under section 10AA would be different in both these years, even though the turnover

and profits are taken to be the same. (v) In order to remove this inconsistency and reflect thetrue legislative intention, the Finance Act, 2010 has now made this amendment effectiveretrospectively from A.Y.2006-07. Consequently, in the above example, the deduction undersection 10AA for the P.Y.2008-09 would also be Rs.16.67 lakh.

Amendment of section 35 Sec 10 , Sec 80GGA, Sec 139(4C)At present, section 35(1)(iii) does not include within its scope, the associations which areengaged in undertaking research in social science or statistical research. Further, suchassociations are also not entitled to exemption in respect of their income.

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Therefore, in order to provide parity in treatment to these associations, the Finance Act, 2010has amended -

(a) Section 35(1)(iii) to include an approved research association which has as its objectundertaking research in social science or statistical research.

Deduction for donation (whether related or unrelated to the assesses business)

1. to institute/College engaged in scientific research = amount donated x 1.75

(earlier it was 1.25)2. to institute engaged in social or statistical research = amount donated x 1.25

3. to an approved company engaged in scientific research = amount donated x1.25

(b) Section 10(21) to provide exemption to such associations in respect of their income.However, the exemption will be available only on fulfillment of the conditions which arerequired to be complied with by an approved association undertaking scientific researchfor claiming such exemption.

(c) Section 80GGA to include within its scope, deduction for donations made to suchassociations

(d) Consequently, such associations would be required to file their return of income undersection 139(4C), if their total income before giving effect to the provisions of section 10,exceeds the basic exemption limit. The provisions of the Act would apply as if it were areturn required to be furnished under section 139(1).

(e) Section 143(3) provides for taking into account the exemption under section 10, beforepassing an assessment order. The Assessing Officer may proceed to pass anassessment order under section 143(3) without giving effect to the exemption undersection 10, where such association, institution etc. is carrying on activity incontravention of the sub-clause of section 10 under which they are approved forexemption and the approval granted has been withdrawn or the exemption notificationhas been rescinded. These provisions would now also apply to the associations whichare engaged in undertaking research in social science or statistical research.

Amendment of Sec 35(2AB)Weighted deduction for company engaged in manufacture of any item other than thatmentioned in XIth Schedule for post commencement expenditure = 200% (earlier it was150%)

Amendment of section 35AD.3 more business eligible for deduction u/s 35AD - specified business means any one or more

of the following business, namely:

(i)building and operating, anywhere in India, a new hotel of two-star or above categoryas classified by the Central Government;

(ii)building and operating, anywhere in India, a new hospital with at least one hundredbeds for patients;

(iii)developing and building a housing project under a scheme for slum redevelopmentor rehabilitation framed by the Central Government or a State Government, as thecase may be, and notified by the Board in this behalf in accordance with theguidelines as may be prescribed;

Finance Act 2010: no deduction shall be allowed under the provisions of Chapter VI-A underthe heading C.-Deductions in respect of certain incomes i.e 80IA to 80JJA in relation to such

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specified business for the same or any other assessment year. A similar amendment isproposed in section 80A.

XYZ Ltd. commenced operations of the business of a new three-star hotel in Madurai, Tamil Nadu on1.4.2010. The company incurred capital expenditure of Rs.50 lakh during the period January, 2010 toMarch, 2010 exclusively for the above business, and capitalized the same in its books of account as on 1stApril, 2010. Further, during the P.Y.2010-11, it incurred capital expenditure of Rs.2 crore (out of whichRs.1.50 crore was for acquisition of land) exclusively for the above business. Compute the deductionunder section 35AD for the A.Y.2011-12, assuming that XYZ Ltd. has fulfilled all the conditions specified in

section 35AD and has not claimed any deduction under Chapter VI-A under the heading C. Deductionsin respect of certain incomes. The amount of deduction allowable under section 35AD for A.Y.2011-12would be Particulars Rs.

Capital expenditure incurredduring the P.Y.2010-11 (excludingthe expenditure incurred onacquisition of land) = Rs.200 lakh Rs.150 lakh

50 lakh

Capital expenditure incurred priorto 1.4.2010 (i.e., prior tocommencement of business) andcapitalized in the books ofaccount as on 1.4.2010

50 lakh

Total deduction under section35AD for A.Y.2011-12

100 lakh

In respect of the business of laying and operating a cross-country natural gas orcrude or petroleum oil pipeline network for distribution, including storage facilitiesbeing an integral part of such network,such business should fulfill the following conditions to be eligible to claim the benefit undersection 35AD 1. should be owned by a company formed and registered in India under the Companies Act,

1956 or by a consortium of such companies or by an authority or a board or a corporationestablished or constituted under any Central or State Act;

2. should have been approved by the Petroleum and Natural Gas Regulatory Board andnotified by the Central Government in the Official Gazette.

3. should have made not less than one-third of its total pipeline capacity availablefor use on common carrier basis by any person other than the assessee or anassociated person; and

4. should fulfill any other prescribed condition.

However, the common carrier capacity condition prescribed by the regulations of the Petroleum& Natural Gas Regulatory Board is

(1) one-third for natural gas pipeline network; and

(2) one-fourth for petroleum product pipeline network.

Amendment of section 40(a)(ia)Thus where TDS due for all the month of the PY 2010-11 is deducted in the PY 2010-11 but paidbefore the due date u/s 139(1) for that year the deduction for expenditure will be allowed in thePY 2010-11. Where however the deduction of TDs is not made before the 31 st of March 2011then even if the TDS is paid before the due date u/s 139(1) for the PY 2010-11 the deductionshall be allowed in the year in which the TDs is paid

RTP May 2011:

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XYZ Ltd. made the following payments during the P.Y.2010-11. Discuss whetherdisallowance under section 40(a)(ia) is attracted for not deducting tax at source ornot depositing such tax within the prescribed time, as the case may be, in respect ofeach of the following payments

(i) Rs.28,000 paid to Mr. Arjun, a resident, towards fees for technical services andRs.25,000 towards fees for professional services in January, 2011. No tax hasbeen deducted at source. No other payment has been made to Mr. Arjun duringthe year.

(ii) Rental payment of Rs.12,000 per month to Mr. Raghav, a resident. No tax hasbeen deducted at source.

(iii) Rs.80,000 paid to Mr.Akash in April 2010, a resident contractor, for contractwork. Tax deducted at source under section 194C was deposited only on 14 th

May, 2011.(iv) Rs.35,000 paid to Mr. Ranjit, a resident, towards fees for professional services in March,

2011. Tax deducted at source under section 194J was deposited on 2nd November, 2011.

The scheme of disallowance under section 40(a)(ia) has been amended by the Finance Act,2010, with effect from A.Y.2010-11, to extend the time limit for depositing tax deducted duringthe entire year up to the due date of filing return of income to ensure compliance with thestatutory requirement to avoid disallowance of expenditure under section 40(a)(ia).However, even under the new scheme, tax is required to be deducted during the relevantprevious year, in cases where TDS provisions under Chapter XVII-B are attracted. The tax, sodeducted, has to be deposited on or before the due date of filing of return to claim deduction ofthe expenditure in the relevant previous year to which it relates.(i) The limit of Rs.30,000 under section 194J is applicable separately for fees for professional

services, fees for technical services, royalty and non-compete fees referred to in section28(va). It implies that if the payment to a person towards each of the above is less thanRs.30,000, no tax is required to be deducted at source, even though the aggregatepayment or credit exceeds Rs.30,000.

(ii) Therefore, if XYZ Ltd. makes a payment of Rs.28,000 to Mr.Arjun towards fees for technicalservices and another payment of Rs.25,000 to him towards fees for professional servicesduring the P.Y.2010-11, TDS under section 194J would not get attracted, since the limit ofRs.30,000 is applicable for fees for professional services and fees for technical services,separately. Therefore, disallowance under section 40(a)(ia) for non-deduction of tax at

source is not attracted in this case.(iii) The threshold limit for deduction of tax at source under section 194-I for rental payments

has been increased from Rs.1,20,000 to Rs.1,80,000 with effect from 1st July, 2010. Therefore, since the rental payment to Mr. Raghav is less than Rs.1,80,000 in theP.Y.2010-11, there is no requirement to deduct tax at source under section 194-I.

Therefore, disallowance under section 40(a)(ia) for non-deduction of tax at source is notattracted in this case.

(iv) In this case, since the tax deducted under section 194C during the P.Y.2010-11 has beenpaid before the due date of filing of return i.e., before 30 th September, 2011, disallowanceunder section 40(a)(ia) is not attracted.

(v) Since tax deducted under section 194J during the P.Y.2010-11 has been paid after the duedate of filing of return i.e., after 30th September, 2011, the payment of Rs.35,000 towards

fees for professional services would be disallowed under section 40(a)(ia) while computingincome under the head Profits and gains of business or profession for A.Y.2011-12.

Amendment of section 44AB.Limit for tax audit in case of business is now 60 lacs instead of 40 lacs

Limit for tax audit in case of profession is now 15 lacs instead of 10 lacs

Amendment of section 44ADApplies to an Individual, HUF or Firm (not LLP) which is a residentof India

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DEEMEDINCOME :

Heavy goods

vehicles

(big ie weight>12000 kgs)

Other than above(light or medium orsmall)

Rs 5000 p.m.(3,500pm) for every month or part

of month

(example 7 months 3 days will be 8months) during the period when theassessee owns the vehicle (includesowners by way of hire purchase)

Rs 4500 p.m.(3,150pm) for every month or part of month

during the period when the assessee owns thegoods carriage

TDS for payment made to assessee covered by Sec44AE: if the recipient is a transport operator (maybe an individual,

firm, company or any other person) and he or it furnishes a PAN to the deductor, no TDS will be deductible. For this

purpose the transport operator is a person who is in the business of plying, hiring or leasing goods carriages covered by

Sec 44AE. The payer will in this case be required to intimate the PAN details of the payee to the Income tax department

in the prescribed format

Amendment of section 44BBA m e n d m en t i n S e c 4 4 B B & 4 4 D A : W h e re t he p ro v is io n s o f S e c 4 4 B B a p p lythe p rov i s i ons o f S ec 44DA w i l l no t be app l i cab l e

Tax treatment of income of a non-resident providing services or facilities inconnection with prospecting for, or extraction or production of, mineral oil [Section44BB & section 44DA]

1. As per section 44BB(1), the income of a non-resident who is engaged in the business ofproviding services or facilities in connection with, or supplying plant and machinery onhire used, or to be used, in the prospecting for, or extraction or production of, mineraloils is computed at 10% of the aggregate of the amounts specified in section 44BB(2).

2. Under section 44DA, the procedure is prescribed for computing income of a non-resident, including a foreign company, by way of royalty or fee for technical services, incase the right, property or contract giving rise to such income are effectively connectedwith the permanent establishment of the said non-resident. This income is computed asper the books of account maintained by the assessee in accordance with section 44AA.

3. Section 115A prescribes the rate of taxation in respect of income of a non-resident,including a foreign company, in the nature of royalty or fee for technical services, otherthan the income referred to in section 44DA i.e., income in the nature of royalty and feefor technical services which is not connected with the permanent establishment of thenon-resident.

4. There have been legal decisions which have expressed contradictory views regardingthe scope and applicability of section 44BB vis--vis section 44DA on the issue oftaxability of fee for technical services relating to the exploration sector.

5. In order to reflect the correct legislative intention regarding taxation of income by wayof fee for technical services, section 44BB has been amended to exclude theapplicability of section 44BB to the income which is covered under section 44DA. Asimilar amendment has been made in section 44DA to provide that provisions of section44BB would not be applicable in respect of the income covered under section 44DA.

6. Therefore, if the income of a non-resident is in the nature of fees fortechnical services, it shall be taxable under the provisions of eithersection 44DA or section 115A irrespective of the business to which itrelates. Section 44BB would apply only in a case where considerationis for services and other facilities relating to exploration activity whichare not in the nature of technical services.

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Amendment of section 47.Conversion of a private company or an unlisted public company into a limited liability partnership (LLP)

APPLICABLE PROVISIONS TO SUCH CONVERSION

CAPITAL GAINS:

Conversion of a company into a LLP: [Finance Act 2010]

(i). Any transfer of a capital asset or intangible asset by a private company or unlistedpublic company to a limited liability partnership or

(ii). Any transfer of a share or shares held in the company by a shareholder as a result ofconversion of the company into a limited liability partnership

Conditions:

(i) all the assets and liabilities of the company immediately before the conversion becomethe assets and liabilities of the limited liability partnership;

(ii) all the shareholders of the company immediately before the conversion become thepartners of the limited liability partnership and their capital contribution and profitsharing ratio in the limited liability partnership are in the same proportion as theirshareholding in the company on the date of conversion;

(iii)the shareholders of the company do not receive any consideration or benefit,directly or indirectly, in any form or manner, other than by way ofshare in profit andcapital contribution in the limited liability partnership;

(iv)the aggregate of the profit sharing ratio of the shareholders of the company in thelimited liability partnership shall not be less than fifty per cent at any time duringthe period of five years from the date of conversion;

(v) the total sales, turnover or gross receipts in business of the company in any of thethree previous years preceding the previous year in which the conversion takes placedoes not exceed sixty lakh rupees; and

(vi)no amount is paid, either directly or indirectly, to any partner out of balance ofaccumulated profit standing in the accounts of the company on the date of

conversion for a period of three years from the date of conversion.

Sec 49(1)[Finance Act 2010]: Transfer covered by Sec 47(xiiib) will also be coveredby Sec 49(1): thus the cost of acquisition of a non depreciable capital asset to the transfereeLLP will be the cost of acquisition of the asset to the transferor company. Also as perExplanation b to Sec 2(42A) the period of holding of the transferee LLP will include the periodfor which the asset was held by the transferor company

Sec 47A [Withdrawal of exemption] - Where any of the conditions laid down 47(xiiib) are notcomplied with, the amount of capital gains exempt , shall be deemed to be the profits andgains chargeable to tax of the successor[LLP] of the previous year in which the default takesplace.

BUSINESS & PROFESSION

DEDUCTION u/s 35DDA:

Finance Act 2010: Sec 47(xiiib)Where there has been reorganisation of business, whereby a private company or

unlisted public company is succeeded by a limited liability partnership fulfilling the conditions laid down in theproviso to clause (xiiib) of section 47, the provisions of this section shall, as far as may be, apply to the successor limited

liability partnership, as they would have applied to the said company, if reorganisation of business had not taken place.Example: Thus where the company had made a payment of Rs 500,000 in thePY 2009-10 towards VRS to an employee and claimed a deduction of Rs100,000 in that year then if the company is converted into a LLP in the PY

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2010-11 on 01/10/2011,the LLP will continue to get the deduction u/s 35DDA for the balance period of 5 years.In the year of conversion the deduction will be available to the LLP not to the company

DEPRECIATION:

As per Sec 32 5th Proviso: in the case of conversion as mentioned u/s 47(xiiib). The concept of proportionate

depreciation will also be applicable to such transfer.

The depreciationfor the year of conversion will be computed in the hands of the transferor as if there is no transfer and

then apportioned between the transferor & transferee on the number of days the asset was used by them during the year

Cost of the assets in the hands of the transferee LLP :

Sec 43(6) Explanation 2C: Where in any previous year, any block of assets is transferred by a private company or

unlisted public company to a limited liability partnership and the conditions specified in the proviso to clause (xiiib) of

section 47 are satisfied, then, notwithstanding anything contained in clause (1), the actual cost of the block of assets in

the case of the limited liability partnership shall be the written down value of the block of assets as in the case of the

said company on the date of conversion of the company into the limited liability partnership..

LOSS CARRY FORWARD:

Sec 72A(6A) generally losses of one person cannot be carried forward by another person. Sec 72A given an exceptionto this rule. As per amendment made in Sec 72A now the losses (non speculative business loss & unabsorbed

depreciation) of the Company will be allowed to be carried forward by the LLP

Provided that if any of the conditions laid down in section 47(xiiib) are not complied with, the set off of loss or

allowance of depreciation made in any previous year in the hands of the successor limited liability partnership, shall be

deemed to be the income of the limited liability partnership chargeable to tax in the year in which such conditions are

not complied with.

Example:

A Pvt. Ltd. has converted into a LLP on 1.4.2010. The following are the particulars of A Pvt. Ltd.as on 31.3.2010

a) Unabsorbed depreciation Rs.13.32 lakh Business loss Rs.27.05 lakh

b) Unadjusted MAT credit under section 115JAA Rs.8 lakh

c) WDV of assets Plant & Machinery (15%) Rs.60 lakh Building (10%) Rs.90 lakh Furniture(10%) Rs.10 lakh

d) Cost of land (acquired in the year 2000) Rs.50 lakh

e) VRS expenditure incurred by the company during the previous year 2008-09 is Rs.50 lakh. The company has been allowed deduction of Rs.10 lakh each for the P.Y.2008-09 andP.Y.2009-10 under section 35DDA. Assuming that the conversion fulfills all the conditionsspecified in section 47(xiiib), explain the tax treatment of the above in the hands of the LLP.

Answer

a) As per section 72A(6A), the LLP would be able to carry forward and set-off the unabsorbeddepreciation and business loss of A Pvt. Ltd. as on 31.3.2010. However, if in any subsequent

year, say previous year 2011-12, the LLP fails to fulfill any of the conditions mentioned insection 47(xiiib), the set-off of loss or depreciation so made in the previous year 2010-11would be deemed to be the income chargeable to tax of P.Y.2011-12.

b) As per section 115JAA(7), the credit for MAT paid by A Pvt. Ltd. cannot be availed by thesuccessor LLP.

c) The aggregate depreciation for the P.Y.2010-11 would be Plant & Machinery Rs.9 lakh(15% of Rs.60 lakh) Building Rs.9 lakh (10% of Rs.90 lakh) Furniture Rs.1 lakh (10% of Rs.10lakh) In this case, since the conversion took place on 1.4.2010, the entire depreciation isallowable in the hands of the LLP. Had the conversion taken place on any other date, say1.7.2010, the depreciation shall be apportioned between the company and the LLP in

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proportion to the number of days the assets were used by them. In such a case, thedepreciation allowable in the hands of A Pvt. Ltd. and the LLP would be calculated as givenbelow

In the hands of A Ltd. (for 91 days)

Plant andmachinery

91/365 x900000

2,24,384

Building 91/365 x900000 2,24,384

Furniture 91/365 x100000

24,932

In the hands of the LLP ( 274 days)Plant andmachinery

274/365 x900000

6,75,616

Building 274/365 x900000

6,75,616

Furniture 274/365 x

100000

75,068

The cost of acquisition of land in the hands of the LLP would be the cost for which A Pvt. Ltd.acquired it, i.e., Rs.50 lakh.

The LLP would be eligible for deduction of Rs.10 lakh each for the P.Y.2010-11, P.Y.2011-12 andP.Y.2012-13 under section 35DDA.

Amendment of Sec 56(2)(vii)a) It has now been clarified that section 56(2)(vii) would apply only to property which is the

nature of a capital asset of the recipient and not stock-in-trade, raw material or consumablestores of any business of the recipient. Therefore, only transfer of a capital asset, without

consideration and transfer of a capital asset, other than immovable property, forinadequate consideration would attract the provisions of section 56(2)(vii). This provisionwould take effect retrospectively from 1stOctober, 2009.

b) Further, with effect from 1 stJune, 2010, bullion has also been included in the definitionof property. Therefore, transfer of bullion would also fall within the scope of section 56(2)(vii), if its aggregate fair market value exceeds Rs.50,000 or in case of transfer forinadequate consideration, if the difference between the aggregate fair market value andthe sale consideration exceeds Rs.50,000.

ExampleMr. A, a dealer in shares, received the following without consideration during the P.Y.2010-11from his friend Mr. B, -

(1) Cash gift of Rs.75,000 on his anniversary, 15th April, 2010.

(2) Bullion, the fair market value of which was Rs.60,000, on his birthday, 19 thJune, 2010.(3) A plot of land at Faridabad on 1 stJuly, 2010, the stamp value of which is Rs.5 lakh onthat date. Mr.B had purchased the land in April, 2005.

Mr.A purchased from his friend C, who is also a dealer in shares, 1000 shares of X Ltd. @Rs.400 each on 19 thJune, 2010, the fair market value of which was Rs.600 each on that date.Mr.A sold these shares in the course of his business on 23rdJune, 2010.Further, on 1 st November, 2010, Mr. A took possession of property (building) booked by himtwo years back at Rs.20 lakh. The stamp duty value of the property as on 1stNovember, 2010 isRs.32 lakh.On 1 stMarch, 2011, he sold the plot of land at Faridabad for Rs.7 lakh.

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Insertion of new section 80CCF.Sec 80CCF: Deduction in respect of subscription to long-term infrastructure bonds.

(i) Applicable to:

Individual or HUF

(ii) Amount of Deduction:

(a) Amount contributed as subscription to notified Long term infrastructure bonds or

(b) Rs 20,000

Whichever is less

In tune with the policy thrust of promoting investment in the infrastructure sector, a new section 80CCF is added in theIncome-tax Act to provide that subscription during the financial year 2010-11 made to long-term infrastructure bonds

(as may be notified by the Central Government), to the extent of Rs. 20,000, shall be allowed as deduction in computingthe income of an individual or a Hindu undivided family. This deduction will be over and above the existing overall

limit of tax deduction on savings of upto Rs. 1 lakh under sections 80C, 80CCC and 80CCD of the Act.

This amendment is proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the

assessment year 2011-12.

The Central Government have specified bonds to be issued by

(i) Industrial Finance Corporation of India;

(ii) Life Insurance Corporation of India;

(iii) Infrastructure Development Finance Company Limited; and

(iv) a Non-Banking Finance Company classified as an infrastructure finance company by the Reserve Bank of

India;

as Long-term Infrastructure Bond for the purpose of section 80CCF of the Income Tax Act, 1961.

Investment in these bonds up to rupees twenty thousand will be eligible for deduction from the total income of the

assessee. The deduction will be in addition to the deduction of rupees one lakh allowed under sections 80C, 80CCC

and 80CCD of the Act.

The tenure of the Bonds shall be a minimum of ten years with a lock-in period of five years for an investor. It will

be mandatory for the subscriber to furnish permanent account number to the issuer for investment in the bonds.

[Notification No.48/2010 dated 9th July 2010]

ExampleThe gross total income of Mr.X for the A.Y.2011-12 is Rs.7,00,000. He has made thefollowing investments/payments during the F.Y.2010-11 -

Particulars Rs.

(1) Contribution to PPF 50,000

(2) Payment of tuition feesto Cambridge School,Noida, for education ofhis daughter studying inClass V

36,000

(3) Repayment of housingloan taken from HDFC

40,000

(4) Contribution to approvedpension fund of LIC

10,000

(5) Subscription to notifiedlong-term infrastructurebonds

25,000

Compute the eligible deduction under Chapter VI-A for the A.Y.2011-12.Computation of deduction under Chapter VI-A for the A.Y.2011-12

Particulars Rs.

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Deduction under section 80C

(1) Contribution to PPF 50,000

(2) Payment of tuition fees toCambridge School, Noida,for education of hisdaughter studying inClass V

36,000

(3) Repayment of housingloan taken from HDFC

40,000

1,26,000

Deduction under section 80CCC

(4) Contribution to approvedpension fund of LIC

10,000

1,36,000

As per section 80CCE, theaggregate deduction under

section 80C, 80CCC and 80CCDhas to be restricted to Rs.1 lakh

1,00,000

Deduction under section 80CCF(5) Subscription to notified

long-term infrastructurebonds, Rs.25,000, butrestricted to Rs.20,000,being the maximumdeduction allowable undersection 80CCF

20,000

Deduction allowable underChapter VIA for the

A.Y.2011-12

1,20,000

Amendment of section 80D.Contribution to the Central Government Health Scheme (CGHS)

CGHS is a medical facility available to serving and retired Government servants. This facility is similar to the facilities

available through health insurance policies. A deduction is now allowed in respect of any contribution made to CGHS

by including such contribution under the provisions of section 80D. The deduction will be limited to the current

aggregate as mentioned in the section.

Example: Mr. Y, aged 40 years, paid medical insurance premium of Rs.12,000 during theP.Y.2010-11 to insure his health as well as the health of his spouse and dependent children. Healso paid medical insurance premium of Rs.21,000 during the year to insure the health of hisfather, aged 67 years, who is not dependent on him. He contributed Rs.2,400 to CentralGovernment Health Scheme during the year. Compute the deduction allowable under section80D for the A.Y.2011-12.Deduction allowable under section 80D for the A.Y.2011-12

Particulars Rs.

(i) Medical insurancepremium paid for self,spouse and dependentchildren

12,000

(ii) Contribution to CGHS 2,400

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Example: An amount of Rs.40,000 was paid to Mr.X on 1.7.2010 towards fees for professionalservices without deduction of tax at source. Subsequently, another payment of Rs.50,000 wasdue to Mr. X on 28.2.2011, from which tax@10% (amounting to Rs.9,000) on the entire amountof Rs.90,000 was deducted. However, this tax of Rs.9,000 was deposited only on 22.6.2011.Compute the interest chargeable under section 201(1A). Interest under section 201(1A) wouldbe computed as follows

1% on tax deductible but notdeducted i.e., 1% on Rs.4,000for 8 months

320

1% on tax deducted but notdeposited i.e. 1% onRs.9,000 for 4 months

540

Amendment of section 115JBIincrease the MAT rate to 18% from the existing fifteen per cent.

Amendment of section 115WECent ra l i sed P rocess i ng o f Re tu rns t i m e ex tended to 31 st M a r c h 2 0 1 1

Under the existing provisions of section 143(1B), the Central Government may, for the purposes of giving effect to thescheme of centralised processing of returns under section 143(1A),issue a notification relating to such processing of

returns. Such a notification can be issued up to 31st March, 2010.

A Centralised Processing Centre has been set up where returns are being processed in batches. However, some more

functionalities in the processing of returns may need to be added to make it a complete end-to-end process.

Therefore, it is proposed to extend the time limit for issue of such notification under section 143(1B) from 31st March,

2010 to 31st March 2011.

Consequential amendments on similar lines are proposed to be made in section 115WE of the Income-tax Act.

These amendments are proposed to take effect retrospectively from 1st April, 2010.

[Clauses 31, 34]

Amendment of section 142A w.e.f 01/06/2010Reference can be made to the valuation officer to evaluate the FMV for the purposes of determining the FMVof the asset for taxation of gifts u/s 56(2)(vii) & (viia)

Amendment of section 203(3) & 206CCertificate of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS)

The existing provisions of section 203(3) of the Income-tax Act dispense with the requirement of furnishing of TDS

certificates by the deductor to the deductee on or after 1st April, 2010. Similarly, under section 206C(5) of the Act, a

collector of tax at source will also not be required to issue tax collection certificate to the person from whom tax has

been collected on or after 1st April, 2010.

Considering the fact that the TDS/TCS certificate constitutes an important document for the deductee/collectee, it is

proposed that the deductor/collector will continue to furnish TDS/TCS certificates to the deductee/collectee even

after 1st April, 2010.

These amendments are proposed to take effect retrospectively from 1st April, 2010.

[Clauses 43, 44]

SETTLEMENT COMMISSION w.e.f 01/06/20101. Case can be filed to the settlement commission only when there is a case pending before an income tax

authority.

The definition of case only refers to the assessment u/s 143(3) or 144

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It is proposed to include within the definition of case, aproceeding for assessment orreassessment referred Sec 153A [block assessment on the person searched] orSec 153C[Block assessment in case of third person whose information is foundfrom the person searched]

It is further proposed to amend the Explanation to specify the date on which theproceedings for assessment or reassessment shall be deemed to have commenced andconcluded, in case of a person referred to in section 153A or section 153C.

Such proceeding shall be deemed to have commenced on the date of issue of noticeinitiating such proceedings and concluded on the date on which the assessmentis made

These amendments will take effect from 1st June, 2010.

2. Additional Income Tax to be disclosed:

Under the existing provisions of the aforesaid section an application can be made beforethe Settlement Commission, if the additional amount of income-tax payable on the incomedisclosed in the application exceeds three lakh rupees.

It is proposed to substitute the proviso of the said section so as to provide that anapplication can be made before the Settlement Commission,

a) Where application is made for case pending in Block Assessment: in cases

where proceedings for assessment or reassessment have been initiated as a result ofsearch under section 132 or books of account, other documents or any assetsrequisitioned under section 132A, if the additional amount ofincome-tax payableonthe income disclosed in the applicationexceeds fifty lakh rupees.

b) Where case is pending in other cases u/s 143(3) or 144: It is further proposed to provide that, in other cases, an application can be made before the SettlementCommission , if the additional amount of income-tax payable on the incomedisclosed in the application exceeds ten lakh rupees.

3. Time limit for passing the order: Under the existing provisions of section 245D(4A) of theIncome-tax Act, the Settlement Commission shall pass an order within twelve months fromthe end of the month in which the application was made.

It is proposed to amend the section so as to provide that the Settlement Commission, shall,

a) in respect of an application filedon or after 1st June, 2007 but before 1st June,2010, pass an order within the said period oftwelve months.

b) It is further proposed to insert a new clause so as to provide that the SettlementCommission shall, in respect of an application made on or after 1st June, 2010, passan orderwithin eighteen months from the end of the month in which the applicationis made.

Consequential amendments on similar lines are proposed to be made in section22D of the Wealth-tax Act.

Amendment of section 256.Amendment of section 260A.a) Under section 260A(2), an appeal against the order of Appellate Tribunal can be filed before

the High Court within a period of 120 days from the date of the receipt of the order by theassessee or the Commissioner.

b) As per section 260A(7), the provisions of Code of Civil Procedure, 1908 relating to appealsto the High Court, shall, as far as may be, apply in the case of an appeal filed under thissection before the High Court. The power to condone the delay is contained in the Code ofCivil Procedure, 1908 and therefore, by virtue of section 260A(7), it is implied that the HighCourt has the power to condone the delay on sufficient cause being shown.

c) However, the High Courts, while considering this issue, have expressed divergent views ontheir power to condone delay in filing of an appeal.

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d) Therefore, in order to clarify the true legislative intent, sub-section (2A) has been insertedin section 260A with retrospective effect from 1.10.1998 to specifically provide that theHigh Court has and always had the power to condone the delay and admit an appeal afterthe expiry of the period of 120 days, if it is satisfied that there was sufficient cause for notfiling the appeal within that period.

(Effective retrospectively from 1st October, 1998) Note Similarly, sub-section (1A) has beeninserted in section 27A of the Wealth-tax Act, 1957 with retrospective effect from 1st October,

1998, to specifically provide that the High Court has and always had the power to condone thedelay and admit an appeal after the expiry of the period of 120 days, if it is satisfied that therewas sufficient cause for not filing the appeal within that period.

Amendment of section 271B.Penalty for non conduct of Tax audit u/s 44AB before 30/09 is now

% of the turnover or

Rs 1.50 lacs whichever is less

Amendment of section 282B.Document Identification Number

Section 282B (Allotment of Document Identification Number) is a new section inserted by the Finance (No. 2) Act, 2009in the Income-tax Act with effect from 1st October, 2010.

Under the provisions of this section, an income-tax authority is required to allot a computer generated Document

Identification Number before issue of every notice, order, letter or any correspondence to any other income-tax

authority or assessee or any other person and such number shall be quoted thereon. It also provides that every

document, letter, correspondence received by an income-tax authority or on behalf of such authority, shall be accepted

only after allotting and quoting of a computer generated Document Identification Number.

In order to cover the entire gamut of services mentioned in section 282B on a pan-India basis, it would be essential to

have the requisite infrastructure and facilities in place.

It is proposed to amend the provisions of section 282B so as to provide that Document Identification Number will be

required to be issued on or after 1st July, 2011.

This amendment is proposed to take effect from 1st October, 2010.

[Clause 51]

Circulars & Notifications

Circular No. 8/2009, dated 24.11.2009 The CBDT has, through this circular,clarified that TPAs (Third Party Administrators) who are making payment on behalf ofinsurance companies to hospitals for settlement of medical/insurance claims etc.under various schemes including cashless schemes are liable to deduct tax at sourceunder section 194J on all such payments to hospitals etc. This is because the servicesrendered by hospitals to various patients are primarily medical services and,

therefore, the provisions of section 194J are applicable to payments made by TPAs tohospitals etc. Consequently, all such past transactions between TPAs and hospitalswould fall within the provisions of section 194J and consequence of failure to deducttax or after deducting tax failure to pay on all such transactions would make thedeductor (TPAs) deemed to be an assessee in default in respect of such tax and alsoliable for charging of interest under section 201(1A) and penalty under section 271C.

However, no proceedings under section 201 may be initiated after the expiry of sixyears from the end of the financial year in which payments have been made withoutdeducting tax at source etc. by the TPAs. Further, the tax demand arising out of

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section 201(1) in situations arising above, may not be enforced if the deductor (TPA)satisfies the officer in

Circular No. 8/2009, dated 24.11.2009 The CBDT has, through this circular,clarified that TPAs (Third Party Administrators) who are making payment on behalf ofinsurance companies to hospitals for settlement of medical/insurance claims etc.under various schemes including cashless schemes are liable to deduct tax at source

under section 194J on all such payments to hospitals etc. This is because the servicesrendered by hospitals to various patients are primarily medical services and,therefore, the provisions of section 194J are applicable to payments made by TPAs tohospitals etc. Consequently, all such past transactions between TPAs and hospitalswould fall within the provisions of section 194J and consequence of failure to deducttax or after deducting tax failure to pay on all such transactions would make thedeductor (TPAs) deemed to be an assessee in default in respect of such tax and alsoliable for charging of interest under section 201(1A) and penalty under section 271C.

However, no proceedings under section 201 may be initiated after the expiry of sixyears from the end of the financial year in which payments have been made withoutdeducting tax at source etc. by the TPAs. Further, the tax demand arising out ofsection 201(1) in situations arising above, may not be enforced if the deductor (TPA)satisfies the officer in

Notification No. 08/2010 dated 3.2.2010 & Notification No.24/2010 dated8.4.2010Section 2(48) defining zero coupon bonds requires that such bonds should be notifiedby the Central Government. Accordingly, the Central Government has specified thefollowing bonds as zero coupon bonds for the purpose of section 2(48)

(i). Bhavishya Nirman Bond, a ten year zero coupon bond of National Bank ofAgriculture and Rural Development (NABARD), to be issued on or before31.3.2011

(ii). ten year Deep Discount Bond (Zero Coupon Bond) of Rural ElectrificationCorporation Limited (REC) to be issued on or before 31.3.2011.

Government Notification No.43/2010 dated 11thJune, 2010.Ceiling for gratuity exemption raised to Rs.10 lakhsSection 10(10)(ii) exempts any gratuity received under the Payment of Gratuity Act,1972, to the extent it does not exceed an amount calculated in accordance with theprovisions of sub-sections (2) and (3) of section 4 of that Act. The limit specified undersub-section (3) of section 4 has been increased from Rs.3,50,000 to Rs.10,00,000 bythe Payment of Gratuity (Amendment) Act, 2010 dated 17th May, 2010.

Thereafter, the Central Government has enhanced the notified limit under section10(10)(iii) from Rs.3,50,000 to Rs.10,00,000 in relation to employees who retire orbecome incapacitated prior to such retirement or die on or after 24 th May, 2010 orwhose employment is terminated on or after the said date. In effect, the ceiling forgratuity exemption under section 10(10)(iii), which is relevant for employees notcovered under the Payment of Gratuity Act, 1972, has also been increased to Rs.10lakh vide Central

Finance Act 2009

a) Sec 10(44): Exemption to income of new pension funds

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Tax benefits for New Pension System- The New Pension System (NPS) has become operationalsince 1st January, 2004 and is mandatory for all new recruits to the Central Government service from1st January, 2004. Since then it has been opened up for employees of State Government, privatesector and self-employed (both organised and unorganized). NPS Trust has been set-up on 27thFebruary, 2008 as per the provisions of the Indian Trust Act, 1882 to manage the assetsand funds under the NPS in the interest of the beneficiaries.

With a view to ensure that tax treatment of savings under this system is in synchronised with theexempt-exempt-taxed (EET) method and that there is no incidence of taxation at the accumulation

stage, it is proposed to make the NPS Trust a complete pass-through insofar as taxation is concerned.Therefore, it is proposed to,

(i) Insert Sec 10(44)- of the Income-tax Act so as to provide that any income received by anyperson on behalf of the New Pension System Trust established on 27th day of February, 2008under the provisions of the Indian Trust Act of 1882 shall be exempt from Income-tax;

(ii) Amend section 115-O to provide that any dividend paid to the NPS Trust shall be exempt fromDividend Distribution Tax;

(iii) No STT: amend Chapter VII of Finance (No. 2) Act, 2004 to provide that all purchases andsales of equity and derivatives by the NPS Trust will also be exempt from the SecuritiesTransaction Tax; and

(iv)Amend section 197A to provide that the NPS Trust shall receive all income without any tax

deducted at source.

The tax benefit under section 80CCD of the Income-tax Act, 1961 was hitherto available toemployees only. However, the NPS now has been extended also to self-employed. Therefore, it isproposed to amend sub-section (1) of section 80CCD so as to extend the tax benefit thereunder also toself-employed individuals.

It is also proposed to amend the Explanation to the said section to provide that for thepurposes of the said section the assessee shall be deemed not to have received any amount inthe previous year if such amount is used for purchasing an annuity plan in the same previousyear.

These amendments will take effect retrospectively from 1st April, 2009 and will, accordingly,apply in relation to assessment year 2009-10 and subsequent years.

Amendment of section 17.

5.Sec 17(2): Perquisites or Perks: In section 17 of the Income-tax Act, in clause ( 2), with effect fromthe 1st day of April, 2010,

(a)Sec 17(2)(vi) :The value of any specified security or sweat equity shares allotted or transferred,directly or indirectly, by the employer, or former employer, free of cost or at concessional rate tothe assessee.

Explanation.For the purposes of this sub-clause,

(i) specified security means the securities as defined in clause (h) of section 2 ofthe Securities Contracts (Regulation) Act, 1956 and, where employees stock option hasbeen granted under any plan or scheme therefor, includes the securities offered under suchplan or scheme;

(ii) sweat equity shares means equity shares issued by a company to its

employees or directors at a discount or for consideration other than cash for providingknow-how or making available rights in the nature of intellectual property rights or valueadditions, by whatever name called;

(iii) the value of any specified security or sweat equity shares shall be the fair marketvalue of the specified security or sweat equity shares, as the case may be, on the date onwhich the option is exercised by the assessee as reduced by the amount actually paid by,or recovered from the assessee in respect of such security or shares;

(iv) fair market value means the value determined in accordance with the methodas may be prescribed;

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(v) option means a right but not an obligation granted to an employee to apply forthe specified security or sweat equity shares at a predetermined price;

Value of Perk = FMV on date of exercising the option (-) amount paid by the employee

(b)Sec 49(2AA): provides that where the capital gain arises from the transfer of specified security orsweat equity shares referred to in Sec 17(2)(vi), the cost of acquisition of such security or sharesshall be the fair market value which has been taken into account for the purposes of the said sub-clause.

Example: A company X grants option to its employee R on 1 st April, 2007 to apply for10000 shares of the company at a pre-determined price of Rs. 50/- per share with dateof vesting of the option being 1st April, 2009 and exercise period being 1st April, 2009 to31st March, 2012.

Employee R exercises his option on 31st Jan, 2010 [FMV Rs 80/share] and shares areallotted/transferred to him on 3rd Feb 2010[FMV Rs 101/share]. On the date of vesting ofthe option, fair market value of the share was Rs. 85/- per share. The aforesaid shareare sold by the assessee on 31/03/2010 for Rs 140 per share

Ans The tax implication of above situation will be as under:-

Since shares are allotted or transferred on or after 1 st April, 2009, provision of Sec 17(2)(vi)are attracted.

Value of perk is (Rs. 80 (-) Rs. 50) X 10,000 = Rs. 300,000/-.

Capital Gains

FVC [10,000 x 140] = 1400,000

Less: Expenses = Nil

NFVC = 1400,000

Less:

COA(Sec 49(2AA)) = (800,000)

STCG = 600,000

Period of holding will start from the date the shares are allotted till the date they aretransferred

SUMMARY

Allotment At the time of allotment

At the time of subsequent transferby way of gift orirrevocable trust bythe employee

At the time of subsequent transferby the employee byany other mode

On or after01/04/2009

Perk = MV on date ofexercising of option (less)amount recovered fromemployee

Taxable since theallotment under ESOPor ESOS is made inpursuance of a schemeframed by the CentralGovernment

FVC = Market value onthe date of gift (4th

proviso to Sec 48)

COA = MV on date ofacceptance/exercisingthe option [Sec49(2AA)]

POH from date ofallotment

Capital Gains is taxable

FVC = moneyreceivable

Cost of acquisition = Marketvalue at the time of

exercising the option (c)[Sec 49(2AA)]

Period of Holding= from date of allotment[Sec 2(42A)(hb)]

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(c) Sec 17(2)(vii): Any amount transferred by the employer in excess of Rs 100,000 to the approvedsuperannuation fundof the employee during the PY will be taxable in the hands of the employeeas a perk u/s 17(2)(vii). An approved superannuation fund is one which is and continues to beapproved by the commissioner of Income Tax.

Example: X & Co a firm transfers a sum of Rs 120,000 in the superannuation fund of its employeeMr Z. In this case Rs 20,000 will be taxed as a perk in the hands of the employee Mr Z.

Analysis:

Payment into the fund -

1. Employers Contribution - Taxable if in excess of Rs 100,000

2. Employees Contribution - eligible for deduction u/s 80C

3. Interest on accumulated balance - Exempt

Payment from the fund:

Sec 10(13) exempts payments from the superannuation fund provided -

a) on the death of a beneficiary ; or

b) to an employee in lieu of or in commutation of an annuity on his retirement at or after aspecified age or on his becoming incapacitated prior to such retirement ; or

c) by way of refund of contributions on the death of a beneficiary ; or

d) by way of refund of contributions to an employee on his leaving the service in connectionwith which the fund is established otherwise than by retirement at or after a specified ageor on his becoming incapacitated prior to such retirement, to the extent to which suchpayment does not exceed the contributions made prior to the commencement of this Actand any interest thereon;

Payment of superannuation sum on resignation not eligible for exemption under section10(13): Amount received from superannuation fund on resignation before specified age is noteligible for exemption under section 10(13). Payment on resignation will be exempt only if it is afterthe specified age in the SAP scheme/rules.Yogesh Prabahkar Modak [2004] (HC)

NOTE:

i. Amount transferred by the employer to the Gratuity fundof the employee is not taxable in thehands of the employee. Amount received from the gratuity fund is taxable subject to Sec10(10)

ii. Amount transferred by the employer to the provident funds is discussed later in the notes

(d) Sec 17(2)(viii): Sec 17(2)(vi) other fringe benefits has been renumbered as Sec 17(2)(viii)

(i) Motor car facility, Free or concessional ticket given by transport employer, gifts in kind,Free credit cards, free membership fees of health clubs & social clubs & free holidays tillAY 2009-10 were taxable in the hands of the employee only if the employer was subject toFBT, however from AY 2010-11 FBT has been abolished thus Rule 3 has been amendedvide Notification No. 94/2009/ F.No.142/25/2009-S O (TPL) Dated 18-12-2009 and these

perks will always be taxable in the hands of the employees Sec 17(2)(iii) - Motor car facility, Free or concessional ticket given by transport

employer,

Sec 17(2)(viii) - gifts in kind, Free credit cards, free membership fees of healthclubs & social clubs & free holidays

Amendment of section 43.

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Amendment of section 50C.

13. Sec 50C: w.e.f 01/10/2009 Does Sec 50C apply to transactions where sale is on power ofattorney(agreement to sell)? yes the words or assessable have been introduced in Sec 50C to coverpower of attorney transaction on or after 01/10/2009

Amendment of section 80A.

19.Sec 80A: In section 80A of the Income-tax Act,

(a) Sec 80A(4) inserted by Finance Act 2009 w.r.e.f 01/04/2003: where a deduction is claimedby the assessee for the profits under section 10A or section 10AA or section 10B or section 10BAor in any provisions of this Chapter under the heading C-Deductions in respect of certainincomes, then

The amount of such profits and gains shall not be allowed under any other provisions ofthis Act for such assessment year and

Shall in no case exceed the profits and gains of such undertaking or unit orenterprise or eligible business, as the case may be.

(b) Sec 80A(5) inserted by Finance Act 2009 w.r.e.f 01/04/2003: Where the assessee fails tomake a claim in his return of income for any deduction under section 10A or section 10AA orsection 10B or section 10BA or under any provision of this Chapter under the heading C.Deductions in respect of certain incomes,no deduction shall be allowed to him thereunder.

(c) Sec 80A(6) inserted by Finance Act 2009 w.r.e.f 01/04/2003: : for Sec 10A or Sec 10AA orSec 10B or Sec 10BA or in any provisions of Chapter VIA under the heading C-Deductions inrespect of certain incomes [Sec 80IA to 80RRB], where any goods or services are transferredby one unit of the assessee (eligible for the aforesaid deduction) to another unit of the assessee(not eligible) or vice versa then the AO has the power to recompute the income of the eligibleunit by taking the market value of such goods or services.

Section 80CCD.

20.Sec 80CCD: Will now be eligible for self employed assessee as well in addition to being available foran employee. Thus 80CCD is available to any other assessee in addition to an assessee, being anindividual, employed by the Central Government or any other employer on or after the 1st day of January,2004.

The deduction amount will be

(i)In case of the individual being an employee amount contributed by employee subject to amaximum of 10% of his salary in the previous year; (+) amount contributed by Employersubject to a maximum of 10% of his salary in the previous year and

(ii)in any other case(self employed), 10% of his gross total income in the previous year.

Amendment of section 80E.

22.Sec 80E: deduction for interest on loan taken for higher education of the assessee or his relative isallowed as a deduction. The Words higher education have been amended by Finance Act 2009

(a)higher education means any course of study pursued after passing the Senior SecondaryExamination or its equivalent from any school, board or university recognised by theCentral Government or State Government or local authority or by any other authorityauthorised by the Central Government or State Government or local authority to do so; i.e

vocational courses are also covered by higher education.

(b)relative, in relation to an individual, means the spouse and children of that individual or thestudent for whom the individual is the legal guardian..

Amendment of section 80G.

23.Sec 80G:

Time period for approval: Earlier all organizations approved u/s 80G(5) were approved for a period of 5years. However renewals after every 5 years cause genuine hardships to the assessee, thus if theassessee applies for registration u/s 80G(5) or where the existing applications where the 5 year periodexpires after 01/10/09, the registration will be in perpetuity i.e forever.

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Further, the Commissioner will also have the power of withdraw the approval if the Commissioner issatisfied that the activities of such institution or fund are not genuine or are not being carried out inaccordance with the objects of the institution or fund.

However, in case of approvals expiring before 1st October, 2009, these will have to be renewed and oncerenewed these shall continue to be valid in perpetuity, unless specifically withdrawn.

Amendment of section 80-IA.

24.Sec 80IA: time period for setting up units extended till 31st March 2011.

Amendment of section 80-IB.

25.Sec 80IB:

(a)Sec 80IB(9): Deduction in respect of profits and gains from undertakings engaged incommercial production of mineral oil and natural gas - provides for deduction in respectof profits and gains derived from commercial production or refining of mineral oil. The deductionis available to an undertaking for a period of 7 consecutive assessment years including the initialassessment year

(i) in which the commercial production under production sharing contract has firststarted; or

(ii) in which the refining of mineral oil has begun.

However, no deduction under this sub-section is available to an undertaking which begins

refining of mineral oil on or after the 1st day of April, 2009 01/04/2012 unless such undertakingfulfils all the following conditions namely :

a) It is wholly owned by a public sector company or any other company inwhich a public sector company or companies hold at least forty-nine percent of the voting rights;

b) It is notified by the Central Government in this behalf on or before the31st day of May, 2008;

and

(iii) It begins refining not later than the 31st day of March, 2012.

NELP: Further, it is also proposed to amend the Income-tax Act so as to extend the tax holidayalso to natural gas from blocks which are licensed under the VIII Round of bidding for award ofexploration contracts (hereafter referred to as NELP-VIII) under the New Exploration LicencingPolicy announced by the Government of India and begin commercial production of natural gason or after the 1st day of April, 2009.

The term undertaking in sub-section (9) has not been defined. Therefore, in the context ofmineral oil, the meaning of the term undertaking has been the subject-matter of considerabledispute.

The taxpayers have been holding the view that every well in a block licensed constitutes asingle undertaking and accordingly the tax holiday is available separately for each such well.However, this view is against the legislative intent.

Accordingly, it is proposed to amend sub-section (9) by inserting an Explanation so as to clarifythat for the purposes of claiming deduction under sub-section (9), all blocks licensed under

a single contract, which has been awarded under the New Exploration Licencing Policyannounced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated10th February, 1999 or has been awarded in pursuance of any law for the time being in force orhas been awarded by Central or a State Government in any other manner, shall be treatedas a single undertaking.

This definition of undertaking will be applicable both in relation to mineral oil and natural gas.

(b)Sec 80IB(10): deduction given for developers of housing projects

The objective of this tax concession is to provide tax benefit to the personundertaking the investment risk i.e., the actual developer. However, any personundertaking pure contract risk is not entitled to the tax benefits.

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a. The deduction under this section shall not be available to any undertaking which executes thehousing project as a works contract awarded by any other person (including Central or StateGovernment).

b. Further, the objective of the tax benefit for housing projects is to build housing stock for lowand middle income households. This has been ensured by limiting the size of the residentialunit to 1000 sq ft (in cities other than Delhi or Mumbai) or 1500sq ft(if the house is in Delhi orMumbai). However, this is being circumvented by the developer by entering into agreement to

sell multiple adjacent units to a single buyer. Finance Act 2009 has amended the sectionto provide that the undertaking which develops and builds the housing project shall not beallowed to allot more than one residential unit in the housing project to the same person , notbeing an individual, and where the person is an individual, no other residential unit in suchhousing project is allotted to any of the following person :

a. Spouse or minor children of such individual;

b. The Hindu undivided family in which such individual is the karta;

c. Any person representing such individual, the spouse or minor children of suchindividual or the Hindu undivided family in which such individual is the karta.

(c)Sec 80IB(11A): The Deduction u/s 80IB(11A) shall now also be available to as assessee engaged inthe business of Meat and meat products or poultry or marine or dairy products (except in thebusiness of processing, preservation and packaging of meat or meat products or poultry or

marine or dairy products if it begins to operate such business before the 1st day of April, 2009.)Returns & Assessments

38. Sec 147: Some Courts have held that the Assessing Officer has to restrict thereassessment proceedings only to issues in respect of which the reasons have beenrecorded for reopening the assessment. He is not empowered to touch upon any otherissue for which no reasons have been recorded.

With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section147 to provide that the Assessing Officer may assess or reassess income in respect of any issue whichcomes to his notice subsequently in the course of proceedings under this section, notwithstandingthat the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148.

TDS

39.Sec 200A:Processing of statements of tax deducted at sourceCurrently almost all statements of tax deducted at source are filed in an electronic mode. Theprocessing of these statements should, therefore, be done only in a computerizedenvironment..

It is proposed that the following adjustments can be made during the computerized processing ofstatements of tax deducted at source :

(i) any arithmetical error in the statement; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the statement,for example, in respect of rate of deduction of tax at source where such rate is not inaccordance with the provisions of the Act.

It is provided that after making adjustments, tax and interest [e.g., under section 201(1A)] would becalculated and sum payable by the deductor or refund due to the deductor will be determined. An

intimation will be sent to the deductor informing him of his tax liability or granting him the refunddue within one year from the end of the financial year in which the statement is filed. It is alsoproposed that the processing of these statements can be undertaken in a centralized processingcentre.

Miscellaneous

43.Sec 281B: Provisional attachment of property : The provisions of section 281B empower theAssessing Officer to make provisional attachment of the assets of the assessee during the pendency ofany proceedings for assessment or reassessment.

Such attachment order can have effect for a period of 6 months from the date of the order which maybe extended to a period of 2 years.

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In many cases, the assessees have filed writ petitions in High Courts and Supreme Court and haveobtained stay of the assessment proceedings. Often, such stay remains in force for many years duringwhich the validity of provisional attachment order expires. Therefore an amendment provides thatthe period, during which the proceedings for assessment or reassessment are stayed byany Court, shall be excluded in calculating the period specified therein.

44.Sec 282: service of notice: w.e.f 01/10/09 The service of a notice or summon or requisition ororder or any other communication under this Act may be made by delivering or transmitting a copy

by post or by such courier services as may be approved by the Board; orin such manner as provided under the Code of Civil Procedure for the purposes of service of sum-

mons; or

in the form of any electronic record as per the Information Technology Act, 2000 or

by any other means of transmission of documents as provided by rules made by the Board in thisbehalf.

The Board may make rules providing for the addresses (including the address for electronic mail orelectronic mail message) to which the communication may be delivered or transmitted to the persontherein named.

45. Sec 293C: Power of the Central Government to withdraw approval:w.e.f 01/10/09 Under theexisting provisions of Income-tax Act, an approval is required to be granted by income-tax authority foravailing of various incentives by the assessee. While some provisions of Income-tax Act specifically

contain provisions for withdrawal of approval but in many cases there is no such specific provisionscontaining power of withdrawal.

In order to provide explicit provisions for power to withdraw of approval, it is proposed to insert a newsection 293C to provide that an approval granting authority shall also have the powers to withdraw theapproval at any time. However, such withdrawal can be made only after giving a reasonableopportunity of showing cause against the proposed withdrawal to the concerned assessee.

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Date post:	07-Apr-2018
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Amendments in Direct Tax

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