Overview of Tax Proposals

It is proposed that provision for deferred tax made in terms of accounting standard 22 would not be available as deduction in computing book profits and such provision would go to increase the chargeable book profits.

However, similar adjustment is not proposed in respect of write back of provision for deferred tax.

It is also proposed that book profit shall be increased not only by the amount of income tax debited to the profit and loss account but also any interest charged under this Act, surcharge, education cess and secondary and higher secondary education cess, the amount of corporate dividend tax paid or payable u/s 115-O and tax paid or payable u/s 115R on income distributed to unit holders.

The amendment is retrospective with effect from 1st April, 2001.

15. Assessment of search cases —Amendment in sections 153, 153A, 153B, 153C, 153D – Time limit for completion of assessments and reassessments – (Clauses 33 to 36)

The effect of the amended provisions can be concluded as (i) if any proceeding initiated under section 153A or any order of assessment or reassessment made under sub-section (1) of this section has been annulled in any appeal or other legal proceeding, the abated assessment or reassessment relating to any assessment year shall stand revived and if such order of annulment is set aside, such revival shall cease to have effect. (ii) that time limit for completion of such assessment or assessment shall be one year from the end of the month in which the abated assessment revives or within the period already specified in section 153 or in sub-section (1) of section 153B, whichever is later (iii) the period commencing from the date of annulment of a proceeding or order of assessment or reassessment referred to in sub-section (2) of section 153A till the date of the receipt of the order setting aside the order of such annulments by the Commissioner, shall be excluded in computing the period of limitation for the purposes of this section.

16. Service of Notices – Insertion of new section 292BB — (Clause 52)

Clause 52 of the Finance Bill seeks to insert a new section 292BB in the Income-tax Act, 1961. The proposed section seeks to provide that where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of the Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of the Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was (a) not served upon him or (b) not served upon him in time or (c) served upon him in an improper manner.

Proposed amendment is against the basic principle of natural justice and in an appropriate case the court may hold the provision is unconstitutional. When the assessing officer has not complied with the requirement of law the assessee cannot be penalized.
17. Reassessment – S. 147 & S. 151, (Clauses 30 & 31)

The Finance Bill seeks to insert an additional proviso in section 147 so as to provide that the Assessing Officer may assess or reassess any income other than income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

The amendment is made with a view to clarify the legislative intent that if an income has escaped assessment and which has not been subject matter of an appeal, reference or revision, notice under section 148 can be issued for assessment or reassessment of that income. In Metro Auto Corporation vs. ITO (2006) 286 ITR 618 (Bom), the Bombay High Court quashed the assessment when the notice for reassessment was issued when appeal was pending before the ITAT.

A clarificatory Explanation in section 151 is inserted so as to provide that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be on being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148 need not issue such notice himself.

In Dr. Shashi Kant Garg vs. CIT (2006) 285 ITR 158 (All) the court held that notice issued without proper sanction was invalid.
The amendment applies retrospectively from 1st October, 1998.

18. Authentication of documents, notices, letters — Insertion of new section 282A – (Clause 51)

According to this section a notice or other document to be issued by any income-tax authority, such notice or other document shall be signed in manuscript by that authority.

The new section 282A is proposed to be inserted with a view to successfully implement the taxpayer friendly schemes.

19. Presumption as the books of account, other documents etc. –

S. 292 C (Clause 53)

Presumption as to books of account, other documents etc. u/s. 292C is now extended to survey operations as well.
In Metrani vs. CIT (2006) 287 ITR 209 (SC) , the court held that, presumption under section 132(4A) can be applied only to search proceedings. To over come this decision section 292C was introduced by Finance Act 2007, w.e.f. 1-10-1975, in respect of search matters. Now the same is made applicable to survey and proceedings u/s 132A.

This provision will retrospectively apply from 1-10-1975. The validity of such provisions in the eyes of law is a debatable issue.
20. Stay of demand by ITAT – S. 254 (Clause 46)

The Hon’ble Bombay High Court in case of Narang Overseas Pvt. Ltd. vs. ITAT (2007) 295 ITR 22 (Bom) had observed that the stay being a matter of rights in deserving cases, the vested right of appeal may not be rendered nugatory. Thus according to the Hon’ble Bombay High Court where the delay in disposing of the appeal is not attributable to the assessee, fresh order of stay can be granted. To make the legislature intention very clear that the ITAT cannot grant stay either under the original order or any subsequent order, beyond the period of 365 days in aggregate even if the delay in disposing of the appeal is not attributable to the assessee.

It is proposed to substitute third proviso to section 254 and provide that the aggregate of the period originally allowed and the period or periods so extended or allowed shall not, in any case, exceeds 365 days even if the delay in disposing of the appeal is not attributable to the assessee.

The provision is defiantly unconstitutional and deserves to be challenged. Many a times the stay granted matters are not disposed due to circumstances beyond the control of the assessee; i.e., matters are pending before special bench, third member, etc. In Mumbai bench all the matters relating to international taxation are referred to L bench. The L bench has not started functioning. In such a situation how the department is justified in enforcing the recovery of which is not in the control of the assessee. Speedy justice is fundamental right of the citizen. If Govt. is not in a position to render speedy justice the citizen cannot be compelled to pay the damages for no fault of theirs.

The ITAT Mumbai has prescribed the guidelines for stay petition. (AIFTP Journal, April 2007 or itatonline.org.)

21. Collection & Recovery of taxes

1. Interest on securities – S. 193 – (Clause 39)

The amendment to section 193 proposes to exempt from deduction at source, any interest payable on any security issued by a company, if such security is in a dematerialized form and is listed on a recognized exchange in India in accordance with Securities Contracts (Regulation) Act, 1956 and rules made there- under

2. Payment to contractor – S. 194C, (Clause 40)

Sections 194C is amended to include AOP and BOI

3. Tax withholding – S. 195, (Clause 41)

The proposed amendment to section 195 seeks to insert sub-section (6) to provide that the person responsible for deduction of income tax shall furnish the information relating to payment of such sum in such form and manner as may be prescribed by the board. To give effect to the proposed sub-section (6) of section 195, clause 54 seeks to amend sub-section (2) of section 295 of the income-tax Act, which relates to rule-making power of the Board, by inserting a new clause (fa) therein so as to specifically provide the Board with the power to prescribe the form and manner in which the information relating to payment of any sum may be furnished under the proposed sub-section (6) of section 195.

4. Credit for TDS and TCS — Ss. 199 and 206. (Clauses 42 & 45)

In order to make system flexible and to adopt the ongoing technological and business process changes, it is proposed to do way with the existing method of granting credit. The board is authorized to make rules.

5. Dematerialization of TDS and TCS – Clarification – S. 203 (Clause 44)

Scheme for dematerialization of TDS and TCS certificates was introduced w.e.f. 1-4-2005. The scheme has been postponed time and again, since the national level information technology of the tax department is not fully operational and hence it is proposed to extend the commencement of this scheme further to 1-4-2010,

22. Assessee in default — Amendment to section 191 and section 201 – (Clauses 38 & 43)

The existing Explanation covered in its ambit persons referred to in section 200, i.e. persons deducting any sum in accordance with the provisions of Chapter XVII-B and who are required to pay within the prescribed time the sum so deducted to the credit of the Central Government.

This provision left room for the interpretation that a person required to deduct tax at source but not deducting the same will not be deemed to be an assessee in default under section 201.

It is proposed to substitute the Explanation to clarify that where a person who is required to deduct tax at source but fails to do so will also be deemed to be an assessee in default under section 201. The amendment to section 201(1) will take effect retrospectively from 1st June, 2002.

Similar amendment is proposed in section 191. However, amendment to section 191 will take effect retrospectively from 1st June, 2003.
A thought for debate is, can a penalty provision for levy of penalty and interest be retrospective in nature in respect of TDS when the assessee is doing the duty of the government for collecting the tax and depositing the same without any consideration. Such a provision may be held unconstitutional as against basic principle of constitution and taxation.

23. Penalties – Concealment —

S. 271(1B) (Clause 48)

In the year 1972 the Apex court in D.M.Manasvi vs. CIT (1912) 86 ITR 557 has held that satisfaction of Assessing Officer before the initiation of the penalty proceedings is a jurisdiction condition. The said view is approved by various courts. The Finance Bill seeks to amend the section. Dilip N. Shroff vs. JCIT (2007) 291 ITR 519 (SC)

Clause 48 of the Finance Bill, 2008 proposes to insert a sub-section (1B) to section 271 which seeks to provide that where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and if such order contains a direction for initiation of penalty proceeding under sub-section (1) such an order of assessment or reassessment shall be deemed to constitute satisfaction of Assessing Officer for initiation of the penalty proceeding under sub-section (1). Similar amendment has also been proposed in section 18 of the Wealth Tax Act by clause 58 of the Finance Bill, 2008. the amendment proposed is retrospective from 1st April 1989.

One fails to understand how a penal provision will be retrospective in nature. The court may struck down such a provision as being unconstitutional. It may be noted that after the decision of Dilip N. Shroff the matter is referred to larger bench, hence it was not desirable to make amendment retrospectively only to overcome the decision of Apex Court and High Courts. There could be lot of litigation only on this issue.

24. Tax Appeals– S. 268A (Clause 47)

With a view to protecting the revenues right to file or not to file an appeal, it is proposed to insert new section 268A, which will preclude the assessee from contending that the income tax authority has accepted the decision by not filing an appeal or application, in assessees own case or other assessee. This section also empowers the Board to issue orders, instruction or directions for fixing monetary limits for the purposes of regulating the filing of appeal or Reference Application. The amendment will take retrospectively from 1st April, 1999.

As per instruction of board dt. 27-3-2000, and 2 of 2005 dt 24-10-2005 the monetary limits are for filing an appeal to Tribunal Rs. 2,00,000, High Court Rs. 4,00000, and Supreme Court 10,00,000. (see AIFTP Journal, November 2005 or itatonline.org.)

25. Settlement commission — Waiver of penalty and immunity from prosecution. ss. 273AA, 278AB – (Clauses 49 & 50)

Under the existing provisions of section 245HA of the Income-tax Act, the proceedings before the Settlement Commission gets abated under various circumstances prescribed therein. One of the conditions prescribed as per section amendment w.e.f. 1-6-2007 in terms of section 245D(4A) was that the Settlement Commission is required to pass the final order on or before 31-3-2008 where application are filed before 1-6-2007.

About 3,000 petitions are pending for disposal before the Settlement Commission. All the petitions will abated and the matters will go back to the original stage. The issue for debate was what will be the consequences for penalties and prosecution in respect of the amount disclosed in the petition. The Assessing Officer use the petition as evidence to levy the penalty.

It is now proposed that by insertion of sections 273AA and 278AB, the power is given to the Commissioner to grant power of waiver of penalties and immunity from prosecution not only from Income-tax Act but also from other Central Acts.

Some of the petitions have been filed before the Bombay High Court and other High Courts. The courts have admitted the petition and stayed the abatement proceedings against the petitioners.

It may be appreciated that Settlement Commission normally waived the penalties in most of the cases. However now the waiver will have to be done by the respective Commissioners. It may be possible that different Commissioner may have different approach. Against the order of Commissioner only writ can be filed. For smaller assessees approaching the High Court may be costly and it may take years to get the final order.

When the matters goes back to the respective stages there could be further additions by the Assessing Officer and the assessee may not be able to get the capitulation of amount disclosed or additions made. This provision will generate lot of litigations. It would have been appropriate for the Settlement Commission to accept the disclosure and pass the order which could have helped to recover the tax and interest and unavoidable litigation.

Pending 3,000 applications will involve number of years. Hence this provision will generate at least 10,000 appeals to the appellate Tribunal.

We have been informed that less than 10 applications have been filed from all over India since 1-6-2007.

26. Commodity transaction tax – Chapter VII – (Clauses 97 & 116)

With a view to widen tax base, a new tax called commodities transaction tax (CTT) is proposed to be levied on “ taxable transactions” entered in a recognized association. It is contained in Chapter vii of the Finance Bill, 2008. The provision will come into force by way of notification in the Official Gazette. The provision will incorporate for filing an appeal to CIT(A), Tribunal etc.

27. Wealth Tax

Consequential amendments are also made under wealth tax. Clauses 56 to 62, sections are 17, 17AS, 18, 18BA, 25G, 42, 42A.

28. Conclusion

When the new Taxation Bill will be introduced if the Government takes into consideration the objective suggestions of the professionals like the Chamber of Tax Consultants, the Government can achieve the desired object of simplified tax law, which will be taxpayers friendly.

*Reprodued with permission from the Income Tax Review – March 2008 issue.