{"id":11,"date":"2008-03-22T21:00:14","date_gmt":"2008-03-22T21:00:14","guid":{"rendered":"http:\/\/www.itatonline.org\/articles_new\/?page_id=11"},"modified":"2008-03-22T21:23:58","modified_gmt":"2008-03-22T21:23:58","slug":"overview-of-tax-proposals","status":"publish","type":"page","link":"https:\/\/itatonline.org\/articles_new\/overview-of-tax-proposals\/","title":{"rendered":"Overview of Tax Proposals"},"content":{"rendered":"
\n
\"Shri.<\/div>\n

Overview of Tax Proposals
\n*<\/strong><\/tt><\/font><\/p>\n

Dr. K. Shivaram, Advocate <\/p>\n

\t\t\t The author has made a critical analysis of the provisions of the Finance Bill 2008 and argues that some of its provisions may be unconstitutional.\n<\/p><\/div>\n

1.\tIntroduction<\/strong> <\/p>\n

This year\u2019s budget is also full of promises and very little on accountability. Unless the concept of accountability is introduced in the Income-tax Act as per the recommendation of Raja Chellia Committee (1992) 197 ITR st. 177 (257), whatever may be the law, the honest tax payers will have to face the difficulties of high-pitched assessment, recovery etc. The Hon\u2019ble Finance Minister has stated that \u201cDebt relief won\u2019t be there every year, it is just a one \u2013time distress measure\u201d. I am of the view, we may not be surprised, similar to amnesty schemes for dishonest taxpayers once in five years, every Finance Minister before election once in five years definitely will try to give some amnesty scheme to farmers so that they will be get the desired support from the masses. Shri N.A. Palkhivala in his article on the occasion of Golden Jubilee celebration of ITAT stated that \u201cToday the Income-tax Act, 1961, is a national disgrace. There is no other instance in Indian jurisprudence of an Act mutilated by more than 3,300 amendments in less than 30 years. Simple provisions like Sections 11 to 13 (which deals with exemptions of the income of charitable trusts) have suffered no less than fifty amendments<\/em>\u201d <\/p>\n

Income-tax Act, 1961, has undergone more than 6000 Amendments. <\/p>\n

This year also 62 amendments are proposed out of which, 22 are of retrospective in nature and most of the amendments are to overcome the judicial decisions. One fails to understand that when the Govt. is proposing to bring the new Income-tax Act what is the great urgency in bringing so many amendments. <\/p>\n<\/p>\n

\n
<\/div>\n<\/div>\n

2.\tEducation cess<\/strong>\n<\/p>\n

Govt. is collecting educational cess from all the assessees. One of the views expressed by an eminent Sr. Advocate is that it can be collected only where surcharge is applicable; i.e., where the taxable income is above 10 lakhs. This year\u2019s memorandum explaining the provision has added the word \u201cif any\u201d [(2008)298 ITR (st) 192] which was not there earlier. It is interesting to note that the Govt. has collected about Rs. 20,229 crores upto 2006-07, and only Rs 5830 .67 crore was spent on the project of Sarva Shiksha Abhiyan and Rs 2911 crores on Mid-day Meal. Association can challenge the said provision and it may benefit all small assessees.\n<\/p>\n

\n

The amendment to section 254 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.<\/p>\n<\/p><\/div>\n

3.\tRates of taxes <\/strong>\n<\/p>\n

The initial exemption limit of taxation is proposed to be raised from Rs. 1,10,000\/- to Rs. 1,50,000\/- in case of individuals and HUFs. In case of women the limit of Rs. 1,45,000\/- is proposed to be raised to Rs. 1,80,000\/-. Similarly, in case of senior citizens, the limit of Rs. 1,95,000\/- is proposed to be raised to Rs. 2,25,000\/-. The rate of surcharge and Education Cess remain the same. There is no change in corporate income rates. Tax on short term capital gains from sale of securities subjected to STT is increased to 15% from 10%. Commodity transaction tax is introduced on commodities derivatives . No change in rates of STT. Banking cash transaction tax (BCTT) is withdrawn from 1st April, 2009. <\/p>\n

4.\tAgricultural income \u2013 S. 2(1A) (Clause 3)<\/strong>\n<\/p>\n

The definition of the term agricultural income has been expanded by incorporation of Explanation 3 u\/s. 2(1A) to include any income derived from saplings or seedings grown in a nursery. This amendment is proposed with a view to bring an end to the disputes which had arisen between the assessee and the department with respect to income derived from nursery activities The amendment will take effect from 1-4-2009 (A.Y. 2009-10) onwards. One of the possible views could be this being the insertion of Explanation may have a retrospective application.<\/p>\n

5.\tCharitable Purpose \u2013 S. 2(15) (Clause 3)<\/strong>\n<\/p>\n

It is proposed to add proviso that the scope of the phrase \u201cadvancement of any other object of general public utility\u2019 shall not be a charitable purpose if it involves carrying on of any activity in the nature of trade, commerce or business including activity of rendering any service in relation to trade, commerce or business for fee, cess or any other consideration, irrespective of nature of application of income from such activity or retention of such income by concerned entity. The above amendment will be effective from A.Y. 2009-10.<\/p>\n

The amendment seems to be to overcome the view of Apex court in CIT vs. Gujarat Maritime Board<\/strong> (2007) 295 ITR 561. The amendment will have far reaching implications on all charitable organizations, professional organizations as well as non profit companies. Income of professional organizations in respect of sale of publications, seminars may have to face the litigation. The professional organizations must take up this issue with the Government, very seriously.\n<\/p>\n

6.\tIncome of \u201cSIKKIMESE\u201d \u2014 S. 10(26AAA) (Clause 4)<\/strong>\n<\/p>\n

Any income, which accrues or arises to \u201csikkimese\u201d individual from any source in the State of Sikkim or by way of dividend or interest on securities is proposed to be exempt from tax. The amendment is retrospective from AY 1990-91 onwards.<\/p>\n

7.\tProfits & gains of business or profession<\/strong>\n<\/p>\n

1.\tIncentive for outsourcing of scientific research \u2013 S. 35(iia) (Clause 5)<\/strong>\n<\/p>\n

It is proposed to allow a weighted deduction of 125% in respect of any sum paid for scientific research to a domestic company, which has as its main object of carrying out the scientific research and development is approved by the prescribed authority, in the prescribed manner.<\/p>\n

However, with a view to avoid multiple claims for deduction ,it is proposed that such domestic company will not be entitled to claim weighted deduction of 150% as prescribed under section 35(2AB) of the Act. <\/p>\n

2.\tAmortisation of preliminary expenses \u2013 S. 35D (Clause 6) <\/strong>\n<\/p>\n

Benefit of amortization of specified preliminary expenses u\/s. 35D has been extended to all undertaking. The amendment has been made with a view to provide a level playing field to the service sector organizations.<\/p>\n

3.\tSecurities Transaction Tax (STT) and Commodity Transaction Tax (CTT) \u2013 S. 36(1)(xv) (Clause 7, Clauses 8 & 17)<\/strong>\n<\/p>\n

S.T.T. and C.T.T. shall be allowed as a business expenditure and simultaneously rebate u\/s. section 88E for such S.T.T. will be withdrawn. In section 40, clause 9, sub-clause (1b), shall be omitted with effect from the 1st day of April 2007. <\/p>\n

4.\tAmount not deductible \u2014 S. 40(A)(3) (Clause 9).<\/strong>\n<\/p>\n

At present disallowance in relation to payment made otherwise than by an account payee cheque drawn on a bank or account payee bank draft are disallowed, if such individual payment exceeds twenty thousand rupees. In order to plug the loophole of multiple payments, it has been proposed that all payments made to a person in a single day will be aggregated for the purpose of considering the disallowance.
\nIt may be noted that the limit of Rs. 20,000 was fixed in the year 1997. Considering the inflation it is suggested that this limit may be increased to at least Rs. 50,000. <\/p>\n

5.\tActual cost \u2013 S. 43(b) (Clause 10)<\/strong>\n<\/p>\n

A new Explanation 6 in section 43(6) is proposed to provide that where the assessee is not required to compute his income for any previous year or years preceding to the relevant previous year, then in such a case, depreciation provided in books shall be deemed to be the depreciation actually allowed.<\/p>\n

The above Explanation was inserted to overcome ITAT decision in the case of Kandla Port Trust vs. ACIT<\/strong> (2007) 104 ITD 1 (Rajkot) which held that in case of an income which is exempt u\/s. 10(20) till 31-3-2002, and since there is no liability to tax, no computation of income was required to be prepared, therefore, depreciation provided in books cannot be considered as \u2018depreciation actually allowed\u2019.
\nThe Explanation will be applicable retrospectively with effect from Asst. Year 2003-04 onwards.\n<\/p>\n

8.\tCapital gains \u2013 Ss. 47, 49 (Clauses 11 & 12) <\/strong>\n<\/p>\n

Clause (xa) of section 47 has been inserted and it is proposed to provide that the conversion of Foreign Currency Exchangeable Bonds (FCEB) into shares or debentures of any company shall not be treated as \u2018transfer\u2019 within the meaning of the Income tax Act. Further, it is also proposed to substitute subsection (2A) of section 49 to provide that the cost of acquisition of the shares received upon the conversion of the bond shall be the price at which corresponding bond was acquired.<\/p>\n

9.\tReverse Mortgage Scheme. S. 47(xvi)10(43) (New sub-sections), (Clauses 4 & 11)<\/strong>\n<\/p>\n

The innovative reverse mortgage product, announced by the Honourable Finance Minister in the budget for 2007-08 had received a modest response from the targeted borrowers. This is because of ambiguity in tax issues. The Banks are of the view that there is significant ageing population who could potentially benefit from this scheme.<\/p>\n

It is proposed that any amount received by senior citizen under the notified scheme of reverse mortgage will be exempt from tax. <\/p>\n

Similarly pledge of the residential property under the scheme of reverse mortgage will not be regarded as transfer of a capital asset and therefore shall not attract capital gain tax. The amendment is proposed to be effective from 1st April 2008.<\/p>\n

A reverse mortgage is known as life time mortgage in the United Kingdom, and loan is also available to citizens aged 62 and above in the United States. In India also senior citizens; i.e., 60 years and above can avail the benefit of reverse mortgage scheme.<\/p>\n

It may be noted that for all other sections of Income-tax Act the senior citizen means age of 65 years and above. <\/p>\n

10.\tDeductions in computing total income \u2013 S. 80-C, (Clause 13), S. 80-D, (Clauses 13 & 14)<\/strong>\n<\/p>\n

1.\tIt is proposed to add following two saving instruments to be eligible for deduction u\/s 80C within overall limit of Rs. 1 lakh.
\n(i) \t5 year time deposit in an account under Post Office Time Deposit Rules, 2004.<\/p>\n

(ii) \tDeposit in an account under the Senior Citizen Saving Scheme Rules 2004. <\/p>\n

\tDeduction will be available retrospectively from A. Y. 2008-09 and will accordingly apply for deposits made after 1st April 2007.
\n2.\tUnder section 80-D it is proposed to allow an additional deduction of up to Rs. 15,000\/- to an individual assessee, on any payment made for insurance on the health of his parent or parents (though they are not dependent). It is further proposed that, if, either of the individual assessee\u2019s insured parent, is a senior citizen then deduction is allowed up to Rs. 20,000\/- (Senior citizen means 65 years and above).<\/p>\n

11.\tTax Holiday<\/strong>\n<\/p>\n

1.\tHospitals \u2013 Ss. 80-IB, (11 C), (Clause 15) <\/strong>\n<\/p>\n

Section 80-IB(11C) it is proposed that hospitals constructed and started at any time during 1st April, 2008 to 31st March, 2013 will get 100% deduction for profits derived from operating and maintaining hospital. It should have at least 100 beds for patients. Deduction will be allowed for 5 consecutive assessment years beginning from the initial assessment year. It is further proposed that hospital can be located any where in India other than excluded area. Excluded areas are Urban agglomerations of Greater Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore and Ahmedabad, the district of Faridabad, Gurgaon, Ghaziabad, Gautam Budh Nagar and Gandhinagar and the city of Secunderabad.<\/p>\n

2.\tHotels \u2013 S. 80-ID, (Clause 16) <\/strong>\n<\/p>\n

Section 80-ID it is proposed that 100% deduction be allowed to two star, three star or four star category hotels located in specified district having world heritage site. Deduction is allowed for 5 consecutive assessment year beginning from initial assessment year. The new Hotels should start functioning during 1st April, 2008 to 31st March, 2013. Specified districts having a world heritage site are proposed to be the districts of Agra, Jalgaon, Aurangabad, Kancheepuram, Puri, Bharatpur, Chhatarpur, Thanjavur, Bellary, South 24 Parganas, Chamoli, Raisen, Gaya, Bhopal, Panchmahal, Kamrup, Goalpara, Nagaon North Goa, South Goa, Darjeeling and Nilgiri. Deduction is to promote the tourism and attract tourists to certain World Heritage Sites in India.<\/p>\n

3.\tCoir Industry \u2013 S. 19(29A) (Clause 4) <\/strong>\n<\/p>\n

Income-tax Act provides for exemption of any income of certain commodity boards and export development authorities. It is proposed to extend the exemption to Coir Board established under the Coir Industry Act ,1953.<\/p>\n

4.\tMineral oil \u2013 S 80-IB (Clause 15)<\/strong>\n<\/p>\n

At present the undertaking engaged in refining and commercial production of mineral oil is eligible for tax holidays for a period of seven years. It is proposed to deny the tax holiday to the undertaking which begins refining on or after 1st April, 2009.<\/p>\n

12.\tDividend Distribution Tax \u2013 S. 115-O (Clause 21)<\/strong>\n<\/p>\n

A new sub\u2013section (1A) is proposed to provide that the amount of dividend referred to in section 115-O (1) shall be reduced by the amount of dividend, if any, received by the domestic company during the financial year, if :<\/p>\n

a) \tSuch amount of dividend is received from its subsidiary<\/p>\n

b) \tThe subsidiary company has paid the dividend distribution tax on such dividend<\/p>\n

c) \tThe domestic company is not a subsidiary of any other company. It is also provided that the amount of dividend shall not be taken in to account for reduction more than once. It is explained that a company shall be subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company. <\/p>\n

The proposed amendments to DDT will enable companies to structure and allocate capital to their businesses more efficiently. This measure has helped mitigate the cascading effect of taxation on dividend. The anomaly of double taxation has been rectified. <\/p>\n

It is suggested that this concession should not be restricted to dividend received from subsidiary company only. Similar provision existed in section 80M which was deleted in 1984.<\/p>\n

It is also suggested that if a company has invested in a Mutual Fund and received income from such mutual fund on which DDT is paid u\/s 115 R , the said income also should be deducted from dividend distributed by the company for the purposes of DDT u\/s 115-O. This will avoid double taxation of the income received from Mutual Fund. <\/p>\n

13.\tFringe Benefits \u2013 Ss. 115WB to 115WKB (Clauses 22 to 26) <\/strong>\n<\/p>\n

FBT on guest house, cr\u00e8che facilities, sponsorship of sports events and sportsmen abolished. Taxable Value of festival celebrations is reduced to 20% of expenditure. <\/p>\n

It is also proposed to insert a new section 115- WKB to provide that where fringe benefit tax (with respect to allotment or transfer of specified security or sweat equity shares) has been paid by the employer and subsequently recovered from the employee, the recovery of the FBT shall be deemed to be tax paid by such employee in relation to value of fringe benefits provided to him. The deeming provision shall apply only to the extent to which the amount of recovery relates to the value of the fringe benefits provided to such employee. The new section further seeks to provide that, notwithstanding anything contained in this Act, in the above situation, the employee shall not be entitled to any refund out of such deemed payment of tax and shall also not be entitled to claim any credit of such deemed payment of tax against tax liability on other income or against any other liability.<\/p>\n

14.\tAssessment<\/strong>\n<\/p>\n

1.\tDue date for filing return \u2013 S. 139 (Clause 23) <\/strong>\n<\/p>\n

The Finance Bill seeks to advance the dates of filing return of assessee where due date is 31st October to 30th September of the relevant assessment year in respect of both Returns of Fringe Benefits and Returns of Income respectively.<\/p>\n

2.\tSpecial Audit \u2013 S. 142 (2C), (Clause 28) <\/strong>\n<\/p>\n

The Finance Bill also seeks to provide that the assessing officer u\/s. 142(2C) may also extend the period within which the audit report is to be furnished by such further period or period as he thinks fit suo motu; i.e., on his own without any application made by the assessee. <\/p>\n

Over all originally fixed and extended time cannot exceed 180 days. <\/p>\n

3.\tCorrection of arithmetical mistakes and adjustment of incorrect claim under section 143(1) & s. 156, (Clauses 29 & 37)<\/strong>\n<\/p>\n

The assessing officer is empowered to make certain adjustments on account of arithmetical error or incorrect claims. These adjustments will be made only by computer processing without any human interface. The amendment is effective from 1st April, 2008. The CBDT will formulate the scheme. <\/p>\n

4.\tNotice S. 143(2), (Clause 29) <\/strong>\n<\/p>\n

Section 143(2) is amended so as to provide that no notice under the said clause shall be served on the assessee after the expiry of six months (earlier 12 months) from the end of the financial year in which the return is furnished.<\/p>\n

14. \tBook Profit \u2013 S-115JB \u2014 (Clause 20)<\/strong>\n<\/p>\n

<\/p>\n

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.<\/p>\n

However, similar adjustment is not proposed in respect of write back of provision for deferred tax.<\/p>\n

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.<\/p>\n

The amendment is retrospective with effect from 1st April, 2001.<\/p>\n

15.\tAssessment of search cases \u2014Amendment in sections 153, 153A, 153B, 153C, 153D \u2013 Time limit for completion of assessments and reassessments \u2013 (Clauses 33 to 36) <\/strong>\n<\/p>\n

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.<\/p>\n

\n

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. <\/p>\n<\/p><\/div>\n

16.\tService of Notices \u2013 Insertion of new section 292BB \u2014 (Clause 52)<\/strong>\n<\/p>\n

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.<\/p>\n

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.
\n17.\tReassessment \u2013 S. 147 & S. 151, (Clauses 30 & 31) <\/p>\n

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. <\/p>\n

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<\/strong> (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.\n<\/p>\n

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.<\/p>\n

In Dr. Shashi Kant Garg vs. CIT<\/strong> (2006) 285 ITR 158 (All) the court held that notice issued without proper sanction was invalid.
\nThe amendment applies retrospectively from 1st October, 1998.\n<\/p>\n

18.\tAuthentication of documents, notices, letters \u2014 Insertion of new section 282A \u2013 (Clause 51) <\/strong>\n<\/p>\n

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.<\/p>\n

The new section 282A is proposed to be inserted with a view to successfully implement the taxpayer friendly schemes.<\/p>\n

19.\tPresumption as the books of account, other documents etc. \u2013 <\/strong>\n<\/p>\n

S. 292 C (Clause 53) <\/strong>\n<\/p>\n

Presumption as to books of account, other documents etc. u\/s. 292C is now extended to survey operations as well.
\nIn Metrani vs. CIT<\/strong> (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.\n<\/p>\n

This provision will retrospectively apply from 1-10-1975. The validity of such provisions in the eyes of law is a debatable issue.
\n20.\tStay of demand by ITAT \u2013 S. 254 (Clause 46)<\/p>\n

The Hon\u2019ble Bombay High Court in case of Narang Overseas Pvt. Ltd. vs. ITAT<\/strong> (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\u2019ble 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.\n<\/p>\n

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.<\/p>\n

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.<\/p>\n

The ITAT Mumbai has prescribed the guidelines for stay petition. (AIFTP Journal, April 2007 or itatonline.org.) <\/a>\n<\/p>\n

21.\tCollection & Recovery of taxes<\/strong>\n<\/p>\n

1.\tInterest on securities \u2013 S. 193 \u2013 (Clause 39)<\/strong>\n<\/p>\n

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<\/p>\n

2.\tPayment to contractor \u2013 S. 194C, (Clause 40)<\/strong>\n<\/p>\n

Sections 194C is amended to include AOP and BOI<\/p>\n

3.\tTax withholding \u2013 S. 195, (Clause 41) <\/strong>\n<\/p>\n

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.<\/p>\n

4.\tCredit for TDS and TCS \u2014 Ss. 199 and 206. (Clauses 42 & 45)<\/strong>\n<\/p>\n

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.<\/p>\n

5. \tDematerialization of TDS and TCS \u2013 Clarification \u2013 S. 203 (Clause 44)<\/strong>\n<\/p>\n

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,<\/p>\n

22.\tAssessee in default \u2014 Amendment to section 191 and section 201 \u2013 (Clauses 38 & 43) <\/strong>\n<\/p>\n

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. <\/p>\n

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. <\/p>\n

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. <\/p>\n

Similar amendment is proposed in section 191. However, amendment to section 191 will take effect retrospectively from 1st June, 2003.
\nA 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. <\/p>\n

23.\tPenalties \u2013 Concealment \u2014 <\/strong>\n<\/p>\n

S. 271(1B) (Clause 48) <\/p>\n

In the year 1972 the Apex court in D.M.Manasvi vs. CIT<\/strong> (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 <\/strong>vs. JCIT (2007) 291 ITR 519 (SC)\n<\/p>\n

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.<\/p>\n

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.<\/p>\n

24.\tTax Appeals\u2013 S. 268A (Clause 47)<\/strong>\n<\/p>\n

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.<\/p>\n

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.<\/a>)\n<\/p>\n

25.\tSettlement commission \u2014 Waiver of penalty and immunity from prosecution. ss. 273AA, 278AB \u2013 (Clauses 49 & 50)<\/strong>\n<\/p>\n

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. <\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

Pending 3,000 applications will involve number of years. Hence this provision will generate at least 10,000 appeals to the appellate Tribunal. <\/p>\n

We have been informed that less than 10 applications have been filed from all over India since 1-6-2007. <\/p>\n

26. \tCommodity transaction tax \u2013 Chapter VII \u2013 (Clauses 97 & 116)<\/strong>\n<\/p>\n

With a view to widen tax base, a new tax called commodities transaction tax (CTT) is proposed to be levied on \u201c taxable transactions\u201d 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. <\/p>\n

27. \tWealth Tax <\/strong>\n<\/p>\n

Consequential amendments are also made under wealth tax. Clauses 56 to 62, sections are 17, 17AS, 18, 18BA, 25G, 42, 42A. <\/p>\n

28.\tConclusion<\/strong>\n<\/p>\n

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. <\/p>\n<\/p>\n

*<\/b><\/tt><\/font>Reprodued with permission from the Income Tax Review – March 2008 issue.<\/p>\n","protected":false},"excerpt":{"rendered":"

Overview of Tax Proposals * Dr. K. Shivaram, Advocate The author has made a critical analysis of the provisions of the Finance Bill 2008 and argues that some of its provisions may be unconstitutional. 1. Introduction This year\u2019s budget is …<\/p>\n

Overview of Tax Proposals<\/span> Read More »<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"class_list":["post-11","page","type-page","status-publish","hentry"],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/pages\/11","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/comments?post=11"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/pages\/11\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/media?parent=11"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}