Explanatory Notes on the provisions of the Taxation Laws (Amendment) Act, 1984 - Part II - Income Tax - 397/1984

Explanatory Notes on the provisions of the Taxation Laws (Amendment) Act, 1984 - Part II Circular No. 397 Dated 16/10/1984 INTRODUCTION 1. In respect of the provisions of the Taxation Laws (Amendment) Act, 1984 (hereinafter referred to as the Amending Act), which came into force with effect from 1st October, 1984, or earlier, Explanatory Notes have been issued under Circular No.394, 14th September, 1984. The following Explanatory Notes relate to the provisions of the Amending Act which come into force on 1st April, 1985. Amendments to the Income-tax Act "TRANSFER" TO INCLUDE CONVERSION INTO OR TREATMENT AS A TRADING ASSET - SECTION 2(47) 2.1 Under section 2(47) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"), the term "transfer" in relation to a capital asset, has been defined to include the sale, exchange or relinquishment of the asset; or the extinguishment of any rights therein; or the compulsory acquisition of the asset under any law. 2.2 Under the existing provisions, an assessee who converts a capital asset owned by him into a trading asset of his business and then seels the converted asset is able to avoid payment of tax on the capital gains represented by the appreciation in the value of the asset up to the date of its conversion. This is because the assessee can claim that the mere conversion of a capital asset into a trading asset does not amount to a transfer. The assessee can also claim that for the purposes of determining his business profits from the sale of the converted asset, the cost of such asset should be taken as its market value on the date of its conversion into a trading asset, and not its actual cost of acquisition to him. Hence, when the converted capital asset is sold by him as stock-in-trade, only the difference between sale price and market value of the stock-in-trade on the date of the conversion of the capital asset can be regarded as profit accruing to the assessee from the transaction. 2.3 With a view to preventing the avoidance of tax on such capital gains through the device of converting a capital asset into a trading asset, the Amending Act has substituted the definition of "transfer" in section 2(47) of the Act by a new definition to provide that, in a case where a capital asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment shall also be regarded as a transfer of the asset. 2.4 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 2 of the Amending Act] MODIFICATION OF THE DEFINITION OF "SUBSTANTIAL CONTRIBUTION TO A TRUST OR INSTITUTION - SECTION 13(3)(b) 3.1 Section 13(1)(c) of the Act provides that a trust for charitable or religious purposes or a charitable or religious institution will forfeit exemption from income-tax if under the terms of the trust or the rules governing the institution (created on or after 1st April, 1962), any part of the income of the trust or institution enures directly or indirectly for the benefit of any one or more of the persons specified in section 13(3) of the Act. Exemption from income-tax is also forfeited if any part of the income or property of the trust or institution (whenever created or established) is used or applied directly or indirectly for the benefit of the aforesaid persons. 3.2 One of the categories of persons specified in section 13(3)(b) of the Act consists of persons who have made "substantial contribution" to the trust or institution, that is, persons whose total contribution up to the end of the relevant accounting year exceeds Rs.5,000. The monetary ceiling of Rs.5,000 was fixed by the Finance Act, 1972. The Amending Act has raised the aforesaid monetary ceiling to Rs.25,000. Thus, a person shall be regarded as having made a substantial contribution to a trust or institution only if his total contribution up to the end of the relevant accounting year exceeds Rs.25,000. 3.3 The amendment takes from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 5 of the Amending Act] TAXATION OF PERQUISITE REPRESENTED BY INTEREST-FREE LOANS OR LOAN AT CONCESSIONAL RATES OF INTEREST TO EMPLOYEES - SECTION 17(2) 4.1 Employers often grant loans free of interest or on concessional terms to their employees for various purposes, e.g., house building, purchase of a conveyance, etc. The provision of a loan to an employee free of interest or at an unduly concessional rate of interest and confers a benefit which should be assessable as a perquisite. 4.2 The Amending Act has inserted a new sub-clause (vi) in clause (2) of section 17 of the Act to provide that where the employer has advanced any loan to an employee for building a house or purchasing a site or a house and a site for purchasing a motor car and either no interest is charged by the employer on such loan or interest is charged at a rate which is lower than the rate of interest which the Central Government may specify in this behalf by notification in the Official Gazette, an amount calculated on the following basis shall be regarded as perquisite received by the employee and charged to tax accordingly:- (a) In a case where such loan is advanced without charging any interest, the amount of interest (calculated in the prescribed manner) on such loan at the rate notified (b) in a case where such loan is advanced by charging interest at a rate which is lower than the rate so notified, the amount of the difference between the interest (calculated in the prescribed manner) on such loan at the rate so notified and the interest charged by the employer. 4.3 In notifying the rate of interest for the purposes of this provision, the Central Government shall have regard to the rate of interest charged by it from its employees on loans for similar purposes granted to them. 4.4 The new provision will not apply to employees of the Central Government or any State Government or an employee (not being a director of a company or a person who has a substantial interest in the company) whose income under the head "Salaries", exclusive of all benefits or amenities not provided for by way of monetary payment, does not exceed Rs.18,000. Thus, employees drawing cash remuneration up to Rs.24,000 per annum will be exempted from the purview of this provision, because, after deduction of standard deduction, the income in such cases under the head "Salaries" will not exceed Rs.18,000. 4.5 The new provision takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 7(ii) of the Amending Act] MODIFICATION OF PROVISIONS RELATING TO DETERMINATION OF ANNUAL VALUE FOR COMPUTATION OF INCOME FROM HOUSE PROPERTY - SECTION 23 5.1 Under the first proviso to section 23(1) of the Act, taxes levied by a local authority in respect of a house property which is in the occupation of a tenant are allowed as deduction in determining the annual value of a property to the extent such taxes are borne by the owner. The Amending Act has substituted this proviso by a new proviso to provide that deduction in respect of such taxes shall be allowed in determining the annual value of the property of only that year in which such taxes are actually paid by the owner. 5.2 The Amending Act had also inserted a new Explanation to clarify that where a deduction in respect of the taxes referred to in the first proviso to section 23(1) has been allowed in determining the annual value of the property of any accounting year relevant to the assessment year 1984-85 or an earlier assessment year, a deduction in respect of such taxes shall not be allowed again in determining the annual value of the property of the accounting year in which such taxes are actually paid by the owners. 5.3 These amendments take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 8(a) and (c) of the Amending Act] DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY - SECTION 24 6.1 Section 24(1)(x) of the Act provides that (subject to the conditions laid down in rule 4 of the Income-tax Rules, 1962), the rent which an assessee cannot realise from his tenant will be allowed as deduction in computing his income from the property. There is, however, no provision in the Act for charging income-tax in cases where the amount which has been allowed as deduction is subsequently recovered by the assessee. 6.2 The Amending Act has inserted a new section 25A in the Act to provide that where a deduction has been allowed under section 24(1)(x) in respect of unrealised rent and subsequently during any accounting year the assessee has realised any amount in respect of such rent, the rent so realised shall be chargeable under the head "Income from house property" and, accordingly, charged to tax (without making any deduction under section 23 or section 24 of the Act) as the income of that year irrespective of whether the assessee is the owner of that property in that year or not. 6.3 The new section takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 9 of the Amending Act] AMOUNTS NOT DEDUCTIBLE IN THE COMPUTATION OF INCOME FROM BUSINESS OR PROFESSION - SECTION 40 7.1 Section 40(b) of the Act provides that in the case of a firm, any payment of interest, salary, bonus, commission, or remuneration made by the firm, to any partner of the firm shall not be allowed as deduction in computing the income of the firm chargeable under the head "Profits and gains of business or profession". 7.2 The Amending Act has inserted three new Explanations to section 40(b) of the Act. Explanation 1 provides that where interest is paid by firm to a partner who has also paid interest to the firm, the amount of interest to be disallowed under section 40(b) of the Act shall be limited to the net amount of interest paid by the firm to the partner. To illustrate: (i) if a firm paid interest of Rs.7,000 to a partner and that partner paid interest of Rs.2,000 to the firm in the same accounting year, the disallowance to be made under section 40(b) of the Act in the case of the firm will be restricted to Rs.5,000 only. (ii) If a firm paid interest of Rs.5,000 to a partner and that partner paid interest of Rs.8,000 to the firm in the same accounting year, no disallowance of interest will be required to be made under section 40(b) of the Act in the computation of the income of the firm. 7.3 Explanation 2 provides that where an individual is a partner in a firm on behalf, or for the benefit, of any other person, interest paid by the firm to such individual or by such individual to the firm, otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of section 40(b) of the Act. Thus, if an individual is a partner in a firm on behalf of a Hindu undivided family, interest paid by the firm to such individual otherwise than in his capacity as representative of the HUF will not be taken into account for the purposes of section 40(b) of the Act. It has also been provided that, in such cases, interest paid by the firm to such individual or by such individual to the firm as partner in a representative capacity and interest paid by the firm to the person so represented or by such person to the firm shall be taken into account for the purposes of section 40(b) of the Act. 7.4 Explanation 3 provides that where an individual is a partner in a firm otherwise than in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of section 40(b) of the Act, if such interest is received by him, on behalf, or for the benefit of any other person. In other words, if an individual is a partner in a firm in his personal capacity, interest paid by the firm to such individual, not in his personal capacity, but say, as representing an HUF of which he is the karta, shall not be taken into account for the purposes of section 40(b) of the Act. 7.5 These amendments will take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 10 of the Amending Act] EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES - SECTION 40A 8.1 Section 40A(5) of the Act places certain limits on the deductible amount of expenditure incurred by an assessee in respect of payment of salary to any employee or a former employee or in providing any perquisite, etc., to such employee. Explanation 2 to section 40A(5) defines the expressions "salary" and "perquisite" for the purposes of the aforesaid provision. 8.2 The Amending Act has inserted a new sub-clause (vi) in clause (b) of the aforesaid Explanation. This is consequential to insertion of sub-clause (vi) in clause (2) of section 17 of the Income-tax Act, referred to in paragraphs 4.1 to 4.5 above. The effect of the new sub-clause will be that the amount of interest referred to in item (a) or item (b), as the case may be, of sub-clause (vi) of section 17(2) of the Income-tax Act shall be regarded as perquisite provided by the assessee to his employee for the purposes of section 40A(5) of the Act. 8.3 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 11 of the Amending Act] CAPITAL GAINS - SECTION 45 9.1 Under the existing provisions, profits or gains arising from the transfer of a capital asset effected in the previous year are taken to be the income of the previous year in which the transfer took place and are chargeable to income-tax under the head "Capital gains". 9.2 The Amending Act has inserted a new sub-section (2) in section 45 of the Act to provide that the profits and gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him, as stock-in-trade of a business carried on by him, shall be charged to tax under the head "Capital gains" in the year in which such stock-in-trade is sold or otherwise transferred by him. The new sub-section further provides that, for the purposes of computing the capital gain in such cases, the fair market value of the capital asset on the date on which it was converted or treated as stock-in-trade shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. To illustrate: Suppose the cost of the asset is R.20,000. The asset is converted by the owner as stock-in-trade on 1-6-1984 and taken to his stock at the market value of Rs.70,000. The asset is sold on 1-8-1985 for R.80,000. Capital gain of Rs.50,000 (subject to admissible deductions) will be liable to tax in the assessment year 1986-87. The business profit of Rs.10,000 arising on the sale of the asset will be liable to tax as part of the business income for the assessment year 1986-87. (The accounting year of the assessee has been taken to be the financial year).9.3 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 12 of the Amending Act] WITHDRAWAL OF EXEMPTION IN CERTAIN CASES - NEW SECTION 47A 10.1 Under clause (iv) of section 47 of the Income-tax Act, capital gain arising from the transfer of a capital asset by a company to its wholly-owned subsidiary company is exempt from tax. Similarly, under clause (v) of section 47, capital gain arising from the transfer of a capital asset by a subsidiary company to the holding company is also exempt from tax. Exemption under this provision is allowed only if the transferee company is an Indian company. 10.2 The Amending Act has inserted a new section 47A to provide that, if at any time before the expiry of 8 years from the date of transfer of a capital asset referred to in clause (iv) or clause (v) of section 47, such capital asset is converted by the transferred company into, or is treated by it as, stock-in-trade of its business; or the parent company or its nominee, or as the case may be, the holding company ceases to hold the whole of the share capital of the subsidiary company before the expiry of the period of 8 years aforesaid, the amount of capital gain exempted from tax by virtue of the provisions contained in section 47 of the Act shall be deemed to be income of the transferor company chargeable under the head "Capital gains" of the year in which the transfer took place (Please also see Paragraph 16 below). 10.3 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 13 of the Amending Act] COST WITH REFERENCE TO CERTAIN MODES OF ACQUISITION - SECTION 49 11.1 The Amending Act has inserted a new sub-section (3) in section 49 of the Act to provide that in a case where the capital gain arising from the transfer of a capital asset referred to in clause (iv) or clause (v) of section 47 of the Act, is deemed, by virtue of the provisions of new section 47A to be income chargeable under the head "Capital gains", the cost of acquisition of such asset to the transferee company shall be the cost for which such asset was acquired by it. 11.2 The Amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 14 of the Amending Act] CAPITAL GAINS EXEMPT FROM TAX - SECTION 53 12.1 Under the existing provisions, capital gains arising from the transfer of any capital asset, being building, or land apartment thereto, the income from which is charged under the head, "Income from house property" is exempt from tax in cases where the consideration for the transfer does not exceed Rs.25,000 and the aggregate of the fair market values of all such capital assets owned by the assessee immediately before the transfer does not exceed Rs.50,000. 12.2 The Amending Act has substituted section 53 by a new section to provide that long-term capital gain arising from the transfer of a residential house will be exempt from tax in cases where the consideration received or accruing as a result of the transfer does not exceed Rs.2 lakhs. In cases where such consideration exceeds Rs.2 lakhs, the capital gain would be exempted proportionately. In other words, the amount of capital gain to be exempted under this provision would bear the same proportion to the amount of capital gain arising from the transfer as the amount of Rs.2 lakhs bears to the amount of consideration received or accruing from the transfer. To illustrate, if the consideration for the transfer is Rs.6 lakhs, one-third of the capital gain arising from the transfer will be exempt from tax. The exemption under the new section 53 will not be available if the assessee owns any other residential house on the date of such transfer. 12.3 Section 54 of the Income-tax Act provides exemption in respect of long-term capital gain arising from the sale of a residential house in cases where such capital gain is utilised by the taxpayer for purchasing or constructing another residential house within the specified period. Sub-section (1) of section 54 provides that the exemption under the said section will be available in cases where the capital gain arises from the transfer of long term capital asset "to which the provisions of section 53 are not applicable". These provisions should be construed to imply that it will not be permissible for a taxpayer who has opted to avail of the tax exemption under section 53 to also seek partial exemption in respect of the remaining capital gain under section 54. In other words, the above quoted words should not be construed to imply that the exemption under section 54 will stand barred in all cases where long-term capital gains are derived from the sale of a residential house owned by the taxpayer. 12.4 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 15 of the Amending Act] INCOME OF INDIVIDUAL TO INCLUDE INCOME OF SPOUSE, MINOR CHILD, ETC. - SECTION 64 13.1 The Amending Act has inserted a new clause (viii) in sub-section (1) of section 64 of the Income-tax Act to provide that any income arising directly or indirectly, to any person or association of persons, from assets transferred, directly or indirectly, on or after 1st June, 1973, otherwise than for an adequate consideration, to the person or association of persons by such individual shall, to the extent to which the income from such assets is for the immediate or deferred benefit of son's wife or son's minor child of the individual or both, be included in computing the total income of such individual. 13.2 This amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 17 of the Amending Act] SUBMISSION OF RETURN FOR LOSSES - SECTION 80 14.1 Under the existing provisions of section 80 relating to submission of return for losses, no loss is allowed to be carried forward and set off under section 72(1), 73(2), 74(1) or 74A(3) unless such loss has been determined in pursuance of a return filed under section 139. 14.2 The Amending Act has amended section 80 of the Act to provide that such loss shall not be allowed to be carried forward and set off unless such loss is determined in pursuance of a return filed within the time allowed under section 139(1) for furnishing a voluntary return of income or within such further time as may be allowed by the Income-tax Officer. 14.3 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to any loss for the assessment year 1985-86 accordingly, apply in relation to any loss for the assessment year 1985-86 and subsequent years. [Section 18 of the Amending Act] RETURN OF INCOME - SECTION 139 15.1 Under the existing provisions contained in clause (b) of sub-section (1A) of section 139 of the Act, a person whose salary (exclusive of the value of all benefits or amenities not provided by way of monetary payment) does not exceed Rs.18,000 is not required to furnish a voluntary return of income, if the other conditions laid down in that sub-section are fulfilled. 15.2 The Amending Act has substituted the aforesaid clause (b) by a new clause to provide that a person whose income under the head "Salaries" (exclusive of the value of benefits or amenities not provided by way of monetary payment) does not exceed Rs.18,000, will not be required to furnish a voluntary return of income, subject to the fulfilment of the other conditions laid down in the aforesaid sub-section. As income under the head "Salaries" is computed after allowing standard deduction under section 16(i) of the Act, the effect of the amendment will be that a person whose salary (exclusive of the value of benefits and amenities aforesaid) does not exceed Rs.24,000 will not be required to furnish a voluntary return of income, subject to the fulfilment of the other conditions contained in section 139(1A) of the Act. 15.3 Under the existing provisions contained in Explanation 2 to clause (a) of section 139(8), interest for late filing of, or failure to file the return of income in the case of a registered firm is calculated by treating the registered firm as an unregistered firm. The aforesaid Explanation 2 has been substituted by a new Explanation 2. The new Explanation, which will apply to all categories of assessees, provides that where an assessment is made for the first time under section 147 of the Income-tax Act, the assessment so made shall be regarded as a regular assessment under section 143 or section 144 of the Income-tax Act. The effect of the amendment, therefore, will be that - (a) Interest under section 139(8) for delay or default in furnishing the return or income by a registered firm shall be calculated with reference to the tax payable by the firm as a registered firm and not with reference to tax payable by it as if it were assessed as an unregistered firm. (b) Interest under section 139(8) of the Act in the case of all categories of assessees will become payable even in cases where an assessment for a particular year is made for the first time under section 147 of the Act. 15.4 Under the existing provisions contained in clause (b) of section 139(8), interest payable by an assessee for delay or default in furnishing the return of income is required to be reduced in cases where the tax on which the interest was payable has been reduced as a result of an order under sections 154, 155, 250, 254, 260, 262 or section 264 of the Act. This clause has been substituted by a new clause (b) which provides that where as a result of any of the orders specified in that clause, the amount of tax on which interest was payable has been increased or reduced, the interest shall be increased or reduced, accordingly. In a case where the interests is increased, the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be issued under section 156 of the Act and the provisions of the Act shall apply, accordingly. In cases where such interest is reduced, the excess interest paid, if any, shall be refunded to the assessee. 15.5 These amendments take effect from 1st April 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 25 of the Amending Act] OTHER AMENDMENTS - SECTION 155 16.1 The Amending Act has inserted a new sub-section (7B) in section 155 of the Income-tax Act relating to other amendments. This is in consequence of insertion of a new section 47A by section 13 of the Amending Act. (Please see Paragraph 10 above). 16.2 The new sub-section (7B) provides that where profits or gains arising from the transfer of a capital asset are not charged to tax under section 45 of the Act by virtue of clause (iv) or clause (v) of section 47 of the Act, but such profits and gains are deemed under the new section 47A to be income chargeable under the head "Capital gains", the Income-tax Officer may, make an order of amendment at any time before the expiry of four years from the end of the previous year in which the relevant capital asset was converted into, or treated as, stock-in-trade or, as the case may be, the parent company or its nominees, or, as he case may be, the holding company ceased to hold the entire share capital of the subsidiary company. 16.3 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 30(e) of the Amending Act] CONDITION OF LIABILITY TO PAY ADVANCE TAX - SECTION 208 17. The Amending Act, besides making an amendment of a drafting nature, has inserted a new sub-section (3) under section 208 relating to condition of liability to pay advance-tax. The new sub-section provides that it shall not be necessary for an assessee referred to in clause (c) or clause (d) of sub-section (2) of section 208, (that is to say, an assessee other than a company, local authority or registered firm) to pay advance tax during the financial year if the amount of advance tax payable by the assessee during that financial year, as computed in accordance with the provisions of section 209 of the Act, does not exceed Rs.1500. 17.2 These amendments take effect from 2nd April, 1985, and will, accordingly, apply in relation to the advance tax payable during the financial year 1985-86 and subsequent financial years. [Section 34 of the Amending Act] INTEREST PAYABLE BY GOVERNMENT - SECTION 214 18.1 The Amending Act has amended sub-section (1) of section 214 by substituting the words "assessed tax" for the words, "tax determined on regular assessment". This amendment is intended to secure uniformity in the terms used in related sections, namely, sections 214, 215, 217 and 273. As stated in paragraph 18.4 below, the expression "assessed tax" shall have the same meaning as in section 215(5) of the Act 18.2 The existing sub-section (1A) of section 214 provides that where on completion of the regular assessment, the amount on which interest was paid by the Government under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee and the provisions of the Income-tax Act shall apply, accordingly. 18.3 The Amending Act has substituted the aforesaid sub-section (1A) by a new sub-section (1A) to provide that where as a result of any order under the section specified therein, the amount on which interest was payable under sub-section (1) of section 214 has been increased or reduced, the interest payable by the Government shall be increased or reduced, accordingly. Further, it has been provided that in a case where interest payable by the Government is reduced, the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest payable and requiring him to pay such amount. Such notice of demand shall be deemed to be issued under section 156 and the provisions of the Income-tax Act shall apply accordingly. 18.4 The Amending Act has also inserted two new Explanations after sub-section (2) of section 214, Explanation 1 provides that the expression "assessed tax" shall, for the purposes of section 214, have the same meaning as in section 215(5) of the Act. This Explanation is consequential to the amendment referred to in paragraph 18.1 above. 18.5 Explanation 2 provides that an assessment made for the first time under section 146 of the Act shall be regarded as a regular assessment for the purposes of section 214. 18.6 These amendments take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 35 of the Amending Act] INTEREST PAYABLE BY ASSESSEE - SECTION 215 19.1 Sub-section (3) of section 215 provides that where as a result of an order under any of the specified sections, the amount on which interest was payable by the assesses is reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. 19.2 The Amending Act has substituted the aforesaid sub-section (3) by a new sub-section (3) to provide that where as a result of an order under any of the specified sections, the amount on which interest, was payable by the assessee has been increased or reduced, the interest shall be increased or reduced accordingly. In a case, where the interest is so increased, the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable by the assessee. Such notice of demand shall be deemed to be issued under section 156 of the Act and the provisions of the Act shall apply, accordingly. In a case, where interest is reduced, the excess interest paid, if any, shall be refunded to the assessee. 19.3 The Amending Act has also is inserted a new sub-section (6) in section 215 to provide that where in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of section 215, section 216, section 217 and section 273 of the Act. 19.4 The aforesaid amendments take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 36 of the Amending Act] FALSE ESTIMATE OF, FAILURE TO PAY ADVANCE TAX -SECTION 273 20.1 The Amending Act has inserted a new Explanation 2 to sub-section (2) of section 273 to provide that where the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183, then the penalty imposable on the firm under section 273 shall be the same amount as would be imposable if the firm were an unregistered firm. 20.2 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86, and subsequent years. [Section 49 of the Amending Act] AMENDMENT TO WEALTH-TAX ACT NET WEALTH TO INCLUDE CERTAIN ASSETS - SECTION 4 21.1 The Amending Act has inserted a new sub-clause (vi) in section 4(1)(a) of the Wealth-tax Act to provide that in computing the net wealth of an individual, there shall be included as belonging to him the value of assets which on the valuation date are held by a person or an association of persons, to whom such assets have been transferred on or after 1st June, 1973, by the individual otherwise than for adequate consideration, for the immediate or deferred benefit of the son's wife or the son's minor child, of such individual, or both. 21.2 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86, and subsequent years. [Section 53 of the Amending Act] EXEMPTION IN RESPECT OF CERTAIN ASSETS - SECTION 5 22.1 The Amending Act has inserted a new clause (xxviib) in subsection (1) of section 5 to provide that subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of a deposit with any authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development, or housing accommodation or for the purpose of planning, development, or improvement of cities, town and villages or for both. 22.2 Another amendment seeks to secure that exemption in respect of the deposits referred to in new clause (xxviib) inserted in section 5(1) of the Act, is subject to the monetary limit contained in sub-section (1A). 22.3 The Amending Act has made two amendments to sub-section (3) of section 5. These are explained below:- (i) Under the existing provisions, exemption under section 5(1) in respect of the assets specified in section 5(3) is allowed only if the relevant asset is held by the assessee for a specified period ending with the valuation date. The first amendment secured that exemption in respect of the deposits referred to in new clause (xxviib) will not be allowed unless the deposit has been held by the taxpayer for a period of at least six months ending with the relevant valuation date. (ii) Under the existing provisions, in a case where the relevant new asset referred to in sub-section (3) was acquired by the assessee by conversion of, or in exchange of, or with the proceeds of, or with money constituting, any other asset exempt under sub-section (1), the period for which such other asset was held by assessee within the period of twelve months ending with the valuation date is included in computing the period of six months specified under sub-section (3), if the assessee acquires the relevant asset within thirty days after he ceased to own such other asset. The second amendment has raised the aforesaid limit of thirty days to sixty days. 22.4 The aforesaid amendments, take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 54(a)(i), (b) and (c) of the Amending Act] AMENDMENT TO GIFT-TAX ACT EXEMPTION IN RESPECT OF CERTAIN GIFTS - SECTION 5 23.1 The Amending Act has inserted a new clause (xvi) in sub-section (1) of section 5 of the Gift-tax Act to provide that gifts to an individual donee up to a maximum of Rs.500 value in one year will be exempt from gift-tax. 23.2 The amendment takes effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years. [Section 72 of the Amending Act] (Sd.) E.K.KOSHI Director Central Board of Direct Taxes