Explanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 (as amended by the Direct Tax Laws (Amendment) Act, 1989)--Part I--Provisions which have come into force with effect from 1st April, 1988 - Income Tax - 545/1989

Explanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 (as amended by the Direct Tax Laws (Amendment) Act, 1989)--Part I--Provisions which have come into force with effect from 1st April, 1988. Circular No. 545 Dated 21/9/1989 INTRODUCTION 1.1 The Direct Tax Laws (Amendment) Bill, 1987, as passed by Parlia- ment, received the assent of the President on 24th January, 1988, and was enacted as the Direct Tax Laws (Amendment) Act, 1987 (No. 4 of 1988). Some of the provisions of this Act have been further amended by the Direct Tax Laws (Amendment) Act, 1989 (No. 3 of 1989). These explana- tory notes cover both these Amendment Acts. However, the provisions of the Amendment Act, 1989, will be discussed in these explanatory notes only to the extent these are relevant in the context of the Amendment Act, 1987. 1.2 A Abbreviations used.--In these explanatory notes (including Parts II and 111), the following abbreviations have been used: - (i) The Direct Tax Laws (Amendment) Act, 1987, has been referred to as the "Amending Act, 1987. (ii) The Direct Tax Laws (Amendment) Act, 1989, has been referred to as the "Amending Act, 1989". (iii) The various provisions of the Income-tax, Wealth-tax, Gift-tax and Companies (Profits) Surtax Acts, as they stood before amendments by the Direct Tax Laws (Amendment) Act, 1987, have been referred to as the "old provisions". 2. Objects of the Act.-The Amending Act, 1987, substantially amended the provisions of the Income-tax Act, 1961, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, and the Companies (Profits) Surtax Act, 1964. The main objectives sought to be achieved were : (i) To adopt the financial year as the uniform accounting year for all the assessees. (ii) To discontinue a number of artificial exemptions and deductions as also to omit certain disallowance of business expenditure actually incurred, in order to tax the real income under the head "Profits and gains of business or profession". (iii) To introduce a new scheme of tax treatment in respect of charitable and religious institutions, trusts, etc., as also scientific research and sports associations and institutions of national importance. (iv) To make changes in the designations of the income-tax authorities. (v) To introduce a new procedure for assessment. (vi) To charge mandatory additional tax in lieu of penalty for concealment of income/wealth/gift. (vii) To introduce a new scheme of taxation of firms and partners. (viii) To prevent tax evasion through "association of persons" and "body of individuals". (ix) To introduce a system of levy of mandatory interest to replace various interests and penalties. (x) To speed up collection and recovery of taxes. (xi) To pave the way for the enactment of a single direct taxes code. 3.1 Amendments to the provisions of the Amending Act, 1987, by the Amending Act, 1989.-By the Amending Act, 1989, major changes have been brought about. It has withdrawn some of the new provisions introduced by the Amending Act, 1987, and restored fully or substantially the old provisions in respect of the following: (i) Scheme of tax treatment in respect of charitable and religious institutions, trusts, etc., as also scientific research and sports associations and institutions of national importance. (ii) charging of additional tax in lieu of penalty for concealment of income/wealth/gift or furnishing of inaccurate particulars thereof. (iii) Scheme of taxation of firms and partners. The Amending Act, 1989, has also reintroduced the expression "reason to believe" for reopening of assessments to bring to tax income/wealth/gift escaping assessment. Besides, amendments in some other provisions of various Direct Tax Acts, as amended by the Amending Act, 1987, have also been made to remove some anomalies and practical difficulties. 3.2 The Amending Act, 1989, has also made certain other changes in the Direct Tax Acts to introduce some more concessions and incentives and also to further rationalise the provisions of the three Acts. These will, however, be discussed in a separate circular containing exclusively the explanatory notes on the provisions of the Amending Act, 1989 (excluding those which are relevant in the context of the Amending Act, 1987). 4.1 Commencement of the Amending Act, 1987.-The Amending Act, 1987, contains 189 sections. Most of the amendments come into effect from 1st April, 1989, but some are applicable with effect from 1st April, 1988. The position regarding the dates of application is summarised as under : 4.2 Provisions applicable with effect from the 1st April, 1988.-(i) Section 2, clauses (b), (c), (d), (e), U), (g), (k), (1), (m), items (2) and (4) of sub-clause (i) and sub-clause (ii) of clause (o) of section 3, clause (i) of section 6, sections 27, 30 to 35, 73 to 81, 84 and 123, clauses (1), (13) and (25) of section 126, sections 127,, 130 to 132, 159, 161,1164, 165, 185, 187 and 188 and clause (b) of section 180. (ii) Clauses (a) and (b) of section 37, section 38, clauses (i), (ii), (iii) and (vii) of section 128, sub-clauses (b) and (f) of clause (1) and sub-clause (b) of clause (2) of section 154, sub-clause (ii) of clause (a) of section 155, section 158 and clauses (a), (b) and (c) [except in so far as it relates to omission of clause (xvii) of section 2 of the Gift-tax Act relating to definition of the term "partner"] and (g) of section 162 have also come into effect from 1 st April, 1988, as a result of the amendments carried out through section 88 of the Finance Act, 1988. (iii) Clause (r) of section 3, clause (a) of section 140 and clause (a) of section 179 are also deemed to have come into effect from 1st April, 1988, as a result of the amendments carried out through section 95 of the Amending Act, 1989. 4.3 Provisions applicable from 1st April, 1989.-Provisions other than those mentioned in para 4.2 above have come into effect from 1st April, 1989, except the following : (i) Clause (f) of section 6 shall be deemed to have come into effect from 1st July, 1986. (ii) Clause (c) of section 61 shall come into effect from 1st April, 1992. 5.1 Scope of this circular (Part I of the explanatory notes). -This circular explains the provisions of the Amending Act, 1987, which have already come into effect from 1st April, 1988 (as enlisted in para 4.2 above). These provisions relate to: (i) Change in the designation of income-tax, wealth-tax, gift-tax and surtax authorities and consequential changes in the definition of these authorities. (ii) Appointment, control and jurisdiction of income-tax, wealth- tax, gift-tax and surtax authorities. (iii) Exemptions under the Income-tax and Wealth-tax Acts in respect of a mutual fund set up by a public sector bank or a public financial institution and units thereof. (iv) Deduction of tax at source in respect of certain income. (v) Advance payment of tax. (vi) Power of the Central Government to remove difficulties which may arise in giving effect to the provisions of the Income-tax, Wealth-tax and Gift- tax Acts, as amended by the Amending Act, 1987. (vii) Consequential changes in the definition of the term "rate or rates in force" and also certain other consequential changes. 5.2 The provisions of the Amending Act, 1987, which come into force from 1st April, 1989 (as mentioned at para 4.3 above), will be explained in Parts II and III of the explanatory notes. Amendments to the Income-tax Act, 1961 CHANGE IN DESIGNATION OF INCOME-TAX AUTHORITIES 6.1 Substitution of new authorities (section 2 of the Amending Act,1987).-The Amending Act, 1987, has changed the designation of certain existing income-tax authorities. Section 2 of the Amending Act, 1987, provides that, save as otherwise expressly provided in the Income-tax Act and unless the context otherwise requires, references to the old designation of the authorities in that Act shall be construed as references to the new designation. 6.2 Section 2 of the Amending Act, 1987, also provides that a reference to the "Income-tax Officer" in the Income-tax Act shall be construed as a reference to an "Assessing Officer". It further provides that a reference to the "Commissioner" in that Act shall be construed as a reference to the "Chief Commissioner or Commissioner". However, a proviso below the said section 2 provides that references to the "Commissioner" occurring in sections 245D (dealing with procedure on receipt of an application by the Settlement Commission), 253 (dealing with appeals to the Appellate Tribunal), 256 (dealing with statement of a case to the High Court), 263 (dealing with revision by the Commissioner of orders prejudicial to Revenue) and 264 (dealing with revision by the Commissioner of other orders) of the Act shall not be construed as a reference to the "Chief Commissioner". The effect is that matters mentioned in these sections shall be dealt with by the concerned Commissioners only and not by the Chief Commissioner. 6.3 Substitution of new section 116 relating to income-tax authorities.-The old provisions of section 116 of the Income-tax Act enumerated the authorities for the purposes of the Act. The Amending Act, 1987, has substituted this section by a new section, which redesignates some of the existing authorities and also includes some new authorities. Changes made in designations are as under : Earlier designation Corresponding new designation (i) Director of Inspection Director of Income-tax (ii) Deputy Director of Inspection Deputy Director of Income-tax (iii) Assistant Director of Inspection Assistant Director of Income-tax (iv) Inspecting Assistant Commissioner of Income-tax Deputy Commissioner of Income tax (v) Appellate Assistant Commissioner of Income-tax Deputy Commissioner of Income- tax (Appeals) (vi) Income-tax Officer Group 'A' Assistant Commissioner. 6.4. Changes in the designations at Sl. Nos. (i) to (iii) is made with a view to making the designations more indicative of the nature of work of the officers. Change in designations at Sl. Nos. (iv) to (vi) is made in keeping with the recommendations made by the Wanchoo Committee (1971) and the Chokshi Committee (1978) and to fall in line with the pat- tern followed in other Central services, as earlier designations were not compatible with the level of seniority of the officers and were also not comparable with the designations prevailing in the sister Department of Central Excise and Customs. The Income-tax Officer, Group `B', will con- tinued to be called an Income-tax Officer. 6.5 Certain new authorities, namely, the Director-General, the Chief Commissioner and the Tax Recovery Officer, which are presently function- ing, are also included in the new section 116. The authority "Additional Commissioner of Income-tax", being no longer in existence, is omitted from the section. 6.6 Consequential changes in the definition of the income-tax authorities (section 2).-Consequent to changes indicated in the preced- ing paras, some of the definitions of income-tax authorities in section 2 of the Income-tax Act have been amended, some have been deleted, while some new definitions have been inserted. Thus, a new clause (7A) inserted in section 2 of the Act defines "Assessing Officer" to mean an Income-tax Officer, an Assistant Commissioner or a Deputy Commissioner, as the case may be, who is exercising jurisdiction as an Assessing Officer under the Act. 6.7 These amendments have come into force with effect from 1st April, 1988. APPOINTMENT, CONTROL AND JURISDICTION OF INCOME-TAX AUTHORITIES 7.1 Appointment and control of income-tax authorities (sections 117 and 118).-Under the old provisions of section 117 of the Income-tax Act, the appointing authorities and the various authorities to be appointed by them were specified in detail. As a result, every time a change was required to be made, it became necessary to amend the Act. The Amending Act, 1987, has, therefore, substituted a new section for the existing one to eliminate the elaborate description of appointing authorities and the authorities that can be appointed by them. The new section empowers the Central Government to appoint such persons as it thinks fit to be the income-tax authorities. It further empowers the Central Government to authorise the Board, a Director-General, a Chief Commissioner, a Director or a Commissioner to appoint income-tax authorities below the rank of Assistant Commissioner (hitherto Income-tax Officer, Group `A'). It also empowers an income-tax authority, authorised in this behalf by the Board, to appoint such executives or ministerial staff as may be necessary to assist it in the execution of its functions. 7.2 The old provisions of section 118 spelt out the control over the income-tax authorities. The section described in detail as to which income- tax authority was subordinate to whom. As a result, any change in the mat- ter required an amendment of the section through a prolonged legislative process. The Amending Act, 1987, has, therefore, substituted the existing section by a new section, which empowers the Board to issue necessary notification directing that any income-tax authority or authorities specified in the notification shall be subordinate to such other income-tax authority or authorities as may be specified in the notification. 7.3 Instructions to subordinate authorities (section 119).-(i) Under the old provisions of clause (b) of sub-section (2) of section 119, the Board could authorise only a Commissioner or an Income-tax Officer to admit a belated application or a claim for any exemption, deduction, refund, etc. Now, there are other assessing authorities under the Act, like the Deputy Commissioner (Assessment). As per the old provisions, the Board could not have issued directions to them. The Amending Act, 1987, has removed this lacuna by amending clause (b) of sub-section (2) of the section so that the Board can now authorise any income-tax authority, other than a Deputy Commissioner (Appeals) or a Commissioner (Appeals), to admit such belated application or claim. (ii) Under the old provisions of sub-section (3) of the section, the Income-tax Officer was bound to observe and follow the instructions issued to him by his superiors under whom he was posted. This provision is unnecessary, especially in view of the provisions of the new section 118. The Amending Act, 1987, has, therefore, omitted sub-section (3) of the section. 7.4 Jurisdiction of income-tax authorities (section 120).-Under the old provisions, jurisdiction of various income-tax authorities and functions of Inspectors of Income-tax were given in separate sections as under :- ( i ) Section 120 : Jurisdiction of Directors of Inspection. ( ii ) Section 121 : Jurisdiction of Commissioners. ( iii ) Section 121A : Jurisdiction of Commissioners (Appeals). ( iv ) Section 122 : Jurisdiction of Appellate Assistant Commissioners. ( v ) Section 123 : Jurisdiction of Inspecting Assistant Commissioners. ( vi ) Section 124 : Jurisdiction of Income-tax Officers. ( vii ) Section 128 : Functions of Inspectors of Income-tax. In essence, all these sections provided that the income-tax authorities shall perform their functions in the area or over the persons, etc., assigned to them either by the Board or by the Commissioner of Income-tax, depending upon the rank of the income-tax authority. 7.5 The old provisions of sections 125, 125A, 126, 130 and 130A pro- vided for jurisdiction under certain special circumstances. Section 125 empowered the Commissioner to assign a case from an Income-tax Officer to an Inspecting Assistant Commissioner. Section 125A empowered the Commissioner to confer concurred jurisdiction over a case to an Inspect- ing Assistant Commissioner and an Income-tax Officer. Section 126 empowered the Board to assign cases to a particular authority, notwith- standing the powers of other income-tax authorities. Section 130 clarified that where two or more Commissioners have jurisdiction over an assessee, each of them will perform only those functions as are assigned by the Board. Section 130A provided that when two or more Income-tax Officers exercise jurisdiction over an assessee, each of them shall perform such functions as are assigned to him by the Board or the Commissioner or the Inspecting Assistant Commissioner, as the case may be. 7.6 It will be observed from the above that all these sections essentially contained provisions relating to the jurisdiction of various income-tax authorities and every possible circumstance had been provided for in these sections. Instead of mentioning the jurisdiction of each income-tax autho- rity separately, power could have been given in a single comprehensive sec- tion enabling the Board to assign jurisdiction and also to authorise other income-tax authorities to do so. The Amending Act, 1987, has, therefore, omitted sections 120, 121, 121A, 122, 123, sub-sections (1) and (2) of sec- tions 124, 125,125A, 126, 128, 130 and 130A and combined the provisions of these sections in a new section 120. 7.7 The new section 120 provides that income-tax authorities shall exercise all or any of the powers and perform all or any of the functions conferred or assigned to them by the Board. The Board is also empowered to delegate powers to the authority below it so as to enable such authority to issue orders for the exercise of the powers and performance of the functions by the authorities subordinate to it. While issuing directions, the Board or any other income-tax authority authorised by the Board may have regard to the criteria like the territorial area, persons or classes of persons, incomes or classes of incomes and cases or classes of cases. 7.8 The new section further empowers the Board to issue general or special orders to,- (a) authorise any Director-General or Director to perform such functions of any other income-tax authority as may be assigned to him by the Board ; (b) empower the Director-General or Chief Commissioner or Commissioner to issue orders in writing that the powers and functions conferred on or assigned to the Assessing Officer in respect of any spe- cified area or persons or classes of persons or incomes or classes of incomes or cases or classes of cases shall be exercised or performed by a Deputy Commissioner. 7.9 The new section also makes provisions for conferring concurrent jurisdiction on the Assessing Officer. It is provided that where Assessing Officers performing concurrent functions are of different classes, the authority lower in rank among them shall exercise powers and perform functions as the higher authority amongst them may direct. The Board is further empowered to regulate matters concerning jurisdiction, for pur- poses of furnishing of the return of income or the doing of any other act or thing under the Act or any rule made thereunder by any persons or classes of persons, by issuing a notification in the Official Gazette. 7.10 Jurisdiction of Assessing Officers (section 124).-The old provi- sions of section 124 dealt with jurisdiction of Income-tax Officers. It was also provided that in case of dispute about jurisdiction of an Income-tax Officer, the question shall be decided by the Commissioner or where the dispute related to the areas within the jurisdiction of different Commis- sioners, by the Commissioners concerned or, if they did not agree, by the Board. In regard to the provisions for questioning the jurisdiction of an Income-tax Officer, it was provided that no person shall call in question the jurisdiction,- (a) where a return of income has been filed, after the expiry of one month from the date of filing the return or after the completion of assess- ment, whichever is earlier ; (b) where no such return has been filed, after the expiry of the time allowed by the notice under section 139(2) or 148 for making of the return. 7.11 The Amending Act, 1987, has substituted a new section for the existing section 124. The provisions of sub-sections (1) and (2) of the existing section relating to jurisdiction of Income-tax Officers do not find a place in the new section 124. The same have been merged along with other sections in the new section 120. The provisions of the earlier sub-sections (3) to (7), with appropriate amendments, are reproduced in sub-sections (1) to (5) of the new section 124. The amendments are :- (i) Instead of dealing with jurisdiction of an Income-tax Officer, the new section deals with the jurisdiction of an Assessing Officer, which includes an Income-tax Officer, an Assistant Commissioner and also a Deputy Commissioner, who has been directed to perform the functions of an Assessing Officer. (ii) In case of dispute about the jurisdiction of an Assessing Officer, the question shall be decided by the Director-General or the Chief Commissioner or the Commissioner concerned, instead of only the Commissioner, as at present. (iii) Where there is disagreement between two or more Directors--General or Chief Commissioner or Commissioners regarding jurisdiction of an Assessing Officer, the Board or such Director-General or Chief Corn- missioner or Commissioner, as may be authorised in this behalf by the Board through a notification, will be competent to decide the issue, instead of only the Board, as at present. (iv) The provisions regarding calling in question the jurisdiction of an Income-tax Officer have also been changed in view of the proposed new procedure of assessment, where issue of a notice under section 139(2) is dispensed with and completion of assessment in all cases is also not neces- sary. It is now provided that no person shall be entitled to call in question the jurisdiction of an Assessing Officer :- (a) where a return of income under section 139(1) has been filed, after the expiry of one month from the date of service of notice under section 142(1) or 143(2) or after the completion of assessment, whichever is earlier, (b) where no such return has been filed, after the expiry of the time allowed by the notice under section 142(1) or under section 148 for furnishing of the return, or the date of hearing specified in a notice issued before passing an order under section 144, whichever is earlier. 7.12 Power to transfer cases (section 127).-Under the old provisions of section 127 of the Income-tax Act, the Commissioner or the Board could transfer cases from one or more income-tax authorities to other income-tax authorities. The Commissioner could transfer a case from one officer to another, within his charge. The Board had similar power to transfer cases from one officer to another irrespective of the fact that the two officers were working under different Commissioners. Even when the Commissioners agreed that the cases could be transferred among their officers, the orders Had to be passed by the Board. 7.13 The Amending Act, 1987, has substituted a new section for the existing section 127. The new section incorporates the provisions of the existing section with the following amendments :- (i) The power of transfer of cases is given to the Director-General, Chief Commissioner or Commissioner, instead of only the Commissioner, where the Assessing Officers are working under the same Director-General, Chief Commissioner or Commissioner. (ii) Cases can be transferred between the Assessing Officers working under different Directors-General or Chief Commissioners or Commissioners, (a) If the concerned Directors-General or Chief Commissioners or Commissioners agree, by the Director-General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred ; and (b) If the concerned Directors-General or Chief Commissioners or Commissioners do not agree, by the Board or any such Director-General, Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf. 7.14 The old provisions regarding giving the assessee a reasonable opportunity of being heard, where the cases are to be transferred among officers in different cities, are incorporated in the new section as well. Similarly, the new section incorporates the provisions of the old section that the transfer of a case shall not render necessary the reissue of any notice already issued by the Assessing Officer from whom the case is transferred. 7.15 These amendments have come into force with effect from 1st April, 1988. [Sections 30 to 35 of the Amending Act, 1987] TAX INCENTIVES TO MUTUAL FUNDS SET UP BY BANKS, ETC. 8.1 In order to fulfil the assurance given by the Finance Minister in his Budget Speech for the year 1987-88, the Amending Act, 1987, has made various amendments to the Income-tax and Wealth-tax Acts to provide tax concessions to the mutual funds set up by the public sector banks or public financial institutions as well as to the investors (unitholders) in these funds. 8.2 The tax concessions provided under the Income-tax Act are :- (i) A new clause (23D) has been inserted in section 10 of the Act relating to, incomes not to be included in the total income. The said new clause provides exemption to the income of such mutual fund set up by a public sector bank or a public financial institution and subject to such conditions *(including the condition that at least 90% of the income from the mutual fund shall be distributed to the unitholders every year), as the Central Government may specify in this behalf by notification in the Official Gazette. An Explanation, at the end of the said new clause, defines the expressions, "public sector bank" and "public financial institution." *The specific mention of the condition relating to distribution of at least 90% of the annual income of the mutual fund amongst the unitholders has, however, been done away with by the Amending Act, 1989, with effect from 1st of April, 1988. [Certain amendments to remove drafting anomalies in the said new clause (23D) have also been made by section 4(g) of the Finance Act, 1988. In this connection, reference may be made to para 5 (pages 12 and 13) of the explanatory notes on the Finance Act, 1988 (Circular No. 528 ([1989] 176 ITR (St.) 154))]. (ii) A new clause (va) has been inserted in sub-section (1) of section 80L of the Act relating to deductions in respect of interest on certain securities, dividends, etc. The said new clause extends the deduction available under this section (up to Rs. 7,000) to the income received by the unitholders in respect of units of a mutual fund specified under section 10(23D). 8.3 The tax concessions provided in respect of the mutual funds and unitholders thereof under the Wealth-tax Act are discussed in para 14 of these explanatory notes. 8.4 These amendments have come into force with effect from 1st April, 1988, and will, accordingly, apply to the assessment year 1988-89 and subsequent years. [Clause (m) of section 6 and section 27 of the Amending Act, 1987] [Clause (f) of section 4 of the Amending Act, 1989] Notes : 1. Further tax concessions under the Income-tax Act have been allowed to the unitholders of such mutual funds by the Finance Act, 1988.These are : (i) The benefit of deduction under section 80CC is also extended tothe investment made in units of any mutual fund if such fund subscribesonly to the eligible issue of capital. (ii) The income from units of a mutual fund qualifies for an additional limit of Rs. 3,000 beyond the general limit of Rs. 7,000 under section 80L. 2. These amendments come into force from the I st day of April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent assessment years. [In this connection, reference may be made to sections 22 and 25(d) of the Finance Act, 1988, and also to paras 27.1 (page 32) and 29.5 and 29.6 (pages 39 and 40) of the explanatory notes on the Finance Act, 1988 (Circular No. 528 ([1989] 176 ITR (St.) 154))]. DEDUCTION OF TAX AT SOURCE IN RESPECT OF CERTAIN INCOMES 9.1 The Amending Act, 1987, has made some amendments in the provisions relating to deduction of tax at source from certain incomes. Theseare discussed in the following sub-paras. 9.2 Deduction of tax at source from interest and salaries, etc., paid by a firm to its partners (sections 194A and 194B).-Under the old provisions of clause (iv) of sub-section (3) of section 194A of the Act, tax was not to be deducted at source from any interest credited or paid by a firm to its partners. Since under the scheme of assessment of a firm and its partners as introduced by the Amending Act, 1987, tax was required to be deducted at source from interest and salary, etc., paid by the firm to its partners, the said clause (iv) of sub-section (3) of section 194A was omitted by the Amending Act, 1987. Further, the Amending Act, 1987, also inserted a new section 194E in the Act to provide for deduction of tax at source from interest, salary, etc., paid by a firm to its partners. 9.3 Since this scheme of assessment of firms and partners has been withdrawn by the Amending Act, 1989, clause (iv) of sub-section (3) of section 194A has been inserted back and the new section 194E has been omitted retrospectively, with effect from 1st April, 1988, by the Amending Act, 1989. Thus, the old provisions in this regard have been restored. 9.4 Non-deduction of tax at source from payments made to a mutual fund or from payments made by a mutual fund to its unit-holders (sections 196 and 196A).-Under the old provisions of section 196, no tax was to be deducted at source from any sums payable to the Government or to the Reserve Bank of India or to a corporation established by or under a Central Act, the income of which was exempt from income-tax. Since the Amending Act, 1987, has provided tax concessions to mutual funds set up by a public sector bank or a public financial institution by exempting their income under a new clause (23D) inserted in section 10, it is but natural that no tax should be deducted at source from sums payable to such funds. Further, section 80L provides for deduction in respect of sums payable by a mutual fund to its unitholders in regard to units held by them. Mutual funds are set up to mobilise the savings of small and medium range investors for investment in equities and other securities income whereof is generally not liable to tax by virtue of deduction provided in section 80L. It is, therefore, proper that no tax is deducted from sums payable by such funds to their unitholders. The Amending Act, 1987, has, therefore, substituted two new sections 196 and 196A in place of the existing section 196 to provide as under- (i) The provisions of new section 196 are essentially the same as those of the existing section, except that a new clause (iv) has been inserted to provide that no tax shall be deducted at source from any sum payable to a Mutual Fund specified under section 10(23D). (ii) A new section 196A provides that no tax shall be deducted at source by a public sector bank or a public financial institution from any sums payable to the unitholders of its mutual fund, income of which is exempt from tax under section 10(23D). 9.5 These amendments have come into force with effect from 1st April, 1988. [Sections 73 to 75 of the Amending Act, 1987] 9.6 Further amendments to section on 196A by the Amending Act, 1989.--The Amending Act, 1989, has again substituted the said section 196A by another new section 196A, which consists of two sub-sections. Reasons for the same are discussed below :- (i) The earlier section provided for non-deduction of tax from payments made by a public sector bank or a public financial institution referred to in section 10(23D) from any sums payable to the unitholders of a mutual fund. It was, however, pointed out that such a mutual fund, though set up by a public sector bank or a public financial institution, is normally administered by a trustee, which will not be a public sector bank or a public financial institution. For example, the mutual fund set up by the State Bank of India is administered by a trustee appointed by it, namely, SBI Capital Markets Limited. Since the latter is neither a public sector bank nor a public financial institution, on strict legal interpretation of the earlier section, exemption from deduction of tax at source will not be available in respect of payments made by it to the unitholders of the SBI mutual fund. Therefore, to remove this unintended hardship, sub-section (1) of the new section 196A provides, without mentioning the persons making payment, that no deduction of tax shall be made from any income payable in respect of units of a mutual fund, specified under section 10(23D), to its unitholders. (ii) The earlier section 196A provided for non-deduction of tax in respect of payment to all the unitholders of a mutual fund. However, if the unitholder is a foreign company, it does not get the benefit of deduction under section 80L and thus, no part of its income is exempt. Moreover, section 115A of the Act has been amended by the Amending Act of 1989 to levy a straight tax at 25% on the income of a foreign company received in respect of units of a mutual fund which are purchased in foreign currency. Consequently, sub-section (1) of the new section 196A, substituted by the Amending Act, 1989, does not exempt from deduction of tax at source the income received by a foreign company in respect of units of a mutual fund. Sub-section (2) of the said section 196A further provides that where the unitholder is a foreign company, the person responsible for making the payment will deduct income-tax thereon at 25%, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier. These amendments have come into force on the date of the President's assent to the Amending Act of 1989, i.e., 15th March, 1989. [Sections 30 to 32 of the Amending Act, 1989] ADVANCE PAYMENT OF TAX 10.1 The Amending Act, 1987, has introduced major changes in the provisions relating to advance payment of tax with a view to simplifying and rationalising these provisions. The main features of the new provisions are :- (i) Advance tax is now to be paid by the assessee on the current income including capital gains and income of casual nature referred to in section 2(24)(ix), which were hitherto not liable to the payment of advance tax. (ii) Various income limits applicable to different categories of persons for being liable for payment of advance tax have been replaced by a single provision whereby advance tax is payable by a person only if the liability to pay !advance tax is Rs. 1,500 or more. (iii) The existing requirement of filing statements/estimates of income by the assessees has been dispensed with. Assessees will just deposit the advance tax on the basis of their calculations. (iv) With the adoption of the financial year as the uniform previous year for all assessees, advance tax will now be payable in all cases in three instalments due on 15th September, 15th December and 15th March. The amendments made to various sections relating to payment of advance tax are discussed in the following sub-paras. 10.2 Substitution of new sections 207 and 208 relating to liability for payment of advance tax.-Under the old provisions of section 207, advance tax was payable on income other than income chargeable under the head "Capital gains" and income of casual nature referred to in section 2(24)(ix). The exclusion of these. incomes was due to the fact that these were not income of regular nature and could not reasonably be foreseen. The exclusion, however, meant that part of the income liable to tax was left uncovered by advance tax. Moreover, there is now no justification for leaving these items of income out of the advance tax net, because even such incomes accruing to the assessee, at least till the date of last instalment, which is now 15th March in all cases, will be known to the assessee and he can very well pay advance tax thereon in the last instalment. The Amending Act, 19871 had, therefore, substituted a new section 207 to provide that advance tax shall be payable during any. financial year on the current income of the assessee which would be chargeable to tax for the assessment year immediately following the financial year. This will include all items of income liable to be included in the assessee's total income. Thus, capital gains and incomes of casual nature referred to in section 2(24)(ix) will also be taken into account while estimating the current income for payment of advance tax. 10.3 Under the old provisions of section 208, the liability to pay advance tax was attracted in case the income liable to advance tax exceeded the following limits :- (i) Rs. 2,500 in the case of a company or a local authority. (ii) Rs. 20,000 in the case of a registered firm. (iii) Rs. 12,000 in the case of an HUF, which has at least one member, whose income exceeds Rs. 18,000. (iv) Rs. 18,000 in any other case. In cases at (iii) and (iv) above, if the advance tax payable did not exceed Rs. 1,500, the assessee was not required to pay any advance tax. The Amending Act, 1987, has substituted a new section 208, which has simplified the provisions by abolishing all these income limits. The new section provides that advance tax shall be payable during the financial year in every case, irrespective of the status of the assessee, where the amount of such tax payable by the assessee amounts to Rs. 1,500 or more. 10.4 Method of computation of advance tax (section 209).-The old provisions of section 209 laid down the method for computation of advance tax, either by the Income-tax Officer by sending an order under section 210 to the assessee for payment of advance tax, or by the assessee by filing the statement/estimate of advance tax under the provisions of section 209A or 212 with the Income-tax Officer and paying the advance tax accordingly. Capital gains and income of casual nature referred to in the section 2(24)(ix) were specifically excluded while ascertaining the income on which advance tax was to be computed. 10.5 The old sections 209A and 212 contained detailed provisions which were different for old and new assessees in regard to filing of statement, estimate or revised estimates, etc., of advance tax payable by them, on the basis of which the assessees paid advance tax during the financial year. These provisions were very complex and became unnecessary under the new scheme of payment of advance tax introduced by the Amending Act, 1987, under which assessees have themselves to pay advance tax in three instalments. In case of default, a mandatory interest at 2% p.m. and in case of deferment of instalment of advance tax, a mandatory interest at 1-1/2% p.m. is to be charged in all cases under the provisions of the new sections 234B and 234C introduced by the Amending Act, 1987. The Amending Act, 1987, has, therefore, omitted sections 209A and 212, thus dispensing with the requirement of filing of statements/estimates of advance tax payable by the assessees. This saves the assessees as well as the Department from enormous paper work involved. 10.6 In view of the omission of sections 209A and 212, the Amending Act, 1987, has substantially amended the provisions of section 209. The amended section lays down the method of computing advance tax payable during a financial year as follows :- (a) Where the calculation is made by the assessee for paying the advance tax, either of his own accord or on the basis of the estimate of his current income which may be filed after the assessee is served with a notice by the Assessing Officer under section 210(3) or (4) for payment of advance tax, income-tax on the current income shall be calculated at the rates in force in that financial year. (b) Where calculation is made by the Assessing Officer for making an order under section 210(3) requiring the assessee to pay advance tax, he shall adopt the total income assessed by way of regular assessment of the latest previous year or the total income returned by the assessee for any subsequent previous year, whichever is higher, and calculate income-tax thereon at the rates in force in that financial year. (c) Where calculation is made by the Assessing Officer for making an amended order under section 210(4) on the basis of a return filed or a regular assessment completed subsequently for a previous year later than that adopted in an order under section 210(3), income-tax shall be calculated on the total income declared in such subsequent return or total income determined in such subsequent regular assessment, as the case may be, at the rates in force in that financial year. (d) The income-tax calculated under any of the above clauses shall, in each case, be reduced by the amount of income-tax which would be deductible at source under any provisions of the Act on any income which has been included in the current/total income determined under any of the above clauses. (This provision was there even in the old section 209, before its amendment by the Amending Act, 1987). 10.7 It may be pointed out that the amended section 209 does not exclude the capital gains and income of casual nature referred to in section 2(24)(ix) while determining the total income on which advance tax is to be computed. 10.8 Substitution of new section 210 relating to payment of advance tax by the assessee of his own accord or in pursuance of an order of Assessing Officer.-Under the old provisions of section 210, the Income-tax Officer was empowered to pass an order requiring an assessee, who had been previously assessed by way of regular assessment, to pay advance tax. The Income-tax Officer was also empowered to issue a revised order for payment of advance tax, at any time up to fifteen days before the date on which the last instalment of advance tax was payable, in cases where after the issue of original order tax was paid by the assessee under section 140A or a regular assessment of the assessee was completed for a previous year later than the previous year on the basis of which the original order was issued. 10.9 The Amending Act, 1987, has substituted a new section 210 which deals with payment of advance tax by the assessee of his own accord or in pursuance of an order of the Assessing Officer. In view of the omission of sections 209A and 212, the new section 210 casts the responsibility of payment of advance tax on the assessee without his having to submit his statement/estimate of advance tax payable. Where, however, the Assessing Officer sends an order for payment of advance tax to the assessee, the assessee may file an estimate of his current income and pay advance tax accordingly. The provisions of various sub-sections of the new section 210 are briefly explained below : (i) Sub-section (1) provides that any person who is liable to pay advance tax under section 208 shall suo motu compute advance tax payable on his current income and pay the same in instalments as specified in section 211. He is not required to file any statement/estimate of advance tax payable. (ii) Sub-section (2) allows an assessee to subsequently revise the advance tax payable in the remaining instalments in accordance with the revised estimate of his current income, without any requirement of filing a revised estimate. (iii) Sub-section (3) empowers the Assessing Officer to pass an order requiring an assessee, who had earlier been assessed to income-tax, but has not paid any advance tax during the relevant financial year, to pay advance tax calculated in the manner laid down in section 209. Such an order must be passed during the financial year but not later than the last day of February. (iv) Sub-section (4) empowers the Assessing Officer to pass a revised order for payment of advance tax by the assessee where, subsequent to the passing of the original order, but before the first day of March, a return of income in respect of any later year has been furnished or any regular assessment for a later year has been made. (v) Sub-section (5) enables the assessee to furnish his own estimate of current income in order to reduce the amount of advance tax demanded by the Assessing Officer under sub- section (3) or (4). (vi) Sub-section (6) requires the assessee to furnish an estimate of his current income where the amount of advance tax payable on the current income is likely to be higher than the advance tax demanded by the Assessing Officer under sub-section (3) or (4). 10.10 Substitution of new section 211 relating to instalments of advance tax.-The old provisions of section 211 specified different dates for payment of instalments of advance tax due depending on whether the previous year of the assessee ended on or before the 31st day of December, or thereafter. The advance tax was payable in equal instalments. 10.11 In view of the substitution of new section 3 in the Act which provides that the financial year (year ending on 31st March) will be the previous year for all the assessees, the Amending Act, 1987, has substituted a new section 211 to provide uniform due dates for payment of instalments of advance tax, namely, 15th September, 15th December and 15th March. The new section also provides that not less than 20%, 50% and 100% of the advance tax due shall be paid by 15th September, 15th December and 15th March respectively. In order to remove the controversy as to whether the advance tax paid within the financial year after the due date of last instalment will constitute advance tax or not, the new section further provides that any amount paid by way of advance tax on or before the 31st of March of the relevant financial year shall also be treated as advance tax paid for that year. The provision also enables the assessee to pay advance tax on capital gains or income of casual nature referred to in section 2(24)(ix), which may accrue to the assesses till the last date of the financial year. 10.12 Omission of section 213 containing special provisions relating to commission receipts.-The old provisions of section 213 provided for deferment of payment of instalments of advance tax in respect of commission income up to the date of receipt of the commission. Since the provisions of this section are no longer necessary in view of the new provisions for payment of advance tax and consequences of default, which are much simpler and milder, the Amending Act, 1987, has omitted this section. 10.13 Substitution of new section 218 relating to when assessee deemed to be in default.-The old provisions of section 218 dealt with the circumstances under which the assessee was deemed to be in default for payment of advance tax. The Amending Act, 1987, has substituted a new section 218, which contains new provisions in this respect consequential to the changes made in the scheme of advance tax, as explained in the preceding paragraphs. 10.14 These amendments have come into force with effect from 1st April, 1988. [Sections 76 to 81 and 84 of the Amending Act, 1987] Notes : (i) The Amending Act, 1989, has made an amendment in section 209 of the Act, which is consequential to the insertion of section 206C relating to collection of tax at source, with effect from 1st June, 1988, by the Finance Act, 1988. The consequential amendment in section 209 also comes into force with retrospective effect from 1st June, 1988. [Section 35 of the Amending Act, 1989] (ii) The provisions of section 214 relating to interest payable by the Government on the excess amount of advance tax paid by the assessee have been replaced, with effect from the assessment year 1989-90, by the provisions of a new section 244A, which provides for interest payable by the Government on all refunds. Similarly, the provisions of sections 215, 216 and 217 relating to interest payable by the assessee for defaults in payment of advance tax have been replaced, with effect from the assess- ment year 1989-90, by the provisions of new sections 234B and 234C, which provide for charge of mandatory interest for such defaults. These will be explained at the appropriate place in Part II of the explanatory notes. POWER OF THE CENTRAL GOVERNMENT TO REMOVE DIFFICULTIES 11.1 Power to remove difficulties in giving effect to the provisions of the Income-tax Act as amended by the Amending Act, 1987.-Under the old provisions of section 298, the Central Government could, by general or special order, take action, not inconsistent with the provisions of the Act, for removing any difficulty that might arise in giving effect to the provisions of the Act. The Amending Act, 1987, has inserted two new sub- sections (3) and (4) in this section to empower the Central Government to remove any difficulty that may arise in giving effect to the provisions of the Income-tax Act, as amended by the Amending Act, 1987, by an order, which shall not be inconsistent with such provisions. Such an order can be passed within three years from the first day of April, 1988, i.e., by 31st of March, 1991. Every such order passed has to be laid before each House of Parliament. 11.2 Issue of the Income-tax (Removal of Difficulties) Order, 1989.-Taking recourse to the provisions of section 298(3), the Income-tax (Removal of Difficulties) Order, 1989, was passed, vide G. S. R. 376(E), dated March 23, 1989 ([1989] 176 ITR (St.) 322), to remove certain difficulties in the application of the provisions of the new section 143 relating to procedure of assessment and of the amended section 275 relating to time limitation for imposing penalties, as substituted/amended by the Amending Act, 1987. The difficulties that had arisen are briefly explained below:- (i) A large number of problems were arising from the application of the provisions of new section 143, coming into effect from April 1, 1989, to the assessments for the assessment year 1988-89, or earlier assessment years, which may be pending on April 1, 1989, or in respect of which returns may be filed on or after April 1, 1989. These problems related to the charge of additional tax at 20% provided in sub-section (1A) and non-issue of refunds in regular assessments under the provisions of sub-section (3) of the new section 143, services of notice under sub-section (2) of the new section 143 within the limitation period of six months and the applicability of the provisions relating to the charge of mandatory interest for late/non-filing of return and default in the payment of advance tax contained in sections 234A to 234C, which are intimately connected with the provisions of the new section 143, but are applicable only to the assessment year 1989-90 and subsequent assessment years. (ii) Similarly, it was found that it was not practicable to apply the amended provisions of section 275, coming into force from April 1, 1989, which have substantially reduced the time limit for completion of penalty proceedings from the earlier two years to six months, to all the old penalty proceedings pending on April 1, 1989. In view of the reduced limitation period available under the amended provisions, a very large number of penalty proceedings, which were more than six months old, would have to be completed by March 31, 1989. 11.3 The Income-tax (Removal of Difficulties) Order, 1989, passed on March 23, 1989, therefore, removed the above difficulties by providing as under:- (i) The. provisions of section 143, as they stood before the com- mencement of the Amending Act, 1987, shall apply in respect of the assess- ments for the assessment year 1988-89, and earlier assessment years. (ii) The provisions of section 275, as they stood before the com- mencement of the Amending Act, 1987, shall apply in respect of any action for imposition of penalty initiated on or before 31st day of March, 1989. 11.4 The Wealth-tax and Gift-tax (Removal of Difficulties) Orders, 1989, were also simultaneously passed on March 23, 1989. These are dis- cussed in paras 15 and 17 of these explanatory notes. [Section 123 of the Amending Act, 1987] CONSEQUENTIAL AMENDMENTS 12.1 Certain amendments of consequential nature have also been carried out in the Act, as shown in the following Table:- Sl. No. Subject Section of the Income tax Act Section of the Amending Act, 1987/ Finance Act, 1988/ Amending Act, 1989 1 2 3 4 1. Definition of the term "rate or rates in force" 2( 37A ) ( i ) 3( o ) of the Amending Act, 1987. ( ii ) 2( c ) of the Amending Act, 1989. 2. Definition of the term "Tax Recovery Officer" 2( 44 ) ( i ) 3( r ) of the Amending Act, 1987. ( ii ) 95( a )( 2 ) of the Amending Act, 1989. 3. Amendments to section 132 relating to search seizure pur-suant to change in designation of income-tax authorities 132(1), proviso and 132(1A) ( i ) 37( a ) and ( b ) of the Amending Act, 1987. ( ii ) 88( b ) of the Finance Act, 1988. 4. Amendments to section 132A relating to powers to requisition books of accounts, etc., pursuant to change in designation of income-tax authorities 132A(1) ( i ) 38 of the Amending Act, 1987. ( ii ) 88( c ) of the Finance Act, 1988. 5. Amendments to section 279 relating to the authority competent to sanction prosecution, pursuant to change in designation of income-tax authorities. 279(3) 126(25) of the Amending Act, 1987. 12.2 Section 126(13) of the Amending Act, 1987, had incorrectly made certain consequential amendments to section 132(1), proviso, and section 132(1A) of the Act. The said section 126(13) of the Amending Act, 1987, has, therefore, been omitted by section 95(o) of the Amending Act, 1989. AMENDMENTS TO THE WEALTH-TAX ACT, 1957 13. The Amending Act, 1987, has made several amendments to the provisions of the Wealth-tax Act in order to bring its provisions relating to designation, appointment, control and jurisdiction of authorities, tax incentives to mutual funds and power of the Central Government to remove difficulties, broadly in line with the corresponding amendments made to the provisions in the Income-tax Act by this Amending Act. These amendments came into effect from 1st April, 1988. Any gaps or shortcomings in this respect have been removed through certain amendments made by the Finance Act, 1988, and the Amending Act, 1989. The Table below shows the provisions of the Wealth-tax Act that have been so amended and the corresponding provisions, if any, in the Income-tax Act. The Table also indicates the sections of the Amending Act, 1987, or the Finance Act, 1988, or the Amending Act, 1989, which have carried out the necessary amendments: Sl. No. Section of the Amending Act1987/Finance Act, 1988/Amending Act, 1989 Section of the Wealth- tax Act that has been amended Corresponding section of the Income-tax Act Subject-matter of the amendment in brief (1) (2) (3) (4) (5) 1. 127 of the Amending Act, 1987 — — Substitution of new authorities in the Wealth-tax Act on the same lines as made by section 2 of the Amending Act, 1987, in the Income-tax Act 2. ( i )128( i ), ( ii ), ( iii ) and ( vii ) of the Amending Act, 1987. ( ii ) 88( e ) of the Finance Act, 1988 2 2 Various clauses relating to definition of wealth-tax authorities. *3. 130 of the Amending Act, 1987 5(1)( xxiva ) 80L(1)( va ) Exemption in respect of units of a Mutual fund specified in section 10( 23D ) of the Income-tax Act. 4. 131 of the Amending Act, 1987 8,9,10 and11(new sections substi- tuted) 116,118,119, 120, 124 [except sub-section (5)] and 127 Designation, control and jurisdiction of wealth-tax authorities. 5. 132 of the Amending Act, 1987 8A, 8AA, 8B, 9A, 10A, 11A, 11AA, 11B, 12 and 13(omitted) — Separate sections relating to control, powers and jurisdiction of various wealth-tax authorities are omitted, as these provisions are incorporated in sections 8 to 11 newly substituted, as indicated above. 6. ( i ) 149( a ) of the Amending Act, 1987 32 — Amendments to section 32 relating to mode of recovery, pursuant to the change in designation of the wealth-tax authorities. ( ii ) 95( q ) of the Amending Act, 1989. 7. ( i )154(1)( b ) and( f ) and 154(2)( b ) of the Amending Act, 1987 37A(1), proviso and 37A(2) 132(1), proviso and 132(1A) Amendments to section 37A relating to powers of search and seizure pursuant to change in designation of the wealth-tax authorities. ( ii ) 88( g ) of the Finance Act, 1988. 8. ( i ) 155( a )( ii ) of the Amending Act, 1987( ii ) 88( h ) of the Finance Act, 1988 37B(1) 132A( i ) Amendments to section 37B relating to powers to requisition books of accounts etc., pursuant to change in designation of the wealth-tax authorities *9. ( i ) 158 of the Amending Act, 1987( ii ) 88( i ) of the Finance Act, 1988 45( j ) 10( 23D ) Exemption from wealth-tax in respect of net wealth of a Mutual Fund as specified in section 10( 23D ) of the Income-tax Act. *10. 159 of the Amending Act, 1987 47 (new section inserted) 298(3) and (4) Insertion of new section to empower the Central Government to remove any difficulty in giving effect to the provisions of the Wealth-tax Act, as amended by the Amending Act, 1987. *The provisions in respect of items at Sl. Nos. 3, 9 and 10 which are Star-marked are further explained in the following paras. 14.1 Tax incentives to mutual funds set up by banks, etc.-The Amending Act, 1987, has provided the following tax concessions in respect of a mutual fund specified in section 10(23D) of the Income-tax Act :- (i) A new clause (xxiva) has been inserted in sub-section (1) of section 5 of the Act, relating to exemptions under the Wealth-tax Act, to provide that the value of units of a mutual fund income of which is exempt under section 10(23D) of the Income-tax Act, 1961, shall not be included in the net wealth of the unit holders for wealth-tax purposes. Sub-section (1A) of the said section 5 has also been amended to include reference of new clause (xxiva) in that sub-section, so that exemption from wealth-tax in respect of units of a mutual fund will be subject to the overall ceiling of Rs. 5 lakhs, along with other assets, specified in the said sub-section (1A). (ii) A new clause .0) has been inserted in section 45 of the Act, relating to exemption from the provisions of the Wealth-tax Act, to provide that no wealth-tax shall be levied in respect of the net wealth of such a mutual fund. 14.2 These amendments have come into force with effect from 1st April, 1988, and will, accordingly, apply to the assessment year 1988-89 and subsequent years. [Sections 130 and 158 of the Amending Act, 1987, and section 88(i) of the Finance Act, 1988] 15.1 Power of the Central Government to remove difficulties.-The Amending Act, 1987, has inserted a new section 47 in the Act to empower the Central Government to remove any difficulty that may arise in giving effect to the provisions of the Wealth-tax Act, as amended by the Amending Act, 1987. The provisions of the said section 47 are exactly on the same lines. as those of the new sub-sections (3) and (4) inserted in section 298 of the Income-tax Act. 15.2 Under the provisions of the said section 47, the Wealth-tax (Removal of Difficulties) Order, 1989, was passed, vide G. S. R. No. 378(E), dated March 23, 1989 ([1989] 176 ITR (St.) 323), to provide that the provisions of section 16, as they stood before commencement of the Amending Act, 1987, shall apply in respect of assessments for the assessment year 1988-89 and earlier assessment years. This was in order to remove certain difficulties in the application of the provisions of the new section 16 relating to procedure of assessment, on the same lines as done by the Income-tax (Removal of Difficulties) Order, 1989, passed simultaneously in respect of the provisions of the new section 143 of the Income-tax Act (please see paras 11.2-11.4 ante). 15.3 The Wealth-tax (Removal of Difficulties) Order, 1989, however, does not provide for removing the difficulties in respect of limitation for imposition of penalties under the Wealth-tax Act, as has been done by the Income-tax (Removal of Difficulties) Order, 1989, in respect of the amended provisions of section 275 of the Income-tax Act. This is so because the Amending Act, 1989, has inserted a new sub-section (6) in section 18 of the Wealth-tax Act, relating to certain penalties, to provide that the old provisions of that section before amendment [which include the old limitation provisions contained in sub-section (5) of that section] shall apply in relation to any assessment for the assessment year 1988-89 or any earlier assessment year. The only other section in the Wealth-tax Act, relating to penalties is section 18A, which does not contain any limitation provisions. It was, therefore, not necessary to make any provision in this respect in the Wealth-tax (Removal of Difficulties) Order, 1989. [Section 159 of the Amending Act, 1987] AMENDMENTS TO THE GIFT-TAX ACT, 1958 16. The Amending Act, 1987, has made certain amendments, effective from 1st April, 1988, to the provisions of the Gift-tax Act, in order to bring its provisions, relating to designation, appointment, control and jurisdiction of authorities, and power of Central Government to remove difficulties, broadly in line with the corresponding provisions in the Income~tax and Wealth-tax Acts, as amended by the Amending Act, 1987. Any gaps or shortcomings in this respect have been removed through certain amendments made by the Finance Act, 1988, and the Amending Act, 1989. The Table below shows the provisions of the Gift-tax Act that have been so amended and the corresponding provisions, if any, in the Income-tax Act. It also indicates the sections of the Amending Act, 1987, or the Finance Act, 1988, or the Amending Act of 1989, which have carried out the necessary amendments: - Sl. No. Section of the Amending Act, 1987/Finance Act, 1988/Amending Act, 1989 Section of the Gift-tax Act that has been amended Corresponding section of the Income-tax Act Subject-matter of the amendment in brief (1) (2) (3) (4) (5) 1. 161 of the Amending Act, 1987 — — Substitution of new authorities in the Gift-tax Act on the same lines as made by section 2 of the Amending Act, 1987 in Income-tax Act. 2. ( i ) 162( a ) ( b ), ( c ) [except in so far as it relates to omission of clause ( xvii ) of section 2 of the Gift-tax Act relating to definition of the term"partner"] and( g ) of the Amending Act, 1987 2 2 Various clauses relating to definition of gift-tax authorities ( ii ) 88( j ) of the Finance Act, 1988 3. 164 of the Amending Act, 1987 7, 8, 9 and10 (new sections substituted) 116, 118, 119, 120, 124 [ex- cept sub-sec- tion(5)] 127. Designation, control and jurisdiction of gift-tax authorities 4. 165 of the Amending Act, 1987 7A, 7AA,7B, 8A, 9A, 11,11A, 11AA, 11B 12(omitted) Separate sections relating to control, powers and jurisdiction of various gift-tax authorities are omitted as these provisions are incorporated in sections 7 to 10, newly substituted, as indicated above. 5. ( i ) 179 ( a ) of the Amending Act, 1987 — — Amendments to section 33 relating to mode of recovery, pursuant to change in designation of gift-tax authorities. ( ii ) 95( s ) of the Amen- ding Act, 1989 *6. 185 of the Amending Act, 1987 47(new sec- tion inserted) 298(3) and (4) Insertion of new section to empower the Central Government to remove any difficulty in giving effect to the provisions of the Gift-tax Act, as amended by the Amending Act. *The provisions in respect of item at Sl. No. 6, which is star-marked, are further explained in the following paras. 17.1 Power of the Central Government to remove difficulties.-The Amending Act, 1987, has inserted a new section 47 in the Act to empower the Central Government to remove any difficulty that may arise in giving effect to the provisions of the Gift-tax Act, as amended by the Amending Act, 1987. The provisions of the said section 47 are exactly on the same lines as those of the new sub-sections (3) and (4) inserted in section 298 of the Income-tax Act. 17.2 Under the provisions of the said section 47, the Gift-tax (Removal of Difficulties) Order, 1989, was passed, vide G. S. R. No. 377(E), dated March 23, 1989 ([1989] 176 ITR (St.) 322), to provide that the provisions of section 15, as they stood before the commencement of the Amending Act, 1987, shall apply in respect of assessments for the assessment year 1988-89 and earlier assessment years. This removed certain difficulties in the application of the provisions of the new section 15 relating to procedure of assessment, on the same lines as done by the Income-tax (Removal of Difficulties) Order, 1989, passed. simultaneously in respect of the provisions of the new section 143 of the Income-tax Act (please see paras. 11.2-11.4 ante). 17.3 The Gift-tax (Removal of Difficulties) Order, 1989, however, does not provide for removal of difficulties in respect of limitation for imposition of penalties under the Gift-tax Act, as has been done by the Income-tax (Removal of Difficulties) Order, 1989, in respect of the amended provisions of section 275 of the Income-tax Act. This is for the reason that the Amending Act, 1989, has inserted a new sub-section (6) in section 17 of the Gift-tax Act, relating to certain penalties, to provide that the old provisions of that section before amendment (which did not contain any limita tion provision) shall apply in relation to any assessment for the assessment year 1988-89 or earlier assessment years. The only other section in the Gift-tax Act relating to penalties is section 17A, which does not contain any limitation provision. It was, therefore, not necessary to make any provision in this respect in the Gift-tax (Removal of Difficulties) Order, 1989. [Section 185 of the Amending Act, 1987] AMENDMENTS TO THE COMPANIES (PROFITS) SURTAX ACT, 1964 18. The Amending Act, 1987, has made some amendments, effective from 1st April, 1988, to the provisions of the Companies (Profits) Surtax Act in order to bring its provisions relating to designation, appointment, control and jurisdiction of authorities, broadly in line with the corresponding provisions in the Income-tax Act, as amended by the Amending Act, 1987. The Table below shows the provisions of the Companies (Profits) Surtax Act that have been so amended and the corresponding provisions, if any, in the Income-tax Act. It also indicates the sections of the Amending Act, 1987, which have carried out the necessary amendments. Sl. No. Section of the Amending Act Section of the Companies (Profits) Surtax Act that has been amended Corresponding section of the Income-tax Act Subject-matter of the amendment in brief (1) (2) (3) (4) (5) 1. 187 of the Amending Act, 1987 — — Substitution of some new authorities in the Companies (Profits) Surtax Act. 2. 188 of the Amending Act, 1987 3 (new section substituted) 116, 119 and 120 Designation, control and jurisdiction of authorities in the Companies (Profits) Surtax Act. 3. 189( b ) of the Amending Act, 1987 18 — Amendment of section18 relating to the application of the provisions of the Income-tax Act to the proceedings under the Companies (Profits) Sur- tax Act, pursuant to the changes in the provisions of the Income-tax Act relating to designation, control and jurisdiction of authorities. (Sd.) K. K. Mittal, Director (TPL. III).