Explanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 [as amended by the Direct Tax Laws (Amendment) Act, 1989]--Part II - Income Tax - 549/1989

Circular No. 549 Dated 31/10/1989 Subject : Explanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 [as amended by the Direct Tax Laws (Amendment) Act, 1989]--Part II. INTRODUCTION 1.1 Explanatory Notes in respect of the provisions of the Amending Act, 1987, which have come into force with effect from 1st April, 1988, were issued in Part I, vide Circular No. 545, dated 21st September, 1989. The rest of the provisions of the Amending Act, 1987 have come into force with effect from 1st April, 1989 (except two provisions which come into effect from other dates, as indicated in para 4.3 of Part I of the Explanatory Notes). 1.2 Scope of this Circular, Part II of the explanatory notes.--This Circular explains some of the provisions of the Amending Act, 1987, which have come into effect from 1st April, 1989 [including the provisions of section 61(c) of the Amending Act, 1987, which will come into effect from 1st April, 1992]. These provisions relate to :-- (i) Adoption of the financial year as the uniform previous year for all assessees. (ii) Procedure for assessment, including the furnishing of returns of income/wealth/gifts and the new scheme of assessment under the income-tax, Wealth-tax and Gift-tax Acts. (iii) Assessment or reassessment of income/wealth/gift escaping assessment. (iv) Rectification of mistakes and other amendments of orders under the Income-tax, Wealth-tax and Gift-tax Acts. (v) Payment of mandatory interest by the assessee for defaults in furnishing the return of income/wealth/gift or for default in paying advance tax. (vi) Payment of interest by the Department for delay in grant of refund due to the assessee under the Income-tax, Wealth-tax and Gift-tax Acts. (vii) Consequential amendments to the relevant sections relating to charge of income-tax, wealth-tax and gift-tax. 1.3 This circular also explains those provisions of the Amending Act, 1989, which have further amended the provisions of the Amending Act, 1987, relating to the above subjects. Amendments to the Income-tax Act, 1961 FINANCIAL YEAR AS UNIFORM PREVIOUS YEAR FOR ALL ASSESSEES 2.1 Change in the definition of previous year (new section 3).--Under the old provisions of section 3, where the assessee did not maintain any books of account, previous year meant the financial year immediately preceding the assessment year. But, where an assessee maintained books of account, he could have a previous year (of not more than 12 months) of his choice. The assessee could even choose different previous years for different sources of income and also for different businesses carried on by him. The assessees were also allowed to change their previous years with the consent of the Income-tax Officer. 2.2 The old system led to a situation where the income earned during the same period by different taxpayers of the same category was subjected to tax in different assessment years and sometimes at different rates. It also opened up a vista for tax avoidance by the taxpayers by adopting different previous years for different sources of income and by changing their previous years at their convenience and to their advantage. 2.3 The Amending Act, 1987, therefore, substituted a new section 3 in the Act to provide for the financial year (year ending 31st March) as uniform previous year for all assessees and for all sources of income. Consequently, the provisions regarding change of the previous year are no longer necessary and do not find a place in the new section. Thus, the adoption of the uniform previous year for all the assessees would remove both the maladies mentioned above. It would also facilitate cross-verification of transactions among different assessees, which has become very necessary now in view of the new procedure of assessment, introduced by the Amending Act, 1987, under which all the returns of income will be accepted as such and passing of assessment orders will not be necessary. (Refer to paras 5.1 and 5.2 of these Explanatory Notes). 2.4. The new section 3 provides that previous year means the financial year immediately preceding the assessment year. It further provides that in the case of a newly set up business or profession or a source of income newly coming into existence during the financial year, the previous year shall begin from the date of setting up or coming into existence of the new business, profession or new source of income and end with the said financial year. It also provides that in the case or an assessee who has been having a previous year different from the financial year, the transitional previous year, i.e., the previous year relevant for the assessment year 1989-90 will be for a period longer than 12 months. Thus, in the case of an assessee, who closes his accounts on 30th June every year, the transitional previous year for the year 1989-90 will be from 1-7-1987 to 31-3-1989, i.e., it will be for a period of 21 months. 2.5 The new section further provides that where the assessee had adopted more than one period as the previous year for the assessment year 1988-89 for different sources of his income, so that more than one period are included in the transitional previous year relevant for the assessment year 1989-90, the longest period shall be regarded at the transitional previous year. This could be explained by the following example : Example : An assessee has three separate businesses for each one of which he closed his accounts on different dates, say, 30-6-1987, 31-12-1987 and 31-3-1988, for the assessment year 1988-89. For the assessment year 1989-90, the following periods will be included in the previous year :-- (1) 1-7-1987 to 31-3-1989 (21 months) for 1st business (2) 1-1-1988 to 31-3-1989 (15 months) for 2nd business (3) 1-4-1988 to 31-3-1989 (12 months) for 3rd business, The longest of the three periods is that starting from 1-7-1987 to 31-3-1989 (21 months) and this will be the previous year for all the three businesses for the assessment year 1989-90. 2.6 Amendments made by the Amending Act, 1989, to provide for a new business or profession or source of income coming into existence between 1st April, 1987 and 31st March, 1988.--The new section 3, substituted by the Amending Act, 1987, did not provide for a situation where a new business or profession or a source of income newly comes into existence between the period 1st April, 1987, to 31st March, 1988 and where the accounts are not closed on 31st March, 1988. The Amending Act, 1989, has, therefore, further amended section 3 by inserting the 2nd and 3rd provisos to sub-section (2) of the section to provide that : (i) Where a new business or profession is set up or a source of income newly comes into existence on or after 1st April, 1987, but, before 1st April, 1988, and where the accounts have not been closed on 31st March, 1988, the previous year in relation to the assessment year 1989-90 shall be reckoned from the date of setting up of the new business or profession or the date on which the source of income newly comes into existence to the 31st day of March, 1989. (ii) Where the assessee has already been having one or more periods as the previous years for the assessment year 1988-89 in respect of different source or sources of income, in addition to the new business, profession or sources of income referred to above, the previous year in relation to assessment year 1989-90, shall be reckoned separately in the manner specified in the sub-section in respect of each such source of income and the longer or the longest of such periods so reckoned shall be the previous year for the said assessment year. 2.7 The above provisions can be clarified by the following examples.-- Example 1 : An assessee started a new business on 1st July, 1987. If he closed his accounts on 31st March, 1988, his previous year for the assessment year 1989-90 will be the normal period of 12 months (1st April, 1988, to 31st March, 1989). However, if he does not close his accounts on 31st March, 1988, then his previous year for the assessment year shall be the period 1st July, 1987, to 31st March, 1989 (i.e., a period of 21 months). Example 2 : The assessee in Example 1, who did close the accounts of his new business on 31st March, 1988, also had two other businesses already in existence for which the previous years for the assessment year 1988-89 ended as follows :-- (1) First business--year ended 30th September, 1987. (2) Second business--year ended 31st December, 1987. For the assessment year 1989-90, the different periods included in the relevant previous year shall be :-- (1) For new business--1st July, 1987, to 31st March, 1989 (21 months). (2) For second business (old)--1st October, 1987, to 31st March, 1989 (18 months). (3) For second business (old)--1st January 1988, to 31st March, 1989 (15 months). The longest of the three periods, i.e., from 1st July, 1987, to 31st March, 1989 (21 months), shall be the previous year for all the three sources of income for the assessment year 1989-90. 2.8 Transitory provisions to remove the hardships during the extended transitional previous year for the assessment year 1989-90 (Insertion of Tenth Schedule).--The Amending Act, 1987, also inserted a Tenth Schedule in the Income-tax Act, which provides transitory provisions to avoid hardships in cases where the transitional previous year relevant for the assessment year 1989-90 exceeds a period of 12 months. The said Tenth Schedule makes the following transitory provisions :-- (i) The monetary limits mentioned in various sections of the Income-tax Act which are enumerated in the Table given in rule 3, shall be increased during the extended transitional previous year, in proportion to the number of months in the said transitional previous year. (ii) Where the transitional previous year includes a part of a month, then if such part is 15 days or more, it shall be increased to one complete month, and if such part is less than 15 days, it shall be ignored. (iii) Rule 4 provides that where the transitional previous year consists of a period of 18 months or more, the number of days specified in sub-section (1) of section 6 for determining the residential status of the individual, namely, 182 days and 90 days, shall be increased to 273 days and 135 days respectively. (iv) Rule 5 provides that where, in a transitional previous year, the assessee's income under the head " Profits and gains of businesses or professions " is included in the total income for a period of 13 months or more, the depreciation allowance under section 32(1)(ii) shall be increased proportionately. (Refer to Example 1 in para 2.11) However, while allowing enhanced depreciation, care should be taken that the total amount of depreciation allowed during the extended transitional previous year, including the depreciation allowed in earlier years, does not exceed the actual cost of the asset. Similar care will also have to be taken where 100% depreciation is allowable on certain block of assets under the rate schedule for depreciation provided in Appendix I to the Income-tax Rules or where 100% depreciation is available on machinery or plant costing up to Rs. 5,000 under the provisions of the proviso to section 32(1)(ii). Subject to the above, enhanced depreciation shall be admissible in respect of the assets purchased during the extended transitional year, even if the assets are purchased towards the end of such year and used for a small period only. Thus, for example, where the extended transitional previous year consists of 18 months (1st October, 1987, to 31st March, 1989), enhanced depreciation being 1.5 times the normal depreciation shall be allowed in respect of machinery or plant purchased and installed in the month of March, 1989. (v) Rule 6 provides that tax payable on the total income of the transitional previous year shall be calculated at the average rate of tax on the amount obtained by multiplying such total income by a fraction of which the numerator is twelve and the denominator is the number of months in the transitional previous year, as if the resultant amount were the total income. In simple language, the tax shall be calculated in the following manner :-- (1) Compute the total income of the whole transitional previous year under the provisions of the Income-tax Act. (2) Divide the income so computed by the number of months in the transitional previous year and multiply it by 12. (3) Agricultural income, if any, derived during the whole transitional previous year should likewise be divided by the number of months in the transitional previous year and multiplied by twelve. (4) Compute the tax payable on such total income (obtained in step No. 2) taking into consideration the net agricultural income, if any, (obtained in step No. 3). (5) The average rate of tax will be Tax payable (step No. 4) = ------------------------------------------------------------- total income for 12 months (step No. 2) (6) Tax payable on the total income of the transitional previous year shall be derived by multiplying such total income (obtained in step No. 1) by the average rate of tax (obtained in step No. 5) (Refer to Example 1 in para 2.11). (vi) Rule 7 empowers the Board, where the transitional previous year is longer than 12 months, to remove genuine hardship, by general or special order, by granting appropriate relief in any case or class of cases. 2.9 Amendments made by the Amending Act, 1989, to the Tenth Schedule to remove certain hardships and anomalies. Some hardships and anomalies were pointed out in the provisions of the Tenth Schedule, as inserted by the Amending Act, 1987. Therefore, in order to remove the same, the Amending Act, 1989, has made the following amendments to the provisions of the Tenth Schedule : (i) A new Table has been substituted in rule 3 of the original Table, earlier inserted by the Amending Act, 1987. Some monetary limits mentioned in various sections of the Act, which were not included in the original Table, have now been included. Opportunity has also been taken to correct some references to sections or amounts. It may be mentioned that the following amounts have also been included in the new Table for being proportionately increased during the extended transitional previous year : Section 35A 1/14th of the amount of capital expenditure. Section 35AB 1/6th or 1/3rd of the amount paid as lump sum consideration. Section 35D 1/10th of the amount of certain preliminary expenses. Section 80C(3) 1/10th of the actual capital sum assured. While allowing the enhanced amounts mentioned above during the extended transitional previous year, care should be taken that the total deduction for expenditure or for payment of premia allowed, including deductions allowed in earlier years, does not exceed the total amount of expenditure incurred or the total amount of premia paid. Also having allowed the enhanced deduction during the extended transitional previous year, care should also be taken to correspondingly reduce the last instalment allowable in respect of the same in the subsequent year. (ii) Two new provisos have been inserted in rule 3 to provide that :-- (1) the amount of Rs. 10,000 mentioned in column (2) of the Table against section 48(2) shall be increased during the transitional previous year only where the long-term capital gain arises as a result of two or more transfers of long-term capital assets and out of these, at least one transfer is made during the initial period of twelve months and the remaining transfer or transfers is or are made beyond the said period of twelve months comprised within the transitional previous year ; (2) where more than one period in respect of different sources of income are included in the transitional previous year, the amounts mentioned in column (2) of the aforesaid Table shall be increased to such extent and in such manner as the Board may prescribe having regard to the length of the period or periods included in the transitional previous year in respect of different sources of income, the length of the transitional previous year and other relevant factors. In this regard, a new rule 125 has been inserted in the Income-tax Rules, 1962, vide the Income-tax (Sixth Amendment) Rules, 1989, issued under Notification No. S. O. 361(E), dated 18th May, 1989, to indicate as to which monetary limits mentioned in the Table shall be increased according to the length of the transitional previous year and which monetary limit mentioned in the Table shall be increased according to the length of the period in respect of the source of income to which they relate, which is included in the transitional previous year ; (iii) A new rule 4 provides that the time limit of 60 days mentioned in sub-section (1) of section 6 of the Act will be increased to 90 days where the extended transitional previous year comprises a period of 18 months or more. (iv) A new rule 5 further makes the following provisions in respect of depreciation allowance during the extended transitional previous year :-- (1) increased depreciation will also be available in those cases where depreciation is allowable while computing income under the head, " Income from other sources " ; (2) depreciation will be allowable on " block of assets " instead of on " building, machinery, plant or furniture " ; and (3) where more than one period in respect of income under the head " Profits and gains of businesses or profession " or under the head " Income from other sources " are included in the extended transitional previous year, depreciation allowance shall be calculated separately for each such period included in the said transitional previous year and the said depreciation allowance shall be increased, where necessary, by multiplying it by a fraction of which the numerator is the number of months in such period (after excluding the number of months included in the period in relation to which depreciation has already been allowed or is allowable for the assessment year 1988-89) and the denominator is 12. (Refer to Example 3 in para 2.11). Before this amendment, it was possible that where the assessee had a period of 15 months for one business and 21 months for another business, then he could avail of depreciation allowance for 21 months in respect of both the businesses, because his transitional previous year shall be of 21 months. But, now, the depreciation shall be calculated in respect of the two periods (of 15 months and 21 months) separately. This loophole is, therefore, being plugged. (v) Rule 6 has been amended to provide that where more than one period in respect of different sources of income are included in the extended transitional previous year, then the tax shall be payable at the average rate of tax calculated in accordance with the provisions of this rule on the total income of the extended transitional previous year, after excluding from such total income the income relatable to any such period or periods which has already been included or is includible in the total income of the assessment year 1988-89. (Refer to Examples 2 and 3 in para 2.11) 2.10 Whether there is a compulsion on the assessees to close their accounts on the 31st March.--It may be clarified that under the provisions of the new section 3, there is no compulsion on any assessee to close his accounts on 31st March only. All that the section requires is that for the purposes of income-tax, income will have to be declared for the year ending 31st March. Therefore, if for any reasons, personal, religious or on any other ground, an assessee wants to continue to close his accounts on a date different from 31st March, he can still do so. However, in such a case the assessee will be required to make up his accounts on 31st March also for the purpose of furnishing the return of income. Therefore, although it would be convenient to both the assessees as well as to the Department, if the assessees close their accounts on 31st March, if any assessee does not do so and submits 2 sets of accounts along with his return of income for the year ending 31st March, the same should be entertained by the Assessing Officer. 2.11 The computation of total income of the extended transitional previous year and the calculation of tax thereon according to the provisions of the Tenth Schedule may be illustrated by means of the examples given below : Example 1 The previous year of an assessee, assessed as an individual, having income from business ended on 30th June, 1987, for the assessment year 1988-89. The particulars of his total income for the transitional previous year of 21 months (1st July, 1987, to 31st March, 1989) for the assessment year 1989-90 are as follows : (1) Total income before deduction for depreciation allowance ... Rs. 6,30,000 (2) Depreciation at the prescribed rates for period of twelve months ... Rs. 1,20,000 The computation of depreciation allowable, total income and calculation of income-tax for the assessment year 1989-90 will be as under :-- (1) Depreciation allowable :-- Enhanced depreciation under rule 5 : = Rs. 1,20,000 x 21/12 Rs. 2,10,000 (2) Total income for the assessment year 1989790 : = Rs. 6,30,000 - Rs. 2,10,000 Rs. 4,20,000 (3) tax payable for the assessment year 1989-90 : (i) The proportionate income for 12 months =Rs. 4,20,000 x 12/21 Rs. 2,40,000 (ii) Tax payable on Rs. 2,40,000 Rs. 1,04,212 (iii) Average rate of tax 1,04,212/2,40,000 0.4342 (iv) Tax payable on total income for the assessment year 1989-90 = 4,20,000 x 0.4342 Rs. 1,82,364 Example 2 : Suppose an assessee, assessed as an individual, has for each of the assessment years 1988-89 and 1989-90, an annual income of Rs. 2,40,000 from business for which he closes his accounts on 30th June every year, and an annual income of Rs. 1,20,000 from other sources for which he closes his accounts on 31st March, every year. For the assessment year 1989-90, his previous years for the two sources of income are as under : Business 1-7-1987-31-3-89 (21 months) Other sources 1-4-1988-31-3-89 (12 months) The longer of the two, i.e., the period of 21 months (1st July, 1987, to 31st March, 1989) will be the transitional previous year for both the sources of income for the assessment year 1989-90. The computation of his total income for the assessment years 1988-89, and 1989-90 and tax payable for the assessment year 1989-90 would be as under :-- Rs. (i) Income for the assessment year 1988-89 :-- From business (1-7-1986--30-6-1987) 2,40,000 From other sources (1-4-1987--31-3-1988) 1,20,000 --------------- Total income 3,60,000 --------------- (ii) Income for the assessment year 1989-90 :-- From business (1-7-1987--31-3-89) (21 months) 4,20,000 * From other sources (1-7-1987--31-3-89) (21 months) 2,10,000 --------------- Total income 6,30,000 --------------- * This includes income from other sources for the period 1st July, 1987, to 31st March, 1988 (9 months) amounting to Rs. 90,000 which has already been taxed in the assessment year 1988-89. Rs. (iii) Computation of tax for the assessment year 1989-90 :-- (1) Income for 12 months = Rs. 6,30,000 x 12/21 = 3,60,000 (2) Tax on Rs. 3,60,000 = 1,67,212 (3) Average rate of tax Rs. 1,67,212/Rs. 3,60,000 = 0,4645 (4) The above average rate of tax will be applied on the total income of the transitional previous year minus income from other sources for a period of 9 months which has already been taxed in the year 1988-89, i.e., Rs. 6,30,000 - Rs. 90,000 = 5,40,000 (5) Tax payable = Rs. 5,40,000 x 0.4645 = 2,50,830 Example 3 : The assessee, assessed as an individual, has two businesses for which he closes his accounts on 30th June and 31st December, every year. Particulars of his income for the assessment years 1988-89 and 1989-90 and depreciation claim for the assessment year 1989-90 are as under :-- For the assessment year 1988-89 : --------------------------------------------------------------------------------------------------------------------------------------------------- Previous year Income after allowing depreciation claimed under section 32(1)(ii) --------------------------------------------------------------------------------------------------------------------------------------------------- Rs. First business 1-7-86 -- 30-6-87 2,00,000 Second business 1-1-87 -- 31-12-87 1,00,000 ----------------- Total income 3,00,000 ----------------- For the assessment year 1989-90 :-- --------------------------------------------------------------------------------------------------------------------------------------------------- Previous year Income after allowing depreciation claimed under section 32(1)(ii) -------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. First business 1-7-87 -- 31-3-89 (21 months) 2,35,000 60,000 Second business 1-1-88 -- 31-3-89 (15 months) 75,000 36,000 -------------------------------------------------------------------------------------------------------------------------------------------------- The transitional previous year for the assessment year 1989-90 will be for 21 months for both the businesses, i.e., from 1-7-1987 to 31-3-1989. The assessee's total income for the assessment year 1989-90 and tax thereon will be computed as under :-- Rs. Rs. (1) Income from first business (1-7-87---31-3-89) (21 months) = 2,35,000 Less enhanced depreciation for 21 months = 60,000 x 21/12 = 1,05,000 ----------------- 1,30,000 ----------------- (2) Income from second business for 1-7-87 to 31-3-89 (21 months) For the period 1-1-88---31-3-89, 15 months, as shown = 75,000 For the period 1-7-87---31-12-87 (6 months) being 50% of income of Rs. 1,00,000 for the entire period of 12 months for the assessment year 1988-89 = 50,000 ----------------- 1,25,000 ----------------- Less enhanced depreciation for 15 months =36,000 x15/12 = 45,000 80,000 (3) Total income for the assessment year 1989-90 2,10,000 (4) Completion of tax for the assessment year 1989-90 :-- (i) Income for 12 months=2,10,000x 12/21 = 1,20,000 (ii) Tax on Rs. 1,20,000 = 41,212 (iii) Average rate of tax = 41,212/1,20,000 = 0.3434 (iv) The above average rate of tax will be applied on the income of the transitional previous year (Rs. 2,10,000 minus income from second business for the period of 6 months, viz., Rs. 50,000 which has already been taxed in the assessment year 1988-89, i.e., Rs. 2,10,000---Rs. 50,000 = Rs. 1,60,000 (v) Tax payable---1,60,000 x 0.3434 = Rs. 54,944 ------------------ 2.12 These amendments come into force with effect from the first day of April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Sections 4 and 125 of the Amending Act, 1987] [Sections 3 and 56 of the Amending Act, 1989] Consequential amendments to section 4 reliating to charge of income-tax 3.1 Under the old provisions of section 4 of the Act, income-tax was chargeable for the assessment year at the rate or rates prescribed in the relevant Finance Act, in respect of the total income of the previous year or previous years of every person. 3.2 The Amending Act, 1987, has made the following consequential amendments in the section :-- (i) Reference to "previous years" has been omitted consequent upon the adoption of a uniform previous year for all assessees. (ii) Mention of "additional income-tax" has also been made in section 4 dealing with the charge of income-tax. Originally, this was consequent upon the charge of additional income-tax under section 158B, which was inserted by the Amending Act, 1987. Although the Amending Act, 1989, omitted section 158B, it inserted a new sub-section (1A) in section 143 to provide for levy of additional income-tax in certain cases where returned income is increased as a result of adjustments mentioned in the proviso to section 143(1)(a). [Refer to paras 5.7 to 5.9 of these Explanatory Notes] 3.3 These amendments come into force with effect from 1st April, 1989, and will, accordingly, apply to the assessment year 1989-90 and subsequent years. [Section 5 of the Amending Act, 1987] Procedure for assessment : Return of income and other related provisions 4.1 Staggering of the dates for filing returns of income and removal of the discretion of the Assessing Officer to extend the dates for filing the returns [section 139(1)].--Under the old provisions of sub-section (1) of section 139, time limits for filing the returns of income were prescribed depending upon whether or not the assessee had income from business or profession. In the case of persons deriving income from business or profession the date of filing the return of income was before the expiry of four months from the end of the previous year or before the 30th of June of the relevant assessment year, whichever was later, i.e., it could be either 30th June or 31st July. In the case of other persons, not deriving income from business or profession, the date was 30th June. Also, on an application made by the assessee in the prescribed form, the Income-tax Officer was empowered to extend the date for filing the return of income subject to chargeability of interest under section 139(8). 4.2 With the introduction of the financial year (year ending 31st March) as the uniform previous year for all assessees, those having income from business or profession would have been obliged to file their returns by 31st July, after closing their accounts on 31st March. This would have resulted in heavy pressure of work on the audit profession, because all those assessees, who are required to get their accounts audited, would have been obliged to do so within a short span of four months. Also, all such returns would have been filed with the Department mostly towards the end of July every year, causing a glut of such returns within a very short period. To remove these difficulties, the Amending Act, 1987, has substituted a new sub-section (1), which staggers the dates for filing the returns of income by different classes of assessees as under :-- (a) Where the assessee is a company By 31st December (b) Where the assessee is a person other than a company,-- (i) who is required to get his accounts audited under By 31st October the Income-tax Act or under any other law, or in the case of a co-operative society : (ii) who derives income from business or profession, By 31st August but does not fall under item (i) above : (iii) in any other case By 30th June. 4.3 The Amending Act has also removed the discretion of the Assessing Officer to extend the dates for filing the returns of income. Consequently, the dates for filing the returns, as mentioned above, are mandatory and cannot be extended. 4.4 Omission of sub-section (2) of section 139.--Under the old provisions of section 139, in case any assessee, who had taxable income, failed to file the return voluntarily under sub-section (1), the Income-tax Officer was empowered to issue notice under sub-section (2), calling for the return within 30 days, and an ex parte assessment under section 144 could be completed only if the assessee failed to file the return in response to notice under section 139(2). Thus, an ex parte assessment order could not be passed for the assessee's failure to file the return voluntarily. An intermediate step of the issue of notice was there and the Assessing Officer had to wait till such notice was served upon the assessee and the statutory time limit of 30 days was over before he could complete the assessment ex parte. In order to eliminate the time taken in these legal formalities and also to enforce voluntary compliance on the part of the assessees, the Amending Act, 1987, has omitted sub-section(2) of section 139. Simultaneously, section 144 has also been amended so that an ex parte assessment can now be completed for the assessee's default in filing his return voluntarily under section 139(1). [Refer to para 6.1 of these Explanatory Notes]. 4.5. Provisions relating to filing of loss returns [Section 139(3)].--Under the old provisions of sub-section (3), a return of loss incurred under the head "Profits and gains of business or profession" or under the head "Capital gains", which the assessee wanted to be carried forward, had to be filed by 31st July of the relevant assessment year. Consequent upon the provisions for staggered dates for filing the returns of income in the new sub-section(1), the Amending Act, 1987, has also amended sub-section (3) to provide that such loss returns can also be filed by the due dates mentioned in sub-section (1). In the case of loss returns also, the Assessing Officer has no power to allow extension of time for filing such returns. 4.6 Provisions relating to filing of belated or revised returns of income [Sub-sections (4) and (5) of section 139].--Under the old provisions of sub-section (4), even if a person did not file a return of income within the time allowed under sub-sections (1) or (2), he could still file the same within two years from the end of the relevant assessment year, provided the assessment had not been completed. This gave the assessee a time of three years or more for filing the return of income after he had closed his accounts and was an impediment in early completion of assessments. The Amending Act, 1987, has, therefore, substituted a new sub-section (4) whereby the time limit is reduced to one year from the end of the relevant assessment year. Reference to sub-section (2) has also been omitted. It has, however, been provided that in respect of the assessment year 1988-89 or any earlier assessment year, the return can still be filed within two years from the end of the relevant assessment year. 4.7. Under the old provisions of sub-section (5), an assessee, having furnished a return under sub-section (1) or (2), could file a revised return at any time before the assessment was made. This could be up to two years from the end of the relevant assessment year. The Amending Act, 1987, has substituted a new sub-section (5) whereby this time limit for filing a revised return is also reduced to one year from the end of the relevant assessment year. Reference to sub-section (2) has also been omitted. It has also been provided that in respect of the assessment year 1988-89 or any earlier assessment year, the revised return can still be filed within two years from the end of the relevant assessment year. 4.8. Returns by charitable or religious trusts and institutions [Section 139(4A)].--The old provisions of sub-section (4A) dealt with the filing of returns by charitable or religious trusts or institutions whose income was exempt under sections 11 and 12. Pursuant to the omission of sections 11 and 12 and substitution of those provisions by a new section 80F, the Amending Act, 1987, substituted a new sub-section (4A) in section 139 containing consequential amendments. 4.9. However, the Amending Act, 1989 has again brought back the old sub-section (4A) of section 139 consequent upon the revival of the old sections 11 and 12 and the omission of new section 80F. 4.10. Substitution of the provisions of sub-section (8) of section 139, relating to charge of interest for late filing or non-filing of returns by the provisions for charge of mandatory interest under the new section 234A.--Under the old provisions of sub-section (8), an assessee was liable to pay simple interest at 15% per annum on the amount of tax payable on the total income determined on regular assessment, as reduced by the advance-tax paid or tax deducted at source, if any, for late filing or non-filing of the return of income. The Amending Act, 1987, has inserted a terminal clause in the said sub-section (8) to provide that the provisions of this sub-section shall apply in respect of the assessment year 1988-89 or any earlier assessment year. For the assessment year 1989-90 and subsequent assessment years mandatory interest at 2% per month is to be charged for late filing or non-filing of return under the provisions of a new section 234A inserted by the Amending Act, 1987. [Refer to paras 10.3 to 10.5 in these Explanatory Notes] . 4.11. Amendments of the provisions relating to permanent account numbers (section 139A).--The Amending Act, 1987, has made the following amendments in section 139A relating to permanent account numbers.-- (i) Consequent upon the adoption of the financial year as the uniform previous year for all assessees, reference in the section to "any accounting year" is substituted by a reference to "any previous year" and the definition of the term "accounting year" is omitted. (ii) The Board is empowered to prescribe categories of documents pertaining to the business or profession of the persons to whom permanent account numbers have been allotted in which such numbers are to be quoted by them. 4.12. Provisions relating to persons competent to sign the returns of income (section 140).--Under the old provisions of clause (a) of section 140, the return of income, in the case of an individual, had to be signed by the individual himself. Only two exceptions were provided to this general rule, namely :-- (i) where the individual was outside India, the return could be signed either by the individual himself or by a person duly authorised by him in this behalf ; (ii) where the individual was mentally incapacitated from attending to his affairs, the return could be signed by his guardian or any other person competent to act on his behalf. Apart from the above, there can be other contingencies where the individual may not be able to sign the return himself. For example, a person suffering from a serious ailment or physical disability may also not be able to sign the return himself. Such contingencies have already been taken care of in section 15A of the Wealth-tax Act. In order to provide for such contingencies and to bring the provisions of the Income-tax Act at par with the provisions of the Wealth-tax Act, the Amending Act, 1987, has substituted a new clause (a) in section 140 of the Income-tax Act which, in addition to the two contingencies already provided for in the old provisions, provides for the remaining contingencies and lays down that where, for any other reason it is not possible for the individual to sign the return, the same may be signed by any person duly authorised by such individual in this behalf. The said new clause (a) further provides that where a duly authorised person signs a return on behalf of an individual, either because the individual is out of India, or because for any other reason it is not possible for the individual to sign the return, he should hold a valid power of attorney from the individual which should be attached with the return. 4.13. Under the old provisions of clause (c) of the section, the return of income in the case of a company could be signed by the managing director or where, for any unavoidable reason, the managing director was not able to sign the return, it could be signed by any director of the company. This caused problems in the case of non-resident companies where all the directors were outside the country and also in the case of companies which were being wound up or whose management was taken over by the Government. The Amending Act, 1987, has, therefore, added two provisos to the said clause (c) of the section to provide that the return can also be signed and verified,-- (i) in the case of a non-resident company, by a person holding a valid power of attorney from such company, which shall be attached with the return ; (ii) where the company is being wound up, by the liquidator of the company ; and (iii) where the management of the company has been taken over by the Central or State Government, by the principal officer thereof 4.14. The old provisions of section 140 did not provide as to who will be competent to sign and verify the return in the case of a political party, although section 139(4B) did cast the responsibility for furnishing the return of income of a political party within the specified time limit on its Chief Executive Officer, if the income exceeded the maximum amount not chargeable to tax. To remove this lacuna, the Amending Act, 1987, has inserted a new clause (dd) in the section to provide that in the case of a political party referred to in section 139(4B), the Chief Executive Officer thereof shall be the person competent to sign and verify the return. 4.15. Provisions relating to payment of self-assessment tax before filing the return (section 140A).--Under the old provisions of sub-section (1) of section 140A, the assessee was required to pay tax on the basis of the return, after taking into account taxes already paid at the time of filing the return. Such tax, known as the self-assessment tax, was to be paid before filing the return and proof of payment thereof was to be attached with the return. The old provisions covered the limited aspect of paying, at the time of filing the return, the tax only and not the "interest" payable by the assessee for late filing of return or for default or delay in payment of advance tax. 4.16. For delay in filing the return of income and for delay or default in payment of advance tax, mandatory interest is now payable under the provisions of new sections 234A to 234C inserted by the Amending Act, 1987. Further, under the new scheme of assessment also being introduced by the Amending Act, 1987 (refer para 5.2 of these Explanatory Notes), if the tax and interest due on the basis of returned income have been correctly paid, the return will be accepted as such and no further action on it will be necessary. For successful implementation of the new scheme of assessment, it is necessary that the assessees should also pay interest due under the provisions of the new sections 234A to 234C along with the self-assessment tax before filing the return of income. The Amending Act, 1987, has, therefore, amended sub-section (1) of section 140A to make it mandatory for a person to pay before furnishing the return, tax together with interest payable under any provisions of the Act for delay in furnishing the return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with the return. Further, an Explanation has been inserted in the said sub-section (1) to clarify that where the assessee pays only part of the amount due at the time of filing the return, such payment shall first be adjusted towards the interest payable, and balance, if any, shall be adjusted towards the tax payable. 4.17. The old provisions of sub-section (3) of the section provided for levy of penalty for non-payment of self-assessment tax. Since the rate of mandatory interest for failure to pay the tax has now been increased, it is not necessary to retain this provision any more. The Amending Act, 1987, has, accordingly, omitted the said sub-section (3). 4.18. In order to vest the power of recovery of tax and interest due under this section on the basis of the return, the Amending Act, 1987, has inserted a new sub-section (3) in the section to provide that if any assessee has not paid self-assessment tax and interest in full before filing the return, he shall be deemed to be an assessee in default in respect of such tax and interest. 4.19. Omission of section 141A relating to provisional assessment for refund.--The Amending Act, 1987, has omitted section 141A dealing with completion of provisional assessment for the purposes of giving refund to the assessee on the basis of his return, as this provision has become redundant in view of the new scheme of assessment under which such refunds will be automatically allowed to the assessee under the provisions of the new section 143(1)(a) (refer to para 5.2 of these Explanatory Notes). 4.20. Amendments of the provisions of section 142(1) relating to enquiry before assessment, to include power to call for a return.--Under the old provisions of sub-section (1) of section 142, the Income-tax Officer, for the purposes of making an assessment, could require an assessee, who had made a return or to whom a notice under section 139(2) had been issued (whether the return had been made or not) to produce specific books of account, documents or information which he thought were relevant to make an assessment. However, the Assessing Officer could not initiate any enquiries by issue of a notice under section 142(1), if the assessee had defaulted in voluntarily filing a return under the provisions of section 139(1). Consequent upon the omission of sub-section (2) of section 139 and more emphasis on voluntary compliance under section 139(1), as explained earlier, the Amending Act, 1987, has amended sub-section (1) of section 142 to omit reference to sub-section (2) of section 139 and to provide that a notice under the said sub-section (1) of section 142 can be issued even where the assessee has not filed the return of income voluntarily by the due date under section 139(1). The Amending Act, 1987, has further provided that where a return has not been filed voluntarily before the end of the relevant assessment year, the Assessing Officer can call for a return of income by issue of a notice under the said sub-section (1) of section 142. This provision thus enables the Assessing Officer to call for a return and is a substitute for the provisions of section 139(2). However, a return can be called for under section 142(1) only after the relevant assessment year has ended without the assessee having filed the return of income. 4.21 These amendments come into force with effect from the 1st April, 1989. [Sections 42 to 47 of the Amending Act, 1987] [Section 20 of the Amending Act, 1989] Procedure for assessment : New scheme of assessment 5.1 The new scheme of assessment (new section 143).--With the number of income-tax assessees continuously increasing, there was an urgent need to reduce the Department's work load by greater reliance on voluntary compliance by the assessees. The Amending Act, 1987, has, therefore, substituted a new section 143 in the Income-tax Act to introduce an entirely new scheme of assessment after a return of income has been filed. The main features of the new scheme are :-- (i) The requirement of passing an assessment order in all cases, where returns of income are filed, has been dispensed with and the issue of an acknowledgment slip to the assessee will be the end of the matter, if he has correctly paid tax and interest, if any, due on the basis of the return. (ii) If on the basis of the return any amount is found due from the assessee, it can be recovered ; if any refund is found due to the assessee, it can be granted without passing an assessment order. (iii) Assessment orders will be passed only in a very limited number of cases selected for scrutiny. The old and the new provisions of section 143 are discussed in greater detail in the following sub-paras. 5.2 Requirement of passing an assessment order in all cases dispensed with (sub-section (1) of section 143).--Under the old provisions of sub-section (1) of section 143, after a return of income had been filed, a regular assessment order had to be passed by the Assessing Officers even where the return was accepted without requiring the presence of the assessee or the production by him of any evidence in support of the return. However, sub-section (1) of the new section, substituted by the Amending Act, 1987, has done away with this requirement and it only provides for proper recovery of tax or interest due from the assessee or issue of refund due to the assessee on the basis of the return. Clause (a) of sub-section (1) of the new section provides that after a return has been filed under section 139 or in response to notice under section 142(1), the following action shall be taken :-- (i) if any tax or interest is found due on the basis of the return, after adjustment of the pre-paid taxes, an intimation shall be sent to the assessee specifying the amount so payable and such intimation shall be deemed to be the notice of demand ; and (ii) if any refund is due, it shall be granted to the assessee. Thus, if the tax on the basis of the returned income and interest, if any, due under various provisions of the Act (as explained in para 4.16 of these Explanatory Notes) has been correctly paid so that no sum is found payable by or refundable to the assessee, no further action on the return is necessary, unless, of course, the case is picked up for scrutiny. 5.3 Adjustments be made to the income or loss declared in the return.--A proviso to clause (a) of sub-section (1) of the new section enables the Department to make the following adjustments to the returned income or loss for the purposes of computing the tax or interest payable by or refundable to the assessee :-- (i) rectification of any arithmetical errors in the return or in the accompanying accounts or documents ; (ii)allowance or disallowance of any loss carried forward, deduction, allowance or relief, which, on the basis of information available in such return or the accompanying accounts or documents, is prima facie admissible or inadmissible, as the case may be. 5.4 The prima facie adjustments mentioned at (ii) above can be made only on the basis of information available in the return or the accompanying accounts or documents and not on the basis of the past records of the assessee. Some examples of such prima facie admissibles or inadmissibles in respect of which adjustments can be made to the returned income or loss are :-- (i) While computing income under the head "Salaries", standard deduction under section 16(i) is not claimed, or claimed at a figure which is less than or in excess of the permissible limit. (ii) While computing income under the head "Income from house property", deduction for 1/6th for repairs or for a new unit under the proviso to section 23(1) is not claimed, or claimed at a figure which is less than or is in excess of the permissible amount. (iii) While computing income under the head "Profits and gains of business or profession", depreciation claimed at rates lower or higher than those provided for in the Income-tax Rules. (iv) While computing capital gains, deduction of Rs. 10,000 under section 48(2) is not claimed or claimed less or in excess of this amount. (v) Carried forward speculation loss set off against income from business or profession or against income under any other head. (vi) Loss under any head, other than under the head "Profits and gains of business or profession", carried forward and set off against the current income. (vii) Carried forward loss of business set off against income of the current year under other heads. (viii) Old loss of more than eight assessment years set off against the current business income, if the information is available in the return or the accompanying documents. (ix) Deduction under section 80C in respect of provident fund contributions or life insurance premia or N. S. C. VI or VII Issue not claimed, though the information is available in the documents accompanying the return, or claimed at a figure which is less than or is in excess of the permissible amount. (x) Deduction under section 80L not claimed or claimed at a figure which is less than or is in excess of the permissible amount. (xi) Deduction under section 80G not claimed, although allowable on the basis of the information available in the return or the accompanying documents or claimed at a figure which is less than or is in excess of the permissible amount. (xii) Deduction under section 80M claimed at 60 per cent of gross dividend income instead of on net dividend income in violation of the provisions of section 80AA. It may be mentioned that the above is not an exhaustive, but only an illustrative, list of prima facie admissibles or inadmissibles for which adjustments can be made to the returned income or loss. 5.5 Amendment made by the Amending Act, 1989, to provide for time limit for sending an intimation to the assessee under section 143(1)(a)(i)--No time limit was prescribed under the provisions of section 143(1)(a)(i), as introduced by the Amending Act, 1987, for sending an intimation to the assessee, in respect of any tax or interest found due from him on the basis of the return. A number of representations were received from the taxpayers that the assessee would remain in suspense about the finality of their returns and the Assessing Officers might send an intimation for payment of a sum by the assessee even after a considerable lapse of time, may be 10 years or more. The Amending Act, 1989, has, therefore, inserted another proviso in clause (a) of sub-section (1) of the section to provide that such an intimation shall not be sent after the expiry of two years from the end of assessment year in which the income was first assessable. The effect is that if the Assessing Officer fails to send an intimation to the assessee within the said period of two years, it will not be possible for him to recover the tax or interest due from the assessee on the basis of the return. However, if any assessee has understated his income or has claimed excessive loss, deduction, allowance or relief in the return, the Assessing Officer may reopen his case under the provisions of clause (b) of Explanation 2 to the new section 147 (refer to para 7.3 of these Explanatory Notes). 5.6 Issue of a revised intimation of refund to the assessee.--Clause (b) of sub-section (1) of the new section provides for the issue of a revised intimation to the assessee for any tax or interest due from him or for any revised refund due to him, where as a result of any of the appellate, revisionary or settlement orders mentioned in the clause relating to any earlier assessment year and passed subsequent to the filing of the return referred to in clause (a), there is any variation in the carry forward loss, deduction, allowance or relief claimed in the said return. However, a revised intimation under this clause shall not be sent after the expiry of four years from the end of the financial year in which such appellate, revisionary or settlement order was passed. 5.7. Insertion of sub-section (1A) in section 143 by the Amending Act, 1989, to provide for charge of additional tax where returned income is increased as a result of adjustment made under section 143(1)(a).--The new section 143, as substituted by the Amending Act, 1987, while dispensing with the necessity of passing assessment orders in all cases, did not contain any deterrent provision against filing of incorrect returns to show lesser tax liabilities. Consequently, the new scheme of assessment was liable to be misused by unscrupulous taxpayers, who might return lesser income by making obvious mistakes or by claiming obviously incorrect deductions and taking a chance that if the same are detected by the Department, they would have to pay the correct tax only. The Amending Act, 1989, has, therefore, inserted a new sub-section (1A) in the section to provide for the levy of 20% additional tax in such cases. Besides its deterrent effect, the purpose of this levy is also to persuade all the taxpayers to fill their returns of income carefully to avoid mistakes. It is thus a sort of negligence tax on the assessee and compensates the Department for the effort involved in detecting the obvious mistakes committed by the taxpayers in their returns of income or loss. The provisions are discussed in greater detail in the following sub-paragraphs. 5.8 The new sub-section (1A) provides that where the total income as a result of adjustments made under the proviso to section 143(1)(a) exceeds the total income declared in the return by any amount, an additional tax of 20% of the tax payable on such excess amount shall be levied. It also provides for the increase or decrease of the amount of additional tax consequent upon the increase or decrease in the amount on which additional income-tax is payable by reason of an order of rectification under section 154, or appellate or revisionary orders mentioned in that sub-section. 5.9 An Explanation in the said sub-section (1A) provides that the additional tax of 20 % will be levied on,-- (i) in a case where the amount of the aforesaid adjustments exceeds the total income, the tax that would have been chargeable had the amount of adjustment been the total income ; (ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments. The provisions of clause (i) of the Explanation apply in the case of loss returns only. These provisions are on the same lines as the provisions for the levy of penalty under section 271(1)(c) for concealment of income in the case of loss returns, as contained in clause (a) of Explanation 4 to section 271(1). 5.10 Commencement of proceedings for scrutiny and completion of scrutiny assessment (sub-sections (2) and (3) of section 143).--Under the old provisions of sub-section (2) of section 143, a notice could be served upon the assessee to produce evidence in support of his return under any of the following circumstances :-- (a) where an assessment had been made under section 143(1),-- (i) if the assessee objected to such an assessment, or (ii) if the Assessing Officer wanted to verify the correctness or completeness of the return ; and (b) where the Assessing Officer did not complete the assessment under section 143(1), but wanted to make an enquiry to verify the correctness and completeness of the return. 5.11 Under the old provisions of sub-section (3) of section 143, the Assessing Officer, after considering the materials and evidence produced by the assessee and after making necessary enquiries, could proceed as under :-- (i) where no assessment had been made earlier under sub-section (1), he could make an assessment of the total income or loss of the assessee ; (ii) where an assessment had been made earlier under sub-section (1), he could make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment. 5.12 Since, under the provisions of sub-section (1) of the new section 143, an assessment is not to be made now, the provisions of sub-sections (2) and (3) have also been recast and are entirely different from the old provisions. A notice under sub-section (2) which will be issued only in cases picked up for scrutiny, is now issued only to ensure that the assessee has not understated his income or has not computed excessive loss or has not underpaid the tax in any manner while furnishing his return of income. This means that, under the new provisions, in an assessment order passed under section 143(3) in a scrutiny case, neither the income can be assessed at a figure lower than the returned income, nor loss can be assessed at a figure higher than the returned loss, nor a further refund can be given except what was due on the basis of the returned income, and which would have already been allowed under the provisions of section 143(1)(a)(ii). 5.13 A proviso to sub-section (2) provides that a notice under the sub-section can be served on the assessee only during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later. This means that the Department must serve the said notice on the assessee within this period, if a case is picked up for scrutiny. It follows that if an assessee, after furnishing the return of income does not receive a notice under section 143(2) from the Department within the aforesaid period, he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. 5.14 The provisions of sub-section (3) of the new section have also been simplified to provide for passing an assessment order under this sub-section only under one circumstance, that is where a notice under sub-section (2) has been issued to the assessee, whose case is picked up for scrutiny. As already explained, since in an assessment completed under the new sub-section (3), neither the returned income can be assessed at a lower figure, nor can a further refund be granted, the words "or refundable to the assessee", which were there in old sub-section (3), do not find place in the new sub-section. 5.15 Whether in a case picked up for scrutiny an intimation or refund under section 143(1)(a) should be issued before completion of assessment under section 143(3). A question has been raised as to whether in a case selected for scrutiny an intimation under section 143(1)(a)(i) for any tax or interest found due from the assessee, or a refund under section 143(1)(a)(ii) found due to the assessee on the basis of the return of income or loss should be issued immediately and before completion of a regular assessment under section 143(3). In this connection it may be pointed out that the scheme of the new section 143 is such that action under section 143(1)(a) must be taken soon after the filing of the return to avoid delay in :-- (i) collection of demand which is clearly due on the basis of the return, or (ii) issue of refund due on the basis of the return, failing which the Government would have to pay interest at 1.5 per cent. per month under the provisions of new section 244A (refer to paras 11.1 to 11.9 in these Explanatory Notes). Once the cast is picked up for scrutiny, the Department would normally get more than two years for completion of regular assessment under section 143(3). Therefore, collection of demand due or issue of refund due on the basis of return need not wait for such a long period. It may further be pointed out that no refund can now be granted on completion of an assessment under the provisions of section 143(3). For this reason also, action under section 143(1)(a)(ii) for issue of a refund on the basis of a return of income or loss must be completed before an assessment order under section 143(3) is passed in that case, as otherwise the provisions of section 143(1)(a)(ii) and 143(3) would get mixed up and may create confusion and uncertainty. 5.16 From the above discussion, it follows that, even in cases selected for scrutiny it is desirable that action under section 143(1)(a) for issue of an intimation for any sum due from the assessee or for issue of a refund due to the assessee on the basis of the return must be completed soon after the filing of the return and in any case before completion of assessment under section 143(3). In fact, it will be preferable if action under section 143(1)(a) is completed even before the issue of a notice under section 143(2) in such cases. 5.17 Whether any appeal is provided against an adjustment made under the proviso to section 143(1)(a) or the levy of additional income-tax under section 143(1A). A direct appeal has not been provided against adjustments made under the proviso to section 143(1)(a) and the consequential charge of additional income-tax under section 143(1A), because the adjustments are to be made only in respect of arithmetical errors and prima facie admissibles or inadmissibles. Any action of the Assessing Officer in contravention of these provisions will be clearly a mistake. Therefore, section 154 relating to rectification of mistakes has been amended to bring an intimation/refund issued under section 143(1) within the purview of that section (refer to para 9.1 of these Explanatory Notes). Therefore, if an assessee is aggrieved by an adjustment made to the returned income/loss and also the consequential charge of additional income-tax, he can move an application under section 154 before the Assessing Officer for rectification of the mistake. If the said application is rejected, the assessee can file an appeal or revision against such order or rejection. Thus, in effect, an adjustment made under the proviso to section 143(1)(a) or additional income-tax charged under section 143(1A) are appealable, though not directly but through the provisions of section 154. 5.18 These amendments come into force with effect from the 1st April, 1989. It has been clarified by the issue of an Income-tax (Removal of Difficulties) Order, 1989, vide No. G.S.R. 376(E), dated March 23, 1989 (refer to paras 11.2 and 11.3 of Part I of these Explanatory Notes), that the provisions of section 143 as they stood prior to the commencement of the Amending Act, 1987, shall apply in respect of the assessment year 1988-89, and earlier assessment years. It follows, therefore, that the provisions of the new section 143, as substituted by the Amending Act, 1987, would apply to the assessment year 1989-90 and subsequent assessment years. [Section 48 of the Amending Act, 1987] [Section 21 of the Amending Act, 1989] Procedure for assessment : Miscellaneous provisions 6.1 Provisions relating to best judgment (ex parte) assessment (section 144).--Under the old provisions of section 144, a best judgment assessment could be completed if the assessee failed to furnish the return of income in response to notice under section 139(2) or failed to comply with notices under section 142(1) or 143(2) or with direction issued under section 142(2A). It was not necessary to give a specific opportunity to the assessee under this section before completing the assessment ex parte. Consequent to the deletion of sub-section (2) of section 139 and the substitution of a new section 143, the Amending Act, 1987, has made the following amendments in section 144 :-- (i) A best judgment assessment can now be completed on assessee's failure to file a return of income under sub-section (1) of section 139. (ii) A best judgment assessment under this section can now be made only after giving the assessee an opportunity of being heard. (iii) Two provisos have been inserted in the section to provide that such opportunity shall be given to the assessee calling upon him to show cause why the assessment should not be completed to the best of judgment. It is further provided that such opportunity shall not be necessary where a notice under section 142(1) has already been issued to the assessee. (iv) The words "or refundable to the assessee", which occurred in the old section 144, have been deleted, so that a refund cannot now be granted under this section. This amendment is on the same lines as in the new section 143(3). 6.2 Consequential amendment to the provisions relating to power of the Deputy Commissioner to issue directions (section 144A).--Sub-section (2) of section 144A, which provided that the provisions of the said section shall be in addition to, and not in derogation of, the provisions contained in sub-section (3) of section 119, had become redundant as a result of the omission of the said sub-section (3) of section 119 by the Amending Act, 1987. Consequently, the said sub-section (2) of section 144A has also been omitted by the Amending Act, 1987. 6.3 The Amending Act, 1989, has made an amendment of a consequential nature in the Explanation to this section, pursuant to the omission of sub-section (2) by the Amending Act, 1987. 6.4.Omission of sections 144B and 146.--The Amending Act, 1987, has omitted the following sections of the Income-tax Act :-- (i) Section 144B relating to reference to the Deputy Commissioner in certain cases. (ii) Section 146 relating to reopening of best judgment assessment by the Assessing Officer, on an application made by the assessee. The omissions have been made because the provisions of both these sections had become redundant on account of their withdrawal, with effect from October 1, 1984, by the Taxation Laws (Amendment) Act, 1984. 6.5 Provisions relating to method of accounting to be employed by the assessee (section 145).--Sub-section (1) of section 145 provides that income chargeable under the heads "Profits and gains of business or profession" or "Income from other sources" shall be computed in accordance with the method of accounting regularly employed by the assessee. Since any income by way of interest on securities is now chargeable to tax under any of the above two heads, the Amending Act, 1987 has inserted a second proviso to the said sub-section (1) to provide that where no method of accounting is regularly employed by the assessee, any income by way of interest on securities shall be chargeable to tax as the income of the previous year in which it is due to the assessee, i.e., it will be taxed on accrual basis. 6.6 These amendments come into force with effect from the 1st April, 1989. [Sections 49 to 53 of the Amending Act, 1987] [Section 22 of the Amending Act, 1989] Income escaping assessment 7.1 Simplification of the provisions relating to assessment or reassessment of income escaping assessment (section 147).--Under the old provisions of section 147 of the Income-tax Act, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed, as follows :-- (i) Clause (a) empowered the Income-tax Officer to assess or reassess the income escaping assessment if he had reason to believe that income had escaped assessment on account of omission or failure on the part of the assessee to file a return of income for an assessment year or to disclose fully and truly all material facts necessary for assessment for that year. (ii) Clause (b) empowered the Income-tax Officer to reopen an assessment, notwithstanding the fact that there had been no omission or failure, as mentioned in clause (a), on the part of the assessee if the Income-tax Officer, on the basis of information in his possession, had reason to believe that income had escaped assessment for the relevant assessment year. Since under the new scheme of assessment (refer to para 5.1 of these Explanatory Notes), introduced by the Amending Act, 1987, returns filed will now be accepted as such and passing of assessment orders will not be necessary, it follows that in the majority of cases there would not be any application of mind by the Assessing Officer after the returns are filed, unless the case is picked up for scrutiny and a regular assessment order is passed under section 143(3). The Amending Act, 1987, has, therefore, rationalised the provisions of section 147 and other connected sections to simplify the procedure for bringing to tax the income which escapes assessment, especially in non-scrutiny cases. Thus, the Amending Act, 1987, has substituted a new section 147 which contains simplified provisions as follows :-- (i) Separate provisions contained in clauses (a) and (b) of the old section have been merged into a single new section, which provides that if the Assessing Officer is of the opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess the same after recording in writing the reasons for doing so. (ii) The requirements in the old provisions that the Income-tax Officer should have "reason to believe" or "information in possession" before taking action to assess or reassess the income escaping assessment, have been dispensed with. (iii) The existing legal interpretation that once an assessment has been reopened, any other income that has escaped assessment and comes to the notice of the Assessing Officer subsequently during the course of proceedings under this section can also be included in the assessement has been incorporated in the new section itself. (iv) A proviso to the new section provides that an assessment which has been completed under section 143(3) or 147, i.e., a scrutiny assessment, can be reopened after the expiry of four years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part of the assessee to file a return of income or to disclose fully and truly all material facts necessary for his assessment. 7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression "reason to believe" in section 147.--A number of representations were received against the omission of the words "reason to believe" from section 147 and their substitution by the "opinion" of the Assessing Officer. It was pointed out that the meaning of the expression, "reason to believe" had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression "has reason to believe" in the place of the words "for reasons to be recorded by him in writing, is of the opinion". Other provisions of the new section 147, however, remain the same. 7.3. Deemed cases of income escaping assessment (Explanation 1 to section 147).--Under the old provisions of Explanation 1 to section 147, income chargeable to tax was deemed to have escaped assessment if it had been under-assessed or assessed at too low a rate or if any excessive relief or loss or depreciation allowance had been allowed. The new provisions in this respect, as contained in Explanation 2 to new section 147, are more elaborate and cover those cases where assessments have been completed (called as scrutiny cases) as well as those cases where no assessments have been completed (called as non-scrutiny cases). Thus, the new, Explanation 2 to the section clarifies that the following shall be deemed to be cases of income escaping assessment :-- (i) Where no return of income has been furnished by the assessee, although the total income is above the taxable limit. (ii) Where a return of income has been furnished, but no assessment has been made (i.e., in a non-scrutiny case)--if the assessee is found to have understated his income or claimed excessive loss, deduction, allowance or relief in the return. (iii) Where an assessment has been made (i.e., in a scrutiny case)--if income chargeable to tax has been underassessed or assessed at too low a rate or if any excessive relief or loss or depreciation allowance or any other allowance under this Act has been allowed. 7.4. Amendment of provisions relating to issue of notice where income has escaped assessment (section 148).--The old provisions of section 148 of the Income-tax Act provided that a notice issued under this section shall tantamount to a notice issued under section 139(2). It was also provided in sub-section (2) of the said section 148 that before issuing a notice under this section, the Income-tax Officer will record the reasons for doing so. The Amending Act, 1987, has substituted a new section 148. The main features of the new section are :-- (i) Consequent upon the omission of sub-section (2) of section 139, reference to the same has been removed and the new section 148 has been made self-contained. (ii) Sub-section (2) of this section has been omitted, as the requirement of recording reasons in writing has been incorporated in the new section 147 itself. 7.5. Consequent upon further amendment of section 147 by the Amending Act, 1989, whereby the requirement of recording reasons in writing has been omitted from that section (refer to para 7.2 ante), the Amending Act, 1989, has again amended section 148 to re-insert sub-section (2). Thus, the requirement of recording reasons in writing before issuing a notice under section 148 continues to remain in the Act. 7.6. Provisions relating to time limits for issue of notice under section 148 (sub-section (1) of section 149).--Under the old provisions of sub-section (1) of section 149, time limits for opening or reopening of past cases were laid down depending upon whether the case was covered under clause (a) or clause (b) of the old section 147. Thus, no notice under section 148 could be issued in a case falling under clause (b) after the expiry of four years and in a case falling under clause (a) after the expiry of eight years from the end of the relevant assessment year. However, in a case falling under clause (a) if the income which had escaped assessment amounted to Rs. 50,000 or more in that year, the case could be reopened up to 16 years. 7.7. In view of the new procedure for assessment (refer to para 5.1 of these Explanatory Notes) whereby the majority of cases will be non-scrutiny cases, while only a very small percentage will be scrutiny cases (i. e., where an assessment order will be passed under section 143(3) or 147), the Amending Act, 1987, has substituted a new sub-section (1) in section 149, which contains an entirely different basis for the time limits. The time limits now depend upon whether the case is a scrutiny case or a non-scrutiny case and also the amount of income which has escaped assessment. The income limits for opening or reopening a non-scrutiny case are lower than those for reopening a scrutiny case. The new provisions of section 149(1) are explained in a chart given in para 7.11 post. 7.8. Time limits not to apply to give effect to an order of a court in any proceedings (sub-section (1) of section 150).--Under the old provisions of sub-section (1) of section 150, a notice under section 148 could be issued at any time, notwithstanding the time limits prescribed in section 149, if an assessment, reassessment or recomputation was to be made in pursuance of any finding or direction contained in an order of appeal, reference or revision passed under the Income-tax Act. However, there can be proceedings other than those under the Income-tax Act, which can have a bearing in quantifying the past income of the assessee, which may have escaped assessment. For example, a writ proceeding challenging the constitutional validity of any other Act may have a bearing on the assessment of income. To plug this loophole, the Amending Act, 1987, has amended the said sub-section (1) to empower the Assessing Officer to issue a notice under section 148 at any time to give effect to any finding or direction contained in an order passed by a court in any proceeding under any other law. 7.9. Provisions relating to sanction of superior authorities for issue of notice under section 148 (section 151).--Under the old provisions of section 151, the sanctioning authorities for opening or reopening of past cases were prescribed depending upon the period after which action was being taken. Thus, if notice under section 148 was to be issued after the expiry of four years from the end of the assessment year, the sanction of the Commissioner was necessary, while after the expiry of eight years from the end of the assessment year, the sanction of the Board was necessary. 7.10. For the same reasons as discussed in para 7.7 ante, the Amending Act, 1987, has substituted a new section 151, which contains substantially changed provisions. The issuing or sanctioning authorities will now depend upon whether the case is a scrutiny case (i.e., where an assessment order has been passed under section 143(3) or section 147) or a non-scrutiny case, and also the period after which the case is being opened or reopened. Thus, a scrutiny assessment will not be reopened by an Assessing Officer of the rank below the rank of an Assistant Commissioner. After the expiry of four years from the end of the relevant assessment year, a scrutiny assessment can be reopened only with the approval of the Chief Commissioner or Commissioner. A non-scrutiny case can be opened or reopened by any Assessing Officer and after the expiry of four years from the end of the relevant assessment year it can be opened or reopened with the approval of the Deputy Commissioner. However, where the Assessing Officer is the Deputy Commissioner himself, no sanction of the higher authority will be necessary for opening or reopening a non-scrutiny case. 7.11. The new provisions of section 149(1) regarding time limits and section 151 regarding issuing and sanctioning authorities for the issue of a notice under section 148 are explained in the following chart :-- --------------------------------------------------------------------------------------------------------------------------------------------------- Sl. No. Up to four years Beyond four years but Beyond seven years up to seven years but up to ten years ------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 ------------------------------------------------------------------------------------------------------------------------------------------------- 1. Scrutiny (i) Assessment can (i) Same as (i) in (i) Same as (i) in cases, i.e., be reopened only by column (2) column (2). (where an an Assessing Officer (ii) Assessment can (ii) Assessment assessment of the rank of an be reopened only if can be reopened order has Assistant Commis- the income which has only if the income been passed sioner or Deputy escaped assessment is which has under section 143(3). 147) be reopened. (ii) Assessment or Commissioner can for that year assessment is Rs. 50,000 or more escaped. (iii) Assessment Rs. 1 lakh or whatever be the can be reopened only more for that amount of income with the approval of year which has escaped the Chief Commissioner (iii) Same as assessment or Commissioner. in column (3) 2 . Non - (i) Any Assessing (i) Same as (i) in (i) Same as (i) scrutiny Officer can reopen an column (2) in column (2). cases (i.e., assessment himself (ii) Assessment can (ii) where no (ii) Assessment can be reopened only if Assessment can assessment be reopened what- the income which has be reopened order has ever be the amount of escaped assessment is only if the been passed income which has Rs. 25,000 or more income which under section 143(3) escaped assessment for that year has escaped assessment or 147 is Rs. 50,000 or more for that year. (iii) Assessment (iii) Same as can be reopened by (iii) in column Assessing Officer below (3). the rank of Deputy Commissioner only with the approval of the Deputy Commissioner. --------------------------------------------------------------------------------------------------------------------------------------------------- 7.12 Consequential amendment to section 152(2).--The Amending Act, 1987, had made an amendment of consequential nature in sub-section (2) of section 152, containing a provision for dropping a reopened assessment under certain circumstances, pursuant to the merger of clauses (a) and (b) of the old section 147 into a single new section 147. 7.13 Amendments to have retrospective effect.--These amendments come into force with effect from the 1st day of April, 1989. However, it may be clarified that since the provisions of sections 147 to 152 lay down procedural law, these have retrospective effect, unless the amending statute provides otherwise. Therefore, the amendments made to these sections by the Amending Acts, 1987 and 1989, discussed in the preceding paragraphs, which came into force with effect from 1st April, 1989, will be retrospective in the sense that these will apply to all matters which were pending on 1st April, 1989, and had not become closed or dead on this date. 7.14 Thus, from 1st April, 1989 onwards, any action for opening or re-opening an assessment for the assessment year 1988-89, and earlier assessment years will have to be taken in accordance with the amended provisions. The following examples will clarify the position :-- (i) No notice under section 148 can now be issued for the assessment years 1973-74 to 1978-79, even if the escaped income is Rs. 50,000 or more in each year, although under the old provisions this could have been done with the Board's approval. (ii) Notice under section 148 can now be issued for any of the assessment years 1979-80 to 1981-82, if the following conditions are fulfilled :-- (a) In a scrutiny case [i.e., where an assessment order had been passed under section 143(3) or 147], if the escaped income is Rs. 1 lakh or more in each year and approval of the Chief Commissioner or Commissioner has been obtained. (b) In a non-scrutiny case, if the escaped income is Rs. 50,000 or more in each year, and approval of the Deputy Commissioner has been obtained. (Under the old provisions, there was no distinction between a scrutiny and a non-scrutiny case. Action could have been taken in respect of both types of cases for the assessment year 1981-82, with the approval of the Chief Commissioner or Commissioner, whatever be the amount of escaped income, while for the assessment years 1979-80 and 1980-81, action could have been taken with the Board's approval if the escaped income was Rs. 50,000 or more in each year. These old provisions, however, have no application now from 1st April, 1989, onwards). (iii) Notice under section 148 can now be issued for any of the assessment years 1982-83 to 1984-85, if the following conditions are fulfilled :-- (a) In a scrutiny case, if the escaped income is Rs. 50,000 or more in each year and approval of the Chief Commissioner or Commissioner has been obtained. (b) In a non-scrutiny case, if the escaped income is Rs. 25,000 or more in each year and approval of the Deputy Commissioner has been obtained. (Under the old provisions, action could have been taken for these assessment years, in respect of both types of cases, with the approval of the Chief Commissioner or Commissioner, whatever be the amount of escaped income. These old provisions, however, have no application now from 1st April, 1989, onwards.) (iv) Notice under section 148 can now be issued for any of the assessment years 1985-86 to 1988-89, whatever be the amount of income which has escaped assessment, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. (Under the old provisions action could have been taken for these assessment years, if the circumstances mentioned in clause (a) or (b) of the old section 147 were satisfied. These old provisions, however, have no application now from 1st April, 1989, onwards). (v) A scrutiny assessment for any assessment year cannot be reopened now by an Assessing Officer below the rank of an Assistant Commissioner. Under the old provisions, there was no such restriction. [Sections 54 to 58 of the Amending Act, 1987] [Sections 23 and 24 of the Amending Act, 1989] Time limit for completion of assessments and reassessments 8.1 Time limit for completion of assessment under section 143(3) or section 144 (sub-section (1) of section 153).--Under the old provisions of sub-section (1) of section 153 of the Income-tax Act, various time limits were laid down for completion of an assessment under section 143(3) or under section 144. The old sub-section (1) consisted of four clauses (a) to (d) and clause (a) consisted of three sub-clauses (i) to (iii). The general time limit for completion of an assessment, as laid down in subclause (iii) of clause (a), was two years from the end of the assessment year in which the income was first assessable. 8.2 The Amending Act, 1987, has substituted a new sub-section (1) in section 153. The provisions of all the clauses and sub-clauses of the old sub-section (1), except the provisions of sub-clause (iii) of clause (a), have been omitted, because either these provisions have become redundant or they were impractical and were not being used in practice. Therefore, the new sub-section (1) of section 153, substituted by the Amending Act, 1987, is much shorter and provides that no order of assessment under section 143 or section 144 shall be made after the expiry of two years from the end of the assessment year in which the income was first assessable. Note.--Section 20 of the Finance Act, 1989, has further amended the said sub-section (1) of section 153 to provide for transitory provisions whereby an exception is made in the case of a return or a revised return filed under sub-section (4) or (5) of section 139 relating to the assessment year 1988-89, or any earlier assessment year. In such a case, assessment can be completed before the expiry of one year from the end of the financial year in which the said return or revised return is filed. 8.3 Time limit for completion of assessment, reassessment or recomputation under section 147 (sub-section (2) of section 153).--Under the old provisions of sub-section (2) of section 153, different time limits were laid down for completion of assessment, reassessment or recomputation under section 147 depending upon whether the case fell under clause (a) or clause (b) of the old section 147. Normally, the time limit, in a case failing in clause (a), was four years from the end of the assessment year in which the notice under section 148 was served and in a case falling in clause (b), the same was four years from the end of the assessment year in which the income was first assessable. 8.4 Consequent upon the merger of clauses (a) and (b) into a single new section 147, the Amending Act, 1987, has substituted a new sub-section (2) in section 153, which provides a uniform time limit for completion of assessment, reassessment, etc., under section 147. The limit is two years from the end of the financial year in which notice under section 148 was served. Thus, the time allowed for completion of all assessments under section 147 has now been reduced to two years to facilitate quicker assessments. 8.5 As a transitory measure, an exception has been made in cases where notice under section 148 was served on or before 31st March, 1987. In such cases, order of assessment, reassessment or recomputation can be made upto 31st March, 1990. This would help to tide over the difficulties during the transitional period while switching over from the earlier four-year limit to the new two-year limit. 8.6 Consequential amendment in Explanation 1 to section 153.--The Amending Act, 1987, has amended Explanation 1 to section 153 by omitting clause (iv) of the said Explanation, which provided extended the time limit in a case referred to the Inspecting Assistant Commissioner under section 144B. This is consequent to the deletion of section 144B itself. 8.7 These amendments come into force with effect from the 1st April, 1989. [Section 59 of the Amending Act, 1987] Rectification of mistakes and other amendments of orders 9.1 Rectification of mistake in an intimation or a refund issued under section 143(1) (sub-section (1) of section 154).--Under the old provisions of sub-section (1) of section 154 of the Income-tax Act, an order passed by an income-tax authority under the provisions of the Act could be amended to rectify a mistake apparent from the record. Since an intimation for any tax or interest found due from the assessee or refund due to the assessee on the basis of the return of income issued under the provisions of new section 143(1) are not orders under the Act, any apparent mistake therein could not have been rectified under the old provisions of section 154(1). The Amending Act, 1987, has, therefore, substituted a new sub-section (1) in section 154 to extend the scope of the section by empowering an income-tax authority to amend any intimation sent by it or to reduce or enhance the amount of any refund granted by it under section 143(1) in order to rectify any apparent mistake therein. 9.2. Omission of various sub-sections of section 155 relating to other amendments of orders.--Section 155 of the Income-tax Act deals with various types of amendments that can be carried out in the orders passed under the Act. The Amending Act, 1987, has discontinued or omitted the provisions of a number of sub-sections of this section. These sub-sections, along with reasons for their discontinuance or omission, are indicated below :-- *(a) Sub-section (1), which deals with rectification of a partner's share in the income of the firm, as its provisions would have become redundant consequent upon the new scheme of assessment of firms and partners introduced by the Amending Act, 1987. (b) Sub-section (3), which deals with recomputation of income consequent to determination of tax liability under the excess profits tax or business profits tax, as its provisions have become redundant following the discontinuance of the levy of these taxes long back. (c) Sub-section (13), which deals with amendment of an assessment order by allowing the provision made for gratuity, which was deposited in an approved fund subsequent to the passing of an assessment order, as its provisions have become redundant after 31st March, 1981. (d) The following sub-sections have been omitted with effect from 1st April, 1992 :-- (i) Sub-section (5B), which deals with withdrawal of deduction for expenditure on scientific research originally allowed under sub-section (2B) of section 35, as its provisions would become redundant in view of the omission of section 35 itself by the Amending Act, 1987. (ii) Sub-section (6), which deals with allowability of a bad debt in a year earlier than the year of write off, as its provisions would become redundant in view of the amendment of section 36 by the Amending Act, 1987, allowing the bad debt in the year of write off. (iii) Sub-sections (7A), (8A), (9A), (10)(b) and (10B), as these provisions would become redundant in view of the amendments to the provisions of sections 48, 54, 54B, 54D and 54E relating to capital gains by the Finance Act, 1987. (iv) Sub-sections (8), (9), (10)(a) and (10C), as these provisions would become redundant in view of the new scheme of investment of capital gains introduced by the Finance Act, 1987. *Note : Since the new scheme of assessment of firms and partners has been withdrawn and also section 35 has been restored by the Amending Act, 1989, the provisions of sub-sections (1) and (5B) of section 155 have also been restored by the Amending Act, 1989. 9.3. These amendments (except amendments indicated at (d) in para 9.2 above, which would come into force with effect from 1st April, 1992), come into force with effect from 1st April, 1989. [Sections 60 and 61 of the Amending Act, 1987] [Clause (i) of section 95 of the Amending Act, 1989] Payment of mandatory interest to replace various interests and penalties 10.1. The old provisions in the Income-tax Act which gave the assessing authorities discretionary powers to charge interest and also to levy penalties for the same default, were found to be rather complicated. These were contained in the following sections of the Act :-- (i) Section 139(8) relating to levy of interest for late filing or non-filing of return of income. (ii) Section 215 relating to levy of interest for underpayment of advance tax. (iii) Section 216 relating to levy of interest for deferment of instalments of advance tax. (iv) Section 217 relating to levy of interest for non-payment of advance tax. (v) Section 271(1)(a) relating to levy of penalty for failure to file the return of income or to file it in time. (vi) Section 273 relating to levy of penalty for failure to file the statement/estimate or for filing an untrue statement/estimate of advance tax payable. (vii) Section 140A(3) relating to levy of penalty for failure to pay tax on self-assessment. 10.2. With a view to simplify the aforesaid provisions and also to remove the discretion of the assessing authorities, which had led to litigation and consequent delay in realisation of dues, the Amending Act, 1987, has substituted the above provisions by a simple scheme of payment of mandatory interest for defaults mentioned therein. The provisions relating to charge of mandatory interest are contained in the new sections 234A, 234B and 234C inserted by the Amending Act, 1987. The mandatory interest chargeable under these sections are not appealable. At the time of filing the return of income, such mandatory interest, if payable, is to be calculated on the basis of the returned income and paid along with tax on self-assessment under section 140A. 10.3. Charge of mandatory interest for non-filing or late filing of the return of income (new section 234A).--The provisions of the new section 234A inserted by the Amending Act, 1987, which have replaced the old provisions of sections 139(8), 140A(3) and 271(1)(a) are as follows :-- (i) Sub-section (1) provides that where a return of income is furnished after the due date or is not furnished, the assessee shall pay simple interest @ 2% for every month or part of a month comprised in the period of default on the amount of tax on total income determined on regular assessment (as reduced by any advance tax paid or tax deducted at source). It has been clarified that,-- 1. the due date for filing of a return of income is the date specified in section 139 (1), as applicable in the case of the assessee ; 2. for the purposes of computing interest under this section, additional income-tax payable under the new section 158B shall not be taken into consideration ; 3. for the purposes of this section, an assessment made for the first time under section 147 shall be regarded as a regular assessment. (ii) Sub-section (2) provides that any interest chargeable under this section, which has already been paid by the assessee under section 140A, shall be adjusted against interest determined to be payable on regular assessment. (iii) Sub-section (3) provides for charge and mode of computation of interest where during the course of reassessment proceedings (after an assessment has been completed under section 143(3) or 144 or 147) the return of income is either filed late or not filed in response to a notice under section 148. (iv) Sub-section (4) provides for automatic revision of the amount of interest where the amount of tax is varied as a result of an order of rectification, appeal, revision or settlement mentioned in the sub-section. (v) Sub-section (5) provides that the provisions of this section shall apply to the assessment year 1989-90 and subsequent assessment years. (Refer to examples III and IV in para 10.13). 10.4. Amendments made in section 234A by the Amending Act, 1989.--The new section 234A inserted by the Amending Act, 1987, provided for calculation of interest under that section only on completion of regular assessment. It did not provide for calculation of interest under the following circumstances : (i) Where interest is to be calculated and charged under the provisions of the new section 143(1) without completing a regular assessment. (ii) Where the assessee has to calculate the interest for paying self-assessment tax and interest under section 140A at the time of filing his return. The Amending Act, 1989, has, therefore, amended sub-section (1) of this section to provide for calculation and charging of interest on the basis of total income determined under the provisions of the new section 143(1). Consequential amendments have also been made in sub-section (3) of the section also. The Amending Act, 1989, has further inserted an Explanation 4 in sub-section (1) to provide for calculation and payment of interest by the assessee under section 140A at the time of filing his return. (Refer to examples I to IV in para 10.13) 10.5. The Amending Act, 1989, has also carried out amendments in this section to delete references to section 158B relating to charge of additional income-tax, consequent upon the deletion of that section, and replace it, wherever necessary by reference to the new sub-section (1A) of section 143 under which additional income-tax of a different nature is now leviable under certain circumstances. The Amending Act, 1989, has further included reference to "tax collected at source" in the section consequent upon the insertion of the provisions of section 206C by the Finance Act, 1988. 10.6. Charge of mandatory interest of non-payment or underpayment of advance tax (new section 234B).--The provisions of the new section 234B inserted by the Amending Act, 1987, which have replaced the old provisions of sections 215 and 217, are as under :-- (i) sub-section (1) provides that where an assessee, who is liable to pay advance tax in a financial year, fails to pay such tax or where the advance tax paid by him is less than 90% of the assessed tax, he shall pay simple interest at 2% for every month or part of month comprised in the period from the 1st day of April next following such financial year to the date of regular assessment. The interest shall be calculated in cases where no advance tax has been paid, on the assessed tax and in cases where the advance tax paid is less than 90% of the assessed tax, on the difference between the assessed tax and the advance tax paid. It has been clarified that,-- (1) "assessed tax" means the tax on total income determined on regular assessment as reduced by tax deducted at source from any income included in such total income ; (2) for the purposes of this section, an assessment made for the first time under section 147 shall be regarded as a regular assessment ; and (3) for the purposes of computing interest under this section, additional income-tax payable under the new section 158B shall not be taken into consideration. (ii) Sub-section (2) provides for the mode of computation of interest where the assessee has paid any tax under section 140A before the completion of regular assessment, as follows : (a) Interest shall be calculated in accordance with the provisions of sub-section (1) upto the date of payment of tax under section 140A and reduced by the amount of interest, if any, paid under section 140A towards interest chargeable under this section. (b) Thereafter, interest shall be calculated on the amount by which the tax paid under section 140A together with the advance-tax paid falls short of the assessed tax. (iii) Sub-section (3) provides for the charge and mode of computation of interest where the tax on total income determined on regular assessment is increased as a result of an order of reassessment or recomputation under section 147. (iv) Sub-sections (4) and (5) contain provisions similar to those of the corresponding sub-sections of section 234A (refer para 10.3 ante) relating to revision of the amount of interest and the applicability of the provisions of the section from the assessment year 1989-90 onwards. (Refer to examples III and IV in para 10.13). 10.7. Amendments made in section 234B by the Amending Act, 1989.--The Amending Act, 1989, has made various amendments in section 234B which are on the same lines as amendments made in section 234A, as explained in paras 10.4 and 10.5 ante. Briefly, the purposes of the amendments are,-- (i) to provide for calculation and charge of interest on the basis of total income determined under the provisions of the new section 143(1). (ii) to provide for calculation and payment of interest by the assessee under section 140A at the time of filing his return ; (Refer to examples II to IV in para 10.13) ; (iii) to delete reference to section 158B and to replace it, wherever necessary, by reference to section 143(1A) ; and (iv) to include reference to "tax collected at source" consequent upon the insertion of the provision of section 206C of the Finance Act, 1988. 10.8. Charge of mandatory interest for deferment of instalments of advance tax (new section 234C).--The provisions of the new section 234C inserted by the Amending Act, 1987, which have replaced the old provisions of section 216, are as follows :-- (i) Sub-section (1) provides that where in any financial year, the advance tax paid by the assessee on his current income,-- (1) on or before the due date of first instalment (15th September) is less than 20% of the tax due on the returned income, or (2) on or before the due date of second instalment (15th December) is less than 50% of the tax due on the returned income, then the assessee shall pay simple interest at 1.5% per month of the shortfall from 20% in a case falling in (1) above and of the shortfall from 50% in a case falling in (2) above. In each case, interest shall be chargeable for a period of three months. It is clarified that "tax due on the returned income" means the tax chargeable on the total income declared in the relevant return of income, as reduced by the amount of tax deductible at source in accordance with the provisions of Chapter XVIIB on any income which is subject to such deduction and which is included in such total income. (Refer to example V in Para 10.13). (ii) Sub-section (2) provides that the provisions of this section shall apply to the assessment year 1989-90 and subsequent assessment years. 10.9. Amendments made in section 234C by the Amending Act, 1989.--As explained earlier (para 10.2 of Part I of the Explanatory Notes), advance tax is now also payable on capital gains and income of casual nature referred to in section 2(24)(ix). Numerous representations were received pointing out hardships on account of the inability to estimate the expected income from these sources and pay advance tax thereon in three instalments, in cases where any such income arose after the due date of instalment or instalments. To remove this hardship, the Amending Act, 1989, has inserted a proviso in sub-section (1) of section 234C to provide that no interest shall be levied under the section in respect of any shortfall in the payment of instalment of advance tax, if the shortfall is on account of failure to estimate the income expected from capital gains or income of casual nature referred to in section 2(24)(ix) and the assessee has paid the whole amount of the tax payable in respect of such income as part of the instalment of advance tax which is immediately due after the accrual of such income. It is also provided that where any such income arises after the due dates of all the instalments are over i.e. after the 15th March of a financial year, advance tax thereon may be paid by the 31st March of that financial year without payment of interest envisaged in this section. (Refer to example VI in Para 10.13). 10.10. The Amending Act, 1989, has also amended the Explanation in sub-section (1) to include reference to "tax collectible at source" in the Explanation consequent upon the insertion of the provisions of section 206C by the Finance Act, 1988. 10.11. Meaning of the expression "month or part of a month" used in sections 234A and 234B.--Under the provisions of sections 234A and 234B, interest is charged at 2% per month or part of a month. This means that even where the delay is for part of a month, say even for one day, interest at 2% will be charged. Thus, for example, where a return of income, which is due on August 31, 1989, is filed on November 9, 1989, interest shall be charged at 2% per month for three months (i.e., for the months of September, October and nine days forming part of the month of November). In other words, interest chargeable in such a case will be at 6%. (Refer to example III in Para 9.13). 10.12. Whether interest under sections 234A, 234B and 234C can be waived.--The provisions regarding levy of interest under sections 234A, 234B and 234C are mandatory and cannot be waived. There are no provisions either in the Income-tax Act or in the Income-tax Rules to waive the interest chargeable under these sections. 10.13. Examples to illustrate the calculation of interest under sections 234A, 234B and 234C.--The calculation of interest under the provisions of sections 234A, 234B and 234C may be illustrated by means of the following examples : Example I.--Late filing of return--Interest payable by the assessee under section 234A at the time of filing his return of income : (i) Due date for filing the return for the assessment year 1989-90 31-8-89 (ii) Date of filing the return 31-12-89 (iii) Delay in filing the return 4 months (iv) Advance tax paid Rs. 2,80,000 *(v) Tax as per returned income Rs. 3,00,000 (vi) Tax payable under section 140A at the time of filing the return ( (v) minus (iv) ) Rs. 20,000 (vii) Interest payable under section 234A at the time of filing the return :-- (@ 2% per month for 4 months on Rs. 20,000) Rs. 1,600 *Note :-- Since the advance tax paid (Rs. 2,80,000) is more than 90% of the tax on returned income (90% of Rs. 3,00,000), no interest is payable under section 234B at the time of filing the return of income. If however, the returned income is increased, either as a result of adjustments made under the first proviso to section 143(1)(a) or as a result of regular assessment under section 143(3) so that the advance tax paid (Rs. 2,80,000) becomes less than 90% of the tax on total income determined under section 143(1)(a) or on regular assessment, interest under section 234B shall also become chargeable. In such a situation, interest under section 234A will also be increased on the basis of the tax on total income determined under section 143(1)(a) or on regular assessment. Example II.-- Late filing of return and underpayment of advance tax--Interest payable by the assessee under sections 234A and 234B at the time of filing the return of income : (i) Due date for filing the return for the assessment year 1989-90 31-8-89 (ii) Date of filing the return 31-12-89 (iii) Delay in filing the return 4 months (iv) Advance tax paid Rs. 2,00,000 (v) Tax as per returned income Rs. 3,00,000 *(vi) 90% of tax as shown in column (v) Rs. 2,70,000 (vii) Tax payable under section 140A at the time of filing the return ( column (v) minus (iv) ) Rs. 1,00,000 (viii) Interest payable under section 234A at the time of filing the return 2% per month for 4 months on Rs. 1,00,000) Rs. 8,000 (ix) Interest under section 234B payable at the time of filing the return (interest @ 2% per month, for nine months, i.e., 1st April, 1989 to 31st December, 1989, on Rs. 1,00,000 Rs. 18,000 (x) Total amount of interest payable at the time of filing the return ( column viii + ix ) Rs. 26,000 *Note :-- Since the advance tax paid is less than 90% of the tax on returned income, interest under section 234B is payable by the assessee at the time of filing his return of income. Example III.-- Late filing of return and non-payment of advance-tax--Interest payable by the assessee under sections 234A and 234B at the time of filing the return and on regular assessment : (i) Due date of filing the return for the assessment year 1989-90 31-8-89 (ii) Date of filing the return 17-12-89 (iii) Delay in filing the return (3 months and 17days) (iv) Advance tax paid Nil (v) Tax as per returned income Rs. 3,00,000 (vi) Tax payable under section 140A at the time of filing the return ( v minus iv ) Rs. 3,00,000 *(vii) Interest payable under section 234A at the time of filing the return (@ 2% per month for three months and seventeen days i.e., for four months) @ 8% on Rs. 3,00,000 Rs. 24,000 (viii) Interest payable under section 234B at the time of filing the return (@ 2% per month for eight months and seventeen days i.e., for nine months) @ 18% on Rs. 3,00,000 Rs. 54,000 (ix) Total amount of interest payable at the time of filing the return ( columns vii + viii ) Rs. 78,000 (x) If regular assessment is completed on 31st December, 1990, and tax is determined at Rs. 4,00,000, further interest payable shall be calculated as under : A. Interest under section 234A : @ 2% per month for three months and seventeen days i.e., for four months --- @ 8% on Rs. 4,00,000 Rs. 32,000 Less : Interest paid under section 140A at the time of filing the return (column vii) Rs. 24,000 ----------------- Rs. 8,000 B. Interest under section 234B : (1) @ 2% per month for eight months and seventeen days i.e., for nine months -- @ 18 % on Rs. 4,00,000 Rs. 72,000 Less : Interest paid under section 140A at the time of filing the return (column viii) Rs. 54,000 ------------------- Rs. 18,000 (2) @ 2% per month for twelve months (1st January, 1990 to 31st December, 1990 ) on Rs. 1,00,000 (Rs. 4,00,000--Rs. 3,00,000) Rs. 24,000 Rs. 42,000 C. Total amount of interest under sections 234A and 234B further payable on regular assessment (A--B) Rs. 50,000 *Note :-- Interest under sections 234A and 234B is to be charged for the full month, even where there is delay of part of a month. Example IV.-- Late filing of return and underpayment of advance tax in a case where tax has also been deducted at source--Interest payable by the assessee under sections 234A and 234B at the time of filing the return and on regular assessment : (i) Due date of filing the return for the assessment year 1989-90 31-8-89 (ii) Date of filing the return 31-12-89 (iii) Delay in filing the return 4 months (iv) Tax deducted at source Rs. 2,00,000 *(v) Advance tax paid Rs. 1,60,000 (vi) Tax as per returned income Rs. 4,00,000 *(vii) 90% of assessed tax % i.e., tax in column (vi) less TDS as shown in column (iv) Rs. 1,80,000 (viii) Tax payable under section 140A at the time of filing the return column (vi) (iv-v) Rs. 40,000 (ix) Interest payable under section 234A at the time of filing the return (@ 2 % per month for 4 months on Rs. 40,000) Rs. 3,200 (x) Interest payable under section 234B at the time of filing the return (@ 2% per month for nine months on Rs. 40,000) Rs. 7,200 (xi) Total amount of interest payable at the time of filing the return (columns ix -- x) Rs. 10,400 (xii) If regular assessment is completed on 30th June, 1990, and tax determined at Rs. 5,00,000, further interest payable shall be calculated as under : A. Interest under section 234A : @ 2% p.m. for four months on Rs. 1,40,000 Rs. 11,200 Less : Interest paid under section 140A at the time of filing the return ( column (ix) ) Rs. 3,200 ------------------ Rs. 8,000 B. Interest under section 234B : (1) @ 2% p.m. for nine months on Rs. 1,40,000 Rs. 25,200 Less : Interest paid under section 140A at the time of filing the return ( column (x) ) Rs. 7,200 Rs. 18,000 (2) @ 2% p.m. for six months 1st January, 1990 to 30th June, 1990 on Rs. 1,00,000 (Rs. 5,00,000 -- Rs. 4,00,000) Rs. 12,000 ------------------ Rs. 30,000 C. Total amount of interest further payable on regular assessment Rs. 38,000 *Note :-- Since advance tax paid (Rs. 1,60,000) is less than 90% of the assessed tax (Rs. 1,80,000) interest shall be payable by the assessee under section 234B. Example V.-- Deferment of instalments of advance tax--Interest payable by the assessee under section 234C. Rs. Rs. (i) Tax as per returned income for assessment year 1990-91 4,00,000 (ii) Instalments of advance tax payable on : 15-9-1989 80,000 15-12-1989 1,20,000 Total payment to be made up to 15-12-1989 --------------- 2,00,000 (iii) Instalments of advance tax paid on : 15-9-1989 50,000 16-12-1989 50,000 Total payment actually made up to 15-12-1989 -------------- 1,00,000 (iv) Shortfall up to 15-9-1989 30,000 (v) Shortfall up to 15-12-1989 1,00,000 (vi) Interest under section 234C will be calculated as under :-- (i) Interest on Rs. 30,000 @ 1 1/2% per month for three months 1,350 (ii) Interest on Rs. 1,00,000 @ 1 1/2% per month for three months 4,500 (iii) Total interest payable under section --------- 234C 5,850 Example VI :-- Deferment of instalments of advance tax in a case involving capital gains tax--Interest payable by the assessee under section 234C. Rs. Rs. (i) Tax as per returned income for assessment year 1990-91 2,00,000 *(ii) Tax on capital gains arising on 30-10-1989 included in column (i) 50,000 (iii) Instalments of advance tax payable on : 15-9-1989 30,000 15-12-1989 95,000 Total payments to be made up to 15-12-1989 --------------- 1,25,000 (iv) Advance tax paid on : 15-9-1989 20,000 15-12-1989 50,000 Total payment actually made up to 15-12-1989 ---------------- 70,000 (v) Shortfall up to 15-9-1989 10,000 (vi) Shortfall up to 15-12-1989 55,000 (vii) Interest under section 234C will be calculated as under :-- (i) Interest on Rs. 10,000 @ 1 1/2% per month for three months 450 (ii) Interest on Rs. 55,000 @ 1 1/2% per month for three months 2,475 (iii) Total interest payable under section 234C 2,925 *Note :-- The entire tax of Rs. 50,000 on capital gains is payable in the second instalment due on 15th December, 1989. Therefore, only the balance amount of tax, i.e., Rs. 1,50,000, is to be allocated in these instalments. 10.14. These amendments come into force with effect from the 1st day of April, 1989. As already pointed out earlier, the provisions of the new sections 234A, 234B and 234C shall apply to the assessment year 1989-90 and subsequent assessment years. As regards the provisions of sections 139(8), 215, 216, 217, 271(1)(a) and 273, which have been replaced by the aforesaid new sections, amendments have been made, in these sections to secure that these do not apply from the assessment year 1989-90 onwards. [Sections 42(h), 82(b), 94 and 112 of the Amending Act, 1987] [Sections 50(c), 38, 39 and 40 of the Amending Act, 1989] Payment of interest by the Department for delay in grant of refund due to the assessee 11.1. The old provisions regarding payment of interest by the Department.-- The old provisions in the Income-tax Act, which provided for payment of interest by the Department on refunds due to the assessees, were contained in the following sections of the Act : (i) Section 214, relating to payment of interest to the assessee on the excess amount paid as advance tax. (ii) Section 243 relating to payment of interest to the assessee for delay in granting the refund after a claim for refund was made or after the refund was determined. (iii) Section 244, relating to payment of interest to the assessee for delay in granting refund as a result of appeal, etc. 11.2. Insertion of a new section 244A in lieu of sections 214, 243 and 244.-- Under the provisions of section 214, interest was payable to the assessee on any excess advance tax paid by him in a financial year from the 1st day of April next following the said financial year to the date of regular assessment. In case the refund was not granted within three months from the end of the month in which the regular assessment was completed, section 243 provided for further payment of interest. Under section 244, interest was payable to the assessee for delay in payment of refund as a result of an order passed in appeal, etc., from the date following after the expiry of three months from the end of the month in which such order was passed to the date on which refund was granted. The rate of interest under all the three sections was 15 per cent. per annum. 11.3. These provisions, apart from being complicated, left certain gaps for which interest was not paid by the Department to the assessee for money remaining with the Government. To remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new section 244A in the Income-tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent. per annum to 1.5% per month or part of a month comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended sections 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years. 11.4. The provisions of the new section 244A.-- The provisions of the new section 244A are as under : (i) Sub-section (1) provides that where in pursuance of any order passed under this Act, refund of any amount becomes due to the assessee then, (a) if the refund is out of any advance tax paid or tax deducted at source during the financial year immediately preceding the assessment year, interest shall be payable for the period starting from the 1st April of the assessment year and on the date of grant of the refund of interest shall, however, be payable, if the amount of refund is less than 10 per cent. of the tax determined on regular assessment ; (b) if the refund is out of any tax, other than advance tax or tax deducted at source or penalty, interest shall be payable for the period starting from the date of payment of such tax or penalty and ending on the date of the grant of the refund. (Refer to example III in para 11.8). The interest is to be calculated at 1.5 per cent. "per month or part of a month" comprised in the period of delay for which the interest is payable. As already explained in para 10.11 ante, the meaning of this expression is that even where the delay is for part of a month, interest at 1.5 per cent. will be charged. (ii) Sub-section (2) provides that for the purposes of computing the period of delay under sub-section (1), any period of delay attributable to the assessee shall be excluded. (Refer to example II in para 11.8). (iii) Sub-section (3) provides for automatic revision of the amount of interest on refund where the amount of refund is varied as a result of an order of reassessment, rectification, appeal, revision or settlement mentioned in the sub-section. (iv) Sub-section (4) provides that the provisions of this section shall apply to the assessment year 1989-90 and subsequent assessment years. 11.5. Amendments in section 244A by the Amending Act, 1989.-- The new section 244A inserted by the Amending Act, 1987, provided for calculation and payment of interest to the assessee only where the refund became due to him in pursuance of an order passed under the Act. It did not provide for payment of interest where refund became due to the assessee under the provisions of the new section 143(1) without passing an assessment order. The Amending Act, 1989, has, therefore, amended sub-section (1) of this section to provide for calculation and payment of interest to the assessee on refund becoming due to him in pursuance of total income determined under the provisions of the new section 11.4(i). (Refer to examples I and II in para 11.8). 11.6. The Amending Act, 1989, has further included reference to "tax collected at source" in the section consequent upon the insertion of section 206C of the Income-tax Act, by the Finance Act, 1988. 11.7. The Amending Act, 1989, has also amended sub-section (3) of this section to include reference to the order passed under section 143(3) for the purposes of calculation of revised interest under this sub-section. The effect is that any interest granted on refund becoming due in pursuance of the provisions of section 143(1) will also be revised if the amount of refund is reduced as a result of an assessment order under section 143(3) passed in that case. 11.8. Examples to illustrate the calculation of interest under section 244A.-- The calculation of interest under the provisions of section 244A may be illustrated by means of the following examples : Example I.-- Grant of refund under section 143(1) out of advance tax paid or tax deducted at source--Interest payable by the Department under section 244A :-- (i) Tax paid by way of advance tax/TDS before 31st March, 1989 Rs. 3,00,000 (ii) Tax due as per return of income for the assessment year 1989-90, filed on 31st August, 1989, the due date Rs. 2,40,000 (iii) Refund due to the assessee Rs. 60,000 (iv) Date of actual refund granted under section 143(1) 10-10-1989 *(v) Interest payable by the Department @ 1.5 per cent. per month for six months and ten days (1-4-1989---10-10-1989) i.e., for seven months---@ 10.5 per cent. on Rs. 60,000 Rs. 6,300 *Note :-- Interest is to be paid for full month even where the delay is for part of a month. Example II.-- Grant of refund under section 143(1) out of advance tax paid or tax deducted at source in a case where the return is filed late by the assessee--Interest payable by the Department under section 244A :-- (i) Tax paid by way of advance tax/TDS before 31st March, 1989 Rs. 3,00,000 (ii) Tax due as per return of income for the assessment year 1989-90 Rs. 2,00,000 (iii) Due date for filing the return of income 31-8-1989 (iv) Date of filing the return 31-12-1989 (v) Delay in filing the return 4 months (vi) Refund due to the assessee Rs. 1,00,000 (vii) Date of actual refund granted under section 143(1) 31-1-1990 (viii) Interest payable by the Department at 1.5 per cent. per month for six months (i.e., ten months comprised in the period 1-4-1989--- 31-1-1990 minus four months of delay in filing the return) i.e., at 9 per cent. on Rs. 1,00,000 Rs. 9,000 Note :-- Under the provisions of section 244A(2), interest shall not be payable by the Government for the period of delay attributable to the assessee. Since, in the present case, delay of four months in filing the return is attributable to the assessee, interest shall not be payable to him for this period. Example III.-- Grant of refund as a result of appellate order--Interest payable by the Department under section 244A :-- (i) Tax due as per return of income for the assessment year 1989-90, filed on 31st October, 1989, the due date Rs. 3,00,000 *(ii) The tax of Rs. 3,00,000 due as per return has been paid by the assessee as follows : By way of advance tax by 31-3-1989 Rs. 2,80,000 Under section 140A on 31-10-1989 Rs. 20,000 --------------------- Rs. 3,00,000 (iii) Tax determined on completion of regular assessment under section 143(3) on 31-3-1990 Rs. 4,00,000 (iv) Date of payment of further demand of Rs. 1,00,000 [ column (iii) minus (ii) ] 1-5-1990 (v) Tax determined as a result of appellate order under section 250 on 30-9-1990 Rs. 3,20,000 (vi) Refund due as a result of appeal Rs. 80,000 (vii) Date of grant of actual refund 31-10-1990 (viii) Interest payable by the Department at 1.5 per cent. per month for six months (1-5-1990---31-10-1990) i.e., at 9 per cent. on Rs. 80,000 Rs. 7,200 *Note :-- Since the tax has been correctly paid and the return has been filed in time, neither any tax or interest is due from the assessee nor is any refund due to him. Therefore, no action under section 143(1) is necessary. 11.9. These amendments come into force with effect from the 1st day of April, 1989. As already pointed out earlier, the provisions of the new section 244A shall apply to the assessment year 1989-90 and subsequent assessment years, while the provisions of sections 214, 243 and 244, which have been replaced by the provisions of new section 244A, shall cease to apply to the assessment year 1989-90 and onwards. [Sections 82(b), 96, 97 and 98 of the Amending Act, 1987] [Section 41 of the Amending Act, 1989] Amendments to the Wealth-tax Act, 1957 12.1 The provisions of the Wealth-tax Act relating to the valuation date, procedure for assessment, charge of mandatory interest for default in furnishing the return of wealth, payment of interest by the Government on refund due to the assessee and rectification of mistake correspond with the provisions of the Income-tax Act which have been discussed in the preceding paras in this Part of the Explanatory Notes. The Amending Act, 1987, and the Amending Act, 1989, have made amendments to these provisions of the Wealth-tax Act to bring them broadly in line with the corresponding provisions in the Income-tax Act, as they have emerged after their amendment by the two Amending Acts. The Table below shows these provisions of the Wealth-tax Act that have been so amended and the corresponding provisions, if any, of the Income-tax Act. The Table also indicates the sections of the Amending Act, 1987 and the Amending Act, 1989, which have carried out the necessary amendments and the subject-matter of the amendments in brief. TABLE --------------------------------------------------------------------------------------------------------------------------------------------------- Sl. No. Section of the Section of the Correspond- Subject-matter of the Amending Act, Wealth-tax Act ing section amendment in brief 1987/Amending that has been of the Act, 1989 amended Income-tax Act --------------------------------------------------------------------------------------------------------------------------------------------------- (1) (2) (3) (4) (5) --------------------------------------------------------------------------------------------------------------------------------------------------- 1. 128 (vi) of the 2(q) -- Amendment of definition Amending Act, of "Valuation date" in the 1987 Wealth-tax Act, consequent to substitution of new section 3 in the Income-tax Act relating to definition of "Previous year". 2. 129 of the Amending Act, 1987, 3 4 Amendments to section 3 relating to charge of wealth-tax consequent upon the charge of additional wealth tax. 3. 133 of the Amending Act, 1987 and 14 139(1), (2) Amendments to section (10) 14 relating to furnishing of the return of wealth. 4. 134 of the Amending Act, 1987 15 (new section 139(4) and Substitution of new substituted) (5) section 15 relating to filing of a revised or a belated return of wealth. 5. 135 of the Amending Act, 1987 15A 140 Amendments to section 15A relating to persons competent to sign the return of wealth. 6. 136 of the Amending Act, 1987 15B (new section 140A Substitution of new substituted) section 15B relating to payment of self-assessment tax at the time of filing of the return of wealth. 7. 137 of the Amending Act, 1987 15C (omitted) 141 Omission of section 15C relating to provisional assessment for wealth-tax, consequent upon the new procedure of assessment. 8. (i) 138 of the 16 (new section 142, 143 Substitution of new Amending Act, substituted) and 144 section 16 relating to 1987 procedure for (ii) 64 of the assessment and its Amending Act, further amendments 1989 to streamline the procedure including the provision for charge of additional wealth-tax, where the returned wealth is increased under the provisions of section 16(1). 9. (i) 139 of the 17 147 to 151 Amendments to section Amending Act, 17 relating to 1987 assessment or reassessment. (ii) 66 of the assessment of wealth Amending Act, escaping assessment. 1989 10. 140 of the Amending Act, 1987 17A 153 Amendments to section 17A relating to time limit for completion of assessment and reassessment. 11. (i) 141 of the 17B (new sec- 234A Insertion of new section Amending Act, tion inserted) 17B to provide for 1987 charge of mandatory (ii) 67 of the interest for default in Amending Act, furnishing return of 1989 wealth. 12. (i) 150(ii) of the 34A(4A) and 243, 244 Insertion of new sub-section Amending Act, (4B) (new) and 244A. in sec. 34A to 1987 sub-sections restrict the old provisions inserted) regarding (ii) 73 of the payment of interest on Amending Act, refunds contained in 1989 sub-sections (3), (3A) and (4) to assessment year 1988-89 and earlier assessment years and to provide for new mode of payment of interest on refunds effective from the assessment year 1989-90. 13. 151 of the Amending Act, 1987 35 154 Amendments to section 35 relating to rectification of mistake apparent from record. --------------------------------------------------------------------------------------------------------------------------------------------------- 12.2. Amendments relating to furnishing of the return of wealth (section 14).-- The Amending Act, 1987, has made the following amendments in the provisions of section 14 of the Wealth-tax Act relating to the furnishing of the return of wealth : (i) A new sub-section (1) has been substituted, which contains provisions for filing the return of wealth by the due date on the same lines as the provisions for filing the return of income, which are contained in section 139(1) of the Income-tax Act. It is provided that the due date for furnishing the return of wealth by an assessee will be the same as the due date for furnishing the return of income in his case. (ii) Sub-section (2), which provided for the issue of a notice calling for return of wealth, has been omitted on the same lines as the omission of sub-section (2) of section 139 of the Income-tax Act. (iii) In place of sub-section (2) so omitted, a new sub-section (2) has been substituted to introduce in the Wealth-tax Act, for the first time, the provisions regarding a return showing net wealth below the taxable limit. These provisions correspond to the provisions of sub-section (10) of section 139 of the Income-tax Act. It has been provided that a return of net wealth, which shows the net wealth below the maximum amount which is not chargeable to tax, shall be deemed never to have been filed. It is, however, provided that this will not apply to a return furnished in response to a notice under section 17 calling for a return of wealth. (iv) Sub-section (3) which empowered the Wealth-tax Officer to extend the date for furnishing the return of wealth has been omitted to bring the provisions in line with those of the amended section 139 of the Income-tax Act. 12.3. Amendments made by the Finance Act, 1989, in section 17A relating to time limit for completion of assessment and reassessment.-- Section 28 of the Finance Act, 1989, has further amended sub-section (1) of section 17A by substituting the proviso, which provided transitory provisions for completion of assessments under section 16 for the assessment years 1985-86 and 1986-87, by a new proviso which now provides transitory provisions for completion of such assessments for the assessment year 1988-89 and earlier assessment years. Amendments to the Gift-tax Act, 1958 13.1. The provisions of the Gift-tax Act relating to previous year, procedure for assessment, charge of mandatory interest for default in furnishing the return of gifts, payment of interest by the Government on refund due to the assessee and rectification of mistake correspond with the provisions of the Income-tax Act and the Wealth-tax Act, which have been discussed in the preceding paras in this Part of the Explanatory Notes. The Amending Act, 1987, and the Amending Act, 1989, have made amendments to these provisions of the Gift-tax Act to bring them broadly in line with the corresponding provisions in the Income-tax Act and the Wealth-tax Act, as they have emerged after their amendment by the two Amending Acts. The Table below shows these provisions of the Gift-tax Act that have been so amended and the corresponding provisions of the Income-tax Act. The Table also indicates the sections of the Amending Act, 1987, and the Amending Act, 1989, which have carried out the necessary amendments and the subject-matter of the amendments in brief. --------------------------------------------------------------------------------------------------------------------------------------------------- Sl. No. Section of the Section of the Corresponding section Subject-matter of the Amending Act, Gift-tax Act amendment in brief 1987/Amending that has been of the Act, 1989 amended Income-tax Act --------------------------------------------------------------------------------------------------------------------------------------------------- (1) (2) (3) (4) (5) --------------------------------------------------------------------------------------------------------------------------------------------------- 1. 162(f) of the Amending Act, 1987 2(xx) 3 Amendment of definition of "previous year" in the Gift-tax Act, consequent to the substitution of new section 3 in the Income-tax Act relating to the definition of "previous year" in that Act. 2. 163 of the Amending 3 4 Amendments to section 3 Act, 1987 relating to charge of gift-tax, consequent upon the levy of additional gift-tax. 3. 166 of the Amending 13 139(1), (2) Amendments to section Act, 1987 and (10) 13 relating to furnishing of the return of gifts. 4. 167 of the Amending 14 (new section 139(4) and Substitution of new Act, 1987 substituted) (5) section 14 relating to filing of a revised or a belated return of gifts. 5. 168 of the Amending 14A 140 Amendments to section Act, 1987 14A relating to persons competent to sign the return of gifts. 6. 169 of the Amending 14B (new sec- 140A Insertion of a new Act, 1987 tion inserted) section 14B relating to payment of self-assessment tax at the time of filing of the return of gifts. 7. (i) 170 of the 15 (new section 142, 143 Substitution of new Amending Act, substituted) and 144 section 15 relating to 1987 procedure of assessment (ii) 83 of the and its further amendments toAmending Act, streamline the 1989 procedure, including the provision for charging additional gift-tax where the taxable gifts declared in the return are increased under the provisions of s. 15(1). 8. (i) 171 of the 16 147 to 151 Amendments to section Amending Act, 16 relating to 1987 assessment or reassessment (ii) 84 of the assessment of gifts Amending Act, escaping assessment 1989 9. 172 of the Amending Act, 1987 16A 153 Amendments to section 16A relating to time limit for completion of assessment and reassessment. 10. (i) 173 of the 16B (new section 234A Insertion of new section Amending Act, inserted) 16B to provide for 1987 charging of mandatory (ii) 85 of the interest for default in Amending Act, furnishing return of gifts. 1989 11. (i) 180(ii) of the 33A (4A and 243, 244 Insertion of new sub-sections Amending Act, 4B ) (new and 244A sections in section 33A 1987 sub-sections to restrict the old (ii) 90 of the inserted) provisions regarding Amending Act, payment of interest on 1989 refunds contained in sub-sections (3), (3A) and (4) to assessment year 1988-89 and earlier assessment years, and to provide for new mode of payment of interest on refunds effective from the assessment year 1989-90. 12. 181 of the Amending Act 1987 34 154 Amendments to section 34 relating to rectification of mistake apparent from record. --------------------------------------------------------------------------------------------------------------------------------------------------- 13.2. Amendments relating to furnishing of the return of gifts (section 13). -- The Amending Act, 1987, has made amendments to the provisions of section 13 of the Gift-tax Act relating to the furnishing of the return of gifts, which are on the same lines as the amendments made to the corresponding section 14 of the Wealth-tax Act (as explained in para 12.2 ante). The only difference is that the due date for furnishing the return of gifts in all cases is 30th June of the relevant assessment year, instead of staggered due dates for filing the returns of income or the returns of wealth. 13.3. Insertion of new section 14B relating to payment of self-assessment tax at the time of furnishing the return of gifts.-- Earlier, there were no provisions in the Gift-tax Act, corresponding to the provisions of section 140A of the Income-tax Act and section 15B of the Wealth-tax Act, for payment of self-assessment tax at the time of furnishing the return of gifts. The Amending Act, 1987, has inserted a new section 14B in the Gift-tax Act containing such provisions. The provisions of the said new section 14B are on the same lines as the amended provisions of section 140A of the Income-tax Act or the amended provisions of section 15B of the Wealth-tax Act. The provisions of section 140A and the amendments made thereto have been explained in para 3.15 ante. 13.4. Amendments made by the Finance Act, 1989, in section 16A relating to time limit for completion of assessment and reassessment.-- Section 31 of the Finance Act, 1989, has made the following further amendments to sub-section (1) of section 16A to bring its provisions at par with the provisions of the corresponding section 17A of the Wealth-tax Act,-- (i) The time limit for completion of an assessment under section 15, which was one year, as per the new sub-section (1) inserted by the Amending Act, 1987, has been increased to two years from the end of the relevant assessment year. (ii) A new proviso has been substituted for the old proviso to provide transitory provisions for completion of assessments under section 15 for the assessment year 1988-89 and earlier assessment years. ( Sd. ) K. K. Mittal, Director (TPL. III)