TMI BlogFinance Act, 2007 - Explanatory Notes on provisions relating to Direct TaxesX X X X Extracts X X X X X X X X Extracts X X X X ..... 3 10(23BBG). Exemption for income of Central Electricity Regulatory Commission. 11.1-11.2 10(23C)(iv), 10(23C)(v), 10(23C) Second, nineth, thirteenth and sixteenth proviso, 143(3) Sub-clause (ii) of first proviso, 296. Substitution of the power of notification of certain charitable and religious entities by power of approval by the prescribed authority. 12.1-12.5 10(23EC). Exemption for certain incomes of investor protection fund set up by commodity exchanges. 13.1-13.4 10(23FB), 10(23FB) Clause (c) of Explanation 1. Exemption for certain income of a venture capital company or venture capital fund. 14.1-14.3 10AA(4). Tax benefit only for new unit in SEZ. 15.1-15.6 12A(a), 12A(aa), 12A(1), 12A(2), 12AA(1), 12AA(2). Removal of the requirement for charitable or religious trust or institutions to file for registration within one year of creation or establishment. 16.1-16.7 13(1)(d)(iii) Allowing share investment in certain cases as a permissible investment mode for a trust or institution. 17.1-17.5 17(2)(ii) Explanation 1, Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rationalization of provisions related to deduction of health insurance premium. 32.1-32.5 80E(1), 80E(3)(a), 80E(3)(e). Deduction for amount of interest paid on a loan taken for higher education of a 'relative'. 33.1-33.3 80-IA Explanation. Clarification regarding developer with reference to infrastructure facility, industrial park, etc. for the purposes of section 80-IA. 34.1-34.4 80-IA(12A). Tax benefit under section 80-IA not available to undertaking/enterprise of Indian companies undergoing amalgamation or demerger after 31.3.2007. 35.1-35.2 80-IA(4)(i) Explanation. Expansion of the scope of "infrastructure facility" for the purposes of tax benefit under section 80-IA. 36.1-36.3 80-IA(4)(v)(b). Extension of time limit for generation or transmission or distribution of power by an undertaking of an Indian company set up for reconstruction or revival of a power generating plant. 37.1-37.3 80-IA(4)(vi), 80-IA(2), 80-IA(3). Deduction in the case of an undertaking laying and operating cross-country natural gas distribution network. 38.1-38.6 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide for TDS on 8% Savings (Taxable) Bonds, 2003. 52.1-52.4 194A(3)(i), 206A(1). Increasing the threshold limit in respect of interest payable by a banking Company or a co-operative society or on any deposit with a notified post-office scheme under Section 194A. 53.1-53.5 194C(1). Expansion of scope of the provisions of section 194C. 54.1-54.6 194H, 194H third proviso. Increase in the rate of TDS under section 194H to 10% and exemption from TDS thereunder from commission payable by Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited to their PCO franchisees. 55.1-55.5 194-I(a), 194-I(b), 194-I(c). Reduction in the rate for deduction of tax at source on rent for the use of any machinery or plant or equipment under Section 194-I. 56.1-56.4 194J(1). Enhancement of the rate of TDS under section 194J of the Income-tax Act. 57.1-57.4 197A(1C). Omission of reference to omitted section 88B from section 197A. 58.1-58.3 132B(4)(a), 201(1A), 245D(6A), second schedule Rule 60(1)(a), second schedule Rule 68A(3) Change of met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of India. 6.1-6.3 22D(6A). Change of method for calculation of interest from per annum basis to per month basis. 59.1-59.6 22A(b), 22A(f), 22C(1) proviso, 22C(1A), 22C(1B), 22C(1C)(c), 22C(4), 22D(1), 22D(2A), 22D(2B), 22D(2C), 22D(2D), 22D(3), 22D(4), 22D(4A), 22DD(2) proviso, 22E second proviso, 22F (2) first proviso, 22F(2) second proviso, 22H(1) second proviso, 22HA, 22HAA, 22K. Revised Settlement Scheme. 61.1-61.17 42D. Clarification in respect of presumption as to seized books of account, money, bullion, jewellery or other valuable article or thing to other proceedings under the Income-tax Act. 69.1-69.4 Finance Act, 2005. Chapter VII Section 94(5), Chapter VII Section 94(8)(a), Chapter VII Section 94(8)(b)(i). Exclusion of office or establishment of the Central Government or the Government of a State and enhancement of exemption limit the provisions of a banking Cash Transaction Tax (BCTT). 71.1-71.4 finance Act, 2007 Finance Act, 2007 - Explanatory Notes on provisions relating to Direct Taxes Circular No. 03 /2008, Dated 12 th March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases during the financial year 2006-07. 3.1-2 The major features of the rates specified in the said Part I are as follows: 3.1-3 Individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person. Paragraph A of Part I of the First Schedule specifies the rates of income-tax in the case of every individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person (other than a cooperative society, firm, local authority and company) as under: Income chargeable to tax Rate of income-tax Individual (other than individual resident woman and resident senior citizen), HUF, association of persons, body of individuals and artificial juridical person Individual woman resident in India and below the age of sixty- five years Individual senior citizen, resident in India, who is of the age of 65 years or more Upto Rs. 1,00,000 Nil Nil Nil Rs. 1,00,001-1,35,000 10% Rs. 1,35,001 - Rs. 1,50,000 10% Rs. 1,50,001 - Rs. 1,85,000 20% 20% Rs. 1,85,001 - Rs. 2,50,000 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% No surcharge shall be levied. Education Cess shall be levied at the rate of two per cent. on the amount of tax computed. 3.1-8. Firm - In the case of every firm, the rate of income-tax has been specified at thirty per cent. in Paragraph C of Part I of the First Schedule to the Act. Surcharge at the rate of ten per cent. shall be levied. Education Cess shall be levied at the rate of two per cent. on the amount of tax computed, inclusive of surcharge. 3.1-9. Local authority - In the case of every local authority, the rate of income-tax has been specified at thirty per cent. in Paragraph D of Part I of the First Schedule to the Act. No surcharge shall be levied. Education Cess shall be levied at the rate of two per cent. on the amount of tax computed. 3.1-10. Company - In the case of a company, the rate of income-tax has been specified in Paragraph E of Part I of the First Schedule to the Act. In case of a domestic company, the rate of income-tax is thirty per cent. of the total income. The amount of income-tax computed shall be enhanced by a surcharge of ten per cent. Educ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of every company other than a domestic company, at the rate of two and one-half per cent. of such income-tax. 3.2-4 No surcharge shall be levied on the amount of income-tax deducted in the case of a co-operative society and local authority. 3.2-5 Education Cess - An additional surcharge called the "Education Cess on income-tax" shall be levied at the rate of two per cent. on the amount of tax deducted, inclusive of surcharge, if any, in all cases. For instance, if such tax is Rs. 1,00,000/- and the surcharge is Rs. 10,000/-, then the education cess of two per cent. is to be computed on Rs. 1,10,000/- which works out to be Rs. 2,200/-. In addition, the amount of tax deducted and surcharge shall be further increased by an additional surcharge called "Secondary and Higher Education Cess on income - tax" at the rate of one per cent. in all cases. Thus in the earlier illustration, where the amount of tax deducted is Rs. 1,00,000/-, the surcharge is Rs. 10,000/-, the Education Cess of two per cent. is Rs. 2,200/-, the said Secondary and Higher Education Cess will be computed on Rs. 1,10,000/- which works out to be Rs. 1,100/-. The total cess in this case will amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% Rs. 1,45,001 - Rs. 1,50,000 10% Rs. 1,50,001 - Rs. 1,95,000 20% 20% Rs. 1,95,001 - Rs. 2,50,000 20% Exceeding Rs. 2,50,000 30% 30% 30% 3.3-3 Surcharge - In the case of every individual, Hindu undivided family, association of persons or body of individuals, surcharge shall be levied only where the total income exceeds ten lakh rupees. For this purpose, the income-tax on such income shall be reduced by the amount of rebate of income-tax computed under Chapter VIII-A. The income-tax so reduced shall thereafter be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent. of such income-tax. Marginal relief shall be provided to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over Rs. 10,00,000/- is limited to the amount by which the income is more than Rs. 10,00,000/- as illustrated in para 3.1-4. 3.3-4 In the case of artificial juridical person, surcharge shall be levied at the rate of ten per cent. of the income-tax payable on all levels of income. 3.3.5 In respect of fringe benefits chargeable to tax unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge called the "Education Cess on Income-tax" shall continue to be levied at the rate of two per cent. on the amount of tax computed, inclusive of surcharge, in all cases. In addition, such amount of tax and surcharge shall be further increased by an additional surcharge called "Secondary and Higher Education Cess on income-tax" computed at the rate of one per cent. on the amount of tax, inclusive of surcharge, in all cases. No marginal relief shall be available in respect of Education Cess. 3.3-9 Local authorities - In the case of every local authority, the rate of income-tax has been specified at thirty per cent. in Paragraph D of Part III of the First Schedule to the Act. No surcharge shall be levied. However, "Education Cess on Income-tax" and "Secondary and Higher Education Cess on incom e- tax" shall be levied at the rate of two per cent. and one per cent. respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.3-10 Companies - In the case of a company, the rate of income-tax has been specified in Paragraph E of Part III of the First Schedule to the Act. In case of a domestic company, the rate of income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression "Assessing Officer" has been defined to include Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act. The Joint Commissioner or Joint Director who is directed under clause (b) of sub-section (4) of section 120 can also exercise or perform all or any of the powers and functions conferred on or assigned to an Assessing Officer under this Act. The Income-tax authorities- "Additional Commissioner" and "Additional Director" were not specifically mentioned in the said definition because "Additional Commissioner" and "Additional Director" were included in the definition of Joint Commissioner and Joint Director respectively under clauses(28C) and (28D) of the section(2) respectively. However, in order to further clarify the intension of the legislature with regard to the meaning of the term "Assessing Officer", the following amendments have been carried out through the Finance Act, 2007:- (i) Clause (7A) of Section 2 has been amended so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of his family dependent on him are excluded from the ambit of definition of capital asset. Presently, the only asset which is in the nature of personal effects, but is included in the definition of capital assets is jewellery. 5.2 With a view to widen the scope of 'capital assets', the said clause has been amended, so as to further include assets like archaeological collections, drawings, paintings, sculptures, or any work of art in the definition of Capital assets. These capital assets will attract capital gains tax from Assessment Year 2008-09 onwards. [Section 3] 6. New definition of India. 6.1 The definition of 'India' is provided in section 2(25A) of the Income-tax Act, 1961. Under this definition, India is deemed to include the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry as respects any period for the purposes of section 6 and as respects any period included in the previous year, for the purposes of making any assessment for the assessment year commencing in the 1.4.1963, or for any subsequent assessment year. Clause (ka) of section 2 of the Wealth tax Act, 1957 provides a similar definition of India for the purposes o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crue or arise in India. The source rule is also recognized in India's Double Taxation Avoidance Agreements. Further, section 5, which defines scope of total income, is subject to other provisions of the Act, including section 9, and the income deemed to accrue or arise in terms of section 9 gets covered under section 5. 7.3 Recent judicial opinion has held that despite the deeming fiction in the said section, for any such deemed income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It has been held that where any sum is payable to a non-resident by a resident, the deeming sweep of the said section cannot bring to tax, any income of a non-resident received outside India from an Indian concern for services rendered outside India. In regard to fees for technical services, it has been specifically held that for the fees to be taxable in India, the services have not only to be utilized in a business in India, but also have to be rendered in India. 7.4 In view of the above judicial opinion, a need was felt to reiterate the legislative intent behind the introduction of the said clauses. Accordingly, an Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etrospectively from the 1 st day of April, 2005 and will, accordingly, apply in relation to the assessment year 2005-2006 and subsequent assessment years. [Section 6] 9. Exemption for interest on notified bonds issued by State Pooled Finance Entities. 9.1 Under the existing provisions of sub-clause (vii) of clause (15) of section 10, interest on bonds issued by a local authority and specified by the Central Government by notification in the Official Gazette, is exempt from income-tax. 9.2 State Pooled Finance Entities have been set up to issue debt securities on behalf of urban local bodies in terms of the Guidelines for the Pooled Finance Development Scheme notified by the Ministry of Urban Development. 9.3 The interest on such bonds does not enjoy exemption under the Income Tax Act. In order to enable such urban local bodies to raise funds for capital investment in urban infrastructure through the Pooled Finance Mechanism, sub-clause (vii) of clause (15) of section 10 has been amended to provide that interest on bonds issued by a State Pooled Finance Entity and specified by the Central Government by notification i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institutions referred to therein is exempt from tax if they are notified by the Central Government. Sub-clause (iv) relates to any fund or institution established for charitable purposes having importance throughout India or throughout any State or States. Sub-clause (v) relates to any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes. 12.2 As the existing procedure of centralised notification by the Central Government for the purpose of claiming exemption was found to be time-consuming and cumbersome, a need was felt to streamline such procedure. Accordingly, the said sub-clauses have been amended to substitute such procedure of notification by the Central Government by a new procedure of approval by the prescribed authority. The prescribed authority will be the Chief Commissioner of Income-tax or Director General of Income-tax designated for this purpose by Central Board of Direct Taxes. With this decentralization of the powers of the Central Government to the field authorities, no notification for exemption under the said sub-clauses will be issued by the Central Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion presently available to Investor Protection Funds set up by recognised stock exchanges. Accordingly, a new clause (23EC) has been inserted in section 10 to provide exemption for any income, by way of contributions received from commodity exchanges and the members thereof, of such Investor Protection Fund, set up by commodity exchanges in India, either jointly or separately, as the Central Government may, by notification in the Official Gazette, specify in this behalf. This amendment will enable Investor Protection Funds of commodity exchanges to have adequate funds for undertaking activities relating to the welfare of investors. 13.3 Further, as stipulated in clause (23EA), it has also been provided in new clause (23EC) that where any amount standing to the credit of the said Fund and not charged to income-tax during any previous year is shared, either wholly or in part, with a commodity exchange, the whole of the amount so shared shall be deemed to be the income of the previous year in which the amount is so shared and shall accordingly be chargeable to income-tax. "Commodity exchange" has been defined in the Explanation thereto to mean a "registered association" as defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009 and subsequent assessment years. [Section 6] 15. Tax benefit only for new unit in Special Economic Zone (SEZ). 15.1 Section 10AA of the Income-tax Act provides that in computing the total income of an entrepreneur, from his unit in the Special Economic Zone(SEZ), the following deduction shall be allowed:- (i) hundred per cent. of profits and gains derived from the export made in eligible business for a period of five consecutive assessment years beginning from the year in which such business commences; (ii) fifty per cent. of such profits and gains for further five assessment years; and (iii) an amount not exceeding fifty per cent of the profit debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be created and utilized for the purposes of the business in the specified manner, for the next five consecutive assessment years. 15.2 Under the existing provisions contained in sub-section (4) of the said section, it is provided that section 10AA is applicable to any undertaking being the unit, which has begun or begins to manufacture or produce articles or things or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revented from making the application within the specified time limit for sufficient reasons. If the Commissioner is so satisfied, the exemption under sections 11 and 12 shall apply to such trust or institution from the date of creation of the trust or establishment of the institution. However, where the Commissioner is not so satisfied, the exemption shall become applicable only from the 1 st day of the financial year in which the application is made. 16.3 A need has been felt to streamline the procedure relating to the registration of charitable or religious trusts or institutions. In line with such intention, the abovementioned clause (a) has been sunset by restricting its applicability to applications made before 1.6.2007. A new clause (aa) has been inserted in section 12A to provide that the provisions of section 11 and 12 shall not apply in relation to the income of the trust or institution unless the person in receipt of the income has made an application for the registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and in the prescribed manner to the Commissioner and such trust or institution is registered under section 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation whereby share investment is allowed as a permitted form or mode of investment under section 11(5)(xii) read with rule 17C, whereas such share investment stands prohibited under section 13(1)(d)(iii). 17.4 With a view to harmonise the provisions of section 13(1)(d)(iii) with those of section 11(5)(xii), sub-clause (iii) of clause (d) of sub-section (1) of section 13 has been substituted with a new sub-clause. This new sub-clause provides that the provisions of section 11 and section 12 shall not apply in respect of any income of a charitable or religious trust or institution, if for any period during the previous year, any shares in a company are held by the trust or institution after the 30 th day of November, 1983, other than - (A) shares in a public sector company; (B) shares which are prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, 17.5 Applicability - This amendment will take effect retrospectively from the 1 st day of April, 1999 and will accordingly apply in relation to the assessment year 1999-2000 and subsequent assessment years. [Section 10] 18. Clarification regarding concession in the matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as challenged before various High Courts and before the Supreme Court. 18.5 The Hon'ble High Court of Jharkhand has, in the case of the Tata Workers Union and another Vs Union of India (256 ITR 725), upheld the validity of rule 3 as amended by notification S.O. No. 940(E) by holding that 'the impugned notification does not suffer from any arbitrariness because in our considered opinion, for rationalising and simplifying the procedure, the Board brought about the impugned notification otherwise on account of cumbersome procedure as per the old rule various difficulties were being faced.' 18.6 The Hon'ble Supreme Court, in the case of Arun Kumar Vs. UOI (2006-119-SC) (Appeal (Civil) 3270 of 2003) held that ' though Rule 3 of the Rules cannot be held arbitrary, discriminatory or ultra vires Article 14 of the Constitution nor inconsistent with the parent Act [Section 17(2)(ii)], it is in the nature of 'machinery-provision' and applies only to the cases of 'concession' in the matter of rent respecting any accommodation provided by an employer to his employees. Whether or not Parliament could have in the exercise of legislative power created a 'deeming fiction' as to concess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Government - the valuation will be the licence fee · In case of unfurnished lease property, the valuation will be 15% of the salary or lease rental which ever is lower · In case furniture is provided, the actual hire charge (in case the furniture is hired from third party) or 10% of cost of furniture (if the furniture is owned by the employer) is to be added · In case any part of rent is being recovered from or paid by the employee, the valuation arrived above shall be reduced by that amount. · The population shall be as per 2001 census. 18.10 Rule 3 has also been amended accordingly and notified vide S.O. 1896(E), dated 7 th November, 2007. The reason for legislature to prefer presumptive method in 2001 in comparison to a discretionary method was to eliminate discretionary powers of the A.O. The pre-2001 system of determining the fair market rent in each case would have led to prolonged legal battle causing enormous inconvenience to taxpayers. The insertion of explanation with retrospective effect seeks to clarify such intention. The lowering of valuation rate with retrospective effect is aimed to provide relief to taxpayers. 18.11 It is also realized tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls or any other article or thing notified by the Board, a deduction of a sum equal to one and one-half times of the expenditure incurred on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority. 19.2 The existing provisions were not applicable in respect of any expenditure incurred by a company after 31 st March, 2007 and no weighted deduction against expenditure incurred after that date was admissible. 19.3 Considering the general realisation that research and development still needs some fiscal support for a few more years, the Finance Act, 2007 has amended clause (5) of the said sub-section, thereby allowing weighted deduction referred to in clause (1) for a further period of five years, that is, in respect of the expenditure incurred up to 31 st March, 2012. 19.4 Applicability - This amendment will take effect from 1-4-2008 and will accordingly apply in relation to the assessment year 2008-09 onwards upto assessment year 2012-13. [Section 12] 20. Deduction in respect of any provision for bad and doubtful debts to be allowed in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clause (ii) of Explanation to clause (viia) of sub-section (1) of section 36 has being substituted for the existing Explanation in the aforesaid item (fa) so that the scope of the exemption allowed under the aforesaid item (fa) is not changed. 20.6 The amendment to the definition of "scheduled banks" as it appears in clause (viia) of sub-section (1) of section 36 will also have the effect of making the provisions of section 43D applicable to scheduled co-operative banks. 20.7 Applicability - These amendments will take effect, retrospectively, from the 1 st day of April, 2007 and will, accordingly apply in relation to the assessment year 2007-2008 and subsequent assessment years. [Section 6 13] 21. Rationalisation of provisions relating to deduction in respect of creation and maintenance of special reserve under section 36(1)(viii). 21.1 The existing provisions of clause (viii) of sub-section (1) of section 36 of the Income-tax Act, 1961 provided for a deduction in respect of any special reserve created and maintained by,- (i) a financial corporation engaged in providing long-term finance for industrial or agricultural development or development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categories of entities (which now also includes co-operative banks) and their respective activities for eligibility of the deduction under the said clause. For claiming deduction under the said clause, (i) a financial corporation specified in section 4A of the Companies Act or a financial corporation which is a public sector company or a banking company or a co-operative bank (other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank) has to be engaged in the business of providing long-term finance in India for industrial or agricultural development or development of infrastructure facility, (ii) a housing finance company has to be engaged in the business of providing long-term finance for the construction or purchase of houses in India for residential purposes and (iii) any other financial corporation including a public company, has to be engaged in the business of providing long-term finance for development of infrastructure facility in India. It may be clarified that a financial corporation specified in section 4A of the Companies Act shall include such corporations specified under sub-section (1) and under sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the launching of ERAS. There are several options available in the market for borrowers to hedge their foreign exchange risk. Responding to changed market dynamics ERAFs have been discontinued by the Industrial and Development Bank of India (IDBI), Power Finance Corporation (PFC) and Indian Renewable Energy Development Agency (IREDA). The clause (x) of sub-section (1) of section 36 had, therefore, outlived its utility. 22.5 The Finance Act, 2007, accordingly, has omitted clause (x) from the said sub-section. 22.6 Applicability - This amendment will take effect from 1-4-2008 and will accordingly apply in relation to the assessment year 2008-09 and subsequent assessment years. [Section 13] 23. Central Government vested with power to notify a statutory corporation or a body corporate for the purposes of deduction under section 36(1)(xii). 23.1 Under the existing provisions of clause (xii) of sub-section (1) of section 36, any expenditure (not being in the nature of capital expenditure) incurred by a corporation or a body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act, for the objects and purposes aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in contravention of its provisions. Subsequently, the Finance Act, 1995 amended this sub-section with effect from 1 st April, 1996 to restrict the disallowance to twenty per cent of the expenditure, payment against which is made in violation of its provisions. 25.3 The provisions of the said sub-section were to act as an anti-evasion measure. It has come to notice that substitution of the disallowance of hundred per cent. by twenty per cent. has diluted the deterrence potential of the provisions. Therefore, to re-strengthen the deterrence potential, the Finance Act, 2007 has substituted sub-section (3) of section 40A to provide for hundred per cent disallowance of payments which are made in violation of its provisions. 25.4 There were occasions when deduction of expenditure was claimed in one year and the payment against such expenditure was made in any subsequent year in violation of the provisions of the said sub-section. In such cases, the existing first proviso to the said sub-section provided for re-computation of the total income of the previous year in which the liability to pay against the expenditure was incurred. Such re-computation was allowed to be made unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew Rule. The new Rule shall come into force with effect from the assessment year 2008-2009. 25.7 Applicability - This amendment will take effect from 1-4-2008 and will accordingly apply in relation to the assessment year 2008-09 and subsequent assessment years. [Section 14] 26. Provisions relating to business reorganisation of cooperative banks. 26.1 A new section 72AB has been inserted providing for carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in business re-organisation of cooperative banks. The provisions are applicable to an assessee, being a successor co-operative bank, in a case where amalgamation has taken place during the relevant previous year. The said successor cooperative bank will be entitled to set off the accumulated loss and the unabsorbed depreciation, if any, of the predecessor co-operative bank as if such amalgamation had not taken place. All the other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation will also apply accordingly. 26.2 In respect of cooperative banks, business reorganization has been defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of successor and predecessor cooperative banks, which have to be fulfilled for availing the provisions as enumerated in this section. (A) The following conditions have been prescribed for the predecessor co-operative bank:- (i) the said cooperative bank has been engaged in the business of banking for three or more years; and (ii) the said cooperative bank has held at least three-fourths of the book value of fixed assets as on the date of the business reorganisation, continuously for two years prior to the date of business reorganization. (B) The following conditions have been prescribed for the successor co-operative bank:- (i) the said cooperative bank holds at least three-fourths of the book value of fixed assets of the predecessor co-operative bank acquired through business reorganisation, continuously for a minimum period of five years immediately succeeding the date of business reorganisation; (ii) the said cooperative bank continues the business of the predecessor co-operative bank for a minimum period of five years from the date of business reorganisation; and (iii) the said cooperative bank fulfils such other conditions as may be prescribed to ensure t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e immediately preceding the date of business reorganisation, and (ii) the period commencing from the date of such business reorganisation and ending with the previous year shall be deemed to be two different previous years for the purposes of set off and carry forward of loss and allowance for depreciation. 26.9 It has also been provided that in a case where the conditions specified in sub-section (2) or notified under sub-section (4) of this section are not complied with, the set off of accumulated loss or unabsorbed depreciation allowed in any previous year to the successor co-operative bank shall be deemed to be the income of the successor co-operative bank chargeable to tax for the year in which the conditions are not complied with. 26.10 Further, a new section 44 DB has been inserted so as to provide for computing deductions in the case of business re-organisation of cooperative banks. Thus, proportionate deduction in the proportion of number and days prior and after the date of amalgamation for depreciation, amortization of certain preliminary expenses, expenditure relating to amalgamation and demerger and amortization of expenditure incurred under voluntary r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual or Hindu undivided family in any previous year from any person or persons on or after the 1 st day of April, 2006, shall be chargeable to income-tax under the head "income from other sources". 27.5 Section 2(24), which relates to the definition of income, does not contain a reference to the sum of money referred to in the said clause (vi). With a view to provide a reference to said clause (vi) in the definition of income, a new sub-clause (xiv) has been inserted in section 2(24) to provide that 'income' includes any sum referred to in clause (vi) of sub-section (2) of section 56. 27.6 As clause (vi) of sub-section (2) of section 56 came into effect from 1.4.2007, the abovementioned sub-clause (xiv) has also been inserted with effect from the same date i.e w.e.f. 1.4.2007. This amendment will take effect retrospectively from the 1 st day of April, 2007 and will accordingly apply in relation to the assessment year 2007-2008 and subsequent years. [Sections 3 19] 28. Providing condition for investment in "long-term specified bonds" under section 54EC. 28.1 Section 54EC provides tax exemption on capital gains arising from the transfer of a long-term capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir amendment by the Finance Act,2007, such bond will be deemed to be a bond notified under the provisions of new clause (b). Accordingly the notification S.O.2146(E)dated 22nd December, 2006, with the conditions specified therein, will be deemed to have been issued under the proviso to the said clause (b), so substituted. 28.7 The said proviso has been inserted with effect from the 1st day of April, 2006. [Section 18] 29. Provisions of Section 72A extended to Public Sector Company or Public Sector Companies engaged in the business of operation of aircraft . 29.1 Under the existing provisions of section 72A, the accumulated losses and unabsorbed depreciation of the amalgamating companies or company shall be set-off against the profit of the amalgamated company. Presently, the benefit is available in case of amalgamation of a company owning an industrial undertaking or a ship or a hotel with another company. Such benefits are also available in the case of amalgamation of a banking company referred to in clause (c) of section 5 of the Banking Regulation Act, 1949with a specified bank. 29.2 The said section has been amended so as to extend the benefits of carry-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of an assessee, being an individual or a Hindu undivided family, the sum paid by cheque to effect or to keep in force an insurance on the health of the assessee or on the health of any member of the family shall be allowed as a deduction. The maximum amount allowed as deduction is ten thousand rupees. In the case of senior citizens, the maximum amount of deduction allowed is fifteen thousand rupees. 32.2 Similarly, clause (ib) of sub-section (1) of section 36 provides for a deduction of the amount of any premium paid by cheque by the assessee, as an employer, to effect or to keep in force an insurance on the health of his employees under a scheme framed by the General Insurance Corporation formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 and approved by the Central Government or by any other insurer and approved by the Insurance Regulatory and Development Authority established under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act, 1999. 32.3 With a view to allow deduction for payments made through electronic mode , credit card, etc ., the provisions of section 80D and clause (ib) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc. for the purposes of section 80-IA. 34.1 Section 80-IA provides for a ten-year tax benefit to an enterprise or an undertaking engaged in development or operation and maintenance or development, operation and maintenance of infrastructure facilities, providing telecommunication service, generation or generation and distribution of power or development of an Industrial Parks or a Special Economic Zones. 34.2 The tax benefit was introduced for the reason that industrial modernization requires a massive expansion of, and qualitative improvement in, infrastructure (viz., expressways, highways, airports, ports and rapid urban rail transport systems) which was lacking in our country. The purpose of the tax benefit has all along been for encouraging private sector participation by way of investment in development of the infrastructure sector and not for the persons who merely execute the civil construction work or any other works contract. The incentive has all along been intended to benefit developers who undertake entrepreneurial and investment risk and not contractors who only undertake business risk. 34.3 Accordingly, it has been clarified by inserting an explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s circular will supercede whatever contrary has been stated, on this issue, in any other circular, issued by the Central Board of Direct Taxes earlier. 35.2 Applicability - This amendment will take effect from 1-4-2008 and will accordingly apply in relation to the assessment year 2008-09 and subsequent assessment years. [Section 28] 36. Expansion of the scope of "infrastructure facility" for the purposes of tax benefit under section 80-IA 36.1 Explanation to clause (i) of sub-section (4) of section 80-IA defines the expression "infrastructure facility" to mean a road including toll road, a bridge, a rail system, a highway project including housing or other activities being an integral part of the highway project, a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system, a port, airport, inland waterway or inland port. 36.2 Considering the fact that navigational channels in the sea is a high risk project (involving huge capital investment) and also has long gestation period, scope of the expression "infrastructure facility" has been expanded so as to include a navigational channel in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d section if;- · it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation established or constituted under any Central or State Act; · it has been approved by the Petroleum and Natural Gas Regulatory Board established under sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 and notified by the Central Government in the Official Gazette; · one-third of its total pipeline capacity is available for use on common carrier basis by any person other than the assessee or an associated person; · it starts functioning on or after 1st April, 2007; and · it fulfills such other condition as may be prescribed. 38.2 The expression "associated person" for the purposes of clause (vi) has also been defined to mean a person- · who participates directly or indirectly or through one or more intermediaries in the management or control or capital of the assessee; · who holds, directly or indirectly, shares carrying not less than twenty-six percent of the voting power in the assessee; · who appoints more than half of the Board of directors or members of the governing bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 009 and subsequent assessment years. [Section 29] 40. Tax holiday for hotels and convention centres in specified area. 40.1 With a view to provide adequate number of hotel rooms to met the requirement for accommodating the visitors to the Commonwealth Games which is to be hosted by the country in 2010 and also to boost the number of convention centres, a new section 80-ID has been inserted to provide for deduction in respect of profits and gains from the business of hotels and convention centres in specified area. 40.2 It has been provided that where the gross total income of an assessee includes any profits and gains derived by an undertaking from the business of hotel or from the business of building, owning and operating a convention centre, hundred percent deduction of the profits and gains derived from such business shall be allowed for five consecutive assessment years beginning from the initial assessment year. Initial assessment year has been defined as · Assessment year relevant to the previous year in which the business of the hotel starts functioning ( in case of hotel); and · Assessment year relevant to the previous year in which the convention centre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit report for both hotels and convention centres. 40.6 Applicability - These amendments, will take effect from the 1 st day of April, 2008 and will, accordingly, apply in relation to the assessment year 2008-2009 and subsequent assessment years. [Section 31] 41. Extension of benefit of tax holiday in respect of undertaking located in North-Eastern States (including Sikkim). 41.1 Under section 80-IC benefit of tax holiday is available to an undertaking located in any of the North Eastern states on fulfillment of statutory conditions. However, no benefit is available, under section 80-IC, if the undertaking begins to manufacture or produce an article or things or undertakes substantial expansion after the 31 st March, 2007. However, in the case of Sikkim, the terminal date was 31 st March 2012 under this section. This terminal date has also been amended to 31 st March 2007, by the Finance Act 2007. 41.2 A new section 80-IE has been inserted to provide tax benefits and it applies to any undertaking which is located in any of the North-Eastern States (including the state of Sikkim) and has, during the period beginning on 1 st April, 2007 and ending on 31 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 33B, in the circumstances and within the period specified in the said section. · It should not be formed by transfer to a new business machinery or plant previously used. The provisions of explanation 1 and 2 to sub-section (3) of section 80-IA shall also apply to this condition. · An assessee entitled to the deduction, in respect of the profits and gains of the undertaking under section 80-IE, would not be entitled to claim a deduction under any other section of Chapter VIA or section 10A or section 10AA or section 10B or section 10BA in relation to the said profits and gains. · In computing the total period for deduction under section 80-IE, the period for which the deduction was allowed under second proviso to section 80-IB(4) or section 80-IC or section 10C shall be included. In other words, in case of any undertaking established prior to the dates specified in section 80-IE, and eligible for deduction under section 80-IB or 10C or 80-IC, the aggregate period for claiming the deduction under section 80-IE shall not exceed 10 years; · The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall also apply to eligible undertak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reased by twelve months. Further, it has also been provided that the Transfer Pricing Officer shall determine the Arm's length price at least two months before the expiry of statutory time limit for making the assessment or reassessment . Thus, a time-limit has been provided in the statute, making it obligatory for the TPO to complete audit of transfer price within the stipulated time. 43.3 The provisions of sub-section (4) of section 92CA, provides that on receipt of the order under sub-section(3) of the said section, the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the Arm's length price determined under sub-section (3) by the Transfer Pricing Officer. 43.4 Sub-section (4) of section 92CA has been amended so as to provide that, on receipt of the order under sub-section(3) of section 92CA, the Assessing Officer shall proceed to compute the total income of the assessee under sub-section(4) of section 92C in conformity with the Arm's length price determined under sub-section (3) of section 92CA by the Transfer Pricing Officer. Thus, with the amendment in the provisions, the arm's length pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.4 Applicability - This amendment will take effect from 1-4-2008 and will accordingly apply in relation to the assessment year 2008-09 and subsequent assessment years. [Section 34] 45. Increase in the rates of Tax on distributed profits in certain cases. 45.1 Under sub-section (1) of section 115-O contained in Chapter XII-D, inter alia, any amount declared, distributed or paid by a domestic company by way of dividends on or after the 1st day of April, 2003, whether out of current or accumulated profits, shall be charged to additional income-tax or "tax on distributed profits" at the rate of twelve and one-half per cent. 45.2 The said rate of tax on distributed profits has been increased from twelve and one-half per cent. to fifteen per cent. 45.3 This amendment will take effect from 1 st April, 2007. 45.4 Under sub-section (2) of section 115R contained in Chapter XII-E, inter alia, any amount of income distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual fund shall be liable to pay additional income-tax on such distributed income at the rate of- (i) twelve and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purview of FBT, Finance Act, 2007 has inserted a new clause (d) in sub-section (1) of section 115WB. A new clause (ba) in sub-section (1) of the said section 115WC has been inserted to provide for computation of fringe benefit in such cases. The salient features of this provision are:- (i) FBT shall apply in all cases where any specified security or sweat equity shares has been allotted or transferred by the employer to his employees; (ii) FBT shall be payable in the previous year in which such allotment or transfer has taken place; (iii) the provisions of this new clause shall apply irrespective of the allotment or transfer being direct or indirect; (iv) the provisions of this new clause shall apply irrespective of the allotment or transfer being free of cost or at concessional rate; (v) the provisions of this new clause shall apply irrespective of the allotment or transfer being to current or former employee or employees; (vi) the provisions of this new clause shall apply in cases where the allotment or transfer is on or after 1 st day of April, 2007. (vii) the value of fringe benefit in such cases shall be determined in accordance with the formula - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is not listed on a recognized stock exchange, the fair market value shall be such value of the share in the company, as determined by a Category 1 Merchant Banker registered with the Security and Exchange Board of India, on the specified date. (v) The specified date has been defined as to mean,- (i) the date of vesting of the option; or (ii) any date earlier than the date of the vesting of the option, not being a date which is more than 180 days earlier than the date of the vesting 46.6 Further, the Central Board of Direct Taxes has inserted a new rule 40D in the Income-tax Rules, vide notification S.O. No. 113(E), dated 18-012008, prescribing the method for determination of fair market value of specified security, not being an equity share in the company. Through the same notification, rule 40C has been amended to omit the definition of "equity share". 46.7 Consequent to insertion of clause (ba) in sub-section (1) of section 115WC providing for the valuation of fringe benefits referred to in clause (d) of sub-section (1) of section 115WB, a new sub-section (2AB) has been inserted in section 49. 46.8 This new sub-section provide that the cost of acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share Capital gain = (Rs.200 - Rs. 80) X 100 = Rs. 12,000/- Period of holding = 3 rd April, 2007 to 25 th October, 2007 i.e., less than 12 months. Hence, the amount of RS. 12,000/- will be charged to short term capital gain. 46.13 Various issues arising out of the above amendment have been explained by issuance of Circular No.9/2007 dated 20-12-2007. 46.14 Sub-section (2) of the section 115WB deems certain expenses or payments as fringe benefit. Proviso to clause (D) of sub-section (2) of section 115WB excludes certain expenditure on advertisement from sales promotion including publicity. Clause (v) of the proviso excludes certain expenditure on certain items of advertisement. Clause (vii) of the proviso excludes the expenditure on distribution of free samples of medicines or of medical equipment to doctors. 46.15 To expand the domain of such exceptions to provide relief to employers, clause (v) of the above proviso has been amended and clause (vii) of the above proviso has been substituted so as to provide that the expenditure on display of products and on distribution of samples of any item either free of cost or at concessional rate to any person i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefits shall pay the same in three installments during each financial year. Such assessees shall pay not less than thirty per cent of such advance tax on or before 15 th September; sixty per cent as reduced by the amount paid in earlier instalment on or before 15 th December; and the whole amount as reduced by any amount paid in earlier instalment(s) on or before 15 th March of the financial year. 47.6 New sub-sections (3) and (4) of section 115WJ provide that where an assessee has failed to pay the advance tax payable by him on or before the due date for any instalment or where the advance tax paid by him is less than the amount payable by the due date, he shall be liable to pay simple interest at the rate of one per cent. per month for three months on the amount of shortfall with respect of each installment. For example if a company only pays 10 percent of advance tax payable by 15 th June, 45 percent by 15 th September, 65 percent by 15 th December and 95 percent by 15 th March then such company shall be liable to pay interest at · 1 percent per month for three months on shortfall of 5 percent of total advance tax on first installment, plus · 1 percent pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents will take effect from 1 st day of June, 2007. [Section 40] 48. Rules for facilitating annexure-less returns. 48.1 The provisions contained in explanation to sub-section (9) of section 139, provides that a return of income shall be regarded as defective unless, the conditions specified in clauses (a) to (f) of the explanation to the said sub-section are fulfilled. 48.2 The Finance Act, 2006, amended the said section by inserting a proviso to the said sub-section (9), conferring on the central Board of Direct Taxes, to dispense with any of the conditions specified in clauses (a) to (f) of the explanation. However, apart from the conditions specified in clauses (a) to (f) of the explanation to the said sub-section, documents, statements, receipts, certificate, audited reports or any other documents are also required to be annexed for claiming benefits or deductions under the Income-tax Act as specified under other sections. 48.3 A new section 139C has been inserted so as to provide that the Board may make rules providing for a class or classes of persons who may not be required to furnish documents, statements, receipts, certificate, audited reports or any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des that the expenses of, incidental to, any audit under subsection (2A) (including the remuneration of the accountant) shall be determined by the Chief Commissioner or Commissioner (which determination shall be final) and paid by the assessee and in default of such payment, shall be recoverable from the assessee in the manner provided in Chapter XVII-D for the recovery of arrears of tax. 49.2 The provisions of sub-section (2A) of section 142 of Income tax Act were reviewed by the Hon'ble Supreme Court in the case of Rajesh Kumar and Others Vs. Deputy Commissioner of Income-tax Others [287 ITR 91 (2006)]. The Hon'ble Supreme Court observed that the direction under sub- section (2A) of section 142 of Income tax Act for special audit of the accounts of the assessee is not administrative in nature and is a quasi-judicial order. Therefore, while arriving upon a decision to order special audit under the said provisions, the principles of natural justice are required to be applied, inter-alia, to minimize arbitrariness. The Hon'ble Apex Court further observed that the expression "having regard to the nature and complexity of accounts" is significant, and if the assessee is put to a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese amendments will take effect from the 1 st day of June, 2007. [Section 46] 50. Assessment of search cases—Orders of assessment and reassessment to be approved by the Joint Commissioner. 50.1 The existing provisions of making assessment and reassessment in cases where search has been conducted under section 132 or requisition is made under section 132A, does not provide for any approval for such assessment. 50.2 A new section 153D has been inserted to provide that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the previous approval of the Joint Commissioner. Such provision has been made applicable to orders of assessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B in respect of the assessment year relevant to the previous year in which se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax on these bonds has been resulting in evasion of taxes. 52.3 The Finance Act, 2007 has, therefore, amended the said section to provide that the person responsible for paying to a resident any interest on 8% Savings (Taxable) Bonds, 2003 shall deduct income-tax if interest payable on such Bonds exceeds ten thousand rupees during a financial year. 52.4 Applicability - This amendment will take effect from the 1 st day of June, 2007. [section 52] 53. Increasing the threshold limit in respect of interest payable by a banking Company or a co-operative society or on any deposit with a notified post-office scheme under Section 194A. 53.1 The existing clause (i) of sub-section (3) of section 194A provided that deduction of income-tax at source shall not be made in a case where the amount of income by way of interest other than "Interest on securities" did not exceed five thousand rupees. 53.2 The Finance Act, 2007 has amended said sub-section (3) to provide that the limit for deduction of tax at source under the aforesaid section shall be ten thousand rupees,- (i) Where the payer is a banking company to which the Banking Regulation Act, 1949 (10 of 1949) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to require such persons to deduct tax at source from payments made by them to contractors. 54.4 There would be genuine difficulties if individuals or HUFs with small business turnovers or gross receipts of profession are required to deduct tax at source. An exception in such cases would be justified. Similarly the contracts awarded by an individual or a member of HUF exclusively for personal purposes merit exclusion. 54.5 Accordingly, the Finance Act, 2007 has substituted the said sub-section (1) to include in its ambit such individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which sum is credited or paid to the account of the contractor. This amendment shall not apply in respect of payments made to a contractor by any individual or a member of a Hindu undivided family exclusively for their personal purposes. 54.6 Applicability - This amendment will take effect from the 1 st day of June, 2007. [section 54] 55. Increase in the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this section was defined in the Explanation. 56.2 The existing definition of "Rent" as amended by the Taxation Laws (Amendment) Act, 2006 had come into force from 13 th July, 2006 and in this definition rent on three new items, viz. machinery, plant and equipment had been inserted. Subsequent to the above amendment, representations had been received to the effect that the profit margin in the transactions involving lease or hire of machinery, plant or other equipment being quite low, TDS at the existing rates of 15% and 20% was resulting in higher amounts of collection of tax than the tax incidence in such cases. 56.3 Accordingly, the Finance Act, 2007 has amended the said section to separately specify the rate of deduction of tax at source at a lower rate of ten per cent. in respect of any income payable by way of rent for the use of any machinery or plant or equipment. 56.4 Applicability - This amendment will take effect from the 1 st day of June, 2007. [Section 56] 57. Enhancement of the rate of TDS under section 194J of the Income-tax Act. 57.1 Under the existing provisions of sub-section (1) of section 194J, a specified person was required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod specified in that section. Under section 244A also under which interest is paid on refunds to the assessee, interest is calculated for every month or part of a month. 59.3 The difference between calculation of interest on per-annum basis and per-month basis lies in the difference in procedure followed for calculation of interest under these two methods. When interest is calculated on per annum basis, any fraction of a month is ignored and when interest is calculated for every month or part of a month basis, any fraction of a month is deemed a full month and interest is calculated for the full month. This principle has been followed in framing rule 119A which provides for procedure for calculation of interest on annual or monthly basis. 59.4 Under the widely applicable provisions of sections 220(2), 234A, 234B, 234C, 234D and 244A, the interest is chargeable on per month basis. Accordingly, the Finance Act, 2007 has changed the method for calculation of interest to per month basis from the existing per annum basis under clause (a) of sub-section (4) of section 132B, sub-section (1A) of section 201, sub-section (6A) of section 245D, rule 60(1)(a) and rule 68A(3) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act contains provisions relating to settlement of cases by the Settlement Commission. With a view to avoid delay in determining the tax liability of an assessee which is caused because of factors like duplication of proceedings, absence of statutory time frame for settling the case and also with a view to streamline the proceedings before the Settlement Commission, provisions of Chapter XIX-A of the Income-tax Act have been amended. The important changes that have been carried out, inter-alia, are enumerated below. 61.2 Under the existing provisions, an assessee may make an application to the Commission at any stage of the proceedings in his case pending before any Income-tax Authorities. After 31st May, 2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer. It is further clarified that (a) since intimation under section 143(1) is not an assessment order, there will be no bar in filing an application for settlement subsequent to receipt of an intimation under section 143(1). It is not material whether time-limit for issue of notice under section 143(2) has expired or not; (b) the assessment shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report from the Commissioner. After considering the material contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved, the Commission passes an order to reject the application or to allow the application to be further proceeded with. Under the existing provisions, there is no statutory time limit for passing the order for rejecting or allowing the application to be proceeded with. However, a suggestive time limit of one year from the end of the month in which such application was made has been provided. The provisions have been amended to provide that the Settlement Commission, within 7days of receipt of the application shall issue a notice to the applicant to explain as to why his application be admitted. Thereafter, within 14 days from the date of receipt of the application, the Settlement Commission shall pass an order for rejecting the application or allowing the application to be proceeded with. Complexity of the investigation involved in a case shall not be the criteria for admitting or rejecting the application. Further, where no order or rejection or admission of an application is passed within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commission may proceed in the matter further without the report of the Commissioner. 61.9 In respect of applications made before 1.7.2007 and referred to in para 61.6(a) or 61.6(b), above which are not declared invalid or as the case may be, allowed to be further proceeded with, the Settlement Commission, if, is of the opinion to do so, may direct the Commissioner to make or cause to be made such further inquiry or investigation as it deems fit. The Commissioner shall submit his report within 90 days from the date on which the communication from the Settlement Commission is received by him; 61.10 The Commission shall, after giving an opportunity to the Commissioner and to the applicant and considering the reports of the Commissioner and other material available with it, pass the settlement order. Under the pre-amended provisions, there was no time limitation for making the order of settlement. The provision has been amended to provide that the Commission shall pass such order within 9 months from the end of the month in which the application was received. In respect of applications referred to in para 61.6(a) or 61.6(b) above, the Settlement Commission shall pass the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carried out in the Wealth-tax Act also. 61.17 Applicability - These amendments will take effect from the 1 st day of June, 2007. [Sections 62,63,64,65,66,67,68,69,70,84,85,86,87,88,89,90,91 92] 62. Providing for the right to appeal against the order holding a person as an assessee in default under section 206C(6A). 62.1 The existing provisions of sub-section (6A) of section 206C deem a person responsible for collecting tax to be the assessee in default in respect of the whole or any part of the tax which he fails to collect or after collection fails to pay in accordance with the provisions of the Act. The Assessing Officer is required to pass an order deeming such person an assessee in default. 62.2 By virtue of the provisions of the aforesaid sub-section (6A), a liability is visited upon the person responsible for collecting tax and payment thereof as taxes become recoverable from him. Such person should, therefore, have been entitled to file an appeal against the order of the Assessing Officer deeming him as an assessee in default. Provisions for appeal already exist against similar order passed by the Assessing Officer under sub-section (1) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l shall be counted from the date of payment of the tax. 64.2 Section 248 has been amended so as to provide for an appeal by a person, who has paid the tax deductible on income of the non-resident under 'net of tax' arrangement and who is denying that any tax was deductible. Consequentially, clause (a) of sub-section (2) of section 249 has been amended providing that where the appeal is under section 248, the prescribed time shall be counted from the date of payment of tax. 64.3 Applicability - These amendments will take effect from the 1 st day of June, 2007. [Section 73] 65. Provision relating to approval of charitable institutions and funds. 65.1 The provision of section 80G provides that the deductions in respect of donations to certain funds, charitable institutions are available from the taxable income of the donor. The said section provides for two categories of funds- one that are enumerated in sub-section (2) and the secondly, those funds which are approved by the Commissioner under clause (vi) of sub-section (5) of the said section. Under the pre-amended provisions of section 253, no appeal could be filed before the Appellate Tribunal against the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility - This amendment will take effect from the 1 st day of June, 2007. [Section 75] 67. Rationalisation of provisions relating to penalty for concealment of or furnishing inaccurate particulars of income. 67.1 The provisions of clause (b) of Explanation 4 to sub-section (1) of section 271, provided that in a case to which Explanation 3 to the said sub-section (1) applies, the amount of tax sought to be evaded shall mean the tax on the total income assessed. 67.2 Explanation 4 has been amended so as to provide that in a case to which said Explanation 3 applies, the amount of tax sought to be evaded shall mean the tax on the total income assessed as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self assessment tax paid before the issue of notice under section 148. 67.3 Applicability: This amendment takes effect retrospectively from 1st April, 2003 and will, accordingly, apply in relation to assessment year 2003-04 and subsequent years. 67.4 The provisions of Explanation 5 to sub-section (1) of section 271, provides that where in the course of a search under section 132, the assessee is found to be the owner of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. 67.8 Applicability - This amendment will take effect from the 1 st day of June, 2007 and will be applicable to cases where search under section 132 is initiated on or after 1 st day of June, 2007. [Section 76] 68. Provision for penalty for concealment in search and seizure cases. 68.1 A new section 271AAA has also been inserted so as to provide that, in a case where search has been initiated under section 132 on or after 1st June, 2007, the assessee shall be liable to pay by way of penalty, in addition to tax, if any, payable by him, a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year. However, provisions of this section shall not be applicable if the assessee- (i) in a statement under sub-section (4) of section132 in the course of the search, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Income-tax Act. 69.1 The provisions of sub-section (4A) of section 132 provides that the books of account, money, bullion, jewellery or other valuable article or thing found in the possession or control of any person in the course of a search under section 132 will be presumed to belong to the said person. It is further provided that it will be presumed that the contents of such books of account and other documents are true; and that the signature and every other part of such books of account and other documents which purport to be in handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested. 69.2 A new section 292C has been inserted so as to clarify that presumptions provided in sub-section (4A) of section 132 can be made in any proceedings under this Act. 69.3 Further, similar amendment in the Wealth-tax Act has also been inserted by of a new section 42D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to decide on the applications seeking exemption under section 17 of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952, time limit provided under rule 3 of the Fourth Schedule to the Income-tax Act for fulfillment of the condition specified in clause (ea) of rule 4 of Part A of the said Schedule has been extended from 31.3.2007 to 31.3.2008. 70.6 A proviso in sub-rule (1) of rule 3 has also been inserted so as to provide that the first proviso shall not apply to the provident fund of an establishment in respect of which a notification has been issued by the Central Government under sub-section (2) of section 16 of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. 70.7 Applicability - This amendment will take effect from the 1 st day of April, 2008 and will, accordingly, apply in relation to the assessment year 2008-2009 and subsequent assessment years. [Section 82] 71. Exclusion of office or establishment of the Central Government or the Government of a State and enhancement of exemption limit in the provisions of a banking Cash Transaction Tax (BCTT). 71.1 The provisions of Banking Cash Transaction Tax (BCTT), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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