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TMI BlogThe Taxation Laws (Amendment) Act, 1984--Explanatory notes on the provisions thereof (Part 1)X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Amending Act provides that section 84 of that Act shall come into force on 1st October, 1984 and, save as otherwise provided, the remaining provisions of the said Act shall come into force on 1st April, 1985. This circular explains the provisions of the Amending act which come into force from 1st October, 1984 or which have been brought into force from an earlier date. AMENDMENTS TO INCOME-TAX ACT Exemption of foreign film producers from taxation of income attributable to shooting of cinematograph films in India 4.1 The Amending Act has inserted a new clause (a) in the Explanation to clause (i) of sub-section (1) of section 9 of the Income-tax Act relating to income deemed to accrue or arise in India. 4.2 Under section 9(1)(i) of the Income-tax Act, an income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India, is deemed to accrue or arise in India. 4.3 The new clause (a) of the aforesaid Explanation provides that, in the case of a non-resident, no income shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion beyond doubt. 6.3 Under one of the amendments, a new sub-clause (va) has been inserted in clause (1) of section 17 of the Income-tax Act to provide that any payment received by an employee in respect of any period of leave not availed of by him shall be regarded as "salary". The other amendment has been made in section 10(10AA) of the Act to clarify that the exemption under the aforesaid provision shall be allowed only where the payment is received by the employee on his retirement, whether on superannuation or otherwise. The combined effect of the two aforesaid amendments will be that payments received by an employee in respect of any period of leave not availed of by him will be exempt from income tax only in cases where such payments are received on retirement and subject to the fulfilment of the other conditions laid down in section 10(10AA) of the Income-tax Act. 6.4 Both these amendments have been made with retrospective effect from 1st April, 1978, that is, the date from which clause 10(10AA) was inserted in section 10 of the Income-tax Act by the Finance Act, 1982. The provisions of section 10(10AA) and section 17(1) as amended Will, therefore, apply in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... netary ceiling of Rs. 6,000 will apply separately in computing the taxable salary received by the person from each employer. Such an interpretation of the relevant provisions would not be in conformity with the underlying intention. With a view to avoiding litigation on this point, the Amending Act has inserted an Explanation to clause (i) of section 16 of the Income-tax Act. The new Explanation declares, for the removal of doubts, that where, in the case of an assessee, salary is due from, or paid or allowed by, more than one employer, the deduction under the aforesaid provision shall be computed with reference to the aggregate salary due, paid or allowed to the assessee and shall in no case exceed the amount specified under the said provision. Hence, any claim that the monetary ceiling laid down in section 16(i) of the Income-tax Act should be applied separately in the case of persons who are employed with more than one employer stands clearly debarred by virtue of the provision contained in the aforesaid Explanation. 8.2 The aforesaid amendment takes effect from 1st April, 1975, that is, the date from which a standard deduction under section 16(i) of the Income-tax Act was prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , namely, the National Rural Development Bonds and special series of units of the Unit Trust of India notified by the Central Government in this behalf. The time of six months allowed for reinvestment may, however, not be adequate in some cases of compulsory acquisition where the whole or a part of the compensation is not immediately paid by the Government. 10.2 With a view to avoiding hardship in such cases, the Amending Act has inserted a second proviso to section 54E(1) of the Income-tax Act to provide that in a case where the full amount of compensation awarded for compulsory acquisition of an asset is not received by the assessee on the date of such acquisition, the period of six months referred to in the said provision shall, in relation to so much of such compensation as is not received on the date of the transfer, be reckoned from the date immediately following the date on which such compensation is received by the assessee. 10.3 The aforesaid amendment takes effect from 1st April, 1984 and will, accordingly, apply in relation to the assessment year 1984-85 and subsequent years. [Section 16 of the Amending Act] Clarificatory amendment of sections 80C, 80CC and 80L of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , apply in relation to the assessment year 1978-79 and subsequent years. 11.6 The amendment to section 80L takes effect from 1st April, 1972, that is, the date from which the concession under the said section was extended to associations of persons or bodies of individuals of the nature referred to above. The amendment will, therefore, apply in relation to the assessment year 1972-73 and subsequent years. [Sections 19, 20 and 2 1 (a) of the Amending Act] Clarificatory amendment relating to exemption under section 80L in the case of partners of firms 12.1 It had come to notice that, in some cases, partners of firms had claimed exemption under section 80L in their own assessments in respect of income derived by the firm from investment in specified financial assets. Such claims for deduction are clearly not in conformity with the intention underlying the provisions of section 80L of the Act. 12.2 With a view to avoiding litigation on this point, the Amending Act has inserted a new sub-section (3) in section 80L of the Act. The new sub-section declares, for the removal of doubts, that where the income referred to in sub-section (1) of the said section is derived from any asset he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to therein shall, in relation to an assessee, be the Commissioner having for the time being jurisdiction over the assessee. 14.2 The Amending Act has also inserted a new sub-section (11A) in section 132 to provide that every application referred to in sub-section (11) which is pending immediately before 1st October, 1984 before an authority notified under that sub-section (as it stood immediately before 1st October, 1984) shall stand transferred on that date to the Commissioner, and the Commissioner may proceed with such application from the stage at which it was on that @ate. The applicant may, however, demand that before proceeding further with the application, he be reheard by the Commissioner. 14.3 The aforesaid amendments take effect from 1st October, 1984. [Section 22 and section 23(b), (c) and (d) of the Amending Act] Increase in the rate of interest chargeable from assessees, and also payable to assessees, by Government under the provisions of the Income-tax Act 15.1 Simple interest at 12 per cent per annum is chargeable from assessees under certain provisions of the Income-tax Act, e.g., for failure to pay the tax due within the time allowed under the notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rte or best judgment assessment in cases where the assessee fails to furnish the return of income or to comply with the statutory notices issued by the Income-tax Officer in the course of assessment proceedings. The ex parte assessment can be cancelled by the Income-tax Officer under section 146 of the Income-tax Act if the assessee is able to show that he was prevented by sufficient cause from making the return or he did not receive the statutory notices or did not have reasonable opportunity to comply with, or was prevented by sufficient cause from complying with, such notices. 17.2 The Amending Act has made an amendment in sub-section (1) of section 146 of the Income-tax Act to secure that the provisions of the said section shall apply only in cases where an assessee has been assessed under section 144 before 1st October, 1984. [Section 27 of the Amending Act] Amendment of section 153 of the Income-tax Act relating to time limit for completion of assessments in certain cases 18.1 Under section 153(1) of the Income-tax Act, an order of assessment cannot, ordinarily, be made after the expiry of two years from the end of the assessment year in which the income was first assessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes of section 153, the period (not exceeding sixty days) commencing from the date on which the Income-tax Officer received the declaration under sub-section (1) of new section 158A and ending with the date on which the order under sub-section (3) of that section is made by him, shall be excluded 19.2 The aforesaid amendment takes effect from 1st October, 1984, that is, the date from which new section 158A has been inserted in the Income-tax Act. [Section 28(b) of the Amending Act] Amendment of section 154 relating to rectification of mistakes 20.1 Section 154 of the Income-tax Act empowers the Income-tax Officer, the Appellate Assistant Commissioner, the Commissioner(Appeals) and the Commissioner of Income-tax to rectify mistakes apparent from the record in the orders passed by them. All order of rectification can be made within a period of four years from the date of the passing of the order sought to be rectified. 20.2 The Amending Act has substituted sub-section (1) of section 154 by a new sub-section. The new sub-section (1) provides that with a view to rectifying any mistake apparent from the record, an income-tax authority referred to in section 116 may amend any ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the share in the assessment or the correction thereof, as the case may be. 21.4 Sub-sections (1), (2), (4), (7), (8), (9), (10), (10A) and (10C) of section 155 have also been amended to secure that the period of rectification laid down in the respective sub-sections shall be reckoned from the end of the financial year in which the relevant order was passed, and not from the date of the relevant order as at present. This modification would facilitate in keeping track of the period of limitation laid down for passing an order under section 155 of the Act. 21.5 The aforesaid amendments take effect from 1st October, 1984. [Section 30, excluding clause (e), of the Amending Act] Special provision for avoiding repetitive appeals 22.1 When there is a difference between the Income-tax Officer and a taxpayer on any question of law arising in the case of the taxpayer for several years, the taxpayer has to contest the question of law for each of these years. This leads to unnecessary proliferation of appeals before the appellate authorities and reference applications before the High Courts on identical questions of law in the case of the same taxpayer. 22.2 With a view to avoiding su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer or the appellate authority admitting or rejecting the claim shall be final and shall not be called in question in any proceeding by way of appeal, reference or revision under the Income-tax Act. 22.5 The fact that the claim made by the assessee is admitted will not, however, preclude the Income.-tax Officer or, as the case may be, the appellate authority from making an order disposing of the relevant case without awaiting the final decision on the question of law in the other case. However, when the decision on the question of law in the other case becomes final, it shall be applied to the relevant case and the Income-tax Officer or, as the case may be, the appellate authority, shall, if necessary, amend the order earlier passed by the Income-tax Officer or the appellate authority conformably to the final decision on the question of law in the other case. 22.6 When a claim made by the assessee is admitted, the assessee shall not be entitled to raise, in relation to the relevant case, the question of law in appeal before any appellate authority, or for a reference before the High Court or the Supreme Court or in appeal before the Supreme Court under the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the firm. 24.2 The question whether the provisions of section 187(2) of the Act would also apply in cases where a firm stands dissolved by operation of law or by virtue of an agreement among the partners, has given rise to considerable litigation and conflict of judicial decisions. With a view to ending uncertainty and litigation on this issue, the Amending Act has inserted a proviso to sub-section (2) of section 187 to provide that nothing contained in clause (a) of the said sub-section shall apply to a case where the firm is dissolved on the death of any of its partners. The effect of this amendment will be that where a firm is dissolved on the death of any of its partners, it shall not be regarded as a case of change in the constitution of the firm under the special provisions contained in section 187(2)(a) of the Income-tax Act. 24.3 The aforesaid amendment takes effect from 1st April, 1975 and will, accordingly, apply in relation to the assessment year 1975-76 and subsequent years. [Section 33 of the Amending Act] New provision for reduction or waiver of interest chargeable for default in payment of tax, etc. 25.1 Section 220(2) of the Income-tax Act provides that if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an application under sub-section (1) of section 245C is made by the assessee. 27.2 The amended definition takes effect from 1st October, 1984. [Section 39 of the Amending Act] Amendment of section 245C 28.1 The Amending Act has substituted sub-section (1) of section 245C of the Income-tax Act relating to application for settlement of cases by new sub-sections (1) to (1E). 28.2 New sub-section (1) provides that an assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Income-tax Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner provided in the provisions of Chapter XIXA of the Act. 28.3 The proviso to sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any, deducted at source under Chapter XVIIB or paid in advance under Chapter XVIIC of the Income-tax Act; (b) in a case referred to in (ii) of the preceding paragraph, by the aggregate of the sums referred to in (a) above and the tax, if any, paid by the applicant under section 140A of the Income-tax Act; and (c) in a case referred to in (iii) of the preceding paragraph, by the aggregate of the sums and tax referred to in (b) above as increased by the tax, if any, paid in pursuance of the assessment made in respect of the total income of that year. The resultant amount so arrived at shall be the additional amount of income-tax payable in respect of the income disclosed in the application relating to that year. 28.8 New sub-section (1D) provides that where the income disclosed in the application relates to more than one previous year, the additional amount of income-tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1B) and (1C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made shall be the additional amount of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee furnishes adequate security for the payment of the aforesaid amount. 29.6 New sub-section (2C) provides that where the additional amount of income-tax is not paid within the time specified under sub-section (2A), the assessee shall be liable to pay simple interest at 15 per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days referred to in the said sub-section. Interest under this provision will have to be paid by the assessee irrespective of whether or not the Settlement Commission has extended the time for payment of the amount or has allowed payment thereof by instalments. 29.7 New sub-section (2D) provides that where the additional amount of income-tax is not paid by the assessee within the time specified under sub-section (2A) or within the extended time allowed by the Settlement Commission, the Settlement Commission may direct that the amount remaining unpaid, together with any interest payable thereon under sub- section (2C), shall be recovered and any penalty for default in making payment of such additional amount may be imposed and recovered by the Income-tax Officer having jurisdiction over the assessee in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Settlement Commission. 29.11 The aforesaid amendments take effect from 1st October, 1984. [Section 41 of the Amending Act] Amendment of section 245E 30.1 The Amending Act has made an amendment in section 245E relating to power of Settlement Commission to reopen completed proceedings. Under the amendment, the reference to proceedings completed under the Indian Income-tax Act, 1922, has been omitted from the section. This amendment has been made with a view to removing all scope for doubt or controversy regarding the power of Settlement Commission to reopen completed proceedings. As clearly laid down iii the proviso to section 245E, no proceeding can be reopened by the Settlement Commission after the expiration of the period of eight years from the end of the assessment year to which such proceeding relates. 30.2 The aforesaid amendment takes effect from 1st October, 1984. [Section 42 of the Amending Act] Amendment of section 245H 31.1 The Amending Act has made an amendment in section 245H relating to power of Settlement Commission to grant immunity from prosecution and penalty. The amendment empowers the Settlement Commission to provide even partial immunity from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Section 46 of the Amending Act] Amendment of section 263 of the Income-tax Act relating to revision of orders prejudicial to revenue 35.1 The Amending Act has modified the provisions of section 263 of the Income-tax Act in certain respects. 35.2 Under one of the amendments, a new Explanation has been inserted at the end of sub-section (1) of section 263. The new Explanation declares, for the removal of doubts, that for the purposes of the said sub-section, an order passed by the Income-tax Officer shall include an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under section 144A or section 144B of the Income-tax Act. The new Explanation also provides that an order made by the Inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on, or assigned to, him under section 125(1)(a) or section 125A(1) of the Income-tax Act, shall also be regarded as an order passed by the Income-tax Officer. The new Explanation seeks to clarify the aforesaid position with a view to removing further controversy and litigation on these points. 35.3 Under another amendment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any previous year which is to end on or after the date of the search, he shall for the purposes of section 271(1)(c) of the Act be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless such income is or the transactions resulting in such income are, recorded on or before such date in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Commissioner before the said date. 36.3 The fact that the income referred to above is declared by the assessee in any return of income furnished by him on or after the date of tile search will not provide immunity to the assessee from imposition of penalty under section 271(1)(c) of the Act unless the conditions mentioned in the preceding paragraph are fulfilled. 36.4 The aforesaid amendments take effect from 1st October, 1984. [Section 48 of the Amending Act] Amendment of section 273A of the Income-tax Act 37.1 The Amending Act seeks to make certain modifications in section 273A of the Income-tax Act relating to power of Commissioner to reduce or waive penalty, etc. 37.2 Under one of the amendments, a new Explanation 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding Act] Amendment of section 288 of the Income-tax Act relating to appearance by authorised representative 39.1 Section 288(3) of the Income-tax Act provides that if a person formerly employed as an income-tax authority (not below the rank of an income-tax Officer) has retired or resigned from such employment after having served for not less than three years from the date of his first employment as such, he shall not be entitled to represent any assessee for a period of two years from the date of his retirement or resignation. 39.2 The Amending Act has omitted the aforesaid sub-section (3) of section 288. Although the aforesaid sub-section (3) has been omitted, officers belonging to the Indian Revenue Service (Income-tax Wing) who have retired from Government service shall continue to be governed by the provision of the Central Civil Services (Pension Rules) which regulates the setting up of practice by such officers after retirement. 39.3 The aforesaid amendment takes effect from 1st October, 1984. [Section 52 of the Amending Act] AMENDMENTS TO WEALTH-TAX ACT Amendment of section 5 of the Wealth-tax Act 40.1 Section 5(1)(xxxiii) of the Wealth-tax Act provides for exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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