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TMI BlogExplanatory notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 [as amended by the Direct Tax Laws (Amendment) Act, 1989]--Part-IIIX X X X Extracts X X X X X X X X Extracts X X X X ..... of the Amending Act, 1987, which have come into effect from 1st April, 1986, are also explained in this circular. 1.3 This circular also explains those provisions of the Amending Act, 1989, which have further amended the provisions of the Amending Act, 1987, which are discussed in this circular. Withdrawal, of certain new provisions introduced by the Amending Act, 1987 2.1 As mentioned in para. 3.1 of Part I of these explanatory notes, the provisions dealing with following matters, introduced by the Amending Act, 1987, have been withdrawn by the Amending Act, 1989 :-- (i) Scheme of taxation of firms and partners. (ii) Scheme of tax treatment in respect of charitable and religious institutions, trusts, etc., as also scientific and sports associations and institutions of national importance. (iii) Charging of additional tax in lieu of penalty for concealment of income/wealth/gift. 2.2 Since the aforesaid new provisions have been withdrawn, the same are not discussed in detail in these explanatory notes. However, the provisions of the Income-tax, Wealth-tax and Gift-tax Acts, which were first amended, omitted or newly inserted by the Amending Act, 1987, to introduce these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80A. Consequential amendment substituted in made to exclude references to firms and partners. 95(g) *11. 29 New section 86 substituted Provisions for rebate on the share income of a partner in an unregistered firm, which is included in his total income omitted. 95(g) 12. 61(a) 155(1)(Amended) Provisions regarding rectification of a partner's share in the income of the firm made applicable up to assessment year 1988-89 only. 95(i)(1) 13. 62 158(Amended) Provisions regarding intimation of the assessment of the firm and apportionment of its income among partners made applicable up to assessment year 1988-89 only. 95(j) *14. 66 New section 167A Tax is levied at the maximum substituted marginal rate in the case of a firm (after allowing deduction for interest and remuneration, etc., paid to partners, as indicated at Sl. No. 5 above). 95(j) 15. 67 182 and 183 (omitted) Separate provisions regarding assessment of registered and unregistered firms omitted. 95(j) 16. 68 Two new sections 184 and 185 substituted for the existing sections 184 to 186. Provisions regarding registration and cancellation of registration of firms substituted by new provisions sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x treatment in respect of charitable and religious institutions, trusts, etc., as also scientific research and sports associations and institutions of national importance.--A number of sections of the Income-tax Act were amended, omitted or newly inserted by the Amending Act, 1987, to introduce a scheme of tax treatment of charitable and religious institutions, trusts, etc., as also scientific research and sports associations and institutions of national importance. The Table below shows sections of the Amending Act, 1987, which introduced the said scheme, sections of the Income-tax Act which were affected and the subject-matter of amendments in brief. The Table also indicates the sections of the Amending Act, 1989, which have withdrawn the said scheme and have restored the old provisions in this respect. Sl. No. Sections of the Amending Act, 1987, which introduced the scheme Sections of the Income-tax Act which were affected Subject matter of amendments in brief Sections of the Amending Act, 1989 which have omitted/amended the sections of the Amending Act, 1987, mentioned in column 2 to withdraw the scheme 1 2 3 4 5 *1. 6 (k) 10(21) and 10(23) omitted. Provisions re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10 of the Income-tax Act, the Amending Act, 1989, has further amended the said clauses of section 10 to introduce certain conditions for safeguarding against the misuse of the exemptions provided under these clauses. These are discussed at the appropriate places in this part of the explanatory notes. **(2) While restoring back sections 11, 12, 12A and 13 of the Income-tax Act, the Amending Act, 1989, has further made certain modifications in the provisions of section 11. These are discussed at the appropriate places in this part of the explanatory notes. +(3) Section 10 of the Amending Act, 1987, omitted not only sections 35, 35CCA and 35CCB, but also sections 35B, 35C and 35CC of the Income-tax Act. The Amending Act, 1989, has amended the said section 10 of the Amending Act, 1987, to secure that only sections 35B, 35C and 35CC of the Income-tax Act are omitted, while sections 35, 35CCA and 35CCB thereof are restored back. The Amending Act, 1989, has further amended section 35 to introduce certain conditions for safeguarding against possible misuse of its provisions. These are discussed at the appropriate places in this part of the explanatory notes. 2.5 Some sections of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. 126(23) 253(1)(a) of the Income-tax Act. Consequential amendments made in the (Amended) provisions relating to appeals to the Appellate Tribunal, pursuant to the insertion of new section 246A. 95(o) **5. 142 New section 18 substituted in the Wealth-tax Act. Provisions for levy of penalty for concealment of wealth omitted. 95(p) 6. 143 New section 18D inserted in the Wealth-tax Act. Additional wealth-tax to be levied, where the net wealth determined on regular assessment exceeds the net wealth returned, @ 3 % of such excess amount. 95(p) 7. 147 New section 23A inserted in the Wealth-tax Act. Application can be moved by the assessee before the Deputy Commissioner (Appeals) or the Commissioner (Appeals) for a decision as in 2 above. 95(p) 8. 160(2) 24 (1) of the Wealth-tax Act (Amended) Consequential amendments made in the provisions relating to appeals to the Appellate Tribunal, pursuant to insertion of new section 23A. 95(r) **9. 174 New section 17 substituted in the Gift-tax Act. Provisions for levy of penalty for concealment of gifts omitted. 95(p) 10. 175 New section 18B inserted in the Gift-tax Act. Additional gift-tax to be levied, where val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this section. The Amending Act, 1989, has made further changes in some of the amendments made by the Amending Act, 1987. These are discussed in the following paras. 3.2 Exemption of share of a partner in the income of a firm [insertion of new clause (2A)].--This was withdrawn by the Amending Act, 1989 (refer to item 2 of the Table given in para 2.3 ante.) 3.3. Merger of clauses (4) and (4A) and also rationalisation of the provisions of these clauses.--Under the old provisions of clause (4), the following income was exempt in the case of a non-resident (whether an individual or a company or a firm, etc.) :-- (i) any income from interest on such securities as the Central Government might, by notification in the Official Gazette, specify in this behalf, and (ii) any income from interest on or from premium on redemption of certain types of bonds which were specified in the clause. 3.4 Under the old provisions of clause (4A), exemption from tax was provided to a person resident outside India in respect of his income from interest on money standing to his credit in a Non-Resident (External Account) in any bank in India in accordance with the Foreign Exchange Regulation Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessment year 1971-72 and subsequent assessment years. The exemption was subject to the safeguards provided in the proviso to sub-clause (ii) of the said clause (5). It was also subject to the conditions prescribed in rule 2B of the Income-tax Rules, 1962. 3.7 The Amending Act, 1987, has substituted a new clause (5) in the section with a view to rationalise its provisions and also to make it more broadbased. The salient features of the new clause are :-- (i) The exemption is now available to all employees, irrespective of the fact whether they are citizens of India or not. (ii) The obsolete portion of the old clause, which related to the assessment year 1970-71 and earlier assessment years, has been omitted. (iii) The exemption under the clause shall now be available only if the amount of travel concession or assistance has been actually incurred by the concerned employee for the purposes of the travel. (iv) It has been specifically mentioned in the clause itself that the conditions to be prescribed for availing of the exemption may include conditions as to the number of journeys and the amount which shall be exempt per head. 3.8 It may be mentioned that the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving regard to the limit applicable to the Central Government employees. As a result of this amendment, it would not be necessary to make frequent changes in the Income-tax Act every time the monetary limit is to be changed as and when the maximum amount of allowable gratuity is changed in the case of Central Government employees. 3.12 There were four provisos in the old clause (10), which provided as under :-- (i) The first proviso stipulated that where gratuities were received from two or more employers in the same year, the maximum amount of gratuity to be exempt would be Rs. 36,000. (ii) The second proviso stipulated that where gratuity or gratuities were received in any earlier year or years also, the limit of Rs. 36,000 would be reduced by the amount of gratuity or gratuities which had been exempted in the earlier year or years. (iii) The third proviso empowered the Central Government to further raise the monetary ceiling of Rs. 36,000 by notification in the official gazette, keeping in view the maximum amount of gratuity which may be exempt in the case of Government servants. (iv) The fourth proviso stipulated that where the retirement, incapacitation, termination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culated on the basis of average salary drawn during the 10 months immediately preceding his retirement or Rs. 30,000, whichever was less. 3.18 This limit applicable to non-Government employees was required to be raised as a result of the higher amount getting exemption in the case of the Central Government employees as a result of the recommendations of the Fourth Pay Commission. To achieve this objective and also to rationalise the provisions, the Amending Act, 1987, has made the following amendments in the said sub-clause (ii) :-- (i) The maximum amount that would now be exempt is the equivalent of 8 months' leave salary instead of six months leave salary as was the case under the old provisions. (ii) The maximum limit of exemption, namely, Rs. 30,000, is not specified in the sub-clause. Instead, it is now provided that the limit may be specified by the Central Government by way of a Notification in the Official Gazette having regard to the limit applicable to the Central Government employees. This would avoid frequent changes in the Income-tax Act for the same reasons as explained in the case of amendment of clause (10) relating to gratuities (refer para 3.11 ante). 3.19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (14) of section 101 and definition of "income" [clause (24) of section 2].--Under the old provisions of clause (14), any allowance or benefit, not being in the nature of entertainment allowance or other perquisite within the meaning of section 17(2), specially granted by an employer to an employee to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of his office or employment of profit, was exempt from tax to the extent such expenses were actually incurred for that purpose. An Explanation to this clause clarified that any allowance granted to an assessee to meet his personal expenses at the place of his posting or at the place where he ordinarily resided shall not be exempt under this clause. This was to secure that allowances like the city compensatory allowance should continue to be taxed, along with salary, in the hands of the employees. However, in spite of these provisions, the Madhya Pradesh High Court held in the case of Bishambar Dayal v. CIT [1976] 103 ITR 813, that the city compensatory allowance can neither be regarded as salary nor as perquisite and hence cannot be taxed under the head "Salaries". Following this decision, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act by the Amending Act, 1989, is that all allowances and benefits granted to the employees will first be treated as income in their hands, but those allowances and benefits which are intended to be exempt from tax will be specified in the notification to be issued under section 10(14). 3.27 It may be mentioned that the following notifications have so far been issued under the new clause (14) of section 10 to exempt various allowances and benefits :-- (i) Under sub-clause (i) of clause (14) : (1) Notification No. S.O. 143(E) dated 21-2-1989 (See [1989] 176 ITR (St.) 132) which exempts the travelling allowance and daily allowance while on tour or transfer. (2) Notification No. G.S.R. 606(E) dated 9-6-1989 (See [1989] 178 ITR (St.) 43) which exempts the conveyance allowance. (ii) Under sub-clause (ii) of clause (14) :-- Notification No. S.O. 144(E) dated 21-2-1989 (See [1989] 176 ITR (St.) 133) which exempts the following allowances to the extent mentioned therein :-- (1) Composite hill compensatory allowance. (2) Any special compensatory allowance in the nature of border area allowance, disturbed area allowance, etc. (3) Tribal area allowance. (4) Any allowance g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment, whenever the Central Government wants to exempt income from any new security, bond, certificate, deposit, etc., it need not amend the Act. The purpose will be served by the issue of a notification in this behalf. 3.31 Merger of clauses (17A), (17B) and (18) into a single new clause (17A) and also simplification and rationalisation of the provisions of these clauses.--Clauses (17A), (17B) and (18) provided for exemption in respect of the following :-- (i) Any payment, whether in cash or in kind, in pursuance of awards for literary, scientific or artistic work, or for alleviating the distress of the poor, the weak and ailing or for proficiency in sports and games, instituted by the Central Government or by any State Government or approved by the Central Government in this behalf [clause (17A)]. Proviso to this clause clarifies that the approval granted by the Central Government shall have effect for such assessment year or years as may be specified in the order of approval. (ii) Any payment, whether in cash or in kind, as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sections 11 to 13, were contained in a new section 80F inserted by the Amending Act, 1987. However, following representations in this regard, the Amending Act, 1989, has omitted the new section 80F and has restored back the said clauses (21) and (23) and sub-clauses (iv) and (v) of clause (23C) of section 10 (refer to items 1, 2 and 6 of the Table given in para 2.4 ante). 3.34.The Amending Act, 1989, has further substituted new clauses (21) and (23) and sub-clauses (iv) and (v) of clause (23C) with effect from 1st April, 1990.--The new clauses and sub-clauses contain adequate safeguards against the misuse of exemptions provided therein. These are discussed in the following paras. 3.35 Provisions of the new clause (21) relating to exemption of income of a scientific research association.--The new clause (21) exempts the income of a scientific research association, which is approved for the purposes of clause (ii) of sub-section (1) of section 35. However, the exemption is subject to the following conditions :-- (i) The association should apply its income or accumulate it for application wholly and exclusively to the objects for which it is established. Provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der this clause shall not be denied in respect of such funds. (ii) The association or institution should not distribute any part of its income in any manner to its members except as grants to any association or institution affiliated to it. (This condition was also there in the old provisions of the clause). (iii) The association or institution should make an application in the prescribed form and manner to the prescribed authority for the purposes of grant of such exemption or continuance thereof. (iv) Before notifying the association or institution for the purposes of exemption under this clause, the Central Government may, for satisfying itself about the genuineness of the activities of the association or institution, call for such documents (including audited annual accounts) or information from the association or institution as it thinks necessary. The Government may also make such enquiries as it may deem necessary in this behalf. (v) The notification granting exemption under this clause shall, at any one time, have effect for not more than three assessment years (including an assessment year or years commencing before the date of issue of such notification), as may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 25 per cent. of their income without any time-limit and without fulfilling any conditions and the balance 75 per cent. for a period of 10 years after complying with certain requirements mentioned in section 11(2), there is no such embargo in the case of religious or charitable institutions, etc., exempt under sub-clauses (iv) and (v) of clause (23C). The latter can accumulate any amount out of income for application to their objects for any period of time and without having to comply with the requirements mentioned in section 11(2). The only restriction is that such accumulation must be invested in assets specified in section 11(5) and should be for the purposes connected with the objects of the institutions, etc. (ii) Being of charitable and/or religious nature, the condition mentioned at serial No. (ii) in para 3.36 ante in the case of clause (23) is not applicable in the case of sub-clauses (iv) and (v) of clause (23C). 3.40 It may be noted that while under the old provisions of the said sub-clauses (iv) and (v), a notification could have effect for any number of assessment years mentioned therein, under the new provisions the notification shall not have effect, at any one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and institutions. (iii) Section 12A, which laid down conditions for application of the provisions of sections 11 and 12. (iv) Section 13, which enumerated the cases and circumstances in which the provisions of sections 11 and 12 did not apply. The provisions of these sections, after certain modifications, were incorporated in a new section 80F inserted by the Amending Act, 1987. However, following representations in this regard, the Amending Act, 1989, has omitted the said new section 80F and has restored back sections 11, 12, 12A and 13 (refer to items 3 and 6 of the Table given in para 2.4 ante). The Amending Act, 1989, has further made certain modifications in section 11, which are discussed in the following paras. 4.2 Amendment to sub-section (1) of section 11 by the Amending Act, 1989, to exclude corpus donations from the total income of the trust or institution and amendment of definition of "income" contained in section 2(24) by the Amending Act, 1987 :--The Amending Act, 1989, has inserted a new clause (d) in sub-section (1) of section 11 to provide that income in the form of voluntary contributions made with a specific direction that they shall form part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he requirements for exemption under section 11, these will be excluded from their income. However, in case the trust or institution loses the exemption under section 11, either by not complying with the conditions laid down in section 12A or by falling within the mischief of section 13, corpus donations will be included in its income and taxed. 4.6 Consequential amendments in sections 2(24) and 11(1) by the Amending Act, 1989 :--The Amending Act, 1989, has also made the following amendments :-- (i) Consequential amendments in the definition of "income" contained in section 2(24) pursuant to the omission of section 80F and revival of clauses (21) and (23) and sub-clauses (iv) and (v) of clause (23C) of section 10. (ii) Consequential amendments in section 11(1) pursuant to the amendment of sub-section (1) of section 139 and the omission of sub-section (2) of section 139. 4.7 Amendments to sub-section (5) of section 11 by the Amending Act, 1989, to expand the scope of specified assets for purposes of investment of accumulated income of trusts, etc. :--Sub-section (5) of section 11 enumerates the forms and modes of investing or depositing the money referred to in section 11(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes not approved till March 16, 1985. (v) Sections 35CCA and 35CCB relating to deductions for expenditure by way of payments to associations and institutions for carrying out rural development programmes or programmes of conservation of natural resources, as deductions for such payments were to be allowed under the provisions of section 80G, as amended by the Amending Act, 1987, read with the provisions of the new section 80F, also inserted by the Amending Act, 1987. 5.2. Restoration of sections 35, 35CCA and 35CCB by the Amending Act, 1989.--Following representations against the provisions of the new section 80F and also against the omission of section 35, the Amending Act, 1989, has omitted the new section 80F, has reversed the corresponding amendments to section 80G and has restored back sections 35, 35CCA and 35CCB (refer items 4, 6 and 7 of the Table given in para 2.4 ante). The Amending Act, 1989, has further amended section 35 to provide adequate safeguards against the misuse of the provisions of that section. These are discussed in the following paras. 5.3. Amendments to section 35(1) by the Amending Act, 1989, to provide safeguards against the misuse of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.5. These amendments come into force with effect from 1st April, 1989, and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years. [Section 10 of the Amending Act, 1987] [Section 8 and clause (e) of section 95 of the Amending Act, 1989] COMPUTATION OF INCOME UNDER THE HEAD "PROFITS AND GAINS OF BUSINESS OR PROFESSION" 6.1. Under the old provisions of the Income-tax Act, the computation of taxable income under the head "Profits and gains of business or profession" deviated considerably from the concept of commercial profits or real income. This was because of certain provisions in the Act, which disallowed expenses actually incurred or laid down artificial ceilings on allowable business expenses. With a view to bring the taxable income closer to the real income, the Amending Act, 1987, has either amended or omitted some of the provisions of the Act, which put restrictions on the allowability of business expenses. These are indicated below : (i) Provisions relating to allowability of bonus are amended. [Sections 36(1)(ii) and 43B] (ii) Provisions relating to allowability of bad debts are amended. [Sections 36(1) (vii) and 36(2)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness or profession. 6.4 Instances have occurred where payments to employees governed by the Payment of Bonus Act were made in excess of the statutory amounts for reasons of business expediency. A claim for the balance amount in such cases was generally made under the provisions of section 37(1) which allows all expenses incurred wholly or exclusively for the purposes of business. This led to litigation. The conditions laid down by the second proviso in case of payment of bonus to employees not governed by the Bonus Act or payment of commission also led to protracted litigation on the issue. In order to avoid litigation and uncertainty in the matter and also to bring rationality to the provisions, the Amending Act, 1987, has omitted both the provisos to clause (ii) so that bonus or commission paid by the employer to the employees will be allowed without any restriction. Of course, if unreasonably excessive payments are made to relatives or connected persons, the same can be disallowed under the provisions of section 40A(2). 6.5 To ensure that the liberalised provisions regarding payment of bonus and commission are not abused, the Amending Act, 1987, has simultaneously restricte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the year of write-off. The Amending Act, 1987, has, therefore, amended these clauses to withdraw them after the assessment year 1988-89. 6.8 Amendments to section 36(1)(viia) to include definition of " scheduled bank " therein.--Under the provisions of clause (viia) of sub-section (1) of the section, deduction is allowed to scheduled as well as non-scheduled banks in respect of provisions for bad and doubtful debts relating to rural advances. Clause (ii) of the Explanation to this clause defined " scheduled bank " to have the same meaning as in the Explanation to section 11(5)(iii). Since the Amending Act, 1987, omitted section 11, the definition of " scheduled bank ", as given therein, has been shifted and incorporated in the Explanation to section 36(1)(viia) itself. It has further been clarified that " scheduled bank " does not include a co-operative bank. This definition of " scheduled bank " stays in section 36(1)(viia) in spite of the fact that section 11 containing the definition of " scheduled bank " has been revived by the Amending Act, 1989. 6.9 Amendments to section 40 relating to certain amounts not deductible in computing the income under the head " Profits a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eilings laid down on the remuneration or fees payable to employees or former employees of an assessee are removed. However, if excessive or unreasonable payments are made to relatives or connected persons, the same can still be disallowed under the provisions of section 40A(2). 6.12 These amendments come into force with effect from 1st April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent assessment years. [Clause (b) of section 9 and sections 11 to 15 of the Amending Act, 1987] PROVISIONS RELATING TO CLUBBING OF INCOME OF SPOUSE, MINOR CHILD, SON'S WIFE AND SON'S MINOR CHILD WITH ASSESSEE'S INCOME 7.1 Certain amendments to section 64(1) by the Amending Act, 1987, which have been withdrawn by the Amending Act, 1989.--Sub-section (1) of section 64 lays down various circumstances under which the income of family members, namely, spouse, minor child, son's wife and son's minor child are clubbed with the income of the assessee. The Amending Act, 1987, made the following amendments to the said sub-clause (1) :-- (i) Omission of clauses (i) and (iii) and other consequential amendments pursuant to the new scheme of assessment of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons for the benefit of the spouse or minor child. Under the old provisions of the said clauses (v) and (vii), the term " minor child " was qualified by the words " not being a married daughter ". Since the use of these words was considered unnecessary, because of the requirement of the relevant law laying down the minimum age for marriage, the Amending Act, 1987, has omitted the same from both the clauses. (ii) Substitution of new Explanation 3.--Under the old provisions of Explanation 3, which applied to clauses (iv) and (v) of sub-section (1) of section 64, it was clarified that where the assets transferred by an individual to his spouse or minor child were invested in any business, the income proportionate to the investment out of transferred assets would be clubbed with the income of the transferor. The Amending Act, 1987, has substituted a new Explanation 3, which, in addition to clauses (iv) and (v), also applies to clause (vi) relating to assets transferred by an individual to his son's wife or son's minor child, so that, where such transferred assets are invested in any business, proportionate income therefrom would also be clubbed with the income of the transferor. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1987, except omission of references to sections 80QQ and 80T (refer to item 10 of the Table given in para 2.3 ante). 8.4 Omission of certain " definitions " from Chapter VIA (Amendment of section 80B).--The Amending Act, 1987, has omitted the following definitions from section 80B :-- (i) Definitions of " domestic company " and " foreign company " as both these definitions have been shifted to section 2 by the Amending Act, 1987. Consequently, these definitions will now be valid for the purposes of the entire Income-tax Act, instead of for Chapter VIA only. (ii) Definitions of " income " in relation to a handicapped individual and " relative ", as both these definitions are no longer necessary. These definitions were needed for the purposes of the old section 80D dealing with deduction in respect of medical treatment of handicapped dependants, which was omitted by the Finance Act, 1984. 8.5 Omission of sections 80E and 80QQ.--The Amending Act, 1987, has omitted the following sections for reasons mentioned against them :-- (i) Section 80E, which provided for deduction in respect of payments for securing retirement annuity in the case of a partner of a registered profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 10 per cent. of the gross total income or Rs. 5 lakhs, whichever was less. A new sub-section (4) has been substituted, which does not contain the ceiling of Rs. 5 lakhs. The effect is that the aforesaid donations will now be subject to only one upper limit, i.e., 10 per cent. of the gross total income. 8.8 Following representations against the provisions of the new section 80F, the Amending Act, 1989, has omitted the new section 80F and has revived the old sections 10(21), 10(23), 10(23C)(iv) and (v) and 11 to 13 with certain modifications mentioned in paras 3.35 to 3.41 and 4.2 to 4.7. Consequently, the Amending Act, 1989, has also reversed the amendments made to various sub-sections and Explanation 2 of section 80G, as detailed at serial No. (i) in the preceding para. The Amending Act, 1989, has also revived section 35 with suitable modifications and sections 35CCA, 35CCB and 80GGA (refer to items 6, 7 and 8 of the Table given in para 2.4 ante). 8.9 The net effect is that only the amendment made to sub-section (4) of section 80G, as described at serial No. (ii) of para 8.7 ante, survives. 8.10 Omission of section 80GGA by the Amending Act, 1987, and its restoration by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar powers to the Director-General or Director. As per the new definition of " Director-General or Director " in section 2(21), the term also includes a Deputy Director and an Assistant Director. Thus, the powers have been extended to the Director-General, Director, Deputy Director the Assistant Director. The Amending Act, 1987, has further extended the powers to an authorised officer under sub-section (1) of section 132 before he takes search and seizures action under clauses (i) to (v) of that sub-section. NOTE (1) : The Finance Act, 1988, has further amended the said sub-section (1A) to-- (i) specially mention Deputy Director and Assistant Director also in the sub-section, leaving no doubt in the matter ; (ii) provide that these amendments of the sub-section would come into effect from June 1, 1988. Clause (a) of section 33 and clause (a) of section 88 of the Finance Act, 1988. NOTE (2) : For further amendments to section 131 by the Finance Act, 1988, refer to para 33.2 of the Explanatory Notes on the Finance Act, 1988 (Circular No. 528 (See [1988] 176 ITR (St.) 154)). 9.3 The old provisions of sub-section (2) of section 131 provided for imposition of fine on a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enience to the assessee, as the authorised officer can keep the books of account, documents, valuable articles, etc., under prohibitory order for an indefinite period and there is no recourse left to the person, if the prohibitory order continues for an unduly long period. Several courts have held that the absence of mention of time limit in section 132(3) does not mean that the authorised officer can subject any asset to such prohibition for an indefinite period of time. To remove this difficulty, the Amending Act, 1987, has introduced a new sub-section (8A) in the section to provide that a prohibitory order will not be operative for a period exceeding 60 days from the date of the order unless the authorised officer records reasons in writing and obtains the approval of the Commissioner to such extension. It is further provided that the Commissioner shall not approve the extension of the period beyond the expiry of 30 days after the completion of all the proceedings under the Act in respect of the years for which the books of account, documents, money, bullion, jewellery or other valuable articles or things are relevant. 9.7 Sub-section (4) empowers the authorised officer to exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould come into force with effect from 1-4-88 [clause (c) of section 88 of the Finance Act, 1988]. 9.10 Amendments of the provisions relating to powers of income-tax authorities to call for information (section 133).--Under the old provisions of clause (4) of the section, the income-tax authorities mentioned in the section were empowered to call upon any assessee to furnish a statement of the names and addresses of all persons to whom he had paid in any previous year rent, interest, commission, royalty, brokerage or any annuity (except annuity taxable under the head " Salaries ") together with particulars of the payment, if such payment exceeded Rs. 400. This monetary limit being very small, the Board, after consideration of various representations received in this regard, issued a circular on 15th June, 1977 (See Circular No. 223, dated 15-6-1977 : 108 ITR (St.) 21), raising the limit to Rs. 1,000 although in the statute the amount mentioned continued to be Rs. 400 only. To remove this anomaly, the Amending Act, 1987, has amended the said clause (4) of the section to raise the limit to Rs. 1,000 and has further empowered the Board to raise the limit through rules, so that amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to the authorities under the Foreign Exchange Regulation Act, 1947, by the Board or by any income-tax authority specified by the Board. This meant that the information could be passed on only in respect of the person who was an assessee with the Department and that too when the assessment relating to information to be furnished had been completed. This restricted the free and quick exchange of information with certain Central Government Departments and agencies to fight the tax evasion effectively, because many a time, valuable information collected on account of survey or search operations or in the course of other income-tax proceedings could not be passed on to the other Departments, if the persons concerned were not already assessed to tax and their assessments were not already completed. The Amending Act, 1987, has, therefore, amended clause (a) of sub-section (1) of the section by removing the condition that the information to be passed on to the other Government Departments must relate to an assessee and to a completed assessment. Instead, it is provided that any information received or obtained by an income-tax authority in the performance of his functions under the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this definition to section 2. The result is that the definition of the term " maximum marginal rate " will now be valid for the purposes of the entire Income-tax Act. The shifting of the definition of " maximum marginal rate " to section 2 becomes necessary as tax is now to be charged at the maximum marginal rate, not only under section 164, but under some other sections of the Income-tax Act. 10.2 As already explained earlier, the Amending Act, 1989, has omitted the new section 80F. Consequently, the Amending Act, 1989, has also reversed the amendments to section 164 as detailed at serial Nos. (i) and (ii) in the preceding para. 10.3 The net effect is that only the omission of Explanation 2 to section 164, containing the definition of the term " maximum marginal rate " and the shifting of this definition to section 2 survives. 10.4 Amendment of section 164A dealing with charge of tax in the case of oral trusts.--Consequent upon the shifting of the definition of the term " maximum marginal rate " from section 164 to section 2, the Amending Act, 1987, has omitted clause (i) of the Explanation to section 164A which also defines the term " maximum marginal rate ". 10.5 These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were received against the provisions of section 167B, as inserted by the Amending Act, 1987. It was pointed out that the provision to tax the entire income of an association of persons or body of taxable at such a higher rate would cause hardship in many cases. Some other anomalies in the provisions were also pointed out. The Amending Act, 1989, has, therefore, omitted section 167B inserted by the Amending Act, 1987, and has inserted a new section 167B in its place, which removes the hardships and anomalies of the earlier section. The provisions of the new section 167B are as under : (1) Sub-section (1) provides that where the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate. A proviso to the sub-section provides that where the total income of any member of such association or body is chargeable to tax at a rate higher than the maximum marginal rate, tax shall be charged at such higher rate on the total income of the association or body. (2) Sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he new scheme of taxation of firm and partners, it also further amended these three sections to withdraw from them the new provisions relating to the taxation of firm and partners, but to retain the new provisions relating to taxation of association of persons, body of individuals and their members (refer to items 5, 7 and 11 of the Table given in para 2.3 ante). The combined effect of the amendments made by the Amending Act, 1987, and the Amending Act, 1989, in this respect is as follows : (i) A new clause (ba) has been inserted in section 40, which disallows deductions for any interest or salary, etc., paid by an association of persons or body of individuals to its members. (ii) A new section 67A has been inserted, which deals with the method of computing a member's share in the income of the association of persons or body of individuals. (iii) A new clause (v) has been substituted in section 86, which deals with the manner of taxation of share of a member of an association of persons or body of individuals. These new provisions of clause (ba) of section 40, section 67A and clause (v) of section 86 are discussed in the following paras. 11.5 Provisions of new clause (ba) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of a member in the income of an association of persons was so included in his total income even where the shares of the members in the association were indeterminate so that the association had been taxed at the maximum marginal rate. For this purpose, all the members of such association were deemed to be entitled to receive an equal share in the total income of the association. 11.8 Consequent upon the insertion of a new section 167B in the Income-tax Act, which now levies tax at the maximum marginal rate on association of persons as well as body of individuals under various circumstances and even taxes them at a rate higher than the maximum marginal rate under certain circumstances, the old clause (v) of section 86 has also been substituted by a new clause (v). Under the provisions of the new clause (v) of section 86 read with section 110, the share of a member in the income of the association or body is treated in three different ways, depending upon whether the association or body is chargeable to tax at the maximum marginal rate or at the normal rate or is not chargeable to tax at all. These are :-- (i) Where the association or body is chargeable to tax at the maximum m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trative control of the Commissioner of Income-tax. The Tax Recovery Officer shall now have concurrent jurisdiction with the Assessing Officer and the requirement of issue of tax recovery certificate by the Assessing Officer to the Tax Recovery Officer to enable the latter to assume jurisdiction over recovery in a particular case has been dispensed with. Certain other amendments have also been made in the aforesaid sections to streamline their provisions. These amendments are discussed in detail in the following paras. 12.2 Omission of the definition of " Tax Recovery Commissioner " [clause (43B) of section 2].--In some bigger charges there were separate wings of Tax Recovery Officers working under the control and supervision of Tax Recovery Commissioner. In order to bring about better co-ordination between the Assessing Officers and the Tax Recovery Officers, it was decided that the latter should work under the administrative control of the respective administrative Commissioners. Consequently, the posts of " Tax Recovery Commissioners ", being no longer necessary, have been abolished. The Amending Act, 1987, has, therefore, omitted clause (43B) of section 2 containing the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for Payment of tax demand and charge of interest for delayed payments (section 220). Under the old provisions of sub-section (1) of section 220, any amount specified as payable in a notice of demand under section 156 was to be paid within 35 days of the service of the demand notice on the assessee. This period of 35 days was rather odd. The Amending Act, 1987, has, therefore, amended the said sub-section (1) to provide that the specified amount shall be paid within 30 days instead of 35 days. 12.7 Under the old provisions of sub-section (2) of section 220, if the amount specified in the notice of demand was not paid within the time allowed in sub-section (1), simple interest at 15 per cent. per annum was payable by the assessee. A proviso to the said sub-section (2) provided that if the demand was reduced as a result of rectificatory, appellate or revisionary orders mentioned therein, interest would also be reduced accordingly. The Amending Act, 1987, has made the following amendments to the said sub-section (2) :--- (i) The rate of interest has been increased from 15 per cent. per annum to 1.5 per cent. per month or part of a month. This brings the interest payable for defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of arrears due from the assessee. Such "statement" shall continue to be called as a "certificate". 12.9 Substitution of the old sections 223, 224 and 225 by the new sections 223, 224 and 225.--The old sections 223 to 225 related to the matters indicated below : (i) Section 223 specified the Tax Recovery Officer or the Tax Recovery Officers to whom the Assessing Officer could send the recovery certificate for recovery of tax arrears in a case. Where the assessee had property within the jurisdiction of more than one Tax Recovery Officer, the recovery certificate issued to one Tax Recovery Officer could also be forwarded by that Tax Recovery Officer, if necessary, to the other Tax Recovery Officer or Tax Recovery Officers for recovery. (ii) Section 224 provided that the assessee could not object to the validity of a certificate issued by an Assessing Officer, but the Assessing Officer could withdraw, cancel or correct a clerical or arithmetical mistake in the certificate by sending an intimation to the Tax Recovery Officer. (iii) Section 225 provided for grant of time for payment of tax demand and consequent stay of recovery proceedings, notwithstanding that a recovery c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for various coercive modes that can be adopted for recovery of outstanding demand, like attachment of salary, attachment of monies due from other persons (including banks) or by distraint and sale of immovable property in the manner laid down in the Third Schedule. Under the old provisions of this section, these modes of recovery could be adopted by the Assessing Officer only. The Amending Act, 1987, has, however, amended this section to provide that all the modes of recovery mentioned in this section can now be resorted to : (i) by the Assessing Officer, where no certificate of recovery has been drawn up by the Tax Recovery Officer under section 222 ; (ii) by the Tax Recovery Officer, where a certificate of recovery has been drawn up by the Tax Recovery Officer under section 222. Thus, after the Tax Recovery Officer draws up a certificate under section 222 in a case, he assumes exclusive jurisdiction to take action under the provisions of section 226 in that case. 12.13 Omission of section 228 relating to recovery of Indian tax in Pakistan and Pakistan tax in India. ---The Amending Act, 1987, has omitted section 228 which provided for reciprocal arrangements for recovery o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 230(1) became an obstacle in the case of such persons. It was felt that the provisions of section 230(1) should be made more specific in this regard. 12.17 The Amending Act, 1987 has, therefore, amended sub-section (1) of section 230 to secure that a person, who is domiciled in India at the time of his departure, shall be required to obtain a tax clearance certificate only if, (i) he intends to leave India as an emigrant ; or (ii) he intends to proceed to another country on a work permit with the object of taking up any employment or occupation in that country ; or (iii) in respect of him circumstances exist which, in the opinion of an income-tax authority, render it necessary for him to obtain a tax clearance certificate. Thus, the provisions of section 230(1) have now been made more specific so that persons of Indian domicile would now be required to obtain a tax clearance certificate under this section only when they are leaving the country as emigrants or on work permits or if they are specifically required by the income-tax authority to do so. 12.18 Amendments of the provisions relating to restrictions on transfer of immovable property in certain case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Certain other changes in the provisions of the Second Schedule have also been made. 12.21 The amendments made by the Amending Act, 1987, to the Second Schedule are briefly discussed as follows :--- (i) Consequent upon the insertion of the new section 276 in the Income-tax Act providing for prosecution for certain defaults in connection with the provisions of the Second Schedule, which were hitherto provided in rule 89 of the said Schedule (refer to para 17.1 of these explanatory notes), the following amendments have been made : (1) A reference to section 276 has been included in the heading of the Second Schedule. (2) Rule 89 has been omitted. (ii) Pursuant to the amendments made to sections 222 to 225, whereby the existing requirement of issue of a recovery certificate by the Income-tax Officer has been replaced by the powers of the Tax Recovery Officer to himself draw the statement of arrears in a case for proceeding with the recovery of dues in that case and whereby the Tax Recovery Officer will himself be able to exercise the functions which were hitherto performed by the Income-tax Officer, consequential amendments have been made to rules 1, 2, 8, 9, 14, 25, 27, 31, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner, consequential amendments have been made to rules 82, 83, 87 and 92. (vii) Pursuant to the abolishing of the posts of " Tax Recovery Commissioners " and omission of sub-section (43B) of section 2 containing the definition " Tax Recovery Commissioner " and also pursuant to the amendments to sub-section (44) of section 2 containing the definition " Tax Recovery Officer " whereby the Collector. Additional Collector and other State Government Officials have been excluded from the definition of Tax Recovery Officer, consequential amendments have been carried out in rule 86 relating to appeals against the orders of the Tax Recovery Officer. (viii) A new rule 94 has been inserted in the Second Schedule to provide for continuance of all pending proceedings under this Schedule before the coming into force of the amendments to the Schedule by the Amending Act, 1987, from the stage they had reached. The rule also provides that every recovery certificate issued by the Income-tax Officer under section 222 before such amendment, shall be deemed to be a certificate drawn up by the Tax Recovery Officer under that section after such amendment. The rule further empowers the Board to issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Third Schedule during the period 1-4-1988 to 31-3-1989. The Amending Act, 1989, has, however, further secured that with effect from 1-4-1989, the words " Assessing Officer " in the Third Schedule are substituted by the words " Assessing Officer or Tax Recovery Officer " so that the amendments made by the Amending Act, 1987, in this respect are restored. 12.25 These amendments [except amendments to section 2(44) mentioned in para 12.4, certain amendments to sections 222, 223, 224, 225, 226, 228 and 228A mentioned in para 12.15 and certain amendments to the Second and Third Schedules mentioned in paras 12.22 and 12.24 which come into effect from 1-4-1988] come into force with effect from 1st April, 1989. [Clauses (q) and (r) of section 3, sections 85 to 93, 124 and clause (28) of section 126 of the Amending Act, 1987]. [Sections 36, 37, 54, 55, sub-clause (2) of clause (a) and clause (l), (n) and (o) of section 95 of the Amending Act, 1989]. REFUNDS 13.1 Amendments of the provisions relating to refund on appeal or any other proceeding under the Act (section 240).--Section 240 of the Income-tax Act provides that where refund of any amount becomes due to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the refund shall become due only in respect of the amount, if any, paid in excess of the tax chargeable on the total income returned by the assessee. 1.3.3 These amendments come into force with effect from 1st April, 1989. [Section 95 of the Amending Act, 1987] APPEALS 14.1 Substitution of a new section 246 by the Amending Act, 1987, and further amendments therein by the Amending Act, 1989.--Under the old provisions of section 246, various orders passed under the Income-tax Act were enumerated against which assessees could file appeal before the Appellate Assistant Commissioner or the Commissioner (Appeals). Since the Amending Act, 1987, inserted several new provisions under the Income-tax Act, including the new scheme of assessment of firm and partners, omitted certain old provisions and also changed the designations of various income-tax authorities, the said section 246 was required to be overhauled. The Amending Act, 1987, has, therefore, substituted a new section 246 in the Income-tax Act. The Amending Act, 1989, has further made amendments in the said new section 246 to set right certain anomalies and remove omissions and also to reverse the changes incorporated ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fected are : (i) Appeals against orders passed under the following sections/sub-sections of the Income-tax Act, have been omitted consequent upon the omission of the said sections/sub-sections of the Act :- (1) An order made by the Deputy Commissioner imposing fine under section 131(2). (2) An assessment order made on the basis of the directions issued by the Deputy Commissioner under section 144B. (3) An order imposing a penalty under section 271(1)(c) with the previous approval of the Deputy Commissioner under the proviso to section 271(1)(iii). (ii) Appeal is now provided against an order made by the Deputy Commissioner levying penalty under section 272AA, for which there was no appeal earlier. (iii) Appeal is now provided under this sub-section against an order imposing penalty under Chapter XXI by the Income-tax Officer or the Assistant Commissioner with the prior approval of the Deputy Commissioner under the provisions of sub-section (2) of section 274. 14.4 The old sub-sections (3) and (4), which dealt with pending appeals before the Appellate Assistant Commissioner before the " appointed day " when the institution of Commissioner (Appeals) came into existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 269SS). --Under the old provisions of section 269SS, no person could take or accept from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such loan or deposit or the aggregate amount of such loans or deposits was Rs. 10,000 or more. The provisions of this section caused hardships in the cases of agriculturists while carrying out transactions among themselves. The provisions of section 269SS are meant to prevent tax evasion. However, where agriculturists do not have any other income except income from agriculture, which is not liable to income-tax, there is no purpose of applying the provisions of section 269SS to them. Further, the monetary limit of Rs. 10,000, which was fixed long back, was found to be causing hardship in the case of small genuine transactions. 15.2 To remove the above hardships, the Amending Act, 1987, has amended section 269SS to make the following changes :--- (i) The monetary limit for the application of the provisions of the section has been increased from Rs. 10,000 to Rs. 20,000. (ii) It has been provided that the provisions of this section shall not apply to any loan o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the application of the provisions of the said sub-section (2) has been increased from Rs, 10,000 to Rs. 20,000. (ii) The scope of the sub-section is extended by inserting the words " or other person " after the word " firm ", so that the provisions of the sub-section are now applicable to all persons. (iii) The definition of the term ' deposit ' has been amended. For the purposes of the section, the term ' deposit ' now means any deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company includes deposit of any nature. 15.5 These amendments come into force with effect from 1st April, 1989, and will, accordingly, apply in relation to the transactions entered into after this date. [Sections 103 and 104 of the Amending Act, 1987.] PENALTIES IMPOSABLE 16.1 The Amending Act, 1987, has made several amendments in the provisions relating to imposition of penalties contained in various sections of Chapter XXI of the Income-tax Act. The main features of the amendments are (i) As far as possible, imposition of penalties and the quantum thereof has been delinked with the completion of assessment and the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 142(1), 142(2A) or 143(2). Levy of penalty for default in furnishing the return of income was omitted, because it was replaced by the charge of mandatory interest under a now section 234A. Levy of penalty for concealment of income was omitted, as it was replaced by the charge of mandatory additional income-tax at the rate of 30 per cent. of income under a new section 158B, which was also inserted by the Amending Act, 1987. However, following representations in this behalf, the Amending Act, 1989, has withdrawn the charge of mandatory additional income-tax by omitting the new section 158B inserted by the Amending Act, 1987 (refer to item 3 of the Table given in para 2.6 ante.). The Amending Act, 1989, has, therefore, amended the provisions of the Amending Act, 1987, and section 271 of the Income-tax Act to secure that the provisions regarding levy of penalty for concealment of income are again brought back in the said section 271. The combined effect of the amendments made by the Amending Act, 1987, and the Amending Act, 1989, in section 271 is that the following changes have been effected in the provisions of this section :--- (i) Provisions for levy of penalty for defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide for levy of Penalty for failure to deduct tax at source.--Under the old provisions of Chapter XXI of the Income-tax Act, no penalty was provided for failure to deduct tax at source. This default, however, attracted prosecution under the provisions of section 276B, which prescribed punishment for failure to deduct tax at source or after deducting, failure to pay the same to the Government. It was decided that the first part of the default, i.e, failure to deduct tax at source should be made liable to levy of penalty, while the second part of the default, i.e., failure to pay the tax deducted at source to the Government, which is a more serious offence, should continue to attract prosecution. The Amending Act, 1987, has accordingly inserted a new section 271C to provide for imposition of penalty on any person who fails to deduct tax at source as required under the provisions of Chapter XVIIB of the Act. The penalty is of a sum equal to the amount of tax which should have been deducted at source. 16.6 Insertion of new sections 271D and 271E to provide for levy of penalties for failure to comply with the provisions of sections 269SS and 269T. --Under the old provisions of Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new section 272A Sub-section and clause of old section 272A or other old sections of the Act which covered the default 1 2 3 4 1 Refusal by a person to answer certain questions put to him by any income-tax authority, when legally bound to state the truth of any matter concerning his assessment. (1)(a) (1)(a) 2 Refusal to sign any statement made in the course of any proceedings under the Act. (1)(b) (1)(b) 3. Non-compliance with summons issued under section 131(1) either to attend to give evidence or produce books of account or other documents at a certain place and time. (1)(c) Old section 131(2) 4. Failure to comply with the provisions of section 139A relating to allotment of permanent account number. (1)(d) Old section 272B 5. Failure to comply with a notice issued under section 94(6) requiring particulars of certain securities, etc., held by a person. (2)(a) Old section 270 6. Failure to give notice of discontinuance of business or profession, as required under section 176(3). (2)(b) Old section 272. 7. Failure to furnish in due time any of the returns, statements or particulars mentioned in sections 133, 206, 206A, 206B, or 285B. (2)(c) 2(a) 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalties imposable under section 273 for defaults in complying with the provisions relating to payment of advance tax have been replaced by the charge of mandatory interest under a new section 234B inserted in the Income-tax Act by the Amending Act, 1987. The provisions of the new section 234B are applicable from the assessment year 1989-90 onwards. Consequently, the Amending Act, 1987, has inserted a new sub-section (3) in section 273 to provide that the provisions of this section would apply only up to the assessment year 1988-89. 16.13 Amendments to section 273A by the Amending Act, 1987, and the Amending Act, 1989.--Under the old provisions of sub-section (1) of section 273A of the Income-tax Act, the Commissioner was empowered to reduce or waive the following penalties and interest : (i) Penalty under section 271(1)(i) for failure to furnish the return of income under section 139(1). (ii) Penalty under section 271(1)(iii) for concealment of income or furnishing inaccurate particulars of income. (iii) Penalty under section 273 for not complying with the provisions relating to payment of advance tax. (iv) Interest under section 139(8) for late filing or non-filing of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalties, approval of any higher authority was not necessary for this purpose. The Amending Act, 1987, has amended the provisions of this section by inserting sub-section (2), which provides that the prior approval of the Deputy Commissioner should be obtained, if-- (i) the penalty is to be imposed by the Income -tax Officer and it exceeds Rs. 10,000 ; (ii) the penalty is to be imposed by the Assistant Commissioner and it exceeds Rs. 20,000. 16.17 Under the old provisions of sub-section (3) of section 274, it was provided that where the penalty was imposed by the Appellate Assistant Commissioner or the Commissioner (Appeals), they should forthwith send a copy of the penalty order to the Income-tax Officer. In order to rationalise these provisions and also to make changes consequential to the new designation of income-tax authorities, the Amending Act, 1987, has substituted a new sub-section (3) in the section, which provides that where the penalty is imposed by an income-tax authority, which is not himself the Assessing Officer, he shall forthwith send a copy of the penalty order to the Assessing Officer. 16.18 Amendments to section 275 by the Amending Act, 1987, and the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her order is the subject-matter of revision under section 263, after the expiry of six months from the end of the month in which such order of revision is passed ; (iii) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated are completed or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. 16.20 The Amending Act, 1989, has further amended clause (a) of section 275, which was substituted by the Amending Act, 1987, to set right a drafting error therein. 16.21 These amendments come into force with effect from 1st April, 1989. However, in respect of amendment of section 275, which has reduced the limitation period for imposition of penalties (refer to para 16.19 ante.), it was clarified by the issue of an Income-tax (Removal and Difficulties) Order, 1989, vide No. G. S. R. 376(E), dated 23-3-1989 (See [1989] 176 ITR (St.) 322) (refer to paras 11.2 and 11.3 of Part I of these Explanatory Notes) that the provisions of section 275, as they stood before the commencement of the Amending Act, 1987, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deduct tax or to pay the tax so deducted under the provisions of section 80E(9) was also liable to the same punishments as indicated above. 17.3 It was decided that the default indicated at serial No. (i) above, i.e., failure to deduct tax at source should only attract levy of penalty, while the default indicated at serial No. (ii) above, i.e., failure to pay the tax deducted at source to the Government should continue to attract prosecution. Further, since section 80E has been omitted by the Amending Act, 1987, reference to the said section in section 276B is no longer necessary. Further, it was also decided that the extent of punishment should not depend upon the amount of tax involved, but should be within a uniform range, leaving the discretion to the court to award punishment according to the gravity of the offence. 17.4 To achieve the above objectives, the Amending Act, 1987, has substituted a new section 276B in the Income-tax Act, to provide prosecution only for failure to pay to the Government the tax deducted at source by a person under the provisions of Chapter XVIIB. A uniform punishment has been provided for the offence, which is rigorous imprisonment for at leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Central Government or the Board where such approval is required to be obtained before a specified date under any provisions of the Act. 18.2 This amendment comes into force with effect from 1st April, 1989. [Section 121 of the Amending Act, 1987]. CONSEQUENTIAL AMENDMENTS 19.1 The Amending Act, 1987, has also carried out certain amendments of consequential nature in various sections of the Income-tax Act. Section 126 of the Amending Act, 1987, which has carried out the said consequential amendments, originally contained clauses (1) to (28). Out of these, clauses (5), (8), (11), (13), (23) and (28) have been omitted by the Amending Act, 1989. Thus, only 22 effective clauses are left in the said section 126 of the Amending Act, 1987. 19.2 Clauses (1) and (25) of the said section 126 of the Amending Act, 1987, have carried out consequential amendments to section 2 and 279 respectively of the Income-tax Act. These amendments have come into force with effect from 1st April, 1988, and have already been referred to in Part I of these Explanatory Notes. 19.3 The other clauses of the said section 126 of the Amending Act, 1987, have carried out consequential amendments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se inserted) 2(29c) Insertion of definition of 'maximum marginal rate' in section 2 of the W.T. Act for the purposes of the Act, on the same lines as in the Income-tax Act. *3. (i) 142 of the Amending Act, 1987. (ii) 68, 69 & 95 (p) of the Amending Act, 1989 18 & 18A 271, 272A(1)(a) to (c) & 272A(2) (c), 274 & 275 Amendments of penalty provisions in the Wealth-tax Act to bring them in line with the corresponding provisions in the Income-tax Act. 4. 145 of the Amending Act, 1987. 21AA(1) 167B(1) Amendments to section 21AA(1) relating to assessment when assets are held by association of persons where the individual shares of the members are indeterminate or unknown. 5. (i) 146 of the Amending Act, 1987. (ii) 71 of the Amending Act, 1989. 23 246 Amendments to section 23 relating to appeals to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) from orders of the Assessing Officer 6. 148 of the Amending Act, 1987. 31 220 Amendments to section 31 relating to time for payment of tax, demand and charge of interest for delayed payments. 7. 149(b) of the Amending Act, 1987. 32 221-232, Second and Third Schedules Amendments to section 32 relating to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal form. (iii) The amendments indicated at serial Nos. 3, 10 and 11 of the above Table, which are star-marked, are further explained in the following paras. 21. Amendments to sections 18 and 18A, relating to penalties under the Wealth-tax Act, by the Amending Act, 1987, and the Amending Act, 1989. --The Amending Act, 1987, had substituted the old sections 18 and 18A of the Wealth-tax Act by new sections. However, the Amending Act, 1989, has restored back the old section 18, but has made certain amendments in that section. Further, the Amending Act, 1989, has retained the new section 18A, as it was introduced by the Amending Act, 1987. The combined effect of the amendments made by the two Amending Acts to these sections is that the penalty provisions under the Wealth-tax Act have been brought, as far as possible, on the same lines as the corresponding provisions in the Income-tax Act. The changes made in sections 18 and 18 A are as follows : (i) Changes made in section 18 (corresponding to sections 271, 274 and 275 of the Income- tax Act), -- (1) Provisions for levy of penalty for default in furnishing return of wealth have been omitted. (2) The new provisions for levy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly up to the assessment year 1988-89, while the new limitation provisions, contained in the newly substituted sub-section (5) of the section, would apply from the assessment year 1989-90 onwards. To this extent, the provisions of section 18 of the Wealth-tax Act are different front the corresponding provisions in the amended section 275 of the Income-tax Act, where the application of the old or the new limitation provisions has been made dependent upon whether the penalty has been initiated on or before 31st March, 1989, or after this date (refer to para 16.21 ante). (ii) Changes made in section 18A (corresponding to some of the penalties provided in section 272A of the Income-tax Act), -- (1) Penalty for non-compliance of a summons issued under section 37(1) either to attend to give evidence or produce books of account or other documents at a certain place and time has been included in a new clause (c) of sub-section (1) of the section. Earlier, penalty for this default was provided in section 37(2). (2) Penalty leviable for defaults covered by sub-section (1) of the section is a minimum of Rs. 500 and a maximum of Rs. 10,000 for each default. Under the old provisions, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeals against such orders. The Amending Act, 1987, has made substantial amendments to section 37A of the Wealth-tax Act to include these provisions also in that section. The Amending Act, 1987, and the Finance Act, 1988, have also made other amendments to section 37A of the Wealth-tax Act, which are on the same lines as the amendments made to section 132 of the Income-tax Act (refer to paras 9.4 to 9.8 ante). The effect is that the provisions of the amended section 37A of the Wealth-tax Act are now exactly on the same lines as the provisions of the amended section 132 of the Income-tax Act. [Section 154 of the Amending Act, 1987] [Section 95 (g) of the Finance Act, 1988] Amendments to the Gift-tax Act, 1958 24. The Amending Act, 1987, has made amendments to the provisions of the Gift-tax Act, relating to powers of gift-tax authorities, collection and recovery of tax, refunds, appeals, penalties and non-application of the Act in certain cases, in order to bring these provisions in line with the corresponding provisions of the Income-tax and the Wealth-tax Acts, as they have emerged after their amendment by the said Amending Act, 1987, and which have been discussed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) 90 (a) of the Amending Act 1989 33A(1) 240 Amendments to section 33A(1) relating to refund on appeals, etc. *9. 182 of the Amending Act, 1987 36 131 Amendments to section 36 relating to power to take evidence on oath, etc. 10. 183 of Amending Act, 1987 37 Amendments to section 37 relating to power of the gift-tax authorities to call for information returns and statement. *11. (i) 184 of the Amending Act, 1987, (ii) 93 & 94(t) of the Amending Act, 1989 45 Amendments to section 45 relating to non-application of the provisions of Gift-tax Act in certain cases. * NOTES : (i) Sections 175 and 177 of the Amending Act, 1987, had introduced new sections 18B and 22A in the Gift-tax Act to provide for charging of additional gift-tax at 20% of gifts and for moving an application by the assessee before the Deputy Commissioner (Appeals) or the Commissioner (Appeals) for deciding an issue before completion of assessment. These new sections have, however, been omitted by the Amending Act, 1989. This has been discussed in Para 256 ante. and items at serial No. 10 and 11 in the Table given in that Para. (ii) The amendments indicated at serial Nos. 4, 9 and 11 of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Gift-tax Act, in certain cases, by the Amending Act, 1987, and by the Amending Act, 1989.--.Under the old provisions of section 45 of the Gift-tax Act, it was provided that the provisions of this Act shall not apply to gifts made by,-- (i) any Government company, Government Corporation or other company which is not a private company, as listed in clauses (a) to (d) of the section ; (ii) any company to art Indian company in a scheme of amalgamation ; (iii) any institution or fund, income whereof is exempt from income-tax under section 11 or section 12 of the Income-tax Act. 27.2 This section started with the opening words " The provisions. of this Act shall not apply to gifts made by ". The purpose of the enactment of section 45 is that no gift-tax should be levied in respect of gifts made by Government companies and corporations, public limited companies and public charitable and religious trusts. The intention of the section would be more clear if the section starts with the opening words "No tax shall be levied under this Act in respect of gifts made by". It may be mentioned that these opening words have been used in the corresponding section 45 of the Wealth -tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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