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TMI BlogFINANCE (NO. 2) ACT, 1991X X X X Extracts X X X X X X X X Extracts X X X X ..... ayer, having income exceeding seventy-five thousand rupees, the income-tax shall be increased by a surcharge calculated at the rate of 12 per cent of such income-tax. In the case of companies having income exceeding rupees seventy-five thousand, the amount of income-tax shall be increased by a surcharge at the rate of 15 per cent of such income-tax. However, no surcharge shall be payable by a non-resident or a foreign company. Finance (No. 2) Act, 1991 II. Rates for deduction of tax at source during the financial year from income other than "Salaries" 5. The rates for deduction of income-tax at source during the financial year 1991-92 from incomes other than "Salaries" have been specified in Part II of the First Schedule to the Act. These rates apply to income by way of interest (including interest on securities), dividends, insurance commission, winnings from lotteries, crossword puzzles and horse-races and income, other than salary income, of non-residents (including non-resident Indians). These rates are basically the same as those specified in Part II of the First Schedule to the Finance Act, 1990 as modified by the Taxation Laws (Amendment) Act, 1991. In respect of payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilies, associations of persons, bodies of individuals, co-operative societies and local authorities 7. In the case of individuals, Hindu undivided families, associations of persons, etc., the rates of income-tax have been specified in Paragraph A of Part III of the First Schedule to the Act. In the case of co-operative societies and local authorities, the rates of income-tax have been specified in Paragraph B and Paragraph D, respectively of Part III of the First Schedule to the Act, which is the same as in Part III of the First Schedule to the Finance Act, 1990 as modified by the Taxation Laws (Amendment) Act, 1991. The slabs of income and the rates of tax will remain unchanged. In the case of such taxpayers having income exceeding seventy-five thousand rupees, surcharge shall be levied at the rate of 12 per cent of such income-tax as reduced by the amount of rebate calculated under Chapter VIIIA. However, no surcharge will be payable by a non-resident taxpayer. Finance (No. 2) Act, 1991 IIIB. Firms 8. In the case of registered firms, the rates of tax have been specified in paragraph C of Part III of the First Schedule to the Act. The slabs of income and the rates of tax will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign borrowings. Keeping in view the legislative intent, an Explanation has been inserted at the end of section 10(15)(iv) of the Income-tax Act to define the term "industrial undertaking" for the purpose of this provision. An industrial undertaking will mean an undertaking engaged in the business of— (i) manufacture or processing of goods, or (ii) generation or distribution of electricity, or any other form of power, or (iii) mining, or (iv) construction of ships, or (v) operation of ships or aircrafts. Finance (No. 2) Act, 1991 11.1 This amendment takes effect from 1st April, 1991. [Section 5 of the Finance Act] Finance (No. 2) Act, 1991 Relief to Kuwait returnees in respect of interest on deposits in Non-resident(External) Accounts 12. Under the existing provisions of the Income-tax Act, interest on deposits in a Non-resident (External) Account is exempt from income-tax in the case of persons resident outside India as defined in section 2(q) of the Foreign Exchange Regulation Act. Finance (No. 2) Act, 1991 12.1 Under the provisions of the Foreign Exchange Regulation Act, only persons resident outside India are permitted to maintain a Non-resident (External) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e World Bank or any other multilateral agency for rendering assistance under technical assistance grant agreement, and such remuneration, etc., is paid, directly or indirectly, from such grant. This exemption is also available to consultants or their employees who, being Indian citizens, are not ordinarily resident in India. The agreement relating to the engagement of the consultants and to the contract of service of their employees have to be approved by the prescribed authority. Finance (No. 2) Act, 1991 13.2 This amendment takes effect from 1st April, 1991 and will, accordingly, apply in relation to assessment year 1991-92 and subsequent years. [Section 5] Finance (No. 2) Act, 1991 Exemption from income-tax of bonus paid on Life Insurance policy 14. Payments received under an insurance policy are not treated as income and hence not taxable. However, in a recent judicial pronouncement, a distinction has been made between the sum assured under an insurance policy and further sums allocated by way of bonus under life policies with profits. The sum representing bonus has been held to be chargeable to income-tax in the year in which the bonus was declared by the Life Insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares or other assets are received on 31-3-1992, whichever is later. Finance (No. 2) Act, 1991 15.3 These amendments take effect retrospectively from 1st April, 1983. Finance (No. 2) Act, 1991 15.4 Another provision relating to exemption from tax of charities is contained in section 10(23C)(iv) and (v) of the Income-tax Act. Prior to the amendment made by the Direct Tax Laws (Amendment) Act, 1989 income of a fund or institution established for charitable or public religious purposes and notified by the Central Government was exempted from tax under this provision without any conditions. The Direct Tax Laws (Amendment) Act, 1989 amended this provision to secure that notified funds or institutions can claim exemption from tax only if the following conditions are fulfilled: (i) the income of the fund or institution is applied wholly and exclusively to the object for which the fund or institution is established; (ii) the funds are invested in any one of the forms or modes specified in sub-section (5) of section 11 of the Income-tax Act. Finance (No. 2) Act, 1991 15.5 Funds and institutions claiming exemption under section 10(23C)(iv) or (v) were given time up to 30-3-1990 to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isite in the form of medical facilities provided by the employers 16. Taxable salary includes the value of any benefit or amenity granted or provided free of charge or at concessional rate by the employer. Accordingly, the value of free medical facility provided to employees and members of their families is required to be included in the taxable income of the employee. However, under administrative circulars, the perquisite value of medical facility provided by the employer is not charged to tax up to certain limits. Finance (No. 2) Act, 1991 16.1 With a view to providing, in the law itself, exemption from tax in respect of perquisite in the form of medical facilities provided by the employer, section 17 of the Income-tax Act has been amended. Finance (No. 2) Act, 1991 16.2 Exemption from tax will now be available in respect of the following : (i) medical facility provided in hospitals, clinics, etc., maintained by the employer; (ii) reimbursement, by the employer, of expenditure incurred by the employee in hospitals, dispensaries, etc., maintained by Government, any local authority, or in a hospital approved under the Central Health Scheme or a similar scheme of any Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n excessive allowance of depreciation in the year in which the asset is first put to use thereby depleting the taxable profits of that year by an amount which bears no relationship to the user of that asset for earning the profits of that year. Section 32 has, therefore, been amended to provide that, where in a previous year an asset is acquired and put to use for the purposes of business or profession for less than 180 days, depreciation thereon shall be allowed at 50% of the depreciation allowable according to the percentage prescribed in respect of the block of assets comprising such asset. Furthermore, no depreciation will be allowed in respect of any plant or machinery the cost of which gets amortised in one or more years, under section 42 of the Income-tax Act relating to the special provision for deduction in respect of business of prospecting for mineral oil. Finance (No. 2) Act, 1991 17.2 These amendments will take effect from 1st April, 1992 and will, accordingly, apply in relation to the assessment year 1992-93 and subsequent years. [Section 11] Finance (No. 2) Act, 1991 Extending the tax concessions in respect of contributions for research in social science or stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ift of the public. The qualifying expenditure would consist of payment made to a public sector company, a local authority or an approved association or an institution for being used for any such eligible project or scheme. Companies may, however, also incur expenditure directly on any such project or scheme. Finance (No. 2) Act, 1991 19.2 A National Committee of eminent persons has been constituted, in accordance with the rules prescribed in the Income-tax Rules, for approving associations and institutions for executing projects or schemes for promoting social and economic welfare or uplift of the public and for recommending such projects and schemes for being notified by the Central Government for this tax concession. Finance (No. 2) Act, 1991 19.3 Any claim for deduction under this provision will have to be supported by a certificate obtained from the public sector company, the local authority or the association or institution executing the eligible project or scheme. Where, in the case of a company, the claim for deduction is in respect of expenditure incurred directly on an eligible project or scheme, the company will have to obtain this certificate from a chartered account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the said clause (viii), the term "corporation" does not include a "public company". Finance (No. 2) Act, 1991 21.1 To make the Government's intention clear, a new Explanation has substituted the earlier Explanation. The new Explanation provides that for the purposes of this clause, the term "financial corporation" shall include a "public company". Finance (No. 2) Act, 1991 21.2 This amendment will take effect retrospectively from 1st April, 1987 and will, accordingly, apply in relation to the assessment year 1987-88 and subsequent years. [Section 14] Finance (No. 2) Act, 1991 Chargeability of income from bad or doubtful debts in the case of financial institutions and banks. 22. The Reserve Bank of India has classified advances given by banks into eight categories called Health codes 1 to 8. Sticky advances which are doubtful of realisation fall under Health codes 4 to 8. The banks and financial institutions normally credit interest from such sticky advances to the "Interest Suspense Account" and not to the "Profit and Loss Account". The issue whether interest on such bad and doubtful advances should be taxed in the year of accrual or of receipt has been a matter of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been amended to provide that capital gains arising from the transfer of the capital asset by way of compulsory acquisition under any law shall be charged to tax in the previous year in which the compensation is first received. Finance (No. 2) Act, 1991 23.3 This amendment takes effect retrospectively from 1st April, 1988. Finance (No. 2) Act, 1991 23.4 Further, a new section 54H has been inserted in the Income-tax Act, to provide that in cases where compensation in respect of any asset acquired compulsorily is received after the date of such transfer, the period for investment in specified assets shall be reckoned from the date of receipt of such compensation. However, where the compensation was first received before 1st April, 1991, and the period for making investment in any specified asset has expired before 1st October, 1991, such period shall stand extended up to 31st December, 1991. Finance (No. 2) Act, 1991 23.5 This amendment takes effect from the 1st day of October, 1991. [Sections 17 and 21] Finance (No. 2) Act, 1991 Clarification regarding transfer by way of conversion of debentures, etc. 24. For the purposes of capital gains taxation, "transfer", in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l accordingly, apply in relation to assessment year 1992-93 and subsequent years. [Sections 19 and 72] Finance (No. 2) Act, 1991 Modification of the provisions relating to set-off of capital gains 26. Under the existing provisions of the Income-tax Act, capital loss arising from the transfer of a capital asset is allowed to be set-off against the gain from the transfer of any other asset. Any remaining loss is allowed to be adjusted against other incomes. This provision has been found to be used for tax avoidance through sham transactions of short-term capital loss and its adjustment against taxable incomes under other heads. Finance (No. 2) Act, 1991 26.1 With a view to preventing this practice, sections 71 and 74 of the Income-tax Act have been amended to provide that capital loss, if any, (whether short-term or long-term) will not be allowed to be set-off against any other head of income and to secure that the amount of unabsorbed capital loss, if any, will be allowed to be carried forward for set-off against capital gains, if any, in the subsequent years. Finance (No. 2) Act, 1991 26.2 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and institutions, donation to which qualify for deduction under section 80G. Taxpayers making donations to the Rajiv Gandhi Foundation will be entitled to deduction of 50 per cent of the amount donated in computing their taxable income. There will be no ceiling on the amount qualifying for the deduction. Finance (No. 2) Act, 1991 29.1 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in relation to assessment year 1992-93 and subsequent years. [Section 26] Finance (No. 2) Act, 1991 Streamlining the procedure for approval of trusts. 30. Under the existing provisions of section 80G of the Income-tax Act, funds and institutions seeking donation from public, obtain advance administrative approval from the Commissioner so as to enable the donors to claim deduction under section 80G. Finance (No. 2) Act, 1991 30.1 With a view to streamlining the procedure for approval and enabling the concerned fund or institution to indicate to the prospective donors their status as a trust or institution, donations to which would be eligible for deduction under section 80G, this section has been amended so as to provide that the fund or institution is require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80HHC of the Income-tax Act to secure that sale proceeds will be deemed to have been received in India, in case where these are credited to a separate account maintained by the exporter for the aforesaid purpose with the approval of the Reserve Bank of India. Finance (No. 2) Act, 1991 32.4 This amendment will take effect from the 1st day of April, 1992 and will accordingly apply, in relation to the assessment year 1992-93 and subsequent years. Finance (No. 2) Act, 1991 32.5 Under the existing provisions of sub-section (3) of section 80HHC of the Income-tax Act, profit derived from the export of goods is computed in the following manner : Export turnover Profits of the business × ------------------ Total turnover Finance (No. 2) Act, 1991 32.6 The application of this formula has given rise to some misuse. Many cases have come to notice where persons, who are not chargeable to income-tax, transfer their export turnover to business houses merely by endorsement of letter of credit received by them. Business houses which "buy" these export turnover, get the benefit of deduction under section 80HHC without any physical export of goods. Finance (No. 2) Act, 1991 32.7 The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed figure of export profits when receipts like interest, commission, etc., which do not have element of turnover, are included in the profit and loss account. Finance (No. 2) Act, 1991 32.11 It has, therefore, been clarified that "profits of the business" for the purpose of section 80HHC will not include receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature. As some expenditure might be incurred in earning these incomes, which in the generality of cases is part of common expenses, ad hoc 10 per cent deduction from such incomes is provided to account for these expenses. Finance (No. 2) Act, 1991 32.12 Many exporters maintain branch offices, warehouses, etc., abroad. The export goods are first sent to these branch offices, etc., and are then sold to foreign buyers from such branch offices, etc. Certain doubts have been raised about the point of time when such goods should be treated as having been exported. Finance (No. 2) Act, 1991 32.13 With a view to removing the doubts in this respect, an Explanation has been inserted in section 80HHC clarifying that, goods will be deemed to be exported out of India when they are transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent years. [Section 28] Finance (No. 2) Act, 1991 Modification of provisions relating to foreign exchange earnings by hotels, tour operators, etc. 33. Under the existing provisions of section 80HHD of the Income-tax Act, a resident taxpayer engaged in the business of an approved hotel, or as an approved tour operator or as travel agent is allowed a deduction, in computing its total income, of an amount equal to— (i) 50 per cent of the profits derived from services provided to foreign tourists, payment for which are received in convertible foreign exchange; and (ii) so much of the remaining profits referred to above as are credited to a reserve fund to be utilised for the purpose of the business of the taxpayer in the prescribed manner. Finance (No. 2) Act, 1991 33.1 The tax concession under section 80HHD is available for the assessment year 1989-90 and subsequent years. One of the conditions for availing of the deduction under this section is that the business of a hotel or tour operator is approved by the prescribed authority for the purposes of this tax concession. Since the Director General of Tourism was notified as prescribed authority only with effect from 30th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, travel agent or the airline, on behalf of the foreign tourist. The person claiming the deduction will be required to furnish, along with the return of income, a certificate obtained from the person making payment in Indian currency out of foreign exchange paid by the foreigner. Finance (No. 2) Act, 1991 33.6 This amendment will take effect from 1st April, 1992, and will, accordingly, apply in relation to assessment year 1992-93 and subsequent years. [Section 29] Finance (No. 2) Act, 1991 Tax concessions for the export of computer software and for import of system software 34. With a view to providing fiscal incentive for promoting export of computer software, a new section 80HHE has been inserted in the Income-tax Act for providing tax concessions similar to those available under section 80HHC of the Income-tax Act in relation to commodity exports. Finance (No. 2) Act, 1991 34.1 Under the new provisions, Indian companies and resident non-corporate taxpayers will be eligible for a deduction, in computing their taxable income, of an amount equal to the profits derived from export of computer software. Finance (No. 2) Act, 1991 34.2 The broad features of the new provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permits import of software on OGL by the actual users or manufacturers of software for stock and sale. The applicable rate of tax on royalty income, in cases where the recipient is a foreign company, is 30 per cent if the royalty is received under an agreement approved by the Central Government. If the royalty payment is otherwise than under an agreement approved by the Central Government, the applicable rate of tax at present is 65 per cent. These rates of tax are applied to the gross amount of royalty and the taxpayer is not allowed deduction in respect of any expenses incurred in earning the royalty income. Finance (No. 2) Act, 1991 34.7 Since software can be imported by the actual users or manufacturer of software in India for stock and sale under OGL, section 115A of the Income-tax Act has been amended to provide that, the condition regarding approval by the Central Government of the relevant agreement for applying the lower rate of tax at 30 per cent will not apply in cases where the royalty payment is in respect of use of software permitted to be imported under an Open General Licence in accordance with the Import Trade Control Policy of the Central Government. Finance ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cent. Finance (No. 2) Act, 1991 35.4 These concessions will be available to eligible hotels which start functioning before 31st March, 1994. Finance (No. 2) Act, 1991 35.5 These amendments take effect from 1st April, 1991 and will, accordingly, apply in relation to the assessment year 1991-92 and subsequent years. [Sections 31 and 32] Finance (No. 2) Act, 1991 Incentive under section 80L for interest on National Savings Certificate VIII Issue 36. At present, interest on National Savings Certificate VI Issue and VII Issue qualifies, along with incomes from certain other financial assets, for deduction under section 80L of the Income-tax Act. Interest on National Savings Certificate VIII Issue does not qualify for this tax concession. With a view to encouraging investment by taxpayers in National Savings Certificates, the benefit of section 80L of the Income-tax Act has been extended to interest on National Savings Certificate VIII Issue. Finance (No. 2) Act, 1991 36.1 This tax concession will be available for and from the assessment year 1992-93. [Section 33] Finance (No. 2) Act, 1991 Extending the scope of deduction in respect of income from royalties, commission, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me derived by way of royalties, copyright fees, etc., in respect of any textbook, dictionary, thesaurus or encyclopaedia written by him in any Indian language specified in the Eighth Schedule to the Constitution. This concession is allowed for the assessment year commencing on 1st April, 1980 and for nine subsequent years. The incentive is, therefore, applicable only in respect of incomes earned up to the previous year relevant to the assessment year 1989-90. Finance (No. 2) Act, 1991 39.1 With a view to reviving this fiscal incentive to authors of textbooks in Indian languages, section 80QQA has been amended to secure that deduction under this section will be allowed for the assessment year commencing on 1st April, 1992 and for four subsequent assessment years. [Section 36] Finance (No. 2) Act, 1991 Deduction in the computation of taxable income in the case of blind or physically handicapped persons 40. The Finance Act has substituted a new section for section 80U relating to deduction for the blind or physically handicapped resident persons. Finance (No. 2) Act, 1991 40.1 Under the existing provisions, resident individuals suffering from total blindness or other physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits in the Home Loan Account Scheme of the National Housing Bank along with other long-term savings in life insurance policy, provident fund, etc., qualify for tax rebate. The list of savings for the purposes of tax rebate under section 88 has been enhanced to include subscriptions to schemes similar to the Home Loan Account Scheme, floated by: (a) public sector companies engaged in providing long-term finance for construction or purchase of houses in India for residential purposes; or (b) any authority constituted in India by any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or for both. Finance (No. 2) Act, 1991 42.1 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in relation to assessment year 1992-93 and subsequent years. [Section 38] Finance (No. 2) Act, 1991 Taxation of foreign companies and other non-resident taxpayers 43. Tax treaties generally contain a provision to the effect that the laws of the two contracting States will govern the taxation of income in the respective State except w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty, fee for technical services, etc. to non-residents, tax required to be deducted at source is much larger than the final tax liability. Finance (No. 2) Act, 1991 43.7 With a view to avoiding such situations, section 195 of the Income-tax Act has been amended to empower the Assessing Officer to determine, in all cases of payment of interest, dividends, royalties, fees for technical services, paid to a foreign company or to a non-resident taxpayer, the appropriate proportion of the amount from which tax is to be deducted at source. Finance (No. 2) Act, 1991 43.8 This amendment takes effect from 1st October, 1991. Finance (No. 2) Act, 1991 43.9 Under the existing scheme of deduction of tax at source, even in cases where a lower rate of tax income is provided in the tax treaty, tax has to be deducted at the rate prescribed in law. As a result, in many cases, the amount of tax deducted from sums remitted to foreign companies is larger than the final tax liability, thus requiring filing of claims for refund. Finance (No. 2) Act, 1991 43.10 With a view to correcting this position, section 2(37A) of the Income-tax Act has been amended to secure that tax is deducted at source at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, a new section 115AB has been inserted in the Income-tax Act to provide special rates of tax for certain incomes of off-shore funds. The income from unit purchased by off-shore funds in foreign currency and by way of long-term capital gains arising from the transfer of such units will be charged to tax at the rate of 10 per cent. However, this rate of tax will apply on the gross income of the nature specified above without allowing for any deduction under sections 28 to 44C, 48 and 57 and Chapter VI-A of the Income-tax Act. Finance (No. 2) Act, 1991 44.3 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in relation to assessment year 1992-93 and subsequent years. Finance (No. 2) Act, 1991 44.4 In order to facilitate easy collection of tax from the off-shore fund, a new section 196B has been inserted in the Income-tax Act to provide for deduction of tax at source at the rate of 10 per cent, on any payment representing income from units held by off-shore funds. The tax is required to be deducted either at the time of payment of credit to the account of the payee, whichever is earlier. Finance (No. 2) Act, 1991 44.5 This amendment is effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id before each House of Parliament. Finance (No. 2) Act, 1991 45.5 This amendment takes effect from 1st October, 1991. [Section 42]. Finance (No. 2) Act, 1991 Modification of the provisions of section 132 of the Income-tax Act 46. The existing provisions of sub-section (8A) of section 132 of the Income-tax Act provide that the authorised officer can extend the operation of the prohibitory order made under sub-section (3) of section 132 with the approval of the Commissioner. Finance (No. 2) Act, 1991 46.1 In a majority of the cases, searches under the Income-tax Act are authorised by the Directors of Income-tax (Investigation). Therefore, sub-section (8A) has been amended to provide that the said prohibitory order can also be extended with the approval of the Director. Finance (No. 2) Act, 1991 46.2 Similar amendment has been made to the corresponding provisions in sub-section (6A) of section 37A of the Wealth-tax Act. Further, reference to the expression "Chief Commissioner" therein has been deleted. Finance (No. 2) Act, 1991 46.3 These amendments take effect from 1st October, 1991. [Sections 43 and 82] Finance (No. 2) Act, 1991 Modification of provisions relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending the period of limitation for the service of notice under sub-section (2) of section 143 of the Income-tax Act 49. Under the existing provisions of section 143 of the Income-tax Act relating to the assessment procedure, no notice under sub-section (2) thereof can be served on the assessee after the expiry of the financial year in which the return is furnished or the expiry of six months from the end of the month in which the return is furnished, whichever is later. Finance (No. 2) Act, 1991 49.1 The aforesaid period of limitation for the service of a notice under sub-section (2) of section 143 does not allow sufficient time to the Assessing Officers to select returns for scrutiny before assessment. Therefore, sub-section (2) has been amended to provide that the notice thereunder can be served on the assessee within twelve months from the end of the month in which the return is furnished. Finance (No. 2) Act, 1991 49.2 Similar amendments have been made to the corresponding provisions in section 16 of the Wealth-tax Act and section 15 of the Gift-tax Act. Finance (No. 2) Act, 1991 49.3 These amendments take effect from 1st October, 1991. [Sections 46, 74 and 86] Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies to other cases where the time available, after exclusion of the periods on account of the contingencies specified in the Explanation, for completion of assessments or reassessments, etc., is very short. Finance (No. 2) Act, 1991 51.1 Explanation 1 to section 153 of the Income-tax Act has, therefore, been amended to provide therein that where immediately after the exclusion of the time or period mentioned in the Explanation, the remaining period of limitation referred to in sub-sections (1), (2) and (2A) for completing assessments or reassessments, etc., is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. Finance (No. 2) Act, 1991 51.2 Similar amendments have been made to the corresponding provisions in section 17A of the Wealth-tax Act and in section 16A of the Gift-tax Act. Finance (No. 2) Act, 1991 51.3 These amendments take effect from 27th September, 1991, i.e., the date on which this Act received the assent of the President. [Sections 47, 75 and 87] Finance (No. 2) Act, 1991 Removal of hardship in provisions relating to rectification in respect of foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears from the end of the previous year in which the qualifying income is received in or brought into India in convertible foreign exchange. In computing this period of 4 years, the period between 1-4-1988 and 30-9-1991, during which the power to rectify was not available, will be excluded. Finance (No. 2) Act, 1991 52.4 This amendment takes effect from 1st October, 1991. [Section 48] Finance (No. 2) Act, 1991 Removal of anomalies in respect of section 161 of the Income-tax Act 53. Sub-section (1A) of section 161 provides that where the income of a trustee consists of or includes profits and gains of business, income-tax shall be charged on the whole of the income at the maximum marginal rate. The Explanation below sub-section (1A) states that the term "maximum marginal rate" shall have the meaning assigned to it in Explanation 2 to section 164. The latter Explanation has been omitted with effect from 1st April, 1989 and instead, a definition of the term "maximum marginal rate" has been inserted in clause (29C) of section 2 from the said date. Therefore, as the Explanation to sub-section (1A) of section 161 has become redundant, the same has been omitted. Finance (No. 2) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this section. Finance (No. 2) Act, 1991 54.2 This amendment takes effect from 1st October, 1991. [Section 50] Finance (No. 2) Act, 1991 Provision for deduction of tax at source on interest income from bank deposits, etc. 55. Section 194A of the Income-tax Act provides that the provisions regarding deduction of income-tax at source shall not apply to the income credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act) or with co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). Finance (No. 2) Act, 1991 55.1 Instances have come to notice of the unaccounted incomes being deposited in banks in one's own name or benami. Interest on such deposits is not likely to be declared in the income-tax returns. Finance (No. 2) Act, 1991 55.2 With a view to improving 'tax compliance, section 194A of the Income-tax Act has been amended to secure deduction of tax at source from interest on time deposits with the aforesaid banking companies and co-op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax at source from rupees five thousand to rupees two thousand and five hundred. Finance (No. 2) Act, 1991 56.2 These amendments take effect from 1st October, 1991. [Sections 5 and 53] Finance (No. 2) Act, 1991 Insertion of a provision for deduction of tax at source from payments in respect of deposits under National Savings Scheme 57. Under the provisions of clause (a) of sub-section (2) of section 80CCA of the Income-tax Act, where any amount standing to the credit of an assessee under the National Savings Scheme in respect of which deduction has been allowed under sub-section (1) together with the interest accrued on such amount is withdrawn in whole or in part in any previous year, the amount of withdrawal is deemed to be the income of the assessee in such year. There are likely to be cases where the fact of the withdrawal of the aforesaid amounts is not disclosed by the assessees in their income-tax returns. Finance (No. 2) Act, 1991 57.1 In order to overcome possible evasion of tax as aforesaid and also to facilitate early collection of tax, a new section 194EE in the Income-tax Act relating to deduction of tax at source has been inserted. Under this section, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent. However, no such deduction is to be made where the amount of the aforesaid income does not exceed one thousand rupees. Finance (No. 2) Act, 1991 58.2 This amendment takes effect from 1st October, 1991. [Section 55] Finance (No. 2) Act, 1991 Insertion of a provision for deduction of tax at source from payments in the nature of commission, brokerage, etc. 59. Income by way of commission (not being insurance commission referred to in section 194D) and brokerage is, at present, not subject to deduction of tax at source. This is one source of income where the incidence of tax evasion is very high. A new section 194H relating to deduction of tax at source has, therefore, been inserted. Under this section, the person responsible for paying any income by way of commission or brokerage for services rendered (not being professional services) or for any services in the course of buying or selling of goods, etc., shall deduct income-tax thereon at the rate of ten per cent. However, no such deduction shall be made where the amount of payment or the aggregate amount of payments, in a financial year, does not exceed two thousand five hundred rupees. The new section will not apply wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return of such tax deducted at source to the prescribed income-tax authority. Certain doubts were raised on account of the aforesaid language of this section that the prescribed time limit is relatable to the preparation of the return and not its delivery to the prescribed income-tax authority. In order to set these doubts at rest, section 206 has been amended to clarify that the returns under that section are to be prepared and delivered to the prescribed income-tax authority within the time prescribed after the end of each financial year. Finance (No. 2) Act, 1991 61.1 This amendment takes effect from 27th September, 1991, the date on which this Act received the assent of the President. [Section 62] Finance (No. 2) Act, 1991 Interest for deferment of advance tax 62. Section 234C of the Income-tax Act provides for furnishing of interest at the rate of 1.5 per cent per month or part thereof in the case of shortfall in payment of advance tax instalment. Opinion has been expressed that shortfall in payment of advance tax instalment does not include non-payment of advance tax and hence the aforesaid provisions would not apply in cases where no advance tax is paid. Finance (No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance (No. 2) Act, 1991 Simplification of procedure subsequent to the receipt of an application by the Settlement Commission. 65. Under the existing provisions of sub-section (1) of section 245D of the Income-tax Act, the Settlement Commission, on receipt of an application under section 245C, has to call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case, etc., the Settlement Commission may allow the application to be proceeded with or reject the application. Further, sub-section (1A) of section 245D provides for filing of objection by the Commissioner against proceeding with the application made under section 245C. Finance (No. 2) Act, 1991 65.1 The above provisions cause delay, at times, in the disposal of applications filed before the Settlement Commission under section 245C. In order to expedite the disposal of such applications, sub-section (1) of section 245D has been amended to provide that the Commissioner shall furnish the report within a period of one hundred and twenty days of the receipt of communication from the Settlement Commission in case of all applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66.3 This amendment takes effect from 27th September, 1991, i.e., the date the Finance Act received the assent of the President. [Section 67] Finance (No. 2) Act, 1991 Modification of provisions for levy of penalties for certain defaults. 67. Section 272A of the Income-tax Act contains provisions for levy of penalty for various defaults of miscellaneous nature, including the failure to furnish returns or statements, etc. Under the existing provisions of this section, penalty is provided for failure to furnish in due time returns regarding tax deducted at source mentioned in section 206 and for failure to furnish certificate of tax deducted at source as required by section 203. Finance (No. 2) Act, 1991 67.1 Section 206C of the Income-tax Act contains provisions for the collection of tax at source relating to profits and gains from the business of trading in alcoholic liquor, forest produce, etc. Sub-section (5) thereof provides that the person collecting such tax has to furnish to the buyer of goods, i.e., the person on whose behalf the collection of tax is made, a certificate specifying the particulars of tax collected within ten days of such collection. Further, sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been amended to provide that a person in whose favour an order has been made under sub-section (1) of section 273A relating to one or more assessment years on or before the 24th day of July, 1991, shall be entitled to further relief only once under this section in relation to other assessment year or years after the making of such order, if he makes an application to the Chief Commissioner or Commissioner at any time before the 1st day of April, 1992. Finance (No. 2) Act, 1991 68.2 Similar amendment has been made to the corresponding provisions in section 18B of the Wealth-tax Act. Finance (No. 2) Act, 1991 68.3 These amendments take effect from 27th September, 1991, i.e., the date on which the Finance Act received the assent of the President. [Sections 69 and 76] Finance (No. 2) Act, 1991 Modification of provisions relating to offences and prosecutions. 69. Under the existing provisions of sub-section (1) of section 279 of the Income-tax Act, a Director General or a Chief Commissioner or a Commissioner (Appeals) or an appropriate authority may authorise launching of prosecution. By administrative orders of the Board, the functions of the Chief Commissioner, the Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69.6 Therefore, an Explanation has been inserted in section 279 which clarifies that the powers of the Board to issue orders, instructions or directions to other income-tax authorities shall include and shall be deemed always to have included the powers to issue instructions or directions (including instructions or directions to obtain the previous approval of the Board) to other income-tax authorities for the proper composition of offences under section 279. Finance (No. 2) Act, 1991 69.7 Similar amendments have been made to the corresponding provisions of section 35-I in the Wealth-tax Act and section 35 in the Gift-tax Act. Finance (No. 2) Act, 1991 69.8 These amendments take effect retrospectively from 1st April, 1962, that is to say, the date of commencement of the Income-tax Act, 1961. [Sections 70, 81 and 90] WEALTH-TAX ACT Finance (No. 2) Act, 1991 Exemption from wealth-tax in respect of deposits held by HUF, etc., in accounts of Public Provident Fund Scheme 70. Under the Public Provident Fund Scheme, as formulated in 1968, only individuals could contribute to the Public Provident Fund. Under an amendment made to the Income-tax Act by the Finance Act, 1968, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. [Sections 79 and 88] Finance (No. 2) Act, 1991 Modification of the provisions relating to valuation of shares in investment companies. 72. For the purposes of levy of wealth-tax, the rules of valuation of assets aim at capturing their market value, or near about, as on the valuation date. A distortion has crept into these rules. When an individual holds any asset in his name, its valuation is at the market value. However, if a group of persons holds assets through an investment company, the taxable value of these assets gets reduced considerably because it is based on the book value and not on the market value. This anomaly has now been removed by amending rule 12 of Schedule III of the Wealth-tax Act to provide that in valuing unquoted shares of an investment company, the break-up value of the share will be determined after revaluing the assets of the company at the value determined in accordance with the rules applicable to that particular asset (i.e., rules 3 to 19 of Schedule III). Finance (No. 2) Act, 1991 72.1 Further, in order to even out the distortioning effect caused by an upsurge in the share market, rule 9A of Schedule III of the Wealth-tax Act has been amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed gifts. 74. Under the existing provisions of section 4(1)(a) of the Gift-tax Act, where a property is transferred otherwise than for adequate consideration, the amount by which the market value of the property on the date of transfer exceeds the value of the consideration is deemed to be a gift made by the transferor. Finance (No. 2) Act, 1991 74.1 Since, for the purposes of valuation of gifts, the concept of "market value" has now been replaced by rules contained in Schedule II to the Gift-tax Act for determining the value of each category of gifted assets, section 4(1)(a) has been amended so that deemed gift shall now be an amount by which the value of the transferred property determined in the manner laid down in Schedule II exceeds the value of the consideration. Finance (No. 2) Act, 1991 74.2 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in relation to the assessment year 1992-93 and subsequent years. [Section 84] Finance (No. 2) Act, 1991 Incentive for investment in NRI Bonds. 75. Under the existing provisions of section 5(1)(iiie) of the Gift-tax Act, gifts made by the non-resident Indians, to any-relative, of NRI Bonds specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r credit institution will also not form part of the chargeable interest. Further, interest on sticky loans will be charged to interest-tax only in the year in which the interest is actually received or credited to profit and loss account, whichever is earlier. Finance (No. 2) Act, 1991 76.3 The tax will be levied on interest income accruing or arising to a credit institution on or after 1st October, 1991. The rate of tax will be three per cent of the gross amount of interest received by the credit institution. Finance (No. 2) Act, 1991 76.4 Interest-tax levied under the Interest-tax Act will be allowed as a deduction in computing the income of the credit institution chargeable to income-tax under the head "Profits and gains of business or profession". Further, credit institutions are empowered to vary the rate of interest on term loans sanctioned before 1st October 1991. Finance (No. 2) Act, 1991 76.5 The credit institutions will pay interest-tax in advance during the financial year immediately preceding the relevant assessment year. The due dates for payment of instalment of advance interest-tax and the amount payable as advance interest-tax, are similar to the corresponding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 to 112] EXPENDITURE-TAx Act Finance (No. 2) Act, 1991 Extension of the scope of expenditure-tax. 77. Under the existing provisions of the Expenditure-tax Act, 1987, a tax at the rate of 20 per cent is levied on expenditure incurred in certain hotels. This tax is charged on expenditure on accommodation, food or drink, and other services incurred in a hotel where the room charge for any unit of accommodation is Rs. 400 or more per day per individual. Finance (No. 2) Act, 1991 77.1 As a further measure for discouraging ostentatious and wasteful expenditure, the scope of expenditure-tax has been extended to expenditure incurred in air-conditioned restaurants. A tax of 15 per cent will be levied on expenditure incurred in, or any payment made to, such restaurant after 30th September, 1991. The tax will, however, not be levied on expenditure incurred by diplomatic personnel and others enjoying diplomatic immunities. However, unlike in the case of expenditure-tax on hotels, there is no exemption from tax in respect of expenditure incurred in a restaurant for which payment is made in foreign exchange. Finance (No. 2) Act, 1991 77.2 The Finance Act has given a very wide meaning t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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