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TMI BlogExplanatory Notes on the provisions relating to direct taxes.X X X X Extracts X X X X X X X X Extracts X X X X ..... 6A, 50B, 80HHF, 115ACA, 115R, 115S, 115T and 194L in the Income-tax Act, 1961 ; — substituted new sections for sections 3, 43D, 72A, 80-IA of the Income-tax Act, 1961 ; — omitted section 194H and Tenth Schedule of the Income-tax Act, 1961 ; — amended sections 2, 16, 23A, 24, 27, 27A and 35 of the Wealth-tax Act, 1957 ; — amended sections 4 and 22 of the Expenditure-tax Act, 1987 ; and — amended section 76 of the Finance (No. 2) Act, 1998. 3. Provisions in brief : 3.1 The provisions of the Act in the sphere of direct taxes relate to the following matters : (i) Prescribing the rates of income-tax on incomes liable to tax for the assessment year 1999-2000 ; the rates at which tax will be deductible at source in the financial year 1999-2000 from interest (including interest on securities), winnings from lotteries or crossword puzzles, winnings from horse races, insurance commission and other categories of income liable for tax deduction at source under the Income-tax Act, rates for computing "advance tax", deduction of income-tax from "salaries" and charging of income-tax on current incomes in certain cases for the financial year 1999-2000. (ii) Amendment of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues arising on buy-back of shares by companies ; — enhance the limit of deduction for medical insurance premium on the health of senior citizens under section 80D ; — modify the provisions of section 80DD to allow deductions on the basis of any expenditure incurred for the handicapped persons ; — enhance the limit of deductions under section 80DDB for expenditure incurred on treatment of chronic and protracted diseases ; — modify the provisions of section 80G to allow 100% deductions for donations made to the fund for technology development and application; — modify the provisions of section 80G to allow deduction for donations made to funds or institutions for charitable purposes ; — modify the definition of small scale industry for the purpose of section 80HHA ; — modify the provisions of sections 80HHB, 80HHC, 80HHD, 80HHE, 80-O, 80R, 80RR and 80RRA providing deduction on the basis of foreign exchange earnings, to allow deductions on receipt of money beyond the period of six months with the approval of the Reserve Bank of India ; — amend the provisions of section 80HHC to clarify that the deduction under this section is to be computed without taking into account the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputer media ; — amend section 206C to provide for issue of certificate by the Assessing Officer for collection of tax at a lower rate in appropriate case ; — provide for time-limit for disposal of appeals by the Commissioner (Appeals) and the Appellate Tribunal and empowering the latter to award costs ; — rationalise provisions relating to reduction of litigation and other allied issues ; — rationalise certain provisions by omission of the transitory provisions and modification of certain existing provisions ; — introduce provisions relating to business re-organisation, rationalising the existing provisions concerning amalgamation, making demergers tax neutral and taxing profits and gains in a case of slump sale as capital gains ; — exempt interest on Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999, and also capital gains arising from their transfer. (iii) Amendment of the Wealth-tax Act, 1957 with a view to : — exempt Gold Deposit Bonds from the purview of wealth-tax ; — simplify the procedure of processing of return under section 16(1) of the Wealth-tax Act ; — introduce provisions under the Wealth-tax Act to provide for the time-limit for disposal of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of various categories of taxpayers, have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 1999-2000 on current incomes in cases where accelerated assessments have to be made, e. g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year or assessment of persons who are likely to transfer property to avoid tax, etc. The salient features of the rates specified in the said Part III are indicated in the following paragraphs : 4.31 Individuals, Hindu undivided families, etc. : Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of individuals, Hindu undivided families, association of persons, etc. There is no change in the rate structure. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of 10 per cent. of the tax payable (after allowing rebate under Chapter VIII-A of the Income-tax Act). No surcharge would be payable by non-residents and persons having income of Rs. 60,000 or less. Marginal relief would als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes of income-tax have been specified in paragraph B of Part III of the First Schedule to the Act. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Schedule to the Act. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent. of the tax payable. 4.3.4 Firms : In the case of firms, the rate of income-tax has been specified in paragraph C of Part III of the First Schedule to the Act. This rate is 35% which is the same as that specified in the corresponding paragraph of Part I of the First Schedule to the Act. However, the tax payable by resident firms would be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent. of the tax payable. 4.3.5 Local authorities : In the case of local authorities, the rate of income-tax has been specified in Paragraph D of Part III of the First Schedule to the Act. This rate is 30% which is the same as that specified in the corresponding paragraph of Part I of the First Schedule to the Act. However, the tax payable would be enhanced by a surcharge for the purpose of the Union at the rate of ten per cent. of the tax p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases and includes interest paid by industrial undertakings for specified foreign borrowings. 7.2 The Act has inserted a new Explanation in sub-clause (iv) of this clause so as to extend the scope of this exemption also to hedging transaction charges on account of currency fluctuations. 7.3 This amendment will take effect from 1st April, 2000, and will, accordingly, apply to the assessment year 2000-2001 and subsequent years.[Section 6] 8. Reintroduction of incentives for the civil aviation industry : 8.1 Under clause (15A) of section 10, income-tax exemption is provided for any payment made by an Indian company engaged in the business of operation of aircrafts, to acquire an aircraft or aircraft engine on lease from the Government of a foreign State or a foreign enterprise under an agreement approved by the Central Government. The Finance Act, 1997, had withdrawn this exemption in respect of payments made under the agreements entered into on or after the 1st day of April, 1997. 8.2 With a view to provide a boost to the civil aviation industry, the Act has restored the above exemption in respect of payments made under the agreements which are entered on or after 1st day of Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment will have effect for the number of assessment years prescribed in the order of approval. However, at one time the approval can be granted for a maximum number of three assessment years. 10.4 The expression "venture capital fund" has been defined to mean a fund operating under a registered trust deed established to raise moneys by the trustees for investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines. 10.5 The expression "venture capital company" has been defined to mean such a company as has made investments by way of acquiring equity shares of venture capital undertakings in accordance with the prescribed guidelines. 10.6 The expression "venture capital undertaking" has been defined to mean a domestic company whose shares are not listed in a recognised stock exchange in India and which is engaged in the business of software ; information technology ; production of basic drugs in the pharmaceutical sector ; bio-technology ; agriculture and allied sectors ; and such other sectors as may be notified by the Central Government in this behalf or production and manufacture of any article or substance fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment under clause (iii) of sub-section (4) of section 80-IA is also included in the definition of infrastructure facility and is, thus, within the scope of exemption under this clause. 11.5 This amendment will take effect from 1st April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 6] 12. Exemption of commodity boards and authorities from income-tax : 12.1 A new clause (29A) is inserted in section 10 so as to provide that the income of certain Commodity Boards and Export Development Authorities would be exempt from income-tax. The Commodity Boards and Export Development Authorities which are set up under various statutes and are under the administrative control of the Commerce Ministry, namely, the Coffee Board, the Rubber Board, the Tea Board, the Tobacco Board, the Marine Products Export Development Authority, the Agricultural and Processed Food Products Export Development Authority and the Spices Board, are exempted from Income-tax with effect from 1st April, 1962 or the previous year in which these Boards or Authorities were constituted, whichever is later. 12.2 This amendment takes effect from the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans the Unit Trust of India established under the Unit Trust of India Act, 1963. 13.8 Section 115S, provides that if the principal officer and the fund fail to pay the whole or part of the tax on distributed income to the credit of the Central Government, he or it shall be liable to pay simple interest at the rate of 2% for every month or part thereof on such amount of tax which he or it fails to pay to the credit of the Central Government. 13.9 Under section 115T, such principal officer and the fund who do not pay the tax in accordance with the provisions of section 115R shall be deemed to be an assessee in default in respect of such tax payable and all the provisions relating to collection and recovery shall apply to them. 13.10 Consequential amendments are also provided in certain other provisions of the Income-tax Act. The Act accordingly amends :— (i) section 10(23D) of the Income-tax Act so as to provide that the exemption in respect of income of a mutual fund shall be subject to the provisions of the newly inserted Chapter XII-E of the Income-tax Act ; (ii) section 80-L of the Income-tax Act relating to deduction in respect of interest on certain securities, dividends, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has also been provided that the profits may be recomputed where inter-group transfers are made at prices other than market prices or where the profits computed by the assessee are higher than the ordinarily expected profit owing to the close connection of the assessee and other entities. 14.7 The benefits under this section are optional. In case the assessee does not wish to claim the benefit under section 10C, he has to file a declaration to this effect along with the return of income before the due date of filing the return for the first assessment year for which the exemption under this section is available to him. 14.8 These amendments take effect from the 1st day of April, 1999, and, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Clause 7] 15. Rationalisation of provisions relating to registration of trusts : 15.1 Section 12AA of the Income-tax Act details the provisions for registration of trust/ institution for which an application has been filed under section 12A of the Income-tax Act. Under the existing provisions, the application for the registration of trust or institution can be filed either before the Chief Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch option is exercised by the employee or is exercised and transferred in the name of any other person by him. It is further provided that the difference between the market value on the date of exercise of option and the sale consideration in the event of sale by the employee would be taxed as capital gains in his hands. 16.2 Section 79 of the Companies (Amendment) Act, 1999 (21 of 1999), provides that a company may issue sweat equity shares of a class of shares to its employees or directors. These shares may be issued at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights by whatever name called. The value of such shares will be treated as perquisite in the year in which such option is exercised by the employee or director as the case may be. Where the amount paid for such securities is "nil" , the perquisite value shall be the market value of such shares. 16.3 A consequential amendment is also made in section 49, to define the cost of acquisition of such shares. In case such shares are ultimately sold, the fair market value of these shares at the time of exercise of option would be thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d will, accordingly, apply to the assessment year 2000-2001 and subsequent years. [Section 11] 18. Weighted deduction for scientific research and development expenditure : 18.1 Under the existing provisions of clauses (ii) and (iii) of sub-section (1) of section 35 of the Income-tax Act, full deduction is allowable for any sum paid to a scientific research association, university, college or other institution for the purposes of scientific, social or statistical research, as the case may be, provided such association, university, college or institution is for the time being approved by the prescribed authority. With a view to induce more investment for research and development activities, the Act amends these provisions to provide for a weighted deduction of one and one-fourth times of such sums paid. The Act also vests the authority for approval, for the purposes of above clauses, in the Central Government instead of the prescribed authority as at present. 18.2 The existing provisions of sub-section (3) of section 35 provide that if any question arises as to whether and if so, to what extent, any activity constitutes or constituted, or any asset is or was being used for, scient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant previous years" would mean the previous years beginning with the previous year in which such business commenced and the subsequent previous year or years during which the licence is in force. The Act also provides that no deduction under sub-section (1) of section 32 shall be available for such expenditure for the same year or any subsequent previous years. 19.3 These amendments will take effect retrospectively from 1st April, 1996, and will, accordingly, apply in relation to the assessment year 1996-97 and subsequent years. [Section 18] 20. Amendment of provisions relating to deduction for provision for bad and doubtful debts in the case of banks : 20.1 Under the existing provisions of section 36(1)(viia) of the Income-tax Act, in computing the business income of a scheduled bank (not being a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, deduction is allowable in respect of any provision for bad and doubtful debts made by such bank at an aggregate of the amount not exceeding 5% of the total income and 10% of the aggregate average advances made by its rural branches. 20.2 In order to strengthen the financial position of the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urage the business entities to make their existing computer systems Y2K compliant at the earliest, the Act inserts a new clause (xi) in sub-section (1) of section 36 of the Income-tax Act to provide for allowability of 100% deduction, in computing the profits and gains of business or profession, of any expenditure, whether capital or revenue, incurred in respect of existing non-Y2K compliant computer system so as to make it a Y2K compliant computer system. In order to avail of the deduction under the new provision, the following conditions need to be satisfied :— (i) there should be an existing computer system which is owned by the assessee and used for the purposes of his business or profession ; (ii) such existing computer system should be a non-Y2K compliant computer system ; (iii) the assessee should incur the expenditure wholly and exclusively in respect of such non-Y2K compliant computer system so as to make such computer system a Y2K compliant computer system ; (iv) the expenditure should have been incurred during the period 1-4-1999 to 31-3-2000 ; (v) the assessee should furnish along with the return of income the report of an accountant in the prescribed form certifyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1 Clause (e) of section 43B of the Income-tax Act, inter alia, allows deduction in respect of interest payable on any term loan from a scheduled bank on actual payment basis and not on accrual basis. Under the existing provisions contained in Explanation 4(aa), the term "scheduled bank" does not include a co-operative bank. The Act amends this Explanation so as to include a co-operative bank within the meaning of the term "scheduled bank". As a result of this, the provisions of clause (e) of section 43B will now be applicable in respect of interest payable on term loans from scheduled banks including co-operative banks. 24.2 This amendment will take effect from the 1st day of April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 27] 25. Extension of provisions of section 43D to the housing finance companies : 25.1 Under the existing provisions of section 43D of the Income-tax Act, in the case of a public financial institution or a scheduled bank or a State Financial Corporation or a State Industrial Investment Corporation, income by way of interest in relation to such categories of bad or doubtful debts, as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch audit as prescribed under section 44AB. 26.3 These amendments will take effect retrospectively from the 1st day of April, 1998, and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years. [Sections 29, 30 and 31] 27. Taxing profits and gains arising from insurance claim received for damage to or destruction of a capital asset as capital gains : 27.1 Under the existing law, it was not feasible to tax the profits and gains arising from receipts by way of insurance claims for damage to or destruction of a capital asset as various courts have held that there is no transfer when the asset is destroyed since the asset ceases to exist. The money received under the insurance policy is a compensation for the loss of the asset and not a consideration for its transfer. 27.2 The Act has inserted a new sub-section (1A) in section 45 to provide that the profits and gains arising from the receipts of an insurance claim on account of damage to or destruction of a capital asset as a result of flood, typhoon, hurricane, cyclone, earthquake or other convulsions of nature, riot or civil disturbance, accidental fire or explosion and enemy action with or without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -back. 28.2 The above newly introduced provisions of buy-back of shares threw up certain issues in relation to the existing provisions of the Income-tax Act. The two principal issues are whether it would give rise to deemed dividend under section 2(22) of the Income-tax Act and whether any capital gains would arise in the hands of the shareholder. The legal position on both the issues were far from clear and settled and there was apprehension that there will be unnecessary litigation unless the issues are clarified with finality. 28.3 The Act, therefore, has amended clause (22) of section 2 of the Income-tax Act by inserting a new clause to provide that dividend does not include any payment made by a company on purchase of its own shares in accordance with the provisions contained in section 77A of the Companies Act, 1956. It has also inserted a new section, namely, section 46A in the Income-tax Act, to provide that any consideration received by a shareholder or a holder of other specified securities from any company on purchase of its own shares or other specified securities shall be, subject to provisions contained in section 48, deemed to be the capital gains. 28.4 This amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the expensive nature of treatment involved in diseases specified in the provisions, this limit is raised to Rs. 40,000 with effect from 1st day of April, 2000. The amount of deduction under the amended provision shall be worked out after reducing the amount, if any, received under any scheme of medical insurance. In other words, the deduction (subject to limits specified in the provision) would be available on the net amount after reducing the insurance receipts from the expenditure actually incurred. The benefit shall be available in cases where such expenses have been actually incurred. 31.2 In case the assessee or such dependent relative is a senior citizen (a resident Indian who is of the age of 65 years or more at any time during the previous year) the monetary limit under this section will be Rs. 60,000. 31.3 This amendment will take effect from the 1st day of April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 42] 32. Full deductions to donations to the fund for technology development and application : 32.1 Under the existing provisions of section 80G of the Income-tax Act, a deduction of 50% of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry : 34.1 Under the existing provisions of section 80 HHA, a deduction of 20% for a period of ten years was available to small scale industrial undertakings which commenced manufacture or production between the period beginning from 30th September, 1977, and ending on 31st March, 1990. The definition of "small scale industry" based on value of investment in plant and machinery is different for different periods, as such limits were revised from time to time by the Department of Industries. In order to bring the definition of small scale industry in consonance with that provided in the Industries (Development and Regulation) Act, 1955, the provision has been amended to provide that an industrial undertaking shall be deemed to be a small scale industrial undertaking which is, on the last day of the previous year, regarded as small scale industrial undertaking under section 11B of the Industries (Amendment and Regulation) Act, 1955. 34.2 These amendments will take effect retrospectively from the 1st day of April, 1978, and will, accordingly, apply for the assessment year 1978-79 and subsequent years. [Section 44] 35. Receipts of money in convertible foreign exchange to be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Act shall not be eligible for deduction under this section. 36.2 This amendment will take effect retrospectively from the 1st day of April, 1992, and will, accordingly, apply in relation to the assessment year 1992-93 and subsequent years. [Section 46] 37. Incentive to increase investment in tourism sector : 37.1 Under the existing provisions of section 80HHD, the assessee is allowed a deduction in respect of income from the business of a hotel, tour operation and travel agency, of an amount equal to :— (i) 50 per cent. of the profits derived from services provided to foreign tourists ; and (ii) so much of the remaining profits as are credited to a reserve fund. Sub-section (4) provides for the manner in which such funds are to be utilised, namely, construction of new hotels, purchase of new cars/coaches, sports equipment, construction of conference or convocation centres, etc. 37.2 With a view to facilitate investment in the tourism sector, the amendment provides that the amount credited to the reserve fund can also be invested in equity shares of a public company carrying on the business of new hotels or setting up a new facility, as may be notified by the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re a deduction is claimed and allowed for any assessment year with respect to profits from eligible business no deduction shall be allowed in relation to such profits under any other provision of the Income-tax Act for the same or any other assessment year. 38.7 This amendment will come into force with effect from 1st April, 2000, and will, accordingly, apply to the assessment year 2000-2001 and subsequent years. [Section 49] 39. Incentives to promote economic growth and industrialization : 39.1 The erstwhile provision of section 80-IA in the Income-tax Act has been restructured and incorporated as two new distinct sections—sections 80-IA and 80-IB. The restructured sections seek to retain the benefits hitherto provided in section 80-IA. However, the amended provisions extend the benefits to certain sectors as discussed hereunder. 39.2 Enterprises setting up infrastructure projects may avail of tax holiday benefits in any ten consecutive years out of fifteen initial years. 39.2.1 Under the existing provisions of section 80-IA, a road, highway, bridge, airport, port and rail system and any other public facility of similar nature as may be notified are regarded as "infrastructu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act. The deduction shall be confined to the profits derived from transmission or distribution of power through the new network. 39.3-3 This amendment will come into force with effect from the 1st day of April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 50] 39 Tax holiday benefits to cold chains : 39.4-1 The provisions of section 80-IA, inter alia, provide, a five year tax holiday in respect of profits and gains of an assessee operating a cold storage in an industrially backward State or in an industrially backward district, if the assessee begins to operate the cold storage plant before the 31st March, 2000. A further deduction of 25% of profits of such business (30% in the case of companies) for the subsequent five years is also allowed. 39.4-2 The complex food chain from the producer to the consumer, involves various intermediaries for handling and processing agricultural produce. The loss and wastage of perishable agricultural produce, vegetables and similar other commodities in India continues to be high. In order to minimise such a loss of produce and to ensure smooth and uniform distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the transferee undertaking. This modified provision shall apply to industrial parks developed between 1-4-1999 and 31-3-2002. 39.5-3 These amendments shall come into force with effect from the 1st day of April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 50] 39.6. Tax holiday for industries in North-East : 39.6-1 In order to promote industrialisation and encourage economic growth in the North-East Region, a proviso has been added in sub-section (4) of restructured section 80-IB to provide that such industrial undertakings as are notified by the Central Government set up in that region shall be entitled to a deduction of 100% of their profits for a period of ten consecutive assessment years. This amendment will take effect from the 1st day of April, 2000, and will, accordingly, apply in relation to assessment year 2000-2001 and subsequent years. [Section 50] 39.7 Liberalisation of tax holiday to approved housing projects : 39.7.1 Under section 80-IA of the Income-tax Act, profits of approved housing projects where the development and construction commences on or after 1-10-1998 and is completed by 31-3-2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assets respectively. However, the benefit of cost inflation index is not available to them. This has led to a widespread demand for level playing field between non-residents and resident investors in share market notwithstanding the availability of cost inflation index to the latter. 41.2 The Act has, therefore, amended section 112 of the Income-tax Act to limit the tax on long term capital gains at 10% of the capital gain on securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956, and listed in recognised stock exchanges in India before allowing adjustment for cost inflation index for all assessees. In other words, the benefit of cost inflation index shall continue as before but where the tax on long term capital gains without adjustment of cost inflation exceeds 10%, such excess shall be ignored. 41.3 Section 2(h) of the Securities Contracts (Regulation) Act, 1956, has defined securities as under : " 'Securities' include— (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate ; (ii) Government securities ; (iia) such other in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le" in this section follows the definition given in clause (28) of section 2 of the Motor Vehicles Act, 1988. This definition includes vehicles of less than four wheels having engine capacity of more than 25 cubic centimeters. Consequently owners of two-wheeled vehicles come under the ambit of the first proviso to sub-section (1) of section 139 of the Income-tax Act. 43.2 The Act, therefore, amended clause (ii) of the first proviso to sub-section (1) of section 139 to provide that the definition of "motor vehicle" shall not include a two-wheeled vehicle whether having any detachable side car having extra wheel attached to such two-wheeled vehicle or not. 43.3 This amendment takes effect from the 1st day of June, 1999.[Section 62] 44. Amendment of section 139(6) to provide for particulars of bank account and credit card in prescribed form of return : 44.1 The details and information to be furnished in the return of income and the statements and annexures to accompany the return of income are guided by the provisions of sub-sections (6), (6A) and (9) of section 139. 44.2 Under the existing provisions contained in sub-section (6), the form of return requires the assessee to furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x for making incorrect claims. 46.2 It is seen that the present system of prima facie adjustments has become some sort of assessment in itself where every return is examined minutely and such adjustments are also open to appellate remedy. Most of the time of the Assessing Officer is utilised in processing the returns in the above manner leaving very little time for thorough investigation and other important activities. The ever increasing number of returns resulting from the drive to widen the tax base may make it more difficult. In view of the above, the Act has amended section 143 of the Income-tax Act to modify the present provisions contained in section 143(1)/143(1A)/ 143(1B) and to do away with the provisions relating to prima facie adjustments, additional tax and issue of intimations in all cases. Filing of the return by itself would complete the process of assessment limiting its scope to raise demand where taxes are not paid and issue refund wherever due, on the basis of return of income so filed. With the exception of issuing intimations where any sum is payable by the assessee or any refund is due to him, the acknowledgment shall be deemed to be an intimation. The Act h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, to provide for deduction of income-tax at source on payment of compensation or consideration or account of compulsory acquisition of any capital asset. 48.2 The new section provides that any person responsible for paying to a resident any sum being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any capital asset shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein. However, no such deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed one hundred thousand rupees. 48.3 The Act also amends section 197 of the Income-tax Act relating to certificate for deduction of income-tax at a lower rate so as to include the new section 194L within the scope of the said section. Consequent to the insertion of the new section 194L, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed contain voluminous data and preparing these returns as also processing the data contained therein for checking its correctness requires substantial manual effort. 51.2 In order to make filing of these returns and processing of data easier, the Act amends section 206C by inserting new sub-sections (5B) and (5C) to provide for filing of returns on computer media such as floppies, diskettes, magnetic cartridge tape, CD-ROM or any other computer readable media, as may be specified by the Board. It has been provided that such a return shall be deemed to be a return for the purpose of sub-section (5A) and the rules made thereunder and shall be admissible in any proceedings thereunder as evidence. 51.3 While receiving such return on computer media, necessary checks by scanning the documents filed on computer media will be carried out and the media will be duly authenticated by the Assessing Officer. He shall also take due care to preserve the computer media by duplicating, transferring, mastering or storage without loss of data. 51.4 These amendments take effect from the 1st day of June, 1999.[Section 80] 52. Certificate for collection of tax at a lower rate : 52.1 The existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act to provide that the Commissioner (Appeals), where it is possible, may hear and decide every appeal within a period of one year from the end of the financial year in which the appeal is filed. The Appellate Tribunal, where it is possible, may hear and decide every appeal within a period of four years from the end of the financial year in which the appeal is filed. 53.2 To discourage filing of frivolous appeals, the Act has amended section 254 of the Income-tax Act empowering the Appellate Tribunal to award costs in suitable cases under the Income-tax Act. 53.3 These amendments take effect from the 1st day of June, 1999.[Sections 84 and 86] 54. Rationalisation of provisions relating to reduction of litigation and other allied issues : 54.1 Finance (No. 2) Act, 1998 introduced a number of measures to reduce mounting litigation and delay in disposal of appeals under direct tax enactments. The major amendments included direct appeal to the High Court, introduction of a scale of fee payable before the Commissioner (Appeals) and enhancement of existing scale of fee payable before the Appellate Tribunal. These provisions have come into effect from the 1st day of October, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the appeal before the High Court within 120 days from the date of the receipt of the order of the Appellate Tribunal. [Section 87] (v) As the procedure for filing appeals before the High Court is prescribed in the Code of Civil Procedure, the Act has amended section 260A of the Income-tax Act to provide that the relevant provisions of the Code of Civil Procedure shall apply, mutatis mutandis, to section 260A of the Income-tax Act. [Section 87] 54.2 These amendments take effect from the 1st day of June, 1999. 55. Omission of transitory provisions and certain modifications : A large number of amendments have been made in the Income-tax Act in the past with regard to transitory periods or to make certain provisions inoperative from certain dates. Such provisions are still continuing on the statute inspite of having served their purpose. Therefore, in order to rationalise the provisions of the Income-tax Act, following amendments have been made by the Act by omitting/modifying certain provisions in the Income-tax Act : (i) Clause (30) of section 2 is amended so as to include in the definition of "non-resident", a person who is not ordinarily resident in India. This amendment res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which defines the term "previous year" is substituted so as to omit the transitory provisions which were applicable only for a limited period. These transitory provisions were inserted with effect from 1-4-1989 and relate to the definition of the previous year relevant to the assessment year 1989-1990. As these transitory provisions are no longer applicable, they have been deleted. Similarly, the Tenth Schedule to the Income-tax Act, which provides for modification of the provisions of the Income-tax Act in cases where the previous year in relation to the assessment year commencing on the 1st day of April, 1989, exceeds 12 months, has also been omitted. These amendments will take effect from the 1st day of April, 2000.[Sections 4 and 89] (x) Section 36 of the Income-tax Act relates to certain deductions made in computing the income under the head "Profits and gains of business or profession". Under the existing provisions contained in clause (iia) of sub-section (1) of section 36, a weighted deduction is allowed in respect of the expenditure incurred by the assessee on payment of salary to an employee who is totally blind or suffers from a permanent physical disability for any pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il, 2000.[Section 71] (xv) Section 194H of the Income-tax Act relates to deduction of tax at source from any payment made on account of commission, brokerage, etc. This section provides for deduction of tax at source only from those payments made on or after the 1st day of October, 1991, but before the 1st day of June, 1992. As these provisions are no longer required, they have been omitted by the Act. This amendment will take effect from the 1st day of April, 2000.[Section 72] 56. Business re-organization—extensive amendments in relation to amalgamation demerger and slump sale : 56.1 The business and economic environment of the country has thrown up the need for simplification and rationalisation of laws relating to business re-organization for rationalisation of the production system and better utilization of resources which have become necessary with a view to enabling the Indian industry to restructure itself to become globally competitive. It was in this background that the tax concessions to conversion of firms into companies or proprietary concerns into companies were provided in the Finance (No. 2) Act, 1998, and were widely welcomed. Following this up, the Act has car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defines amalgamation in relation to companies and provides for the manner in which the amalgamation will take place has been amended to provide that instead of shareholders holding nine-tenths in value of shares, shareholders holding three-fourths in the value of shares shall be required to become shareholders of the amalgamated company. [Clause (a), section 3] (ii) A new clause (19AA) has been inserted in section 2 of the Income-tax Act to define demerger. According to the definition, demerger in relation to the companies shall mean transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, by a demerged company of its one or more undertakings to the resulting company. The definition provides that all the property of the undertaking and all the liabilities relatable to the undertaking being transferred by the demerged company shall become the property or liabilities of the resulting company. The property and liabilities of the undertaking being transferred by the demerged company are to be transferred at book value. As a consideration for demerger, the resulting company shall issue shares to the shareholders of the demerged company on a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the demerged company is transferred in a demerger and as a consideration for such transfer, the resulting company issues shares to the shareholders of the demerged company. It also provides that the resulting company shall include any authority or body or local authority or public sector company or a company formed as a result of demerger. [Clause (f), section 3] (vi) Clause (42A) of section 2 of the Income-tax Act defining short-term capital asset has been amended to provide that in respect of shares in an Indian company which have become the property of the assessee in consideration of demerger, the period of holding of such shares in the demerged company shall be included in computing the total period of holding of the shares by the assessee. [Clause (g), section 3] (vii) A new clause (42C) has been inserted in section 2 of the Income-tax Act to define the expression "slump sale". Slump sale shall mean the transfer by way of sale of one or more undertakings for a lump sum consideration without assigning values for individual assets and liabilities. Explanation 1 to the clause follows the meaning of "undertaking" given in clause (19AA) of section 2. Explanation 2 to the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the amalgamated company or the resulting company in the case of transfer of business under the scheme of amalgamation of demerger. [Section 17] (xii) The Act has amended section 35ABB of the Income-tax Act relating to allowance of expenditure incurred for licence to operate telecommunication services before commencement of business. The section also provides for the manner of write-back of deduction of expenditure already allowed or yet to be allowed in the event of transfer of licence depending upon the amount of proceeds received on transfer. The newly inserted sub-section (7) provides that the above provisions relating to transfer of licence shall not be applicable to the demerged company when the demerged company transfers the licence to the resulting company in a scheme of demerger. It also provides that the provisions of this section shall apply to the resulting company as they would have applied to the demerged company, as if the demerger had not taken place. [Section 18] (xiii) A new section, namely 35DD, has been inserted in the Income-tax Act to provide for amortisation of expenditure in case of amalgamation or demerger. It provides for deduction of such expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any shall be the value of assets as appearing in the books of the demerged company immediately before the demerger. However, if such book value exceeds the written down value, the excess shall be reduced from the written down value of the asset. [Section 26] (xviii) Section 47 of the Income-tax Act has been amended inserting clauses (vib), (vic) and (vid) to provide that liability for capital gains tax shall not arise for any transfer of a capital asset in a demerger, if the resulting company is an Indian company. The liability to pay capital gains tax will also not be attracted to any transfer in a demerger of a foreign company in respect of capital assets being shares held in an Indian company to the resulting company if at least 75% of the shareholders of the demerged foreign company continue to remain shareholders of the resulting foreign company and such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated. It has also been provided that the provisions contained in sections 391 to 394 of the Companies Act, 1956, shall not apply in such a case. It has further been provided that the provisions of section 45 attracti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at. The expression "net worth" means net worth as defined in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. Net worth has been defined in this Act as under: " 'net worth' means the sum total of the paid-up capital and free reserves. Explanation.—-For the purposes of this clause, "free reserves" means all reserves credited out of the profits and share premium account but does not include reserves credited out of re-evaluation of assets, writeback of depreciation provisions and amalgamation." [Section 36] (xxi) Section 72 of the Income-tax Act relating to carry forward and set off of business loss has been amended deleting the proviso to clause (i) of sub-section (1) which stipulated that the business or profession for which the loss was computed has to be continued in order to avail of carry forward and set-off of loss. With this omission, business loss can be carried forward and set-off even if the assessee is engaged in a different business.[Section 37] (xxii) The Act has substituted section 72A of the Income-tax Act relating to carry forward and set-off of accumulated loss and unabsorbed depreciation in certain c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred in any previous year is allowed to be carried forward and set-off, unless there is continuation of share holding having at least fifty-one per cent. of the voting power where there is a change in the share holding in the case of a company (not being a company in which the public is substantially interested) to the last day of the year, in which the loss was incurred. The amended provisions provide that the above condition shall not apply to any change in the share holding of an Indian company which is subsidiary of a foreign company arising as a result of amalgamation or demerger of a foreign company subject to the condition that fifty-one per cent. of the shareholders of the amalgamating or demerged foreign company continue to remain the shareholders of the amalgamated or the resulting foreign company. [Section 39] (xxiv) The Act has substituted section 80-IA by sections 80-IA and 80-IB of the Income-tax Act. The substituted section 80-IA, inter alia, in sub-section (12) provides that where any undertaking of an Indian company entitled to the deduction under this section is transferred to another Indian company in a scheme of amalgamation or demerger before the expiry of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : 58.1 As in the case of the Income-tax Act, the Act has amended section 16 of the Wealth-tax Act to modify the present provisions contained in section 16(1)/16(1A)/16(1B) to do away with the provisions relating to prima facie adjustments, additional tax and issue of intimations in all cases. Filing of return by itself would complete the process of assessment limiting its scope to raise demand and issue refund on the basis of return filed. With the exception of issuing intimations where any sum is payable by the assessee or refund is due to him, the acknowledgment shall be deemed to be an intimation. The Act has also amended sub-section (1) of section 35 of the Wealth-tax Act to provide for rectification of intimation or deemed intimation referred to in sub-section (1) of section 16. 58.2 This amendment takes effect from the 1st day June, 1999. [Sections 92 and 97] 59. Rationalisation of provisions relating to reduction of litigation and other allied issues : 59.1 As in the case of the Income-tax Act, the Act has introduced a number of amendments to further rationalise and streamline the provisions to reduce litigation and delay in disposal of appeals under the Wealth-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 24 of the Wealth-tax Act to provide that the Commissioner (Appeals), where it is possible, may hear and decide every appeal within a period of one year from the end of the financial year in which the appeal is filed. The Appellate Tribunal, where it is possible, may hear and decide every appeal within a period of four years from the end of the financial year in which the appeal is filed. 60.2 To discourage filing of frivolous appeals, the Act has amended section 24 of the Wealth-tax Act empowering the Appellate Tribunal to award costs in suitable cases. 60.3 These amendments take effect from the 1st day of June, 1999.[Sections 93 and 94] Expenditure-tax 61. Time-limit for disposal of appeals by the Commissioner (Appeals) and the Appellate Tribunal : 61.1 As in the case of Income-tax Act, the Act has amended section 22 of the Expenditure-tax Act to provide that the Commissioner (Appeals), where it is possible, may hear and decide every appeal within a period of one year from the end of the financial year in which the appeal is filed. 61.2 In view of the applicability of the provisions of section 254 of the Income-tax Act to the Expenditure-tax Act in terms of section 24 ..... 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