TMI BlogEXPLANATORY NOTES TO THE PROVISIONS OF THE FINANCE (No.2) ACT, 2014X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of charitable trusts and institutions, 7.1 - 7.6. 12A Applicability of the registration granted to a trust or institution to earlier years, 8.1 - 8.6 . 12AA Cancellation of registration of the trust or institution in certain cases, 9.1 - 9.5. 24 Deduction from income from house property, 10.1- 10.3. 32AC Investment Allowance to a Manufacturing Company, 11.1 - 11.4. 35AD Deduction in respect of capital expenditure on specified business, 12.1 - 12.10 . 37 Corporate Social Responsibility (CSR), 13.1 - 13.4. 40 Disallowance of expenditure for non- deduction of tax at source, 14.1 - 14.8. 43 Speculative transaction in respect of commodity derivatives, 15.1 - 15.3 . 44AE Business of Plying, Hiring or Leasing Goods Carriages, 16.1 - 16.2. 45 Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infrastructure Investment Trust (Invit), 36.1 - 36.5. 116 Income-tax Authorities, 37.1 - 37.3. 119 Enabling CBDT to relax provisions relating to levy of fee under section 234E, 38.1 - 38.4. 133A Power of Survey, 39.1 - 39.5. 133C Inquiry by prescribed income-tax authority, 40.1- 40.2. 139 Mutual Funds, Securitisation Trusts and Venture Capital Companies or Venture Capital Funds to file return of income, 41.1 - 41.5. 140 Signing and verification of return of income, 42.1 - 42.3. 142A Estimate of value of assets by Valuation Officer and time limit for completion of assessments where reference made, 43.1 - 43.6. 145 Income Computation and Disclosure Standards, 44.1- 44.4 . 153C Assessment of income of a person other than the person who has been searched, 45.1- 45.3 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce and advance tax has to be paid during financial year 2014-15. (ii) amended sections 2,10, 10AA, 11 , 12A , 12AA , 24 , 32AC , 35AD , 37 , 40 , 43 , 44AE , 45 , 47 , 48 , 49, 51, 54 , 54EC , 54F, 56 , 73 , 80C , 80CCD , 80CCE, 80-IA , 92B , 92C , 92CC , 111A, 112 , 115A, 115BBC , 115BBD , 115JC , 115JEE , 115-O , 115R , 115TA, 116 , 119 , 133A , 139 , 140 , 145 153, 153B, 153C , 194A, 194LC , 200 , 200A , 201 , 206AA, 220 , 245A , 245N , 245-O , 269SS , 269T , 271FA, 271G , 271H, 276D and 281B of the Income-tax Act, 1961 ; (iii) Substituted new sections for sections 142A and 285BA; (iv) inserted new sections 133C, 142A , 194DA , 194LBA and 271FAA in the Income-tax Act, 1961 ; (v) inserted Chapter XII-FA consisting of section 115UA in the Income-tax Act, 1961 ; (vi) amended sections 22A of the Wealth-tax Act, 1957; (vii) amended sections 97 and 98 of the Finance (No.2) Act, 2004; (viii) amended section 13 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002. 3. Rate structure 3.1 Rates of income-tax in respect of incomes liable to tax for the assessment year 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income of one crore rupees by more than the amount of income that exceeds one crore rupees. The Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. For instance, if the income of an individual is ₹ 1,01,00,000 and income-tax computed is ₹ 28,60,000. Surcharge on the income-tax at the rate of 10% of such tax is ₹ 2,86,000. Thus the total income-tax inclusive of surcharge is ₹ 31,46,000 without providing marginal relief. On providing marginal relief, the income-tax inclusive of surcharge shall be limited to ₹ 29,60,000. Then the education cess of two per cent is to be computed on ₹ 29,60,000 which works out to ₹ 59,200. In addition, the amount of tax computed shall also be increased by an additional cess called Secondary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed inclusive of surcharge. In addition, the amount of tax computed shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.1.5 Local Authorities -In the case of every local authority, the rate of income-tax has been specified at thirty per cent in Paragraph D of Part I of the First Schedule to the Act. The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a local authority having a total income exceeding one crore rupees. However, marginal relief shall be available so that the total amount payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds one crore rupees, (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees. Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge in the case of every company. Also, such amount of tax and surcharge shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of the amount of tax computed, inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.2 Rates for deduction of income-tax at source from certain incomes during the financial year 2014-15. 3.2.1 In every case in which tax is to be deducted at the rates in force under the provisions of sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the Income-tax Act, the rates for deduction of income-tax at source during the financial year 2014-15 have been specified in Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be ₹ 1,22,400. The total cess in this case will, therefore, amount to ₹ 3,67,200 (i.e., ₹ 2,44,800 + ₹ 1,22,400). 3.3 Rates for deduction of income-tax at source from Salaries , computation of advance tax and charging of income-tax in special cases during the financial year 2014-15 . 3.3.1 The rates for deducting income-tax at source from Salaries and computing advance tax during the financial year 2014-15 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 2014-15 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, assessment of persons who are likely to transfer property to avoid tax, assessment of bodies formed for short duration, etc. The rates are as follows:- 3.3.2 Individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person - Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducation Cess on income-tax at the rate of one per cent of such income-tax inclusive of surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.3.3 Co-operative Societies In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. The rates are as follows- Income chargeable to tax Rate Up to ₹ 10,000 10% ₹ 10,001- ₹ 20,000 20% Exceeding ₹ 20,000 30% The amount of income-tax so computed shall be increased by a surcharge at the rate of ten percent. of such income-tax in case of a co-operative society having a total income exceeding one crore rupees. However, marginal relief shall be available. Accordingly, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax and surcharge. No marginal relief shall be available in respect of Education Cess and Secondary and Higher Education Cess. 3.3.6 Companies- In the case of a company, the rate of income-tax has been specified in Paragraph E of Part III of the First Schedule to the Act. In case of a domestic company, the rate of income-tax is thirty per cent of the total income. The tax computed shall be enhanced by a surcharge of five per cent where such domestic company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of ten per cent shall be levied if the total income of the company exceeds ten crore rupees. In the case of a company other than a domestic company, royalties received from Government or an Indian concern under an approved agreement made after 31-3- 1961 but before 1-4-1976, shall be taxed at fifty per cent. Similarly, fees for technical services received by such company from Government or Indian concern under an approved agreement made after 29-2-1964 but before 1-4-1976, shall be taxed at fifty per cent. On the balance of the total income of such company, the tax rate shall be forty per cent. The tax computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.01.2014] faced a difficulty in characterisation of their income arising from transaction in securities as to whether it is capital gains or business income. Further, the fund manager managing the funds of such investor remained outside India under the apprehension that their presence in India may constitute permanent establishment (PE) and the income arising from transactions in securities held in India may be taxed as business income of PE. In this context, the Finance Minister, in his budget speech, had stated as under - Foreign Portfolio investors (FPIs) have invested more than ₹ 8 lakh crore (about 130 billion US$) in India. One of their concerns is uncertainty in taxation on account of characterization of their income. Moreover, the fund managers of these foreign investors remain outside India under the apprehension that their presence in India may have adverse tax consequences. With a view to put an end ro this uncertainty and to encourage these fund managers to shift to India, I propose to provide that income arising to foreign portfolio investors from transaction in securities will be treated as capital gains. 4.2 Accordingly, clause (14) has been amended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment takes effect from 1st April, 2015 and will accordingly apply, in relation to the assessment year 2015-16 and subsequent assessment years. 6. Clarification in respect of section 10(23C) of the Income-tax Act 6.1 The provisions of sub-clause (iiiab) and (iiiac) of section 10(23C) of the Income-tax Act provide exemption, subject to various conditions, in respect of income of certain educational institutions, universities and hospitals which exist solely for educational purposes or solely for philanthropic purposes, and not for purposes of profit and which are wholly or substantially financed by the Government. 6.2 Absence of a definition of the phrase substantially financed by the Government had led to litigation and varying decisions of judicial authorities who had, for this purpose, relied upon various other provisions of the Income-tax Act and other Acts. Thus, there has been lack of certainty in this regard. 6.3 Therefore, clause (23C) of section 10 has been amended by inserting an Explanation below sub-clause (iiiac) of the said clause. It provides that if the Government grant to a university or other educational institution, hospital or other institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a complete code governing the grant, cancellation or withdrawal of registration, providing exemption to income, and also the conditions subject to which a charitable trust or institution is required to function in order to be eligible for exemption. They also provide for withdrawal of exemption either in part or in full if the relevant conditions are not fulfilled. 7.3 Several issues had arisen in respect of the application of exemption regime to trusts or institutions in respect of which clarity in law was required. 7.4 The first issue was regarding the interplay of the general provision of exemptions which are contained in section 10 of the Income-tax Act vis-a-vis the specific and special exemption regime provided in sections 11 to 13 of the said Act. As indicated above, the primary objective of providing exemption in case of charitable institution is that income derived from the property held under trust should be applied and utilised for the object or purpose for which the institution or trust has been established. In many cases it had been noted that trusts or institutions which are registered and have been availing benefits of the exemption regime do not apply their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, notional deduction by way of depreciation etc. was being claimed and such amount of notional deduction was not being applied for charitable purpose. As a result, double benefit was being claimed by the trusts and institutions. Therefore, these provisions were required to be rationalised to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose. 7.5.1 Accordingly, the Income-tax Act has been amended to provide that under section 11 and section 10(23C), income for the purposes of its application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year. 7.6 Applicability: - These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 8. Applicability of the registration granted to a trust or institution to earlier years 8.1 The provisions of section 12A of the Income-tax Act, before amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once granted to a trust or institution shall remain in force until it is cancelled by the Commissioner. The Commissioner could cancel the registration under two circumstances: (a) the activities of a trust or institution are not genuine, or; (b) the activities are not being carried out in accordance with the objects of the trust or institution. 9.1.1 The Commissioner was empowered to cancel the registration only if either or both of the above conditions were satisfied, and not otherwise. 9.2 There have been cases where trusts, particularly in the year in which they had substantial income claimed to be exempt under other provisions of the Income-tax Act though they deliberately violated the provisions of section 13 of the said Act by investing in modes other that specified modes, etc. Similarly, there have been cases where the income is not properly applied for charitable purposes or is diverted for the benefit of certain interested persons. However, due to restrictive interpretation of the powers of the Commissioner under the said section 12AA, registration of such trusts or institutions continued to be in force and these institutions continued to enjoy the beneficial r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use shall not exceed one lakh fifty thousand rupees. 10.2 There has been appreciation in the value of house property and accordingly cost of finance has also gone up. Therefore, the second proviso to clause (b) of section 24 has been amended so as to increase the limit of deduction on account of interest in respect of property referred to in sub-section (2) of section 23 of the Income-tax Act to two lakh rupees. 10.3 Applicability: - This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 11. Investment Allowance to a Manufacturing Company 11.1 In order to encourage the companies engaged in the business of manufacture or production of an article or thing to invest substantial amount in acquisition and installation of new plant and machinery, Finance Act, 2013 inserted section 32AC in the Income-tax Act to provide that where an assessee, being a company, is engaged in the business of manufacture of an article or thing and invests a sum of more than ₹ 100 crore in new assets (plant and machinery) during the period beginning from 1st April, 2013 and ending on 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 -- -- Under the existing section 32AC(1) Deduction allowable 22.5 1.5 -- -- 4 Amount of investment 60 20 -- -- No deduction either under section 32AC(1) or 32AC(1A) Deduction allowable Nil Nil -- -- 5 Amount of investment 30 30 30 40 Under the amended section 32AC(1A) Deduction allowable Nil 4.5 4.5 6 6 Amount of investment 150 20 70 20 Deduction both under section 32AC(1) 32AC(1A) Deduction allowable 22.5 3 10.5 Nil 11.4 Applicabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as specified business for the purposes of the investment-linked deduction under section 35AD, which are :- (a) laying and operating a slurry pipeline for the transportation of iron ore; (b) setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is notified by the Board in accordance with the prescribed guidelines. 12.3 It has also been provided that the date of commencement of operations for availing investment linked deduction in respect of the two new specified businesses shall be on or after 1st April, 2014. 12.4 The provisions of section 35AD, before amendment by the Act, did not provide for a specific time period for which capital assets on which the deduction has been claimed and allowed, are to be used for the specified business. 12.5 With a view to ensure that the capital asset on which investment linked deduction has been claimed is used for the purposes of the specified business, subsection (7A) has been inserted in section 35AD to provide that any asset in respect of which a deduction is claimed and allowed under section 35AD, shall be used only for the specified business for a period of eight years beginning with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital expenditure incurred for the purposes of specified business in any assessment year, no deduction under section 10AA shall be available to the assessee in the same or any other assessment year in respect of such specified business. 12.9 As a consequence of this amendment, section 10AA has also been amended to provide that no deduction under section 35AD shall be available in any assessment year to a specified business which has claimed and availed of the deduction under section 10AA in the same or any other assessment year. 12.10 Applicability:-These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 12.10 Applicability: These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 13. Corporate Social Responsibility (CSR) 13.1 Under the Companies Act, 2013 certain companies (which have net worth of ₹ 500 crore or more, or turnover of ₹ 1000 crore or more, or a net profit of ₹ 5 crore or more during any financial year) are required to spend certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax at source 14.1 The provisions of section 40(a)(i) of the Income-tax Act, prior to the amendment by the Act, provided that certain payments such as interest, royalty and fee for technical services made to a non-resident shall not be allowed as deduction in computing business income if tax on such payments had not been deducted, or after deduction, has not been paid within the time prescribed under section 200(1) of the Income-tax Act. The Income-tax Act contains similar provisions for disallowance of business expenditure in respect of certain payments made to residents. Under section 40(a)(ia) of the Income-tax Act, in case of payments made to resident, the deductor is allowed to claim deduction for payments as expenditure in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return of income under section 139(1) of the Income-tax Act. However, in case of disallowance for non-payment of tax from payments made to non-residents, this extended time limit of payment of tax deducted at source up to the date of filing of return of income under section 139(1) was not available. 14.2 In o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year in which tax deducted at source has been paid. 14.6 Further, provisions of section 40(a)(ia) of the Income-tax Act, prior to its amendment by the Act, provided that certain payments such as interest, commission, brokerage, rent, royalty fee for technical services and contract payment made to a resident shall not be allowed as deduction for computing business income if tax on such payments was not deducted, or after deduction, was not paid within the time specified under the said section. Chapter XVII-B of the Income-tax Act mandates deduction of tax from certain other payments such as salary, directors fee, which were not specified in section 40(a)(ia) of the Income-tax Act. The payments on which tax is deductible under Chapter XVII-B but not specified under section 40(a)(ia) of the Income-tax Act may also be claimed as expenditure for the purposes of computation of income under the head Profits and gains from business or profession . 14.7 Section 40(a)(ia) of the Income-tax Act has proved to be an effective tool for ensuring compliance of TDS provisions by the payers. Therefore, in order to improve the TDS compliance in respect of payments to residents which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arriages at any time during the previous year. Income from the said business is calculated as under: Type of Goods Carriage Amount of Presumptive Taxation Heavy Goods Vehicle(HGV) ₹ 5,000 for every month (or part of a month) during which the goods carriage is owned by the taxpayer. Vehicle other than HGV ₹ 4,500 for every month (or part of a month) during which the goods carriage is owned by the taxpayer. 16.1.1 The amount of presumptive income was revised by the Finance (No.2) Act, 2009. Further, the provisions of said section 44AE made a distinction between HGV and vehicle other than HGV for specifying the amount of presumptive income. 16.1.2 Considering the erosion in the real values of the amount of specified presumptive income due to inflation over the years and also in order to simplify this presumptive taxation scheme, section 44AE has been amended to provide for a uniform amount of presumptive income of ₹ 7,500 for every month (or part of a month) for all types of goods carriage without any distinction between HGV and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as transfer for the purpose of charging capital gains. 18.3 Applicability: - This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years. 19. Cost Inflation Index 19.1 The provisions contained in section 48 of the Income-tax Act prescribe the mode of computation of income chargeable under the head Capital gains . Clause (v) of the Explanation to the said section prior to its amendment by the Act defined the term Cost Inflation Index (CII) which in relation to a previous year meant such index as may be notified by the Government having regard to seventy-five percent of average rise in the Consumer Price Index (CPI) for urban non-manual employees (UNME) for the immediately preceding previous year to such previous year. 19.2 The release of CPI for UNME has been discontinued. Accordingly, clause (v) of the Explanation to section 48 of the Income-tax Act has been amended to provide that Cost Inflation Index in relation to a previous year means such index as may be notified by the Central Government having regard to seventy-five percent of average rise in the Consumer Price In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 21. Capital gains exemption on investment in Specified Bonds 21.1 The provisions contained in sub-section (1) of section 54EC of the Income-tax Act, provide that where capital gain arises from the transfer of a long-term capital asset and the assessee has, within a period of six months, invested the whole or part of capital gains in the long-term specified asset, the proportionate capital gains so invested in the long-term specified asset, out of the whole of the capital gain, shall not be charged to tax. The proviso to the said sub-section provides that the investment made in the long-term specified asset during any financial year shall not exceed fifty lakh rupees. 21.2 However, the wordings of the proviso have created an ambiguity. As a result the capital gains arising during the year after the month of September were invested in the specified asset in such a manner so as to split the investment in two years i.e., one within the year and second in the next year but before the expiry of six months. This resulted in the claim for relief of one crore rupees as against the intended limit for relief of fifty lakh rupees. 21.3 Accordingly, a proviso in sub-section (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. 22.6 Applicability: - These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. 23. Losses in Speculation Business 23.1 The provisions of section 73 of the Income-tax Act provide that losses incurred in respect of a speculation business cannot be set off or carried forward and set off except against the profits of any other speculation business. Explanation to said section 73, before its amendment by the Act, provided that in case of a company deriving its income mainly under the head Profits and gains of business or profession (other than a company whose principal business is business of banking or granting of loans and advances), and where any part of its business consists of purchase or sale of shares, such business shall be deemed to be speculation business for the purpose of this section. Sub-section (5) of section 43 of the Income-tax Act defines the term speculative transaction as a transaction in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment or any other employer on or after 1st January, 2004, has paid or deposited any amount in a previous year in his account under a notified pension scheme, a deduction of such amount not exceeding ten per cent. of his salary is allowed. Similarly, the contribution made by the Central Government or any other employer to the said account of the individual under the pension scheme is also allowed as deduction under sub-section (2) of section 80CCD, to the extent it does not exceed ten per cent. of the salary of the individual in the previous year. 25.2 Considering the fact that for employees in the private sector, the date of joining the service is not relevant for joining the New Pension Scheme, the provisions of section 80CCD have been amended to provide that the condition of the date of joining the service on or after 1.1.2004 is not applicable to them for the purposes of deduction under the said section. 25.3 Applicability: - This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years. 26. Extension of the sunset date under section 80-IA of the Income-tax Act for the power se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 27.3 With a view to clarify the intention of the legislature, section 92B has been amended to provide that where, in respect of a transaction entered into by an enterprise with a person other than an associated enterprise, there exists a prior agreement in relation to the relevant transaction between the other person and the associated enterprise or, where the terms of the relevant transaction are determined in substance between such other person and the associated enterprise, and either the enterprise or the associated enterprise or both of them are non-resident, then such transaction shall be deemed to be an international transaction entered into between two associated enterprises, whether or not such other person is a nonresident. 27.4 Applicability: - This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 28. Providing for use of range concept in determination of Arm s Length Price 28.1 Section 92C of the Income-tax Act provides for computation of Arm s Length Price (ALP) of an international transaction or specified domestic transaction. Subsection (1) provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period prior to the period covered under an APA. However, the roll back relief is provided on case to case basis subject to certain conditions. Providing for such a mechanism in Indian legislation would reduce litigation which is currently pending or may arise in future in respect of the transfer pricing matters. 29.3 Therefore, section 92CC of the Income-tax Act has been amended to provide for roll back mechanism in the APA scheme. It has been provided that the APA may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the arm s length price or specify the manner in which the arm s length price is to be determined in relation to an international transaction entered into by the person during any period not exceeding four previous years preceding the first of the previous years for which the advance pricing agreement applies in respect of the international transaction to be undertaken in future. 29.4 Applicability: - This amendment takes effect from 1st October, 2014. 30. Tax on long-term capital gains on units 30.1 The provisions contained in section 112 of the Income-tax Act provide for tax payable in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to provide that the income-tax payable shall be the aggregate of the amount of income-tax calculated at the rate of thirty per cent on the aggregate of anonymous donations received in excess of five per cent of the total donations received by the assessee or one lakh rupees, whichever is higher, and the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the aggregate of the anonymous donations which is in excess of the five per cent of the total donations received by the assessee or one lakh rupees, as the case may be. 31.4 Applicability: - This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 32. Reduction in tax rate on certain dividends received from foreign companies 32.1 Section 115BBD of the Income-tax Act was introduced as an incentive for attracting repatriation of income earned by Indian companies from investments made abroad. It provides for taxation of gross dividends received by an Indian company from a specified foreign company at a concessional rate of 15 per cent. if such dividend is included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 60 ADDITIONS (i) deduction under Chapter VI-A (on non-specified business) ₹ 40 ii) deduction under section 35AD(on specified business) ₹ 100 LESS: depreciation under section 32 ₹ 15 ₹ 85 Adjusted total income under section 115JC Rs.185 33.4 Applicability:- These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 34. Credit of Alternate Minimum Tax 34.1 The provisions of sub-section (1) of section 115JEE of the Income-tax Act, before amendment by the Act, provided that the provisions of Chapter-XII BA shall be applicable to any person who has claimed a deduction under part C of Chapter VI-A or claimed a deduction u/s 10AA. Further the provisions of sub-section (2) of section 115JEE, before amendment by the Act, provided that the Chapter shall not be applicable to an individual, HUF, association of persons , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany with reference to the net amount. Similar was the case when income was distributed by mutual funds. Due to difference in the base of the income distributed or dividend on which the distribution tax is calculated, the effective tax rate was lower than the rate provided in the respective sections. 35.5 In order to ensure that tax is levied on proper base, the amount of distributable income, and the dividends which are actually received by the unit holder of the mutual fund or shareholders of the domestic company, as the case may be, were required to be grossed up for the purpose of computing the additional tax. 35.6 Accordingly, section 115-O has been amended so as to provide that for the purposes of determining the tax on distributed profits payable in accordance with the provisions of section 115-O, any amount by way of dividends referred to in subsection (1) of the said section, as reduced by the amount referred to in sub-section (1A) [referred to as net distributed profits], shall be increased to such amount as would, after reduction of the tax on such increased amount at the rate specified in sub-section (1), be equal to the net distributed profits. Thus, where the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gains shall be exempt and the short term capital gains shall be taxable at the rate of 15%. (ii) In case of capital gains arising to the sponsor at the time of exchange of shares in SPVs with units of the business trust, the taxation of gains shall be deferred and tax on gains shall be levied at the time of disposal of units by the sponsor. However, the preferential capital gains regime (consequential to levy of STT) available in respect of units of business trust, will not be available to the sponsor in respect of these units at the time of transfer. Further, for the purpose of computing capital gain, the cost of these units shall be considered as cost of the shares to the sponsor. The holding period of shares shall also be included in the holding period of such units. (iii) The income by way of interest received by the business trust from SPV is accorded pass through treatment i.e., there is no taxation of such interest income in the hands of the trust and no withholding tax at the level of SPV. However, withholding tax at the rate of 5 per cent. in case of payment of interest component of income distributed to non-resident unit holders, and at the rate of 10 per cent. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 117 of the Income-tax Act. Consequential amendments in clauses (15A), (16) and (21) of section 2 and in other sections of the Income-tax Act have also been made. 37.3 Applicability: - These amendments take effect retrospectively from 1st June, 2013. 38. Enabling CBDT to relax provisions relating to levy of fee under section 234E of the Income-tax Act : 38.1 As per the existing provisions of the Income-tax Act, a deductor/collector is required to furnish periodical tax deducted at source (TDS)/tax collected at source (TCS) statements (quarterly) containing the details of deduction/collection of tax made during the quarter by the prescribed due date. Delay in furnishing of TDS/TCS statement results in delay in granting of credit of TDS/TCS to the deductee/collectee and consequently leads to delay in issue of refunds to the deductee/collectee or raising of infructuous demand against the deductee/collectee. 38.2 In order to provide effective deterrence against delay in furnishing of TDS/TCS statement, the Finance Act, 2012 inserted section 234E in the Income-tax Act to provide for levy of fee of ₹ 200 per day for late furnishing of TDS/TCS statement from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of verifying that tax has been deducted or collected at source in accordance with the provisions of Chapter XVII-B or Chapter XVII-BB, as the case may be, enter any office, or a place where business or profession is carried on, within the limits of the area assigned to him, or any such place in respect of which he is authorised for the purposes of the said section by such income-tax authority who is assigned the area within which such place is situated where books of account or documents are kept. The income-tax authority may for this purpose enter an office, or a place where business or profession is carried on after sunrise and before sunset. Further, such income-tax authority may require the deductor or the collector or any other person who may at the time and place of survey be attending to such work, - (i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, and (ii) to furnish such information as he may require in relation to such matter. 39.4 It has also been provided that an income-tax authority while acting under subsection (2A) of section 133A, may place ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act exempts the income of a Mutual Fund, clause (23DA) of section 10 of the said Act exempts the income of a securitisation trust from the activity of securitisation and clause (23FB) of section 10 of the Income-tax Act exempts the income of a venture capital company (VCC) or venture capital fund (VCF) from investment in a venture capital undertaking. Before amendments made by the Act, the Mutual Fund or securitisation trust or VCC or VCF were not obligated to furnish their return of income under section 139 of the Income-tax Act. Instead they were required to furnish a statement giving details of the nature of the income paid or credited or income distributed during the previous year and such other relevant details as may be prescribed. 41.3 Sub-section (4C) of section 139 of the Income-tax Act has been amended to provide that Mutual Fund referred to in clause (23D) of section10, securitization trust referred to in clause (23DA) of section 10 and Venture Capital Company or Venture Capital Fund referred to in clause (23FB) of section 10 of the Income-tax Act shall, if the total income in respect of which such fund, trust or company is assessable, without giving effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 142A does not provide for any time limit for furnishing of the report by the Valuation Officer. 43.3 Accordingly, section 142A has been substituted so as to provide that the Assessing Officer may, for the purposes of assessment or reassessment, require the assistance of a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit the report to him. The Assessing Officer may make a reference to the Valuation Officer whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. The Valuation Officer, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers of section 38A of the Wealth-tax Act, 1957. The Valuation Officer is required to estimate the value of the asset, property or investment after taking into account the evidence produced by the assessee and any other evidence in his possession or gathered, after giving an opportunity of being heard to the assessee.If the assessee does not co-operate or comply with the directions of the Valuation Officer he may, estimate the value of the asset, property or investment to the best of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account but are to be followed for computation of income. 44.3 In order to clarify that the standards notified under subsection (2) of section 145 of the Income-tax Act are to be followed for computation of income and disclosure of information by any class of assessees or for any class of income, section 145(2) has been amended to provide that the Central Government may notify in the Official Gazette from time to time income computation and disclosure standards to be followed by any class of assessees or in respect of any class of income. 44.3.1 Section 145(2) has been further amended to provide that the Assessing Officer may make an assessment in the manner provided in section 144 of the Income-tax Act, if the income has not been computed in accordance with the standards notified under subsection (2) of section 145 of the Income-tax Act. 44.4 Applicability: - These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years. 45. Assessment of income of a person other than the person who has been searched 45.1 Section 153C of the Income-tax Act relates to assessment of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a life insurance policy, including the sum allocated by way of bonus on such policy is exempt subject to fulfillment of conditions specified under said section 10(10D). Therefore, the sum received under a life insurance policy which does not fulfill the conditions specified under section 10(10D) are taxable under the provisions of the Income-tax Act. 46.2 In order to have a mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempt under section 10(10D) of the Income-tax Act, a new section 194DA has been inserted in the Income-tax Act to provide for deduction of tax at the rate of 2 per cent on sum paid under a life insurance policy, including the sum allocated by way of bonus, which is not exempt under section 10(10D) of the Income-tax Act. In order to reduce the compliance burden on the small tax payers, it has been provided that no deduction under this provision shall be made if the aggregate sum paid in a financial year to an assessee is less than ₹ 1,00,000/-. 46.3 Applicability: - This amendment takes effect from 1st October, 2014. 47. Concessional rate of tax on overseas borrowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 notified vide Notification No.03/2013 dated 15th January, 2013. However, there does not exist any express provision in the Income-tax Act for enabling a deductor to file correction statement. 48.3 In order to bring clarity in the matter relating to filing of correction statement, Section 200 of the Income-tax Act has been amended to allow the deductor to file correction statements. 48.3.1 Consequently, provisions of section 200A of the Income-tax Act have also amended to enable the processing of correction statement filed. 48.3.2 The provisions of section 201(1) of the Income-tax Act provide for passing of an order deeming a payer as assessee in default if he does not deduct or does not pay or after deduction fails to pay the whole or part of the tax as per the provisions of Chapter XVII-B of the Income-tax Act. Section 201(3) of the Income-tax Act provides for the time limit for passing of order under section 201(1) of the Income-tax Act for deeming a payer as assessee in default for failure to deduct tax from payments made to a resident. Clause (i) of subsection (3) of section 201 of the Income-tax Act provided that no order under sub-section (1) of section 201 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in TDS/TCS statements. However, section 271H of the Income-tax Act did not specify the authority which would be competent to levy the penalty under the said section. Therefore, provisions of section 271H have been amended to provide that the penalty under section 271H of the Income-tax Act shall be levied by the Assessing officer. 48.4 Applicability: - These amendments take effect from 1st October, 2014. 49. Interest payable by the assessee under section 220 of the Income-tax Act 49.1 The provisions contained in sub-section (1) of section 220 of the Income-tax Act, provide that any amount specified as payable in a notice of demand under section 156 of the Income-tax Act shall be paid within thirty days of the service of notice at the place and to the person mentioned in the notice. Sub-section (2) states that if the amount specified in the notice is not paid within the period, the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid. The proviso to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or making fresh assessment in pursuance of an order under section 254 or section 263 or section 264 of the Income-tax Act, setting aside or cancelling an assessment shall not be a proceeding for assessment for the purpose of this clause. 50.2 In order to enlarge the scope of Settlement Commission, the proviso to clause (b) of section 245A of the Income-tax Act has been omitted to enable proceedings under section 147 and proceedings for making fresh assessment in pursuance of an order under section 254 or section 263 or section 264 of the Income-tax Act, setting aside or cancelling an assessment also be eligible for settlement before the Settlement Commission. Similar amendment has also been made in section 22A of the Wealth -tax Act. 50.3 Applicability: - These amendments take effect from 1st October, 2014. 51. Enlarging the scope of Authority for Advance Rulings 51.1 Chapter XIX-B (Sections 245N to 245V) of the Income-tax Act provides that a person can make an application to the Authority for Advance Rulings (AAR) to obtain an advance ruling on the tax liability arising out of a transaction undertaken, or proposed to be undertaken by a non-resident. A ruling can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit together with interest or the aggregate amount of such loans or deposits together with interest, if any payable thereon, is twenty thousand rupees or more. 52.2 In the present times many banking transactions take place by way of internet banking facilities or by use of payment gateways. Accordingly, the provisions of the said sections 269SS and 269T have been amended to provide that acceptance or repayment of any loan or deposit by use of electronic clearing system through a bank account shall not be prohibited under the said sections if the other conditions regarding the quantum etc. are satisfied. 52.3 Applicability :- These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years. 53. Levy of Penalty under section 271G of the Income-tax Act by Transfer Pricing Officers 53.1 The provisions of section 271G of the Income-tax Act, before amendment by the Act, provided that if any person who has entered into an international transaction or specified domestic transaction f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 1st October, 2014. 55. Provisional attachment under section 281B of the Income-tax Act 55.1 The provisions of sub-section (1) section 281B of the Income-tax Act provide that during the pendency of any proceeding for assessment or reassessment the Assessing Officer may, in order to protect the interests of revenue, with the previous approval of the Chief Commissioner or Commissioner, attach provisionally any property belonging to the assessee in the manner provided in the Second Schedule. Sub-section (2) of section 281B of the Income-tax Act, before its amendment by the Act, provided that the provisional attachment shall cease to have effect after the expiry of six months. However, the Chief Commissioner or Commissioner may extend the period up to a total period of two years. 55.2 It has been observed that in certain cases the maximum period of extension of 2 years expires before the assessment order is passed. Recovery proceedings can be initiated only after the assessment order is passed and demand is raised. Accordingly, the proviso to sub-section (2) of section 281B has been amended so as to provide that the Chief Commissioner, Commissioner, Director General or Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, provided for penalty for failure to furnish an annual information return. The said section 271FA has been amended to provide for penalty for failure to furnish statement of information or reportable account. 56.6 A new section 271FAA has been inserted in the Income-tax Act to provide that if a person referred to in clause (k) of sub-section (1) of section 285BA of the said Act, who is required to furnish a statement of financial transaction or reportable account, provides inaccurate information in the statement and where, (a) the inaccuracy is due to a failure to comply with the due diligence requirement prescribed under sub-section (7) of said section 285BA or is deliberate on the part of the person; or (b) the person knows of the inaccuracy at the time of furnishing the statement of financial transaction or reportable account, but does not inform the prescribed income-tax authority or such other authority or agency; or (c) the person discovers the inaccuracy after the statement of financial transaction or reportable account is furnished and fails to inform and furnish correct information within the time specified under sub-section (6) of said section 285BA, then, the ..... 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