TMI BlogEASE OF DOING BUSINESS - DIRECT TAXESX X X X Extracts X X X X X X X X Extracts X X X X ..... et or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. In response to various queries raised by stakeholders seeking clarification on the scope of indirect transfer provisions, the CBDT issued Circular No 41 of 2016. However, concerns have been raised by stakeholders that the provisions result in multiple taxation. In order to address these concerns, it is proposed to amend the said section so as to clarify that the Explanation 5 shall not apply to any asset or capital asset mentioned therein being investment held by non-resident, directly or indirectly, in a Foreign Institutional Investor, as referred to in clause (a) of the Explanation to section 115AD, and registered as Category-I or Category II Foreign Portfolio Investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, as these entities are regulated and broad based. The proposed amendment is clarifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expiry of agreement or arrangement The existing provisions of clause (48A) of section 10 of the Act, provides that any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall be exempt, if the said storage and sale is pursuant to an agreement or an arrangement entered into by the Central Government; and having regard to the national interest, said foreign company and the said agreement or arrangement are notified by the Central Government in that behalf. The benefit of exemption presently is not available to sale out of the leftover stock of crude after the expiry of said agreement or the arrangement. Given the strategic nature of the project benefitting India to augment its strategic petroleum reserves, it is proposed to insert a new clause (48B) in section 10 so as to provide that any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from a facility in India after the expiry of an agreement or an arrangement referred to in clause (48A) of section 10 of the Act shall also be exempt subject to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 44AA to increase monetary limits of income and total sales or turn over or gross receipts, etc specified in said clauses for maintenance of books of accounts from one lakh twenty thousand rupees to two lakh fifty thousand rupees and from ten lakh rupees to twenty-five lakh rupees, respectively in the case of Individuals and Hindu undivided family carrying on business or profession. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. [Clause 19] Exclusion of certain specified person from requirement of audit of accounts under section 44AB The existing provision of section 44AB of the Act, inter-alia provides that every person carrying on the business is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceeds one crore rupees. The threshold limit for applicability of presumptive taxation in case of eligible business carried on by eligible person under section 44AD was increased to two crore rupees from one crore rupees with effect from 1st April, 2017 relevant to Assessment year 2017-18 by Finance Act, 2016. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable under the provisions of the Act, even if there is no specific provision of exemption for such compensation under the Act. However, the circular addressed only the matter pertaining to taxability of compensation received on compulsory acquisition of land and not tax deduction at source under section 194LA of the Act. Thus in order to rationalise the provisions of the Act, it is proposed to amend the section 194LA to provide that no deduction shall be made under this section where such payment is made in respect of any award or agreement which has been exempted from levy of income-tax under section 96 (except those made under section 46) of RFCTLARR Act. This amendment will take effect from 1st April, 2017. [Clause 66] Exemption from tax collection at source under sub-section (1F) of section 206C in case of certain specified buyers. The existing provision of sub-section (1F) of section 206C of the Act, inter-alia provides that the seller who receives consideration for sale of a motor vehicle exceeding ten lakh rupees, shall collect one per cent of the sale consideration as tax from the buyer. In order to reduce compliance burden in certain cases, it is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under section 40A(2)(b) are to be excluded from the scope of section 92BA of the Act. Accordingly, it is also proposed to make a consequential amendment in section 40(A)(2)(b) of the Act. These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 18 and subsequent years. [Clauses 15 41] Tax neutral conversion of preference shares to equity shares Under the existing provisions of the Act, conversion of security from one form to another is regarded as transfer for the purpose of levy of capital gains tax. However, tax neutrality to the conversion of bond or debenture of a company to share or debenture of that company is provided under the section 47. No similar tax neutrality to the conversion of preference share of a company into its equity share is provided. In order to provide tax neutrality to the conversion of preference share of a company into equity share of that company, it is proposed to amend section 47 to provide that the conversion of preference share of a company into its equit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee includes any income from transfer of carbon credit, such income shall be taxable at the concessional rate of ten per cent (plus applicable surcharge and cess) on the gross amount of such income. No expenditure or allowance in respect of such income shall be allowed under the Act. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. [Clause 45] Processing of return within the prescribed time and enable withholding of refund in certain cases The provisions of sub-section (1D) of section 143 provide that the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2) of the said section. Amendment to the said sub-section brought by Finance Act, 2016 provides that with effect from assessment year 2017-18, processing under section 143(1) is to be done before passing of assessment order. In order to address the grievance of delay in issuance of refund in genuine cases which are routinely selected for scrutiny assessment, it is proposed that provisions of section 143(1D) shall cease to apply in respect of returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and shall, therefore, incur levy of interest on deferment of advance tax as specified under clauses (a) or (b) of section 234C(1). It is hence proposed to provide that that if shortfall in payment of advance tax is on account of under-estimation or failure in estimation of income of the nature referred to in section 115BBDA, the interest under section 234C shall not be levied subject to fulfilment of conditions specified therein. These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. [Clauses 73 74] Interest on refund due to deductor The existing section 244A of the Act provides that an assessee is entitled to receive interest on refund arising out of excess payment of advance tax, tax deducted or collected at source, etc. It is proposed to insert a new sub-section (1B) in the said section to provide that where refund of any amount becomes due to the deductor, such person shall be entitled to receive, in addition to the refund, simple interest on such refund, calculated at the rate of one-half per cent. for every month or part of a month comprised in the period, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd subsequent years. [Clause 24] Enabling claim of credit for foreign tax paid in cases of dispute The existing provisions of section 155 of the Act provide for procedure for amendment of assessment order in case of certain specified errors. In view of rule 128 of the Income-tax Rules, 1962, which provides a mechanism for claim of foreign tax credit, it is proposed to insert sub-section (14A) in section 155 to provide that where credit for foreign taxes paid is not given for the relevant assessment year on the grounds that the payment of such foreign tax was in dispute, the Assessing Officer shall rectify the assessment order or an intimation under sub-section (1) of section 143, if the assessee, within six months from the end of the month in which the dispute is settled, furnishes proof of settlement of such dispute, submits evidence before the Assessing Officer that the foreign tax liability has been discharged and furnishes an undertaking that credit of such amount of foreign tax paid has not been directly or indirectly claimed or shall not be claimed for any other assessment year. This amendment will take effect from 1st April, 2018 and will, accordingly, app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The existing provisions of sub-clause (f) of sub-section (1) of section 253 provide that an order passed by the prescribed authority under sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 shall be appealable before the Appellate Tribunal. It is proposed to expand the scope of the said section to provide that the orders passed by the prescribed authority under sub-clauses (iv) and (v) of sub-section (23C) of section 10 shall also be appealable before the Appellate Tribunal. This amendment will take effect from 1st April, 2017. [Clause 82] Empowering Board to issue directions in respect of penalty for failure to deduct or collect tax at source Existing provision of clause (a) of sub-section (2) of section 119 empowers the Board to issue orders setting forth directions or instructions (not being prejudicial to assessees) to be followed by subordinate authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties. In order to reduce the genuine hardship which may be faced by a person responsible for deduction and collection of tax at source due to levy of penalty under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any other person or where an opportunity of being heard is to be provided to the assessee, the time limit relating to fresh assessment provided in sub-section (3) shall apply to the order giving effect to such order. It is also proposed to amend sub-section (9) of the said section to provide that where a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or under section 148 has been issued prior to the 1st day of June, 2016 and the assessment or reassessment has not been completed by such date due to exclusion of time referred to in Explanation 1, such assessment or reassessment shall be completed in accordance with the provisions of section 153 as it stood immediately before its substitution by the Finance Act, 2016. These amendments will take effect retrospectively from 1st June, 2016. It is also proposed to amend third proviso to Explanation 1 of the said section to omit the reference of section 153B therein. It is also proposed to consequentially amend the meaning of conclusion of proceeding in the Explanation to clause (b) of section 245A so as to provide that conclusion of proceedings shall be construed in accordance with the time spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Assessing Officer having jurisdiction over such other persons, whichever is later. It is also proposed to insert a proviso to the Explanation of the said section to provide that where a proceeding before the Settlement Commission abates under section 245HA, the period of limitation available under this section for assessment or reassessment shall after the exclusion of the period under sub-section (4) of section 245HA shall not be less than one year; and where such period of limitation is less than one year, it shall be deemed to have been extended to one year. These amendments will take effect from 1st April, 2017. It is also proposed to amend sub-section (3) of section 153B to provide that where a notice under section 153A or section 153C has been issued prior to 1st day of June, 2016 and the assessment has not been completed by such date due to exclusion of time referred to in the Explanation, such assessment shall be completed in accordance with the provisions of this section as it stood immediately before its substitution by the Finance Act, 2016. This amendment will take effect retrospectively from 1st June, 2016. [Clause 60] - - statute, statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X
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