(with some suggestions to remove drafting errors)
Proposed amendments relating to exemptions:
We find there are four amendments concerning exempted income under section 10. One of which is a new exemption and three relates to proposed changes in existing exemptions.
Readers having interest and involvement in such matters are advised to read un-amended and amended clauses very carefully. The honorable Finance Minister and his team are also requested to have a relook to remove any inconsistency in proposals vis a vis legislative intentions so as to avoid need of amendments with retrospective effect say after twenty – thirty years.
The impressions given herein are preliminary impressions and need in-depth study of existing and post amendment provisions.
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Proposed amendments
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Analysis and remarks:
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Amendment of section 10.
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05. In section 10 of the Income-tax Act,—
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(A) in clause (10D), with effect from the 1st day of April, 2013,—
(i) in sub-clause (c),—
(I) after the words, figures and letters “the 1st day of April, 2003”, the words, figures and letters “but on or before the 31st day of March, 2012” shall be inserted;
(II) for the word “assured:”, the words “assured; or” shall be substituted;
(ii) after sub-clause (c) and before the first proviso, the following sub-clause shall be inserted, namely:—
“(d) any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds ten per cent. of the actual capital sum assured:”;
(iii) in the first proviso, for the words “this sub-clause”, the words, brackets and letters “sub-clauses (c) and (d)” shall be substituted;
(iv) in the second proviso, for the words “this sub-clause”, the word, brackets and letter “sub-clause (c)” shall be substituted;
(v) the Explanation shall be numbered as Explanation 1 thereof and after Explanation 1 as so numbered, the following Explanation shall be inserted, namely:—
‘Explanation 2.—For the purposes of sub-clause (d), the expression “actual capital sum assured” shall have the meaning assigned to it in the Explanation to sub-section (3A) of section 80C;’;
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The clause (10D) generally provides exemption of money received in relation to life insurance policies including bonus. This is subject to some exceptions in relation to high premium and / or short duration policies. The exceptions for exemption are being tightened through the proposal in the Bill.
The proposed amendments is relating to exception from such exemption of money received on life insurance policies. Readers are also requested to read archieves of the clause to see historical amendments which also included amendments with retrospective effect in 1991 w.r.e.f. 01.04.1962.The present clause was substituted w.e.f.01.04.2004.
Fortunately the present proposals are prospective.
As per proposals:
For availing exemption premium up to 20% of sum assured will be allowed only in respect of policies issued till 31.03.2012 , so one can hurry-up to take new policies because in relation to policies issued thereafter
(i) Maximum premium allowed will be up to 10% of sum assured in relation to policies issued on or after 01.04.1912 .
(ii) In case premium payable in respect of any year exceeds 10% of sum assured in relation to policies issued on or after 01.04.2012, then any sum received on life insurance policy will not be exempt.
Readers having interest and involvement in such matters are advised to read un-amended and amended clauses very carefully. The impressions given herein are preliminary impressions.
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(B) in clause (23C), after the sixteenth proviso, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2009, namely:—
“Provided also that the income of a trust or institution referred to in sub-clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;”;
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Again we find an amendment with retrospective effect indicating carelessness adopted while drafting important provisions.
One need to count the provisos because there is no number given to any proviso. It is advisable to give serial numbers to provisos also. Author had to count proviso numbers and found that there are sixteen provisos at present therefore the proviso being inserted will be XVII. Hope that there is no mistake in counting.
The proposed amendment is to shield inactions or omission to act, by revenue officers. An indication of increasing inefficiency in the revenue departments.
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(C) in clause (23FB), in Explanation 1, for clause (c), the following clause shall be substituted with effect from the 1st day of April, 2013, namely:—
‘(c) “venture capital undertaking” means a venture capital undertaking referred to in the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992;’;
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Definition is adopted from Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992;’;
As per clause 2(n) of the said regulation the relevant meaning is as follows (as per latest down load on 17.03.2012 from website of SEBI):
2. Definitions.
In these regulations, unless the context otherwise requires,—
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6[(n) “venture capital undertaking” means a domestic company—
(i) whose shares are not listed on a recognized stock exchange in India;
(ii) which is engaged in the business for providing services, production
or manufacture of article or things or does not include such activities
or sectors which are specified in the negative list by the Board with
the approval of the Central Government by notification in the Official
Gazette in this behalf.]
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(D) after clause (47), the following clause shall be inserted with effect from the 1st day of April, 2012, namely:—
“(48) any income received in India in Indian currency by a foreign company on account of sale of crude oil to any person in India:
Provided that—
(i) receipt of such income in India by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government;
(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf; and
(iii) the foreign company is not engaged in any activity, other than receipt of such income, in India.”.
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This is a new exemption granted with a short retrospective effect – in fact from the running previous year itself and concerned assessee might have earned exempted income in current previous year which begun on or after 1st April 2011 and will end on 31st March 2012.
The exemption is allowed to any foreign company in relation to income received in India from sale of crude oil to any person in India against Indian currency (INR) on satisfaction of strict conditions laid down in the proviso namely:
There should be an agreement or an arrangement entered into by the Central Government or approved by the Central Government;
The agreement or arrangement should be notified by the Central Government in this behalf; and
the foreign company should not be engaged in any activity, other than receipt of such income, in India.”.
Drafting error:
As per author there seems a drafting error. The condition about activity cannot be merely receiving payment it should be sale of crude oil and receipt of payment. Without sale and transfer of crude oil, how payment can be received?
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Retrospective amendments:
We find that out of four amendments in relation to exemptions two amendments are meant to apply retrospectively. Fortunately, in case of these amendments the period of retrospectivity is not very long. But question is why amendments with retrospective effect should be allowed. Why we cannot expect timely amendments, why we cannot apply care and foresight while drafting original provisions or provisions to amend existing law.
Retrospective amendments creates inequality before law. A person whose assessment has attained finality and limitation for further proceedings by way of rectification, revision or reassessment has lapsed is not affected by retrospective amendment. Whereas in case of assessee where assessment has not attained finality , limitations for further proceedings have not lapsed or cases in which appeals are pending will be affected. Thus cases where retrospective amendments have longer period of retrospective effect will adversely affect few assesses and major numbers will not be affected.
Retrospective amendments also put a big question mark on credibility of law, legislation process, judicial processes and entire legal system of country. As Finance Minister Pranab Da may not be able to agree, but author hopes that as an ordinary person or a tax payer he must be of the same view that in reality retrospective amendments is bound to create lot of bad will for the government and the country. Now that bad will is bound to spread world over, because during last few years, many amendments have been made with retrospective effect, which have far reaching effect on tax liability of foreigners, non-residents etc.
Why there is attempt to realize tax of about Rs.40000 crores only by amending meaning of capital asset, transfer and accrual of income etc. and why any meaning full attempt is not being made to bring back ill gotten money lying in foreign banks on account of Indians.
Retrospective amendment should therefore be stopped altogether.
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