SOME FAVORABLE JUDGMETNS GET SET BACK THROUGH BUDGET PROPOSALS

[C.A. DEV KUMAR KOTHARI]

This has become a routine for the Government to amend law to withdraw relief available as per existing law as interpreted by courts. So many decisions which are favourable to taxpayers are nullified in the Budget or by other amending Act. Budget 2009 also follow the same spirit and is   not an exception. Many decisions which have been nullified, for some of such amendment any reasons has also not been given in the memorandum explaining the proposals to amend law.

Many amendment are made to regularize inactions, delays, inefficiencies, and mistakes on part of the government officers.

Supreme Courts Ruling on tea companies in case of Doom Dooma Tea :

Supreme Court held that in case of tea companies where income is computed as per Rule 8, the total amount of deprecation taken notionally against composite income is not actually allowed but only 40% of it is actually allowed and therefore only actual allowance is to be deducted to determine WDV and to compute depreciation allowable in subsequent years. The amendment is being brought, in name of legislative intention that it is intended to deduct even depreciation which is not actually allowed. This amendment is opposed to the scheme of depreciation allowance vis a vis composite income as was held by Supreme  court long ago in several cases. In CIT v. Doom Dooma India Ltd. [2009 -TMI - 32437 - SUPREME COURT] only earlier judgments were followed. Furthermore the amendment appears to be not valid or is ultra virse the Indian Constitution.  It also appear that even after insertion of new explanation still ruling of Supreme Court may be applicable, on proper interpretation of the entire sections 32 and 43(6). The reasons given for amendment are wrong. Thus, the new Explanation in section 43(6) attempt to withdraw benefit allowable on interpretation of law.

Contractors will not entitle to relief under section 80 IB (10) after amendment:

Vide clause 37 (c) (ii) of the Finance No. 2 Bill, 2009 a new Explanation in Section is being inserted. The relevant proposal and the Explanation reads as follows:

(c) in sub-section (10),—

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(ii) the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2001, namely:—

"Explanation.— For the removal of doubts, it is hereby declared that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any person (including the Central or State Government).".

In Radhe Developers vs ITO (2008 23 SOT 420 , the tribunal held that a taxpayer developing and building a housing project even as a contractor  is entitled to  deduction under Section 80-IB(10). In the Budget this favor is being statutorily withdrawn without giving any reason.

Amendment of Section 50C- unregistered documents will also be  covered:

Tribunal in some cases e.g. in case Navaneet Kumar Thakkar vs ITO (2008 110 ITD 525 held that Section 50C is not applicable when sale deed is not registered and is not subject to stamp Now, even where the document is not registered, the value to be adopted for capital gains purpose would be the amount that would have been determined by the registering authority if it was referred to him. This amendment will be  applicable from October 1, 2009 this means that it will apply to  transactions carried out  on or after 01.10.2009 only and not before that date.

The proposed amendment is as follows (with high lights)

25. In section 50C of the Income-tax Act, with effect from the 1st day of October, 2009,—

(a) for the words "or assessed" wherever they occur, the words "or assessed or assessable" shall be substituted;

(b) in sub-section (2), 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 this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.'.

 Search cases-

In Raghu Raj Pratap Singh vs Assistant CIT [2009 -TMI - 32062 - ALLAHABAD HIGH COURT]. It was held that the term 'Joint Director' or 'Joint Commissioner' does not include Additional Director or Additional Commissioner and thus the search proceedings were quashed. After proposed amendment to Section 132, Additional Director or Additional Commissioner are also  authorised officer for search and  this amendment will be retrospectively applicable from June 1, 1994. Thus mistakes made by authorities are being regularized by bureaucracy (off course in name of legislative intention). Amendments are vide clauses 50 and 51 of the Bill.

Interest in case of TDS deposited late :

Section 201 is relevant provision, this is being amended as follows vide clause 65 (with high lights)

65. In section 201 of the Income-tax Act,—

(a) in sub-section (1A), for the words "the quarterly statement for each quarter", the words "the statement" shall be substituted with effect from the 1st day of October, 2009;

(b) after sub-section (2), the following sub-sections shall be inserted with effect from the 1st day of April, 2010, namely:—

"(3) No order shall be made under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of—

(i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed;

(ii) four years from the end of the financial year in which payment is made or credit is given, in any other case :

Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011.

(4) The provisions of sub-clause (ii) of sub-section (3) of section 153 and of Explanation 1 to section 153 shall, so far as may, apply to the time limit prescribed in sub-section (3).".

In Mahindra & Mahindra Ltd vs Deputy CIT (2009 30 SOT 374 Mumbai), the time limit for initiating proceedings under Sections 201(1) and 201(1A) was prescribed as four or six years, similar to Section 149 meant for reassessment of income. The time limit for passing the order was also stated as equivalent to the time limit prescribed in Section 153(2). In the Budget, the time limit for passing the order under Section 201(1) has been prescribed as two years from the end of the financial year where the statement of tax deduction is filed by the taxpayer. Where no such tax deduction statement is filed, the time limit is prescribed as four years for passing the order under Section 201(1). The time limit so prescribed by means of amendment however would be applicable from the next fiscal.

Book profit probvision for diminuation in value of assets :

Tribunal in many cases including in Deepak Nitrite Ltd vs Deputy CIT [2008 -TMI - 31894 - GUJARAT HIGH COURT],  held that the provision made for diminution in value of asset would not go to increase the book profit tax. The proposed amendment, will nullify this ruling as per proposed Explanations in sections 115JA and 115JB the book profit will have to be increased by adding back any such provision made. The relevant proposals reads as follows (with highlights)

43. In section 115JA of the Income-tax Act, in sub-section (2), after the second proviso, in the Explanation, after clause (f), for the words, brackets and letters "if any amount referred to in clauses (a) to (f) is debited to the profit and loss account, and as reduced by,—"the following shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 1998, namely:—

"(g) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by,—".

Amendment of section 115JB

45. In section 115JB of the Income-tax Act,—

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(b) in sub-section (2), after the second proviso, in Explanation 1, after clause (h), for the words, brackets and letters "if any amount referred to in clauses (a) to (h) is debited to the profit and loss account, and as reduced by", the following shall be substituted and shall be deemed to have been substituted with effect from the 1st day of April, 2001, namely:—

"(i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,—".

Both the changes are made  retrospectively from the date when the relevant section came into force.

Set aside as provision for diminution in the value of any asset

Scope: Any asset will be covered. The asset can be a current asset as well as fixed asset of business or an investment as well. It is not necessary that the asset should be a 'capital asset'. The revenue will try to cover even stock-in-trade if it is valued at lower than cost (even if market price is lower than cost), the revenue is also expected to add back bad debts written off, as it may take view that it amount to a provision in diminution of an asset (debts).

Provision- Only provision will be covered. Therefore write off of actual loss will not be covered and need not be added back. Actual loss means what is actually suffered. This can be on a reasonable and scientific estimate basis also. However, if one can establish that there is no provision but actual loss, then the amendment will not apply.