Explanatory notes on the provisions relating to direct taxes - Income Tax - 657/1993

Explanatory notes on the provisions relating to direct taxes Circular No. 657 Dated 30/8/1993 Introduction The Finance Act, 1993, as passed by Parliament, received the assent of the President on 13th May, 1993, and has been enacted as Act No. 38 of 1993. This circular explains the substance of the provisions in the Act relating to direct taxes. 2. The Finance Act, 1993 (hereinafter referred to as "the Finance Act"), has, _ amended sections 10, 10A, 10B, 11, 16, 17, 35, 36, 44C, 80DD, 80G, 80HHE, 80-IA, 80L, 80M, 80P, 88B, 115K, 115N, 143, 194, 196B, 196C, 197, 198 to 200, 202 to 203A, 205, 253, 269UC, 269UD, 269UE, 273A of the Income-tax Act, 1961 ; inserted new sections 80V, 115AD, 196D, Chapter XIX-B and Eighth Schedule in the Income-tax Act, 1961 ; amended sections 2, 5, and 18B of the Wealth-tax Act,1957 ; amended section 5 and Schedule II of the Gift-tax Act, 1958. Provisions in brief 3. The provisions in the Finance Act, 1993, in the sphere of direct taxes relate to the following matters : (i) Prescribing the rate of income-tax on incomes liable to tax for the assessment year 1993-94 ; the rates at which tax will be deductible at source during the financial year 1993-94 from interest (including interest on securities), dividends, salaries, winnings from lotteries or crossword puzzles, winnings from horse-race, insurance commission and other categories of income liable to deduction of tax at source under the Income-tax Act ; rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases for the financial year 1993-94. (ii) Retaining the provisions for levy of surcharge at the rate of 15 per cent. in the case of companies and at the rate of 12 per cent. in the case of other tax payers as provided by the Finance Act, 1992, but in the case of non-corporate persons providing for levy of surcharge only where the total income exceeds one lakh rupees (it may be clarified that the surcharge does not apply in the case of all non-resident taxpayers). (iii) Amendment of the Income-tax Act, 1961, with a view to _ _ omitting section 10(6)(vii) ; _ extending the tax concession under section 10(6)(viia) to non-resident technicians holding Indian citizenship ; _ extending the tax exemption on payments under voluntary retirement schemes to employees of certain authorities ; _ modifying the provisions relating to income-tax exemption on interest payable by a scheduled bank on foreign currency deposits ; _ modifying the provisions of section 10(15)(v) ; _ providing tax exemption to certain incomes of the European Economic Community ; _ extending the tax holiday under section 10A to Software Technology Parks and Electronic Hardware Technology Parks ; _ amending the provisions relating to accumulation of income for charitable or religious purposes ; _ providing relief for salaried taxpayers ; _ rationalising provisions relating to exemption of medical perquisites ; _ enhancing the tax concession for scientific research ; _ providing deduction in respect of provisions made for bad and doubtful debts relating to rural branches of banks ; _ providing equitable treatment to all non-residents in respect of deduction of head office expenditure ; _ providing relief for the handicapped ; _ increasing the number of years for which approval can be granted by the Commissioner under section 80G ; _ providing tax concession in respect of contributions to the National Foundation for Communal Harmony ; _ providing tax concession in respect of contributions to universities and approved Institutions of National Importance ; _ providing tax concession for export of computer software and hardware ; _ providing tax holiday to new industrial undertakings set up in backward States ; _ providing tax holiday for the power sector ; _ enhancing the quantum of deduction under section 80L ; _ withdrawing of deduction available to domestic companies in respect of dividend on units of the Unit Trust of India ; _ providing relief in cases where income of a handicapped minor is clubbed with that of the parents ; _ providing relief to senior citizens ; _ providing tax incentive to foreign institutional investors investing in securities ; _ extending the simplified procedure for small businessmen to transport operators ; _ modifying the provisions relating to levy of additional income-tax ; _ providing for deduction of tax at source on income by way of long-term capital gains referred to in sections 115AB and 115AC at the rates specified therein ; _ extending the facility for receipt of dividends by companies without deduction of tax at source in certain cases ; _ setting up the authority for advance rulings for the benefit of non-residents ; _ providing for hike in fees for filing appeals to the Income-tax Appellate Tribunal ; _ amending the provisions relating to pre-emptive purchase of immovable property ; _ modifying the provisions relating to power to reduce or waive penalty, etc., in certain cases ; _ consequential amendments in sections 10A, 10B and 80P. (iv) Amendment of the Wealth-tax Act, 1957, with a view to, _ reviving the exemption in respect of one house ; _ modifying the provisions relating to power to reduce or waive penalty, etc., in certain cases. (v) Amendment of the Gift-tax Act, 1958, with a view to,_ _ raising of basic exemption limit ; _ providing exemption for gifts made from Non-resident (Non-repatriable) Rupee Deposit Scheme, 1992 ; _ raising of exemption limit for gifts made to dependent relatives ; _ prescribing rules for determining the value of shares and debentures gifted. Income-tax Rate structure I. Rates of income-tax in respect of incomes liable to tax for the assessment year 1993-94 4. In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 1993-94, the rates of income-tax (including surcharge thereon) have been specified in Part I of the First Schedule to the Act and are the same as those laid down in Part III of the First Schedule to the Finance Act, 1992, for the purposes of computation of "advance tax", deduction of tax at source from salaries and charging of tax payable in certain cases during the financial year 1992-93. II. Rates for deduction of tax at source during the financial year from income other than "Salaries" 5. The rates for deduction of income-tax at source during the financial year 1993-94 from incomes other than "Salaries" have been specified in Part II of the First Schedule to the Act. These rates apply to income by way of interest on securities, interest other than "interest on securities", dividends, insurance commission, winnings from lotteries, crossword puzzles and horse races and income of non-residents (including non-resident Indians) other than salary income. These rates (including surcharge thereon) are basically the same as those specified in Part II of the First Schedule to the Finance Act, 1992, for purposes of deduction of tax at source during the financial year 1992-93. III. Rates for deduction of tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1993-94 6. The rates for deduction of tax at source from "Salaries" during the financial year 1993-94 and also for the computation of "advance tax" payable during that year in the case of all 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 1993-94 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 the financial year 1993-94, assessment of persons who are likely to transfer property to avoid tax or where an order has to be passed in cases of search and seizure for calculating the amount of tax on the estimated undisclosed income, etc. The salient features of the rates prescribed in the said Part III are indicated in the following paragraphs. IIIA. Individuals, Hindu undivided families, etc. 7. In the case of individuals, Hindu undivided families (other than those having at least one member whose total income exceeds the exemption limit), associations of persons, etc., the rates of income-tax have been specified in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act. The exemption limit in the case of the aforesaid persons has been raised from Rs. 28,000 to Rs. 30,000. Except this, there has been no change in the rates of tax or slabs of income. 7.1 The rates of income-tax as per Finance Act, 1992, and Finance Act, 1993, are indicated in the Table below : TABLE Finance Act, 1992 Finance Act, 1993 Income slab Marginal rate of tax Income slab Marginal rate of tax Up to Rs. 28,000 Nil Up to Rs. 30,000 Nil Rs. 28,001 - 50,000 20 per cent Rs. 30,001 - 50,000 20 per cent Rs. 50,001 - 1,00,000 30 per cent Rs. 50,001 - 1,00,000 30 per cent Above Rs. 1,00,000 40 per cent Above Rs. 1,00,000 40 per cent 7.2 In the case of Hindu undivided families having at least one member whose total income exceeds the exemption limit, i.e., Rs. 30,000, the rates of income-tax have been specified in Sub-Paragraph II of Paragraph A of Part III of the First Schedule to the Finance Act. These rates are the same as those specified in the corresponding paragraph of Part I of the First Schedule to the Act. IIIB. Co-operative societies 8. In the case of co-operative societies, the rates 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. IIIC. Firms 9. 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 the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. IIID. Local authorities 10. 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 the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. IIIE. Companies 11. In the case of companies, the rates of income-tax have been specified in Paragraph E 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. IIIF. Surcharge 12. Surcharge on income-tax for purposes of the Union will continue to be levied at the rate of twelve per cent. in the case of all the categories of resident non-corporate taxpayers having total income exceeding one hundred thousand rupees. Similarly, in the case of domestic companies, surcharge will continue to be levied at the rate of fifteen per cent. of the amount of income-tax where the income exceeds seventy-five thousand rupees. IV. Partially integrated taxation of non-agricultural income with income derived from agriculture 13. As in the past, the Finance Act provides that in the case of individuals, Hindu undivided families, associations of persons, etc., the net agricultural income will be taken into account for the computation of "advance tax" and charging of income-tax. The net agricultural income will be computed in accordance with the rules contained in Part IV of the First Schedule. These provisions are on the same lines as those in earlier years, except that the share of the partner in the income of the firm derived from agriculture will not be taken into account for computation of his tax liability. [Section 2 and the First Schedule] Extending the tax concession under section 10(6)(viia) to non-resident technicians holding Indian citizenship 14. Under the provisions of section 10(6)(viia) of the Income-tax Act, the perquisite represented by the income-tax paid by an employer on the salary of its employee, who is not a citizen of India and is engaged as a technician and his services, as such, commence from a date after 31st March, 1988, is exempt from income-tax. It is further provided therein that such individual should not have been resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India. This condition can be waived by the Central Government in specified cases. The term "technician" has been defined for the purposes of section 10(6)(viia). 14.1 It had been represented that the condition of being a foreign citizen in order to avail of the tax concession under section 10(6)(viia) discriminated against non-resident technicians who were Indian citizens. The Act, therefore, inserts a new clause (5B) in section 10 of the Income-tax Act to provide that the tax concession, at present available under section 10(6)(viia) to technicians who are not citizens of India, will be available to the technicians who commence their employment in India as such after the 31st day of March, 1993, irrespective of their nationality. All other features specified in sub-clause (viia) of clause (6) of section 10 have been retained in the new provision. 14.2 This amendment takes effect from 1st April, 1994, and, accordingly, applies in relation to the assessment year 1994-95 and subsequent years. 14.3 As a consequence of the aforesaid amendment, the Act also amends sub-clause (viia) of clause (6) of section 10 to restrict its application to cases where services as a technician commence after the 31st day of March, 1988, but before the 1st day of April, 1993. 14.4 This amendment takes effect from 1st April, 1993. [Section 3] Omission of section 10(6)(vii) 15. Section 10(6)(vii) of the Income-tax Act provided income-tax concession to foreign technicians on the remuneration received by them where the employment in India commenced prior to 1st April, 1971. The said tax concession was available for a maximum period of eight years and the provision was no longer necessary. The Act, therefore, omits sub-clause (vii) of clause (6) of section 10. 15.1 This amendment takes effect from 1st April, 1993. [Section 3] Extending the tax exemption on payments under voluntary retirement schemes to employees of certain authorities 16. Under the provisions of section 10(10C) of the Income-tax Act as these were prior to their substitution by the Finance Act, 1993, any payment received by an employee of a public sector company or any other company at the time of voluntary retirement, in accordance with any scheme or schemes of voluntary retirement, was exempt from income-tax. Representations had been received on behalf of the employees of statutory authorities, etc., that the benefit of the income-tax exemption under section 10(10C) should also be extended to them. The rationale for providing income-tax exemption on the amounts received under the schemes of voluntary retirement by the employees of the companies, i.e., making such schemes more attractive so that the companies can improve their efficiency, equally applies in the case of statutory authorities and local authorities. The scope of the income-tax exemption under section 10(10C) has, therefore, been extended to cover thereunder the employees of an authority established under a Central, State or Provincial Act or of a local authority. 16.1 The guidelines prescribed by the Board specify that the amount receivable on account of voluntary retirement of an employee should not exceed five hundred thousand rupees. The intention was to restrict the benefit of income-tax exemption under section 10(10C) to the aforesaid amount in the case of an employee. The Finance Act incorporates the aforesaid intention in the law itself by providing that the amount exempt under section 10(10C) shall not exceed five lakh rupees. 16.2 The guidelines prescribed by the Board for framing the schemes of voluntary retirement further specify that the employee should not have availed of the benefit of any other voluntary retirement scheme in the past. It may be difficult for the employers to comply with this requirement where the employees do not disclose the fact of their having availed of such benefit in the past. It has, therefore, been provided that where exemption has been allowed to an employee under section 10(10C) for any assessment year, no exemption shall be allowed to him thereunder in relation to any other assessment year. 16.3 These amendments take effect from 1st April, 1993 and, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [Section 3] Modification of the provisions relating to income-tax exemption on interest payable by a scheduled bank on foreign currency deposits 17. Section 10(15)(iv)(fa) of the Income-tax Act provides for income-tax exemption on the interest payable by a scheduled bank on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India. When the aforesaid exemption was provided, through the Finance (No. 2) Act, 1991, persons resident in India were not allowed to have foreign currency deposits in banks in India. The new guidelines under the Foreign Exchange Regulation Act, however, permit persons resident in India to open and maintain foreign currency accounts with banks in India. 17.1 In order that all the aforesaid persons do not get the unintended benefit of the income-tax exemption under section 10(15)(iv)(fa) of the Income-tax Act, the Act provides that the said exemption will be applicable in the case of non-residents and in the case of individuals or Hindu undivided families which are not ordinarily resident in India within the meaning of sub-section (6) of section 6 of the Income-tax Act. 17.2 This amendment takes effect from 1st April, 1993, and accordingly applies in relation to assessment year 1993-94 and subsequent years. [Section 3] Modification of the provisions of section 10(15)(v) 18. Section 10(15)(v) of the Income-tax Act provided income-tax exemption in respect of interest on securities held by the Registrar, Supreme Court, in Reserve Bank's SGL Account No. SL/DH 048. The amount of US $ 470 million paid by the Union Carbide Corporation and the Union Carbide India Limited on the directions of the Supreme Court as compensation for the victims of the Bhopal gas leak disaster stands deposited in the aforesaid account, in the form of certain Government securities. 18.1 On the directions of the Supreme Court, the name of the account-holder of the said account had been changed from the Registrar, Supreme Court to Welfare Commissioner, Bhopal Gas Victims, Bhopal, with effect from 2nd November, 1992. 18.2 The Act, therefore, changes the name of the holder of the said account from "Registrar, Supreme Court" to "Welfare Commissioner, Bhopal Gas Victims, Bhopal" in section 10(15)(iv) of the Income-tax Act. 18.3 This amendment takes effect from 2nd November, 1992. [Section 3] Exemption of certain incomes of the European Economic Community 19. The European Economic Community has proposed co-operation in the industrial sector by providing financial assistance for setting up joint ventures between small and medium scale companies. It has entered into agreements with the Export-Import Bank of India, the Industrial Development Bank of India and the Industrial Credit and Investment Corporation of India under the European Community International Investment Partners Scheme. Under this Scheme, the European Economic Community would provide grants, interest-free loans and equity participation. The funds brought in for the purpose of being invested in projects approved under the scheme are not proposed to be repatriated. All dividend income accruing in India out of investments made under the scheme is proposed to be utilised for further investments in India. In order to facilitate investment by the European Economic Community in India under the European Community International Investment Partners Scheme, it had been decided to exempt its income from such investment. The Act, accordingly, inserts a new clause (23BBB) in section 10 so as to provide income-tax exemption on any income of the European Economic Community derived in India by way of interest, dividends or capital gains from investments made out of its funds under such scheme as the Central Government may, by notification in the Official Gazette, specify. 19.1 This amendment takes effect from 1st April, 1994, and accordingly applies in relation to assessment year 1994-95 and subsequent years. [Section 3] Extension of tax holiday under section 10A to Software Technology Parks and Electronic Hardware Technology Parks 20. The provisions of section 10A of the Income-tax Act provides for a five-year tax holiday during the period of the initial eight assessment years for new industrial undertakings set up in free trade zones. 20.1 The Act has amended section 10A in order to extend the five-year tax holiday to profits and gains derived from units set up in Software Technology Parks and Electronic Hardware Technology Parks approved by the Inter-Ministerial Standing Committee set up under schemes notified by the Ministry of Commerce and administered by the Department of Electronics. The term "produce" in respect of articles or things has been clarified to include production of computer programmes. 20.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 4] Amendment of the provisions relating to accumulation of income for charitable or religious purposes 21. Section 11(2) of the Income-tax Act provides that where seventy-five per cent. of the income derived from property held under trust, or held under trust in part, wholly for charitable or religious purposes is not applied, or is not deemed to have been applied, and is accumulated or set apart for application to such purposes in India, it shall not be included in the total income of the previous year of the person in receipt of the income, provided such person gives a notice in writing to the Assessing Officer in the prescribed manner specifying the purpose for which the income is being accumulated or set apart and the money so accumulated or set apart is invested or deposited in the forms or modes specified in section 11(5). However, such period of accumulation was not to exceed ten years as provided in clause (a) of section 11(2). 21.1 Section 11(3) of the Income-tax Act provides, inter alia, that where the income accumulated or set apart is not utilised for the purpose for which it is so accumulated or set apart during the period mentioned in clause (a) of section 11(2), it shall be deemed to be the income of the person of the previous year immediately following the expiry of the aforesaid period. Representations had been received to the effect that the aforesaid provisions created hardship in cases where the income accumulated or set apart could not be applied for the purpose for which it was accumulated or set apart during the said period due to an order or injunction of any court. 21.2 As a measure of rationalisation, the Act amends section 11(2) of the Income-tax Act to provide that in computing the period referred to in clause (a) thereof, the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded. 21.3 This amendment takes effect retrospectively from 1st April, 1962, and, accordingly, applies in relation to the assessment year 1962-63 and subsequent years. [Section 6] Relief for salaried taxpayers 22. Under the existing provisions of section 16 of the Income-tax Act, a standard deduction of a sum equal to 33 per cent. of the salary or Rs. 12,000, whichever is less is allowed to a person having income from salary. A higher standard deduction of Rs. 15,000 is provided to working women whose gross total income is below Rs. 75,000. 22.1 Considering the high cost of expenditure incidental to the employment of salaried persons, the Act has amended section 16 of the Income-tax Act in order to enhance the general ceiling of standard deduction from Rs. 12,000 to Rs. 15,000. Correspondingly, the higher standard deduction provided to working women has been increased from Rs. 15,000 to Rs. 18,000. 22.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 7] Rationalisation of provisions relating to exemption of medical perquisites 23. The Finance (No. 2) Act, 1991, amended section 17 of the Income-tax Act with a view to providing in the law itself exemption from tax in respect of perquisite in the form of medical facilities provided by the employers. In this regard, inter alia, clause (vi) was inserted in the proviso to clause (2) of section 17 regarding medical treatment abroad. The exemption from tax has been provided for actual expenditure incurred on medical treatment including the expenditure on travel and stay abroad of the patient and one attendant. The expenditure on travel abroad is exempt only in case of an employee whose gross total income as computed under the Income-tax Act, before including such expenditure, does not exceed Rs. 2 lakhs. The exemption of expenditure on travel abroad is subject to such further conditions as the Central Board of Direct Taxes may, having regard to the guidelines, if any, issued by the Reserve Bank of India in this behalf, prescribe. 23.1 The guidelines of the Reserve Bank of India for release of foreign exchange for medical treatment abroad are provided in "Exchange Control Manual" and "Book of Instructions". The Reserve Bank of India does not release foreign exchange for travel abroad for medical purposes to the patient or the attendant since the ticket is purchased in Indian rupees. Therefore, no specific guidelines have been provided in this regard by them. 23.2 In view of the above, the provisions in clause (vi) of the proviso to clause (2) of section 17 of the Income-tax Act relating to exemption of perquisite in the form of medical treatment abroad have been rationalised in order to provide that expenditure on stay and treatment abroad will be allowed to the extent permitted by the Reserve Bank of India. The provision relating to prescribing conditions by the Central Board of Direct Taxes regarding expenditure on travel abroad has also been removed. The only restriction on the exemption of perquisite value of travel cost that will now remain will be that the employee's gross total income does not exceed two lakhs rupees. 23.3 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Section 8] Enhanced tax concession for scientific research 24. Under section 35 of the Income-tax Act, deduction is allowed, from the business income in respect of expenditure incurred by the assessee for scientific or social or statistical research either directly by the assessee or by way of payments to a university, college, scientific research associations, etc. 24.1 The Act has inserted a new sub-section in section 35 which provides for weighted deduction of one and one-fourth times in respect of contributions to "National Laboratories", which will be such laboratories as are approved by the prescribed authority for carrying out approved programmes of scientific research. The prescribed authority has already been specified in the Income-tax Rules for the purposes of section 35. The Act envisages that the prescribed authority will firstly approve organisations as "National Laboratories" and thereafter further approve a programme for scientific research. Only if both these procedures are complied with then alone weighted deduction will be available. 24.2 These amendments have come into force with effect from 1st April, 1994, and are, accordingly, applicable in relation to the assessment year 1994-95 and subsequent years. [Section 9] Deduction in respect of provisions made for bad and doubtful debts relating to rural branches of banks 25. Under the existing provisions of the Income-tax Act, a mere provision for bad and doubtful debts is not allowed as deduction in computing the taxable profits of a business or profession, in order to qualify for deduction, the taxpayer has to write off the debt to claim a deduction. However, under section 36(1)(viia)(a) all scheduled and non-scheduled banks are entitled to make a provision for two per cent. of the aggregate advances made by their rural branches, and this qualifies for deduction while computing their income under the Income-tax Act. Having regard to the needs for stepping up the provisioning for these banks, the Act has raised the limit of two percent. to four per cent. of the aggregate advances made by the rural branches. 25.1 The amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 10] Deduction of Head office expenditure in case of Non-residents _equitable treatment to all non-residents 26. Section 44C was inserted in the Income-tax Act, 1961, with effect from 1st June, 1976. It laid down certain ceiling limits for the deduction of head office expenses in computing the taxable profits in the case of non-resident taxpayers. Under this provision, the deduction in respect of head office expenses is limited to _ (i) an amount equal to 5 per cent. of the "adjusted total income" of the taxpayer for the relevant year ; or (ii) the annual average of the head office expenditure allowed during a base period of three previous years, namely, the previous years relevant to the assessment years 1974-75 to 1976-77 ; or (iii) the actual amount of head office expenditure attributable to the business in India, whichever is the least. 26.1 While the amount of "adjusted total expenditure" and the amount of "expenditure in the nature of head office expenditure attributable to the business or profession of the assessee in India" has increased in monetary terms the "average head office expenditure" has remained constant. This has enabled the companies which have set up branches subsequent to 1976 to be placed on a better footing than those which had set up branches prior to 1976. The Act has deleted the limiting condition relating to "average head office expenditure". Thus, now in case of non-residents the ceiling limits for the deduction of head office expenses in computing the taxable profits will be limited to the lesser amount of "adjusted total expenditure" or the "expenditure in the nature of head office expenditure attributable to the business or profession of the assessee in India", as the case may be. This will ensure equal treatment to all non-resident assessees having branch offices in India. 26.2 The amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [section 11] Relief for the handicapped 27. Under the existing provisions of section 80DD of the Income-tax Act, a deduction of twelve thousand rupees is allowed in respect of expenditure incurred by a resident assessee being an individual or a Hindu undivided family, on the medical treatment (including nursing), training and rehabilitation, etc., of handicapped dependants who are relatives of an individual or are members of a Hindu undivided family. 27.1 The Act amends section 80DD in order to increase the quantum of deduction from twelve thousand rupees to fifteen thousand rupees with a view to offsetting the increased cost of maintaining handicapped dependant. [Section 12] Increasing the number of years for which approval can be granted by the Commissioner under section 80G 28. Deduction under the provisions of section 80G for any fund or institution, not specifically mentioned, is allowed if it is approved by the Commissioner of Income-tax. The power of approval, which was earlier based on administrative instructions, was made into a statutory provision by the Finance (No. 2) Act, 1991. The provisions inserted by the Finance (No. 2) Act, 1991, stipulates that the approval has effect for such assessment year or years, not exceeding three assessment years, as may be specified in the approval. 28.1 With a view to reducing the work related to repeated approval every three years, section 80-G has been amended in order to stipulate that the approval will have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval. Cases where the Commissioner is convinced about the reputation of the fund or institution can, henceforth, be granted approval straightaway for five years. The Commissioner will, however, as in the existing provisions, have the discretion to grant approval for less than five years depending upon the facts and circumstances of the case. 28.2 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Section 13] Tax concession in respect of contributions to the National Foundation for Communal Harmony 29. Under the provisions of section 80G, deduction is allowed in computing the total income of a person in respect of donations made to certain trusts and institutions. The deduction normally allowed is at the rate of 50 per cent. of the amount of donation made. However, in the case of donations made to the Prime Minister's National Relief Fund, the Prime Minister's Armenia Earthquake Relief Fund, the Africa Fund, the Government, local authority or certain approved associations, etc., carrying on promotion of family planning the deduction is allowed at the rate of 100 per cent. of the donation. 29.1 Considering the importance of the National Foundation for Communal Harmony in acting as a catalyst for communal harmony and also considering the nature of its activity in providing assistance to the children of families affected by communal riots, the Finance Act extends the benefit of 100 per cent. deduction to donations made to the Foundation. Section 10(23C) of the Income-tax Act has also been amended in order to include the National Foundation for Communal Harmony as a fund whose income will be exempt from income-tax. 29.2 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Sections 3 and 13] Tax concession in respect of contributions to Universities and approved Institutions of National Eminence 30. As explained above, section 80G of the Income-tax Act provides for deduction in respect of donations made by a taxpayer to certain trusts and institutions. 30.1 In order to provide encouragement to the cause of higher learning, the Act has allowed 100 per cent. deduction in respect of any sum paid by any taxpayer to a university or institutions of national importance as may be approved by the prescribed authority in this behalf. For this purpose, the prescribed authority will be the Director-General of Income-tax (Exemptions) in concurrence with the Secretary, All India Council for Technical Education (for approval of technical institutions) and in concurrence with the Secretary, University Grants Commission (for approval of universities and non-technical institutions). The deduction will be without any ceiling limits as exists for the unspecified category of funds and organisations. In respect of other educational institutions, etc., the existing provisions allowing 50 per cent. deduction will continue to apply. 30.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 13] Tax concession for the export of computer software and hardware 31. With a view to providing fiscal incentive for promoting export of computer software, a new section 80HHE was inserted in the Income-tax Act by the Finance (No. 2) Act, 1991. Section 80HHE provides for 100 per cent. tax deduction for software exports. The tax concession is available with reference to export profits derived during the previous years relevant to assessment years 1991-92, 1992-93 and 1993-94, respectively. 31.1 With a view to encouraging the exporters of computer software and in order to give a further push to exports, the concession has been extended for one more year, i.e., for the assessment year 1994-95. 31.2 This amendment takes effect from the day the Act has received the assent of the President, i.e. 13th May, 1993, and will apply in relation to assessment year 1994-95. [Section 14] Tax holiday to new industrial undertakings set up in backward States . 32. Under section 80-IA of the Income-tax Act, 1961, deduction is allowed, in computing the taxable income, in respect of profits derived from a new industrial undertaking or a ship or the business of a hotel. The deduction under this section is allowed in the case of companies, at 30 per cent. of profits in respect of the assessment year relevant to the previous year in which the hotel starts functioning or the industrial undertaking starts manufacture or ship is first brought to use and nine assessment years immediately succeeding the initial assessment year. In the case of taxpayers being a co-operative society, similar deduction is allowed for the initial assessment year and eleven succeeding years. The deduction is allowed at the rate of 25% in the case of non-corporate assessees. Likewise, in the case of new hotels set up in hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may specify, the deduction is admissible at the rate of 50 per cent. of the profits. 32.1 With a view to give substantial thrust for encouraging the industrialisation in States which are industrially very backward and where very little or virtually no industrialisation has taken place, the Finance Act has provided incentive for growth of industrialisation in remote and industrially backward States specified in the new Eighth Schedule to the Income-tax Act, which start manufacture or production during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March, 1998, deduction under section 80-IA, at the rate of 100 per cent. of profits in respect of the first five assessment years starting from the assessment year relevant to the previous year in which the industrial undertaking starts manufacture or production. For the subsequent assessment years, deduction from the profits from such undertakings will be allowed at the normal rate of 30 per cent. in the case of companies and 25 per cent. in the case of non-corporate assessees. The deduction, at the enhanced rate and the normal rate together, will be limited to twelve assessment years in the case of co-operative societies and ten assessment years in the case of other assessees, as in the existing provisions. 32.2 States which are industrially very backward have been identified as those in which, according to the backward area Notification S. O. No. 165, dated 19th December, 1986*, all the districts are industrially backward. These States and Union Territories are Arunachal Pradesh, Assam, Goa, Himachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura and the Union Territories of Andaman and Nicobar, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Pondicherry. The above list corresponds to the existing list of industrially backward areas specified by the Ministry of Industry. 32.3 These amendments will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Sections 15 and 37] Tax holiday for the power sector 33. Under section 80-IA of the Income-tax Act, 1961, deduction is allowed in computing the taxable income, in respect of profits derived from a new industrial undertaking or a ship or the business of a hotel. 33.1 With a view to substantially increasing the power generation capacity in the country, a five-year full tax holiday and thereafter a partial tax holiday have been provided for in respect of profits and gains of industrial undertakings set up anywhere in India for generation or generation and distribution of power. Such undertakings which begins to generate power during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March, 1998, will be allowed deduction under section 80-IA, at the rate of 100 per cent. of profits in respect of the first five assessment years starting from the assessment year relevant to the previous year in which the undertaking begins generation of power. For the subsequent assessment years, the deduction from the profits from such undertakings will be allowed at the normal rate of 30 per cent. in the case of companies and 25 per cent. in the case of non-corporate assessees. The deduction, at the enhanced rate and the normal rate together, will be limited to twelve assessment years in the case of co-operative societies and ten assessment years in the case of other assessees, as in the existing provisions. 33.2 These amendments will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 15] Enhancement of the quantum of deduction under section 80L 34. Under the existing provisions of section 80L, an individual or a Hindu undivided family deriving any income by way of interest on certain specified deposits or in respect of units from the Unit Trust of India or other mutual funds or by way of dividends from Indian companies, is allowed a deduction in computing its total income of an amount equal to the amount of such income not exceeding Rs. 7,000. 34.1 The Finance Act, 1993, has enhanced the quantum of deduction allowed under this section from Rs. 7,000 to Rs. 10,000 with effect from the 1st April, 1994. [Section 16] Phased withdrawal of deduction available to domestic companies in respect of dividend on units of the Unit Trust of India 35. Under the existing provisions of section 80M, a domestic company deriving any income by way of dividends from other domestic companies is allowed the following deduction in computing its total income : (i) in respect of a scheduled bank, a public financial institution, a State Financial Corporation, State Industrial Investment Corporation or a company registered under section 25 of the Companies Act, 60 per cent. of the income by way of dividends from other domestic companies ; (ii) in respect of any other domestic company, so much of the dividends from other domestic companies as does not exceed the amount of dividend distributed by the domestic company on or before the due date for filing the return of income. 35.1 Under section 32(3) of the Unit Trust of India Act, 1963, the Unit Trust of India is deemed to be a company and any distribution of income received by a unit-holder from the Unit Trust of India is deemed to be dividend income for the purpose of the Income-tax Act. 35.2 With a view to providing a level playing field to all the mutual funds, the deduction under section 80M in respect of dividend income from the Unit Trust of India is being withdrawn in a phased manner. Accordingly, for the assessment year 1994-95, only four-fifths of the dividend from the Unit Trust of India will be eligible for deduction. For the assessment year 1995-96, two-fifths of the dividend from the Unit Trust of India will be eligible for deduction. The deduction will be subject to the existing conditions in section 80M. For the assessment year 1996-97 and subsequent years, dividend from the Unit Trust of India will not be eligible for deduction under section 80M. 35.3 This amendment will come into effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 17] Relief in cases where income of a handicapped minor is clubbed with that of one of the parents 36. The Finance Act, 1992, had introduced a provision in section 64 of the Income-tax Act whereby all income of a minor child, except from wages or as a result of the child's own talent or skill, is to be taxed in the hands of that parent whose total income (excluding income to be included) is greater. Under the provision of section 80U, a deduction of twenty thousand rupees is allowed in the case of an individual who is suffering from a permanent physical disability (including blindness) or mental retardation. The existing provision, deduction under section 80U, being person-related and not income-related, may be interpreted as not allowable in the hands of the parent in whose hand the income of the minor, suffering from permanent physical or mental disability, has been clubbed. 36.1 With a view to providing relief in cases where income of a handicapped minor is clubbed with that of one of the parents, a new section 80V has been introduced. The new provision ensures that the parent in whose hand the income of the minor, suffering from permanent physical or mental disability, has been clubbed, should also be allowed deduction under section 80U to the extent to which deduction would have been allowable to the minor had he been assessed separately, i.e., to the extent of the income of the handicapped minor clubbed or Rs. 20,000, whichever is lower. 36.2 These amendments will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 19] Relief to senior citizens 37. Under the provisions of section 88B of the Income-tax Act, an additional rebate of ten per cent. is allowed from the net tax payable in the case of senior citizens, who have attained the age of 65 years and who have a gross total income of fifty thousand rupees or less. 37.1 With a view to providing further relief to senior citizens who normally have to spend a substantial part of their income towards medical treatment, and having regard to the fact that the disposable income of senior citizens reduces substantially because of retirement, section 88B of the Income-tax Act has been amended in order to provide for a rebate of twenty per cent. in the case of senior citizens. The limit of gross total income up to which rebate is allowable has also been enhanced from fifty thousand rupees to seventy-five thousand rupees. 37.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 20] Tax incentive for Foreign Institutional Investors investing in securities 38. While presenting the Budget for 1992-93, the Finance Minister had stated that ways would be considered for allowing reputable foreign investors to invest in the country's capital markets. In pursuance of this announcement, guidelines had been issued through a Press Note dated 14th September, 1992*, for such investment by Foreign Institutional Investors. Income from such investment was to be taxed at concessional rates. Accordingly, a new section 115AD has been inserted in the Income-tax Act relating to tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer. 38.1 The income received in respect of securities (other than units referred to in section 115AB) listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, is to be taxed at the rate of twenty per cent. Income by way of long-term capital gains arising from the transfer of the said securities is to be taxed at the rate of ten per cent. Income by way of short-term capital gains arising from the transfer of the said securities is to be taxed at the rate of thirty per cent. However, these rates of tax will apply on the gross income of the nature specified above without allowing for any deduction under sections 28 to 44C, 57 and Chapter VI-A. The first and second provisos of section 48 relating to computation of capital gains will not apply in the case of transfer of the aforesaid securities by the Foreign Institutional Investors. 38.2 The expression "Foreign Institutional Investor" has been defined to mean such investor as the Central Government may, by notification in the Official Gazette, specify in this behalf. The expression "securities" is to have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. Section 2(h) of the said Act defines 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 or other body corporate ; (ii) Government securities ; and (iii) rights or interests in securities. 38.3 This amendment takes effect from 1st April, 1993, and, accordingly, applies in relation to the assessment year 1993-94 and subsequent years. 38.4 In order to facilitate easy collection of tax, a new section 196D has been inserted in the Income-tax Act relating to deduction of tax at source from income of the Foreign Institutional Investors in respect of securities. This section provides that any person responsible for paying any income in respect of securities referred to in clause (a) of sub-section (1) of section 115AD to a Foreign Institutional Investor shall deduct tax thereon at the rate of twenty per cent. The deduction is required to be made either at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or at the time of issue of a cheque or draft or by any other mode, whichever is earlier. No deduction of tax is to be made from any income by way of capital gains arising from the transfer of such securities. 38.5 This amendment takes effect from 1st June, 1993. [Sections 21, 28 and 30] Extension of the simplified procedure for small businessmen to transport operators 39. The Finance Act, 1992, had inserted a new Chapter XII-C in the Income-tax Act which provides for a simplified scheme for payment of income tax by small businessmen. The income in such cases is deemed to be Rs. 35,000. 39.1 In order to widen the base of the scheme further, the scheme has been extended to small road transport operators. This will include either persons who are carrying on the business of operating a transport vehicle or persons who own one transport vehicle and are earning income by hiring or leasing it. The transport vehicle will include a truck, a light commercial vehicle, a taxi, three-wheeler motor vehicle. 39.2 The deemed income of persons opting for the scheme has been enhanced from Rs. 35,000 to Rs. 37,000. 39.3 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94. Accordingly, small road transport operators can opt for the simplified procedure even in respect of the income earned during the previous year 1992-93. For such transport operators, time for filing the statement and for paying the tax has been extended up to 30th June, 1993. [Sections 22 and 23] Modification of the provisions relating to levy of additional income-tax 40. The provisions of section 143(1A) of the Income-tax Act provided for levy of twenty per cent. additional income-tax where the total income, as a result of the adjustments made under the first proviso to section 143(1)(a), exceeded the total income declared in the return. These provisions sought to cover cases of returned income as well as returned loss. Besides its deterrent effect, the purpose of the levy of the additional income-tax was to persuade all the assessees to file their returns of income carefully to avoid mistakes. 40.1 In two recent judicial pronouncements, it had been held that the provisions of section 143(1A) of the Income-tax Act, as these were worded, were not applicable in loss cases. 40.2 The Act, therefore, amends section 143(1A) of the Income-tax Act to provide that where as a result of the adjustments made under the first proviso to section 143(1)(a), the income declared by any person in the return is increased, the Assessing Officer shall charge additional income-tax at the rate of twenty per cent. on the difference between the tax on the increased total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments. In cases where the loss declared in the return has been reduced as a result of the aforesaid adjustments or the aforesaid adjustments have the effect of converting that loss into income, the Act provides that the Assessing Officer shall calculate a sum (referred to as additional income-tax) equal to twenty per cent. of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person. 40.3 This amendment takes effect from 1st April, 1989, and accordingly, applies in relation to the assessment year 1989-90 and subsequent years. [Section 24] Provision for deduction of tax at source on income by way of long-term capital gains referred to in sections 115AB and 115AC at the rates specified therein 41. Section 115AB of the Income-tax Act provides that in the case of an Off-shore Fund, the income in respect of units purchased in foreign currency and income by way of long-term capital gains arising from the transfer of such units shall be taxed at the rate of ten per cent. thereof. Section 115AC of the Income-tax Act provides that in the case of a non-resident, the income by way of interest or dividends in respect of bonds issued by or shares in an Indian company purchased in foreign currency in accordance with a scheme notified by the Central Government shall be taxed at the rate of ten per cent. thereof. Income by way of long-term capital gains arising on the transfer of such shares or bonds is also to be taxed at the rate of ten per cent. thereof. Section 196B of the Income-tax Act provided for deduction of income-tax at source from income in respect of units referred to in section 115AB at the rate of ten per cent. Similarly, section 196C provided for deduction of income-tax at source from income by way of interest or dividends on bonds and shares referred to in section 115AC at the rate of ten per cent. Thus, the income by way of long-term capital gains arising on the transfer of units referred to in section 115AB and the income by way of capital gains arising on the transfer of bonds and shares referred to in section 115AC did not fall within the ambit of sections 196B and 196C respectively. In order that deduction of tax at source on such income is made at the rates of income-tax specified in sections 115AB and 115AC respectively, the Act amends sections 196B and 196C of the Income-tax Act to include the said income within the ambit of the aforesaid sections. 41.1 These amendments take effect from 1st June, 1993. [Sections 26 and 27] Extending the facility for receipt of dividends by companies without deduction of tax at source in certain cases 42. Section 197 of the Income-tax Act provides that the Assessing Officer can give a certificate to any person for deduction of income-tax at rates lower than the rates in force or for no deduction of income-tax at source, if he is satisfied that the total income of such person so warrants. The provisions of this section did not cover income by way of dividends from which income-tax is required to be deducted at source under section 194. On the other hand, under the second proviso to section 194, the Assessing Officer could give a certificate in the case of a non-corporate shareholder for no deduction of income-tax at source if he was satisfied that the total income of the shareholder would be less than the minimum liable to income-tax. Representations had been received to the effect that there was no justification for excluding from the ambit of the second proviso to section 194 the companies, in receipt of dividends, which suffered losses or were not likely to have any income or the tax on their income was likely to be inadequate to absorb the full amount of income-tax deducted. 42.1 As a measure of rationalisation, the Act provides that the provisions of section 197 will also apply to income from dividends. As a consequence thereof, the second proviso to section 194 has been omitted. 42.2 These amendments take effect from 1st June, 1993. [Sections 25 and 29] Setting up of authority for advance rulings in the case of non-residents 43. In his Budget Speech for 1992-93, the Finance Minister had assured that, in the interest of avoiding needless litigation and promoting better taxpayer relations a scheme for giving advance rulings in respect of transactions involving non-residents was being worked out and would be put into operation. In pursuance thereof, the Act inserts a new Chapter XIX-B on advance rulings in respect of transactions involving non-residents. 43.1 Under this Chapter, "advance ruling" has been defined to mean the determination, by an authority constituted by the Central Government and known as authority for advance rulings, of a question of law or fact in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident. 43.2 The authority for advance rulings will consist of a Chairman who will be a retired Judge of the Supreme Court and two other members drawn from the Indian Revenue Service and Indian Legal Service. The headquarters of the Authority will be in Delhi. It has been provided that no proceeding of the Authority will be invalid merely on grounds of the existence of any vacancy or defect in the constitution of the Authority. Any non-resident desirous of obtaining an advance ruling can make an application in the form and manner to be prescribed by rules along with the payment of a fee of Rs. 2,500. Such an application can be withdrawn within thirty days. The Authority on receipt of an application will send a copy to the Commissioner concerned and, wherever considered necessary, also call upon the Commissioner to furnish relevant records. Such records will be returned to the Commissioner as soon as possible. The Authority may either allow or reject an application. However, it has been provided specifically that the Authority shall not allow an application where the question of law or fact raised is already pending in the case of the applicant, either before any income-tax authority, the Appellate Tribunal or any court. Applications are also not to be allowed where the transaction, in relation to which the question is raised, is designed for the avoidance of income-tax or where the question raised relates to the determination of the fair market value of any property. The applicant can, on request, appear either in person or can be represented through a duly authorised representative. A time limit of six months has been provided for the pronouncement of advance ruling after the receipt of the application by the Authority. 43.3 The advance ruling is to be binding only on the applicant who had sought it and in respect of the specific transaction in relation to which such advance ruling was sought. It is also to be binding on the Commissioner and the income-tax authorities subordinate to the Commissioner who have jurisdiction over the applicant. The advance ruling will continue to remain in force unless there is a change either in law or in fact on the basis of which the advance ruling was pronounced. It has also been provided that the advance ruling shall be void if it is subsequently found to have been obtained by fraud or misrepresentation of facts. 43.4 The Authority has all the powers of a civil court in respect of discovery and inspection, enforcing the attendance of any person including any officer of a banking company and examining him on oath, issuing commissions and compelling the production of books of account and other records. It also has the power to regulate its own procedure in all matters arising out of the exercise of its powers under the Act. The Authority is deemed to be a civil court for the purposes of section 195 of the Code of Criminal Procedure, 1973, and every proceeding before the Authority shall be deemed to be a judicial proceeding under certain provisions of the Indian Penal Code. 43.5 This Chapter takes effect from 1st June, 1993. [Sections 28, 30 and 31] Hike in fees for filing appeals to the Income-tax Appellate Tribunal 44. The fee for filing an appeal before the Income-tax Appellate Tribunal was raised through the Finance Act, 1992, by amending the provisions of sub-section (6) of section 253 of the Income-tax Act, 1961, from Rs. 200 to Rs. 1,500, where the total income of the assessee as computed by the Assessing Officer was more than Rs. 1 lakh and Rs. 250 in any other case. This amendment was made effective from 1st June, 1992. 44.1 For the removal of doubts, the Finance Act, 1993, has further amended the provisions of sub-section (6) of section 253 retrospectively with effect from 1st June, 1992, to provide that the enhanced fee will be applicable to all the appeals filed on or after 1st June, 1992, irrespective of the date of initiation of assessment proceedings in a case. [Section 32] Provisions relating to pre-emptive purchase of immovable property 45. The Supreme Court in its judgment in the case of C.B. Gautam v. Union of India and others, delivered on 17th November, 1992 (see [1993] 199 ITR 530), has upheld the constitutional validity of Chapter XX-C. While passing the judgment the Supreme Court has, inter alia, held as under : (i) A reasonable opportunity of being heard is to be given to the affected parties. (ii) The reasons recorded by the appropriate authority for making the order of pre-emptive purchase are to be communicated to the affected parties. (iii) The expression "free from all encumbrances" as contained in sub-section (1) of section 269UE has been struck down. Bona fide lessees or encumbrance holders can continue to be in possession of the property if provided for in the terms of the agreement for sale. Appropriate legal provisions may be made to tackle cases of bogus encumbrance or lease holders, created for defeating the purpose of Chapter XX-C. 45.1 In order to give legislative shape to the above mentioned rulings of the Supreme Court, amendments in the provisions of Chapter XX-C have been made. For enabling a reasonable opportunity of being heard to the affected parties, the time limit for passing the order has been extended from two months to three months from the end of the month in which Form No. 37-I is filed. The intending transferor and transferee are now required to enter into an agreement for sale in writing at least four months before the intended date of transfer. The appropriate authority is now required to give the reasons for making pre-emptive purchase in the order itself. Where any matter relating to the pre-emptive purchase of property under the Chapter is pending in any court for decision, the period of three months for passing the order will be reckoned from the date of the final disposal of such pending matter or where a stay order has been issued by such court, with reference to the date of vacation of the stay order. 45.2 The words "free from all encumbrances" have been deleted from sub-section (1) of section 269UE. This means that in the case of pre-emptive purchase now, the Central Government acquires a property in the manner in which it is intended to be transferred. The appropriate authority has been given a right to declare any encumbrance or leasehold interest to be void where it has been created with a view to defeating the purpose of Chapter XX-C. In such cases the property will vest in the Central Government, free from all encumbrance or leasehold interest. The holder of a bona fide lease or encumbrance can continue to remain in possession of the property if, in terms of the agreement for transfer, he is eligible to continue to be in possession of such property even after the transfer. 45.3 The changes relating to extending the period for passing the order have been made effective from 1st June, 1993. The other changes are made effective retrospectively from 17th November, 1992. [Sections 33, 34 and 35] Modification of the provisions relating to power to reduce or waive penalty, etc., in certain cases 46. Under the provisions of section 273A of the Income-tax Act as these were prior to their amendment by the Finance Act, 1993, both the Chief Commissioner and Commissioner were empowered to reduce or waive (a) the amount of penalty imposed or imposable under section 271(1)(iii) or (b) the amount of any other penalty payable under the Act, subject to certain conditions. They could also stay or compound any proceeding for the recovery of the amount referred to in (b) above. It was further provided that where the amount of income in respect of which penalty is imposed or imposable under section 271(1)(c) exceeded five hundred thousand rupees and in other cases if the amount of penalty payable exceeded one hundred thousand rupees, no order reducing or waiving the amount of penalty or staying or compounding any proceeding for the recovery of such amount could be made without the previous approval of the Board. 46.1 Reference to both the Chief Commissioner and Commissioner as the authority empowered to reduce or waive penalty, in section 273A could create problems. Further, to streamline the functioning of the Income-tax Department, it was decided that the Board's power to grant approval to an order of waiver/reduction of penalty where the amount of income or penalty exceeded the monetary limits specified in section 273A should be vested in the concerned Chief Commissioner or Director-General, as the case may be. 46.2 The Act, therefore, omits reference to the Chief Commissioner as the authority empowered to reduce or waive the amount of penalty, etc. It also provides that where the amount of income or penalty exceeds the monetary limits specified in section 273A, no order reducing or waiving the amount of the penalty or staying or compounding any proceeding for the recovery of such amount shall be made except with the previous approval of the Chief Commissioner or Director-General, as the case may be. 46.3 Similar amendment has been made to the corresponding provisions of section 18B of the Wealth-tax Act. 46.4 These amendments take effect from 1st June, 1993. 46.5 The proposals received in the Board seeking its approval for waiver/reduction of penalties will stand transferred to the concerned Chief Commissioners/Directors-General with effect from 1st June, 1993. [Sections 36 and 40] Consequential amendments in sections 10A, 10B and 80P 47. It has been provided in sections 10A and 10B of the Income-tax Act, 1961, that a new industrial undertaking established in a free trade zone or a newly established 100 per cent. export oriented undertaking availing of the benefit under the aforesaid sections would not qualify for deduction, inter alia, under section 80-I after the five-year tax holiday period. Similarly, in section 80P it has been provided that a co-operative society availing of deduction under the provisions of section 80P would get deduction on the gross total income as reduced by the deduction, inter alia, under section 80-I. 47.1 Section 80-I was superseded by section 80-IA by the Finance (No. 2) Act, 1991. Consequently, the Act has amended sections 10A, 10B with a view to including section 80-IA therein so that any industrial undertaking availing of the benefits of deduction under section 10A or 10B does not avail of deduction under section 80-IA. Likewise, section 80P has been amended with a view to including section 80-IA therein so that a co-operative society availing of deduction under the provisions of section 80P would get deduction on the gross total income as reduced by the deduction, inter alia, under section 80-IA. 47.2 The amendments will have retrospective effect from 1st April, 1991, the date from which the provision of section 80-IA came into operation. They will accordingly apply in relation to assessment year 1991-92 and subsequent years. [Sections 4, 5 and 18] Wealth-tax Exemption for urban land held as stock-in-trade 48. Under the existing provisions, urban land held as stock-in-trade is considered an asset, and is exigible to wealth-tax. The Act provides that urban land held as stock-in-trade will not be liable to wealth-tax for a period of three years from the date of its acquisition. It may be clarified that this exemption would be available only in such cases where the business activity of the person is such that he has to hold land as stock-in-trade. 48.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 38] Exemption for a house or part of a house 49. The Finance Act, 1992, had withdrawn exemptions in relation to certain assets which were earlier available under section 5 of the Wealth-tax Act. The Finance Act, 1993, has revived the exemption in respect of one house or part of a house belonging to an assessee. This exemption will be available only to individuals and Hindu undivided families. 49.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 39] Gift-tax Raising of basic exemption limit 50. Under the existing provisions of section 5(2) of the Gift-tax Act, tax is not charged in respect of gifts made up to a maximum of rupees twenty thousand during any previous year. Considering the increase in prices since the present limit was fixed, the Act has raised the aforesaid limit to rupees thirty thousand. 50.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 41] Providing exemption for gifts made from Non-resident (Non-repatriable) Rupee Deposit Scheme, 1992 51. With a view to encouraging the remittances of foreign exchange into the country by non-resident Indian citizens and foreign nationals of Indian origin, one time gifts made by such person from moneys standing to their credit in an account opened and operated in accordance with the non-resident (non-repatriable) Rupee Deposit Scheme, 1992, has been exempted from gift-tax. This scheme has come into effect from 15th June, 1992. Under the said scheme, the NRI is permitted to make a gift out of amounts deposited under the Scheme, to a non-resident, or to a close relative, or to any charitable trust recognised under the Income-tax Act, 1961. 51.1 This amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [Section 41] Raising of exemption limit for gifts made to dependent relatives 52. Under the existing provisions of the Gift-tax Act, gifts made on the occasion of the marriage to a relative dependent upon the donor for support and maintenance are exempt from the incidence of gift-tax, subject to a limit of Rs. 10,000. Considering the increase in prices since the present limit was fixed, the Act has raised the limit to rupees thirty thousand. 52.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 41] Rules for determining the value of shares and debentures gifted 53. Schedule II of the Gift-tax Act provides that the value of any property other than cash will be determined in accordance with the provisions of Schedule III of the Wealth-tax Act. Under the scheme formulated by the Finance Act, 1992, shares and debentures in companies are not liable to levy of wealth-tax. The Finance Act, 1992, by way of consequential amendment omitted Part C of Schedule III, which specified the mode for valuation of these shares and debentures in companies. The deletion of these Rules has created difficulties under the Gift-tax Act as no mode has been specified for determining the value of these shares and debentures. The Act has revived Part C of Schedule III of the Wealth-tax Act in Schedule II of the Gift-tax Act to overcome this difficulty. 53.1 This amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [Section 42] (Sd.) K. M. Sultan, Director (TPL).