Finance Act, 2000—Explanatory notes on provisions relating to direct taxes - Income Tax - 794/2000

Finance Act, 2000—Explanatory notes on provisions relating to direct taxes Instruction No. 794/2000 Dated 9/8/2000. 1. Introduction : 1.1. The Finance Act, 2000, as passed by Parliament, received the assent of the President on 12th May, 2000, and has been enacted as Act No. 10 of 2000. This circular explains the substance of the provisions of the Act relating to direct taxes ; 2. Changes made by the Finance Act, 2000 : 2.1. The Finance Act, 2000 (hereinafter referred to as the "Act"), has,— amended sections 2, 9, 10, 11, 12, 13, 17, 24, 32, 33AC, 35, 35D, 36, 43, 43B, 47, 48, 49, 50B, 54EA, 54EB, 54F, 72A, 80E, 80G, 80HHB, 80HHBA, 80HHC, 80HHD, 80HHE, 80HHF, 80-IA, 80-IB, 80L, 80R, 80RR, 80RRA, 88, 88B, 112, 115JA, 115JAA, 115O, 115P, 115R, 115S, 139A, 158BFA, 194A, 194L, 201, 220, 245N, 245R, 246, 246A, 254, 267, 275 and 285B of the Income-tax Act, 1961 : inserted new sections 25B, 54EC, 88C, 115JB and 115U of the Income-tax Act, 1961 ; substituted new sections for sections 10A and 10B of the Income-tax Act, 1961 ; amended sections 23, 23A and 24 of the Wealth-tax Act, 1957 ; amended section 4 of the Interest-tax Act, 1974 ; amended sections 88 and 90 of the Finance Act, 1998 ; amended Part III of the First Schedule of the Finance Act, 1998. 3. Provisions in brief : 3.1. The provisions of the Act in the sphere of direct taxes relate to the following matters : (i) Prescribing the rates of income-tax on incomes liable to tax for the assessment year 2000-2001 ; the rates at which tax will be deductible at source in the financial year 2000-2001 from interest (including interest on securities), winnings from lotteries or cross-word puzzles, winnings from horse races, insurance commission and other categories of income liable for tax deduction at source under the Income-tax Act, rates for computing "advance tax", deduction of income-tax from "salaries" and charging of income-tax on current incomes in certain cases for the financial year 2000-2001. (ii) Clarification of the definition of "agricultural income" ; —changing the conditions for demergers arising out of splitting up or the reconstruction of any authority or a body or a local authority or a public sector company ; —definition of the phrase "computer software" for the purpose of section 9 ; —exemption of amount received on Voluntary Separation Scheme ; —exemption of interest from certain bonds issued by local authorities ; —exemption of interest on external commercial borrowings ; —amendment of provisions to provide incentives to promote sports or games ; —exemption of income of Investor Protection Fund ; —introduction of a new sub-section 10(23FB) for exempting income of Venture Capital Companies (VCC) or Venture Capital Funds (VCF) ; —introduction of a new Chapter XII-F and section 115U for making VCF/VCC as a pass through vehicle and taxing investors as if they had received income directly from the Venture Capital Undertaking (VCU) ; —expansion of the scope of infrastructure facility for exemption under section 10(23G) ; —substitution of new provisions for the existing sections 10A and 10B ; —clarification that a charitable trust will not lose exemption if funds remain invested for three years in the public sector companies after disinvestment by the Government in such companies ; —extension of the scope of investments by charitable trusts to urban infrastructure ; —allowing charitable trusts to provide educational or medical facilities to specified persons without losing exemption ; —modification of the provisions relating to taxability of benefits/gains on shares allotted under employee stock option plans ; —enhancement of the limit of deduction for interest on loans taken to acquire or construct self-occupied house property and extending the terminal date for completion of construction/acquisition of such properties ; —insertion of a provision relating to taxing of arrears of rent ; —amendment of section 32 to dispense with the requirement of continuance of the same business for set-off of unabsorbed depreciation ; —amendment of section 33AC to provide incentives for shipping industry ; —enhancement of the weighted deduction for research and development expenditure ; —amendment of various provisions of the Income-tax Act, consequent to the removal of requirement of approval of the Central Government under section 36(1)(viii) ; —amendment of section 43 to specify written down value to be the basis of adjustment in regard to transfer of assets in a demerger ; —specification of identical conditions for demerger of a foreign company holding shares of Indian company and demerger of Indian company ; —rationalisation of the definition of cost inflation index. —modification in the definition of "net worth" in case of slump sale; —providing sunset clauses in sections 54EA and 54EB and introduction of a new section 54EC to ensure focussed investments of capital gains for agricultural finance and development of highways infrastructure ; —extension of scope of section 54F ; —clarification regarding value of assets in amalgamation ; —enhancement of the deduction in respect of repayment of loans taken by a student for pursuing higher studies ; —amendment of the provisions of section 80G to allow as deduction, any sum paid as donation to the Indian Olympic Association or any other notified institutions for development of sports and games ; —modification of various provisions of the Income-tax Act for phasing out of tax concessions in respect of foreign exchange earnings ; —amendment of provision of section 80HHF to extend the benefit to non-corporate entities ; —amendment of the provisions of section 80-IA to include "solid waste management and water treatment system" within the definition of "infrastructure facilities" ; —amendment of section 80-IB to extend tax holiday in respect of undertakings set up in industrially backward states and industrially backward districts up to March 31, 2002 ; —extension of the tax holiday under section 80-IB to a company carrying on scientific research and development ; —enhancement of the rebate of income-tax in case of senior citizens; enhancement of the limit of repayment of housing loans qualifying for rebate ; —introduction of section 88C to provide rebate of income tax in case of women below 65 years ; —amendment of section 112 to extend the concessional rate of tax on long-term capital gains on securities to units of Unit Trust of India and of Mutual Funds ; —amendment of section 115JAA to limit the credit of minimum alternate tax to payments made under old provisions ; —introduction of section 115JB to specify new provisions relating to minimum alternate tax payable by companies ; —amendment of section 115-O to increase the tax on distributed profits of domestic companies ; —amendment of section 115R to increase the tax on income distributed by the Unit Trust of India and Mutual Funds ; —amendment of sections 115P and 115S to decrease the rate of interest ; —amendment of section 139A to delegate power to the Central Government to notify a class or classes of persons for whom it will be obligatory to apply for Permanent Account Number (PAN) ; —insertion of reference to section 246A in several sections in the Income-tax Act ; —rationalisation of TDS provisions ; —modification of provision regarding tax deduction at source on payment of compensation relating to compulsory acquisition of capital asset ; —rationalization of provisions relating to Authority for Advance Rulings for resident applicants ; —amendment of sections 246A and 249 to provide for orders passed under section 201 of the Income-tax Act to be appealable before the Commissioner (Appeals) ; —extending the advisory time limit for the Appellate Tribunal to decide appeals filed by the Department ; —enhancement of time limit for submission of statements by the film producers ; —amendment of section 88 of the Finance (No. 2) Act, 1998, relating to "Kar Vivad Samadhan Scheme, 1998" to clarify that the amount payable will be determined at 2 per cent. of the disputed chargeable interest in certain cases ; —amendment of section 90 of the Finance (No. 2) Act, 1998, relating to "Kar Vivad Samadhan Scheme, 1998" to clarify that the time limit of payment within 30 days will commence from the date of receipt of the order of the designated authority determining the sum payable ; —amendment of Part III of the First Schedule to the Finance Act, 1999, so as to provide that surcharge shall be charged on the income referred to in section 115ACA instead of section 115AC. (iii) Amendment of the Wealth-tax Act, 1957, to, —make consequential amendments to sections 23, 24, 31, 34A and 35 of the Wealth-tax Act. (iv) Amendment of the Interest-tax Act, 1994, with a view to, —withdraw the levy of interest-tax from the assessment year 2001-2002. Income-tax 4. Rate structure : 4.1. Rates of income-tax in respect of incomes liable to tax for the assessment year 2000-2001. In respect of incomes of all categories of taxpayers (corporate as well as non-corporate) liable to tax for the assessment year 2000-2001, the rates of income-tax 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, 1999. 4.2. Rates for deduction of income-tax at source during the financial year 2000-2001 from income other than "salaries". 4.2.1. The rates for deduction of income-tax at source during the financial year 2000-2001 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", insurance commission, winnings from lotteries or crossword puzzles, winnings from horse races and income of non-residents (including non-resident Indians). 4.2.2. The tax so computed for deduction at source in the case of companies, firms, co-operative societies and local authorities (except foreign companies) will be enhanced by a surcharge calculated at the rate of ten per cent. of such tax. In the case of individuals, Hindu undivided families, association of persons and body of individuals, the surcharge would be payable only by persons having total income above Rs. 60,000. 4.2.3. It is clarified that the provision for increase of tax-deduction at source by a surcharge calculated at ten per cent. only, in the case of individuals, Hindu undivided families, association of persons and body of individuals, is made to address operational difficulties arising at the time of deducting tax at source. The surcharge payable in the case of individuals, Hindu undivided families, association of persons and body of individuals if their total income exceeds rupees one lakh fifty thousand would be fifteen per cent. of the tax payable. The additional surcharge would be paid at the time of filing of the return. It is further clarified that in the case of tax deduc- tion at source from salary income, the tax payable will be increased by a surcharge of 10 per cent. if the income is between Rs.60,000 and Rs. 1,50,000 and by a surcharge of 15 per cent., if the income is above Rs. 1,50,000. 4.3. Rates for deduction of income-tax at source from "salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 2000-2001. The rates for deduction of income-tax at source from "salaries" during the financial year 2000-2001 and also for computation of "advance tax" payable during that year in the case of various 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 2000-2001 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during that financial year or assessment of persons who are likely to transfer property to avoid tax, etc. The salient features of the rates specified in the said Part III are indicated in the following paragraphs : 4.3.1. Individuals, Hindu undivided families, etc. Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of individuals, Hindu undivided families, association of persons, etc. There is no change in the rate structure. However, the tax payable would be enhanced by a surcharge for the purposes of the union at the rate of ten per cent. of the tax payable (after allowing rebate under Chapter VIII-A of the Income-tax Act) in cases of persons having total income exceeding Rs. 60,000 but not exceeding Rs. 1,50,000. The tax payable would be enhanced by a surcharge for the purposes of the union at the rate of fifteen per cent. of the tax payable (after allowing rebate under Chapter VIII-A of the Income-tax Act) in cases of persons having total income exceeding Rs. 1,50,000. No surcharge would be payable by persons having incomes of Rs. 60,000 or below. Marginal relief would be provided to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over Rs. 60,000 is limited to the amount by which the income is more than Rs. 60,000. Marginal relief would also be provided to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over Rs. 1,50,000 is limited to the amount by which the income is more than Rs. 1,50,000. It is clarified that the surcharge payable under Paragraph A of Part III of the First Schedule in the case of individuals, Hindu undivided families, association of persons and body of individuals is also payable by non-residents. The following Table gives the income slabs and the rates of income-tax. Column (a) specifies the rates given in Paragraph A of Part I of the First Schedule to the Act ; and column (b) specifies the rates given in Paragraph A of Part III of the First Schedule to the Act. (a) Existing (b) New Income slab Rates as speci fied in Para graph A of Part I of First Sche dule to the Act Income slab Rates as specified in paragraph A of Part III of First Schedule to the Act (1) (2) (3) (4) Upto Rs. 50,000 Nil Upto Rs. 50,000 Nil Rs. 50,001 to Rs. 60,000 10% Rs. 50,001 to Rs. 60,000 10% (1) (2) (3) (4) Rs. 60,001 to Rs. 1,50,000 20% 60,001 to Rs. 1,50,000 20% Above Rs. 1,50,000 30% Above Rs. 1,50,000 30% 4.3.2. Effect of levy of surcharge : The effect of levy of surcharge in the case of individuals, HUFs, etc., at different income levels would be as under : Total income Existing tax liability New tax liability Additional liability Percentage increase (Rs.) (Rs.) (Rs.) (Rs.) (%) 50,000 Nil Nil Nil Nil 55,000 500 500 Nil Nil 60,000 1,000 1,000 Nil Nil 60,100 1,100 1,100superparanumonly Nil Nil 60,120 1,120superparanumonly 1,120superparanumonly Nil Nil 60,130 1,129 1,129 Nil Nil 60,150 1,133 1,133 Nil Nil 65,000 2,200 2,200 Nil Nil 75,000 4,400 4,400 Nil Nil 1,50,000 20,900 20,900 Nil Nil 1,50,100 20,933 21,000 67 0.32 1,50,500 21,065 21,400superparanumonly 335 1.59 1,51,000 21,230 21,900superparanumonly 670 3.16 1,51,400 21,362 22,300superparanumonly 938 4.39 1,51,450 21,379 22,350superparanumonly 971 4.54 1,51,460 21,382 22,354 972 4.55 1,52,000 21,560 22,540 980 4.55 2,00,000 37,400 39,100 1,700 4.55 3,00,000 70,400 73,600 3,200 4.55 4,00,000 1,03,400 1,08,100 4,700 4.55 5,00,000 1,36,400 1,42,600 6,200 4.55 4.3.3. Co-operative societies : 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. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent. of the tax payable. 4.3.4. Firms : 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 remains at 35 per cent. However, the tax payable by resident firms would be enhanced by a surcharge for the purposes of the union at the rate of ten per cent. of the tax payable. 4.3.5. Local authorities : 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 30 per cent. which is the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent. of the tax payable. 4.3.6. Companies : In the case of companies, the rate of income-tax has been specified in Paragraph E of Part III of the first Schedule to the Act. There is no change in the existing rates of 35 per cent. for domestic companies and 48 per cent. for foreign companies. However, in the case of domestic companies, the tax payable would be enhanced by a surcharge at the rate of ten per cent. of the tax payable. [Section 2 and First Schedule] 5. Definition of "agricultural income" : 5.1. Under the existing provisions of the Income-tax Act, agricultural income is not included in computing the total income as per the provisions of clause (1) of section 10 of the Income-tax Act. The term "agricultural income" has been defined in sub-section (1A) of section 2 of the Income-tax Act. The provisions of clause (c) of this sub-section, include within the definition of agricultural income, any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land or occupied by the cultivator or the receiver of rent-in-kind, or any land with respect to which or its produce any process is carried out to make the produce marketable, if such building is on or in the immediate vicinity of the land and the building is required by the cultivator or the receiver of the rent-in-kind as a dwelling house or as a store house, or other out-building. 5.2. The Act has inserted an Explanation in section 2(1A) to clarify that any income from such building or land arising from the use of the building or land for any purpose other than agriculture shall not be included in the definition of "agricultural income". For example, if a person has income from using such building or land for purposes such as letting it out for residential purposes or for the purposes of any business or profession, then, such income shall not be treated as agricultural income. 5.3. This amendment shall take effect from the 1st day of April 2001 and will, accordingly, apply to the assessment year 2001-2002 and subsequent years. [Section 3(a)] 6. Modification of conditions for units arising out of splitting up or the reconstruction of any authority or a body or a local authority or a public sector company to be covered under demerger : 6.1. Explanation 4 of section 2(19AA) as inserted by the Finance Act of 1999, provided that the splitting up or reconstruction of any authority or body constituted under a Central, State or Provincial Act or a local authority or a public sector company into separate bodies or authorities shall be deemed to be demerger on fulfilling the conditions specified in sub-clauses (i) to (vii), to the extent possible. It was pointed out that in case of splitting of these authorities, boards or companies, the conditions specified in the section may not be relevant in relation to such authorities or boards, in as much as all properties and liabilities may not be transferred; there may not be any consideration for demerger by way of issue of shares; the transfer may not be on going concern basis, etc. 6.2. The Act, therefore, amends Explanation 4 to provide that such splitting up or reconstruction shall be subject to conditions as may be specified by the Central Government. 6.3. This amendment takes effect retrospectively from the 1st day of April, 2000. [Section 3] 7. Income deemed to accrue or arise in India : 7.1. Under the existing provisions, section 9 lists the income that is deemed to accrue or arise in India. However, any royalty income in the hands of the non-resident manufacturer received from a resident person or the Government for the transfer of rights in respect of computer software along with a computer or computer-based equipment under an approved scheme is excluded from the deeming provisions of section 9. 7.2. The definition of "computer software" is given in Explanation 3 of clause (vi) of sub-section (1) which provides that the expression "computer software" shall have the meaning assigned to it in clause (b) of the explanation to section 80HHE. This however, refers to computer software, which is transmitted from India to a place outside India. 7.3. The Act substitutes the said Explanation so as to provide that the expression "computer software" means any computer programme, record-ed on any disk, tape, perforated media or other information storage device and includes any such programme or any customised electronic data. This amendment is consequential in nature. 7.4. This proposed amendment will take effect from 1st April, 2001. [section 4] 8. Exemption of amount received on voluntary separation : 8.1. Under the existing provisions of clause (10C) of section 10 of the Income-tax Act, any amount received by employees of companies, authorities, etc., at the time of his voluntary retirement, in accordance with any scheme or schemes of voluntary retirement, is exempt from income-tax. 8.2. The Act amends this clause, so as to enlarge the scope of the exemption by extending it to the employees of a public sector company on the termination of their services under a voluntary separation scheme framed in accordance with the guidelines issued in this regard. 8.3. Under the existing provisions, the first proviso of section 10(10C) states that the scheme in relation to companies (other than public sector companies or co-operative societies) is required to be approved by the Chief Commissioner or the Director-General of Income-tax. To simplify and expedite the procedure relating to exemption of amounts received under a Voluntary Retirement Scheme framed as per the guidelines, it has been provided to dispense with the requirement of such approval. 8.4. These amendments will take effect from the 1st day of April, 2001 and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 5(a)] 9. Tax exemption to certain bonds issued by local authorities : 9.1. The local authorities such as Municipal Corporations, Municipal authorities, etc. need large amounts of funds to finance urban infrastructure projects such as potable water supply, sewerage and sanitation, drainage, solid waste management, roads, bridges and flyovers, urban transport, etc. 9.2. Clause (15) of section 10 exempts interest payable in certain cases. To enable the local authorities to have access to funds for financing urban infrastructure projects, it has been provided by the Act to accord a tax-free status to the interest on such bonds issued by such authorities, each year. These bonds are to be specified by the Central Government, by way of notification in the Official Gazette. 9.3. The amendment will take effect from the 1st day of April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 5(b)] 10. Exemption of interest on external borrowings : 10.1. Under the existing provisions, sub-clause (iv) of clause (15) of section 10 of the Income-tax Act provides that certain interest income shall not be included in computing the total income of previous year of any person. 10.2. It has been provided by the Act that the interest paid on delayed payment of loan or default shall not be exempt while computing the total income. This will deny the benefit of exemption from withholding of tax on interest paid under this sub-clause. 10.3. The amendment will take effect from the 1st day of April 2001 and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 5(b)] 11. Incentives to promote sports and games : 11.1. Under the existing provisions of section 80G of the Income-tax Act, an assessee is allowed a 100% deduction from his total income in respect of donations made by him to certain funds. 11.2. The amended provisions provide benefit of hundred per cent. deduction to an assessee, being a company, for sums donated to Indian Olympic Association or to institutions and associations enjoying exemption under section 10(23) of the Income-tax Act, for the development of infrastructure for sports and games in the country and for their sponsorship. 11.3. The provisions of section 10(23) have also been amended to provide that such associations or institutions shall apply the amount received by way of donations referred to in section 80G for purposes of development of infrastructure for games or sports in India or for their sponsorship. 11.4. These amendments will take effect from the 1st day of April, 2001 and will, accordingly apply in relation to the assessment year 2001-2002 and subsequent years. [Sections 5 and 31] 12. Exemption of income of investor protection fund 12.1. The stock exchanges are required to set up an investor protection fund in accordance with the directives of the Ministry of Finance and Securities and Exchange Board of India (SEBI). The fund is set up exclusively to compensate the investors who may suffer a loss in the event of a broker defaulting in the stock exchange concerned. 12.2. Clause (23E) of section 10 provides that the income of notified exchange risk administration fund set up by public financial institutions is exempt from income-tax. 12.3. On similar lines it has been provided by the Act that income of notified investor protection fund set up by recognized stock exchanges of India will not be included while computing the total income. 12.4. However, where any amount standing to the credit of the fund and not charged to income-tax during any previous year is shared, wholly or partly with a recognized stock exchange, the amount shared shall be deemed to be the income of the previous year in which such amount is so shared. 12.5. The amendment will take effect from the 1st day of April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 5(d)] 13. Measures for incentives to venture capital : 13.1. The Act inserts a new clause (23FB) in section 10 to provide that any income of a venture capital fund or a venture capital company set up to raise funds for investments in a venture capital undertaking will not be included in computing the total income. 13.2. The venture capital fund or the venture capital company would require to be registered under the Securities and Exchange Board of India Act, 1992, or regulations issued by SEBI with the approval of the Central Government by way of notification in the Official Gazette. 13.3. The term "venture capital company" has been defined to mean a company that has obtained a certificate of registration under the Securities and Exchange Board of India Act, 1992, and regulations made thereunder and which fulfils the conditions as may be specified, with the approval of the Central Government, by the SEBI, by a notification issued in the Official Gazette in this regard. 13.4. The term "venture capital fund" has been defined to mean a fund operating under a trust deed registered under the provisions of the Registration Act, 1908, and which has obtained a certificate of registration under the Securities and Exchange Board of India Act, 1992, and regulations made thereunder and which fulfils the conditions as may be specified, with the approval of the Central Government, by the SEBI, by a notification in the Official Gazette in this regard. 13.5. The term "venture capital undertaking" has been defined to mean a domestic company whose shares are not listed in a recognized stock exchange in India and which is engaged in the business of providing services, production or manufacture of an article or thing but does not include such activities or sectors which are specified, with the approval of the Central Government, by the SEBI in the Official Gazette in this behalf. 13.6. Consequent to the above amendment, a sunset clause has also been inserted in the existing section 10(23FA) so as to provide that the provisions of this clause which provide exemption in respect of any income by way of dividends or long-term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking, shall not apply to any investment made after March 31, 2000. Such investment will qualify for exemption under the newly inserted clause (23FB) in section 10. 13.7. A new Chapter XII-F containing special provisions relating to tax on income received from venture capital companies and venture capital funds has been inserted by the Act. 13.8. Section 115U of this Chapter provides that, (i) any income received by a person out of investments made in a venture capital company or a venture capital fund shall be chargeable to income-tax as if it were the income received by such person from investments made directly in the venture capital undertaking ; (ii) the person responsible for making payment of the income on behalf of a venture capital company or a venture capital fund and the venture capital company or the venture capital fund will be required to furnish within the prescribed time a statement in the prescribed form and verified in the prescribed manner giving details of the nature of income distributed during the previous year. This statement is to be furnished to the person receiving such income and to the prescribed income-tax authority ; (iii) the income paid by the venture capital company and the venture capital fund shall be deemed to be of the same nature and in the same proportion in the hands of the person receiving such income as it had been received by or accrued to the venture capital company or the venture capital fund, as the case may be during the previous year ; (iv) the provisions of Chapter XII-D or XII-E or XVII-B shall not apply to the income paid by a venture capital company or venture capital fund under this Chapter. This means that no tax shall be payable under section 115-O and section 115-R and no tax deduction at source shall be made under the provisions contained in Chapter XVII-B from income paid by a venture capital company or a venture capital fund to an investor. 13.9. These amendments will take effect from the 1st April, 2001, and will accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Sections 5(d), 5(e) and 57] 14. Infrastructure capital funds : 14. 1. Clause (23G) of section 10 provides that any income of an infrastructure capital fund or an infrastructure capital company by way of interest, dividends (other than dividends referred to in section 115-O) and long-term capital gains from investments made by way of equity or long-term finance in an approved enterprise wholly engaged in the business of (i) developing, (ii) maintaining and operating or (iii) developing, maintaining and operating an infrastructure facility shall not be included in computing the total income. 14.2. To provide impetus for infrastructure development, the scope of the term "infrastructure facility" as defined in sub-section (4) of section 80-IA has been enlarged so as to include "solid waste management" and "water treatment" within its scope. As a consequence of this, the definition of "infrastructure facility" as given in clause (c) of Explanation 1 of section 10(23G) has also been extended to include "solid waste management and water treatment" within its ambit. 14.3. This amendment will take effect from 1st April, 2001 and will, accordingly apply in relation to the assessment year 2001-2002 and subsequent years. 14.4. The clauses (a) and (b) of the Explanation 1 to the section 10(23G) have also been amended so as to bring the definition of infrastructure capital company and infrastructure capital fund in conformity with the said clause. These amendments are consequential to the amendment of section 10(23G) by the Finance Act, 1999. 14.5. These amendments will take effect retrospectively from 1st April, 2000, and will accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 5(g)] 15. New provisions substituted for existing sections 10A and 10B : (Special provision in respect of newly established undertakings in specified Free Trade Zones, Electronic Hardware Technology Parks, Software Technology Parks or any Special Economic Zones or in respect of Export Oriented Units, etc.). 15.1. Under the existing provisions, new undertakings set up in notified Free Trade Zones and Export Processing Zones are entitled to a ten-year tax holiday under section 10A of the Income-tax Act. Similarly, section 10B of the Income-tax Act allows a ten-year tax holiday to export oriented undertakings (EOUs), which manufacture or produce any article or thing. The provision of section 10B was introduced by the Finance Act, 1988. The Finance Act, 1993, extended the tax holiday under section 10A to industrial units in approved Electronic Harware Technology Parks (EHTP) or Software Technology Parks (STP). 15.2. With a view to rationalize the concessions and to phase these out by the end of the assessment year 2009-2010, the provisions of section 10A and section 10B have been substituted by new provisions. The main features of the new sections are explained in the following paragraphs— 15.3. The new provisions provide for deduction in respect of profits and gains derived by an undertaking from export of articles or things or computer software. This deduction is available for a period of ten consecutive assessment years in a graded manner. The deduction would be granted with reference to the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software. Thus an undertaking set up on or before 31th March, 2000, shall be entitled to the deduction for a period of ten years, that set up during the period 1st April, 2000, to 31st March 2001 for a period of nine years, that set up in 2001-2002 for a period of eight years and so on. The existing units will get the deduction for the expired period of ten years only. In case an Export Promotion Zone (EPZ) is converted into a Special Economic Zone, the period of ten consecutive years shall include the period during which such unit was located in the Export Promotion Zone. 15.4. The conditions for the applicability of these provisions are that the undertaking : (a) begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after 1st April, 1981, in any free trade zone or commencing on or after the first day of April, 1994, in any electronic hardware park or software technology park. The benefit has also been extended to new undertakings set up in any previous year relevant to an assessment year beginning on or after the first day of April, 2001 in a Special Economic Zone ; (b) should not be formed by the splitting or reconstruction of a business already in existence except under circumstances referred to in section 33B ; (c) should not be formed by the transfer to a new business of machi-nery or plant previously used for any purpose. 15.5. The new provisions further put a condition that in order to avail of the deduction, the sale proceeds of articles or things or computer software exported out of India should be received in or brought into India within a period of six months from the end of the previous year or within such further period as the competent authority may allow. If sale proceeds are credited to a separate account maintained for the purpose with any bank outside India, with the approval of the Reserve Bank of India, the sale proceeds shall be deemed to have been received in India. 15.6. For the computation of profits derived from the export of articles or things or computer software, sub-section (4) provides that the profits derived from such exports shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of business. The profits of the business in the given context would mean the profits of the business carried on by the undertaking to which the provisions apply. The working formula for arriving at the export profits will be as under : Export Turnover Export Profits = Profits of the undertaking × Total Turnover Total turnover The export turnover and the total turnover for the purposes of section 10A and 10B shall be of the undertaking located in specified zones or 100 per cent. export oriented undertaking as the case may be and this shall not have any material relationship with the other business of the assessee outside these zones or units for the purposes of this provision. 15.7. Proviso to sub-section (1) further provides that profits on domestic sales to the extent of 25 per cent. of total sales shall be deemed to be the profits and gains derived from export of articles or things or computer software. The profits on such domestic sales shall be separately worked out proportionately and further added to the amount of export profits for the purposes of deduction under these provisions. 15.8. Sub-section (5) of the new provision provides that the assessee must furnish in the prescribed form a report by an accountant with effect from assessment year 2001-2002 certifying that the deduction has been correctly claimed in accordance with the provisions of the section. 15.9. Sub-section (9) provides that in case there is a transfer of ownership or the beneficial interest in the undertaking by any means, the deduction under sub-section (1) shall not be allowed to the assessee for the assessment year relevant to such previous year in which the transfer takes place and in the subsequent years. Explanation 1 further provides that in the case of a company where on the last date of any previous year the shares of the company carrying not less than 51 per cent. of the voting power are not beneficially held by persons who held the shares of the company carrying not less than 51 per cent. of the voting power on the last day of the year in which the undertaking was set up, the company shall be deemed to have transferred its ownership or the beneficial interest in the undertaking. 15.10. The scheme of the substituted section retains parts of the earlier provisions. Where an assessee avails of benefit of section 10A (or section 10B), it will not be eligible for other tax concessions available under other provisions of the Act, during the period of ten years, or at any time after the expiry of this period. For this purpose, sub-section (6) provides that the provisions for depreciation under section 32, investment allowance under section 32A, development rebate under section 33, expenditure on scientific research under section 35 and capital expenditure in relation to family planning under section 36(1)(ix) shall apply as if all allowances or deduction specified therein have been given full effect to. Consequently, the respective unabsorbed amounts cannot be carried forward or set off against profits of any subsequent year. In other words, it is presumed that the allowances for depreciation, investment allowance, development rebate, capital expenditure on scientific research or family planning were fully absorbed in these ten years and that no amount of unabsorbed allowance or deduction is to be carried forward following the ten year period. Similarly no loss under the head "Profits and gains of business or profession" under section 72(1) or under the head "Capital gains" under section 74(1) in respect of the relevant assessment years, will be carried forward or set off in computing the income of the undertaking after the period of benefit. 15.11. The newly inserted provision in sub-section (7) also refers to sub-sections (8) and (10) of section 80-IA of the Income-tax Act, to enable the Assessing Officer to make adjustment to certain transactions entered into by the eligible business, and in respect of transactions which are not at arm's length between closely connected parties. 15.12. By retaining sub-section (8), the assessee is given an option of not being regulated under the provisions of this section. 15.13. In the Explanation below the newly inserted provision, the meaning of "computer software" is enlarged to include customized electronic data or such other services as may be notified by the Board. 15.14. The provisions of newly substituted section 10B shall apply mutatis mutandis in respect of hundred per cent. export oriented units. 15.15. The proviso to sub-section (1) provides that no deduction under these sections would be available for and after the assessment year 2010-11. 15.16. The newly substituted sections will be applicable with effect from April 1, 2001, and will apply to the assessment year 2001-2002 and subsequent years. [Sections 6 and 7] 16. Charitable trust not to lose exemption, if funds remain invested for three years in public sector companies after disinvestment by the Government in such companies : 16.1. Under the existing provisions the income from property held under a trust and used wholly for charitable or religious purposes is exempt from income-tax. This exemption is confined only to such portion of income which is applied for charitable or religious purposes or is accumulated for applying to such purposes, provided such accumulation is not more than 25 per cent. of the total income of the trust. 16.2. Provisions of sub-section (2) of section 11 provide that the money so accumulated or set apart must be invested or deposited in specified forms or modes, mentioned in sub-section (5) of section 11. 16.3. Under the provisions of clause (vii) of sub-section (5) of section 11, investment or deposit in any public sector company is specified as an eligible mode of investment for charitable trusts. The benefit of exemption is not available if a trust holds any shares of a company other than a public sector company. Some public sector companies may cease to be a public sector company, after disinvestment by the Government. 16.4. It has been provided by the Act that an investment or deposit in a public sector company shall continue to be one of the eligible modes of investment for charitable or religious trusts, for a period of three years (in the case of shares), and the date of maturity of other investments or deposits, from the date a public sector company ceases to be a public sector company. 16.5. This amendment will take effect from 1st April, 2001, and will accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 8] 17. Charitable trusts allowed to invest funds in long-term finance for urban infrastructure : 17.1. Under clause (ix) of sub-section (5) of section 11, deposits with or investment in any bonds issued by a public company formed or registered in India, with the main object of carrying on the business of providing long-term finance for construction of houses in India for residential purposes, is included as an eligible investment for trusts. 17.2. The Act has inserted a new clause in this sub-section so as to provide that investment in public companies formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrstructure would also be specified as one of the eligible modes for investment. 17.3. The term "urban infrastructure" has been defined to mean a project for providing potable water supply, sanitation and sewerage, drainage, solid waste management, roads, bridges and flyovers or urban transport. 17.4. The amendment will take effect from 1st April, 2001, and will accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 8] 18. Charitable trusts not to lose exemption if educational or medical facilities provided to specified person : 18.1. The existing provisions provide that the income of a charitable or religious trust will not be exempt if any part of such income or any property of the trust is used or applied directly or indirectly for the benefit of any person such as the author of the trust, trustee or any relative of such persons or any concerns in which such persons have a substantial interest (referred to as a specified person). 18.2. The Act has inserted a new sub-section in section 13 to provide that a trust running an educational institution or a medical institution or a hospital shall not lose the benefit of exemption of any income, other than the value of benefits of educational or medical facilities provided to specified persons, solely on the ground that such benefits have been provided to specified persons. 18.3. The amendment will take effect from the 1st April, 2001, and will accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Sections 9 and 10] 19. Taxation of securities received under Employees Stock Option Plan : 19.1. The Finance Act, 1999, inserted certain provisions in the Act to bring clarity about the taxability of benefits arising to an employee as a result of allotment of shares under Employees Stock Option Plan. The existing provisions provide that the difference between market price on the date of exercise of the option and the price paid by the employee for acquiring the shares will be regarded as perquisites and the difference between the fair market value on the date of exercise of option and the actual sale price in the event of transfer of shares by the employee shall be regarded as capital gains. 19.2. The Act makes a departure and provides that no perquisite shall be charged to tax in the hands of the employee in respect of benefits derived as a result of allotment of shares/debentures or warrants directly or indirectly under the employees stock option plan or scheme. This is sought to be done by deleting section 17(2)(iiia) and providing an Explanation below section 17(2)(iii). Sub-section (2B) in section 49 inserted by the Finance Act, 1999, has also been deleted. Under the amended provisions, such shares will only be subjected to capital gains tax at the time of sale by the employee. The difference between the consideration and the cost of acquisition will be regarded as the amount of capital gains under normal provisions of law. However, the new provisions shall be applicable only in respect of options exercised or allotments made after 31st March, 2000. The taxability of shares in respect of which option has been exercised by the employee prior to 31st March, 2000, shall continue to be governed by the old provisions. 19.3. The amended provisions further provide that in the event of gift or irrevocable transfer of such shares by the employee, the liability to capital gains tax shall arise at the time when such gift or irrevocable transfer is made and the market value of the shares on the date of such gift or transfer shall be deemed to be the consideration received by the employee in this regard. 19.4. These amendments will take effect from the 1st April, 2001, and shall be applicable for the assessment year 2001-2002 and subsequent years. [Sections 17, 21 22 and 23] 20. Extension of the terminal date in respect of the enhanced deduction of interest on loans taken to acquire or construct self-occupied house property: 20.1. By the Finance Act, 1999, deduction available for interest on capital borrowed for construction or acquisition of a self-occupied house property was enhanced to Rs. 75,000 if the loan is taken on or after 1st April, 1999, and the construction or acquisition of the house in question is completed before 1st April, 2001. The Act amends the second proviso to sub-section (2) of section 24 to extend this terminal date to 31st March, 2003 to make it co-terminous with the relevant provisions of section 80-IB where tax holiday has been extended to housing projects which are approved till 31st March, 2001 and completed by 31st March, 2003, and to increase the limit of deduction allowable in respect of such interest to Rs. 1,00,000. 20.2. These amendments will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 12] 21. Taxation of arrears of rent in the year of receipt : 21.1. The scheme of taxing the income from house property under the Income-tax Act involves the concept of "annual value". Annual value has been deemed to be the sum for which the property might reasonably be expected to be let from year to year or annual rent received or receivable in excess of annual value. Arrears of rent received subsequently may or may not fall within the ambit of annual value. Doubts have also been expressed that it may be difficult to include arrears of rent in the relevant years as these were not receivable during those years. Difficulties in taxing such income as income from other sources also came to notice on account of a possible view that such income retains the character of income from house property. 21.2. With a view to set all such doubts at rest and to clarify the matter, the Act inserts a new section 25B in the Income-tax Act to provide that where any arrears of rent, other than what has already been taxed under section 23, are received in a subsequent year, the same will be deemed to be the income from property and charged to tax in the year of receipt whether the property is owned by the assessee in the year of receipt or not. A deduction of a sum equal to one-fourth of such amount of rent shall be given towards repairs and collection of rent. 21.3. This amendment will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 13] 22. Requirement of continuance of same business for set-off of unabsorbed depreciation dispensed with : 22.1. Under the existing provisions of sub-section (2) of section 32 of the Income-tax Act, carried forward unabsorbed depreciation is allowed to be set off against profits and gains of business or profession of the subsequent year, subject to the condition that the business or profession for which depreciation allowance was originally computed continued to be carried on in that year. A similar condition in section 72 for the purpose of carry forward and set off of unabsorbed business loss was removed last year. 22.2. With a view to harmonise the provisions relating to carry forward and set off of unabsorbed depreciation and unabsorbed loss, the Act has dispensed with the condition of continuance of same business for the purposes of carry forward and set off of unabsorbed depreciation. 22.3. This amendment will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 14] 23. Incentives for shipping industry : 23.1. Under the existing provisions of section 33AC of the Income-tax Act, a Government company or a public company with the main object of carrying on the business of operation of ships is allowed a deduction of an amount not exceeding 50 per cent. of profits derived from the business of operation of ships, subject to certain conditions. 23.2. In order to enable the shipping industry to go in for fleet expansion, acquisition and modernisation, the Act has enhanced the existing deduction up to the whole of the profits derived from such business for a period of five years. 23.3. This amendment will take effect from the 1st April, 2001, and will, accordingly, apply in relation to the assessment years 2001-2002 to 2005-2006. [Section 15] 24. Enhancement of weighted deduction for research and development expenditure : 24.1. Under the existing provisions of sub-section (2AB) of section 35 of the Income-tax Act, weighted deduction of a sum equal to one and one fourth times of expenditure incurred on scientific research on in-house research and development facility is allowed to a company, engaged in the business of manufacturing or production of any drugs, pharmaceuticals, electronic equipment, computers, telecommunication equipment, chemicals or any other article or thing notified by the Board. 24.2. With a view to give further boost to the investment in research and development activities, the Act has amended section 35(2AB) so as to enhance the existing deduction from one and one-fourth times of the expenditure to one and one half times the expenditure incurred on scientific research on in-house research and development facility. 24.3. This amendment will take effect from the 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 16] 25. Amendments consequential to the removal of requirement of approval of the Central Government under section 36(1)(viii) : 25.1. As a measure of simplification, the Finance Act, 1999, dispensed with the requirement of approval by the Central Government for the purposes of clause (viii) of sub-section (1) of section 36. As a consequence to this, the Act has made amendments in sections 10(15)(iv)(g), 11(5)(viii), 11(5)(ix), 35D(3), 36(1)(viia), 43B, 80L(1)(vii), 80L(1)(x), 88(2)(xv) and 194A(3). 25.2. These amendments will take effect retrospectively from the 1st April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Sections 5, 8, 17, 18, 20, 40, 46 and 60] 26. Written down value to be the basis of adjustment in regard to transfer in a demerger : 26.1. Under the existing provisions contained in Explanations 2A and 2B in clause (6) of section 43, where the block of assets is transferred by the demerged company to the resulting company, the written down value of the block of assets of the demerged company for the immediately preceding year is reduced by the book value of the assets so transferred. In Explanation 2B, it is provided that in the corresponding situation, the written down value of block of assets in the case of resulting company shall be the value of assets as appearing in the books of the demerged company immediately before the demerger. However, if such book value of assets exceeds their written down value, the excess shall be reduced. The above provisions have the effect of denying depreciation to the demerged company on a part of the actual cost. 26.2. The Act, therefore, amends Explanations 2A and 2B of clause (6) of section 43 to provide that the written down value of the assets, being transferred, shall be the uniform basis of adjustment in the hands of the demerged company as well as the resulting company. The "written down value" for the purposes of these Explanations shall be the written down value as defined in the provisions. 26.3. This amendment will take effect retrospectively from the 1st April, 2000, and shall accordingly apply in relation to the assessment year 2000-2001 and subsequent years. [Section 19] 27. Condition provided in relation to demerger of foreign company holding shares of Indian company made uniform with the condition relating to Indian company : 27.1. Under the existing provisions contained in clause (vic) of section 47, in the case of demerger of a foreign company holding shares in the Indian company, there shall be no liability of capital gains, if at least seventy-five per cent. of shareholders of the demerged foreign company continue to remain as share holders of the resulting foreign company. The aforesaid conditionality of "at least seventy-five per cent. of shareholders is different from a similar condition provided in sub-clause (v) of clause (19AA) of section 2 relating to the definition of demerger, which is stipulated as three-fourths in value of shares". 27.2. The Act amends sub-clause (a) in clause (vic) of section 47 to provide an identical condition of holding three-fourths in the value of shares. 27.3. This amendment will take effect retrospectively from 1st April, 2000, and shall accordingly apply in relation to the assessment year 2000-2001 and subsequent years. [Section 21] 28. Rationalisation of the definition of cost inflation index : 28.1. Cost inflation index has been defined in clause (v) of Explanation to section 48 of the Income-tax Act, to be the index which the Central Government may notify having regard to seventy-five per cent. of average rise in consumer price index for urban non-manual employees (CPI-UNME) for that year. Since the index has to be notified in the beginning of the year in relation to transfer of assets to be effected in that year so as to calculate the amount of instalment of advance tax payable, it has to be in relation to the 1st day of April of that year and has to be calculated on the basis of average rise in consumer price index in the preceding previous year. The notifications have been issued all along on this basis. To put the issue beyond any possible controversy, the Act amends clause (v) of the Explanation to section 48 retrospectively to provide that the cost inflation index for any previous year will be such index as notified by the Central Government having regard to seventy-five per cent. of average rise in the consumer price index for urban non-manual employees for the immedia-tely preceding previous year. 28.2. This amendment takes effect retrospectively from the 1st day of April, 1993. [Section 22] 29. Modification in the definition of "net worth" in case of slump sale : 29.1. Under the existing provisions contained in sub-section (2) of section 50B of the Income-tax Act, the cost of acquisition and the cost of improvement in relation to capital gains of the undertaking or division transferred by way of slump sale shall be the "net worth" of the undertaking or division for the purpose of calculating capital gains. "Net worth" has been defined to be the net worth as per the Sick Industrial Companies (Special Provisions) Act, 1985, meaning paid up capital and free reserves. In Form No. 3CEA notified subsequently, it has been provided that the "net worth" of an undertaking or division shall be derived from the net worth of the transferor-company in a proportional manner on the basis of the fixed assets. It has been pointed out that the above method of calculating the net worth will not be appropriate in all cases. The slump sale may be of a unit or division which has no separate share capital or reserves. Further, the definition of "net worth" appearing in SICA will have no application to non-corporate entities effecting slump sale. 29.2. The Act, therefore, substitutes the definition of "net worth" in sub-section (2) of section 50B to now define "net worth" as the aggregate of the cost of depreciable assets as reduced from the block of assets of the transferor company in accordance with section 43(6)(c)(i)(C) and the value of other assets transferred as appearing in the books of account ignoring any revaluation. From this, the value of liabilities will be reduced to arrive at "net worth". 29.3. This amendment takes effect retrospectively from the 1st day of April, 2000, and shall apply in relation to the assessment year 2000-2001 and subsequent years. [Section 24] 30. Sunset clauses to sections 54EA and 54EB and introduction of a new section 54EC to ensure focused investment of capital gains in agricultural finance and highway infrastructure : 30.1. Under the existing provisions, sections 54EA and 54EB of the Income-tax Act offer a basket of investment options to absorb taxable capital gains arising from transfer of long-term capital assets. The notified instruments providing the roll-over to capital gains include shares, bonds, units and deposits of banks and various other instruments. The two sections were introduced in 1996 to give an incentive to the development of infrastructure. However, the objective has been diluted in the presence of a large number of varied and diverse instruments. Further, incentives to infrastructure are also available under other sections of the Income-tax Act such as sections 80-IA, 80-IB and 10(23G). In a regime of low tax rate on long-term capital gains, there is very little justification for having such an omnibus basket of exemptions. Therefore, it has been decided to insert sunset clauses to sections 54EA and 54EB limiting their application to transfers of long-term capital asset made on or before 31st March, 2000. Where the capital gain has arisen on transfers made before March 31, 2000, the investments in notified securities can be made under sections 54EA and 54EB beyond that date but within the stipulated period. 30.2. In place of sections 54EA and 54EB, which are being terminated, a new section namely, 54EC, has been inserted for transfer of capital assets made on or after 1st April, 2000. The new section will allow exemption from tax on long-term capital gains, if invested in bonds, targeted exclusively on agricultural finance and highway infrastructure. The instruments in question shall be bonds, redeemable after three years, to be issued by the National Bank for Agriculture and Rural Development (NABARD) and the National Highway Authority of India (NHAI). The exemption from long-term capital gains shall be to the extent of investment in these bonds. 30.3. These bonds will have a lock-in period of three years. Any transfer or conversion of bonds into money during the lock-in period will make the amount so converted deemed capital gains taxable in the year of transfer or conversion. Such deemed capital gains will also arise, if any loan or advance is taken on the security of these bonds. Further, any amount invested in these bonds will not be eligible for deduction under section 88 of the Income-tax Act. 30.4. These amendments will take effect from the 1st day of April, 2001, and will accordingly apply to the assessment year 2001-2002 and subsequent years. [Sections 25, 26 and 27] 31. Extension of scope of section 54F : 31.1. Section 54F of the Income-tax Act, exempts tax on long-term capital gains arising from transfer of any long-term capital asset (not being a residential house), if invested in a residential house. There is, however, a stipulation that the above exemption cannot be availed if there is a house in existence on the date of transfer or if the person goes for a second house within the stipulated period. The above condition stands in the way of a large number of taxpayers from availing of the deduction under section 54F. The existing house may be a small house or a tenanted house that is difficult to sell in view of the stringent tenancy laws or a house that cannot be sold because of non-availability of buyers or slump in market prices. The Act, therefore, amends section 54F of the Income-tax Act to provide that the deduction under this section will be available to an individual or a Hindu undivided family as long as he has one and not more than one house existing on the date of transfer. The other condition of not acquiring another house within the stipulated period shall continue to remain applicable. 31.2. This amendment will take effect from the 1st day of April, 2001, and will accordingly apply to the assessment year 2001-2002 and subsequent years. [Section 28] 32. Clarification regarding value of assets in amalgamation : 32.1. The existing provisions relating to amalgamation in clause (i) of sub-section (2) of section 72A state that the amalgamated company shall hold continuously for a minimum period of five years, at least three-fourths in value of assets of the amalgamating company being acquired in a scheme of amalgamation. Issues have been raised regarding the exact connotation of "value" and "assets" especially whether the assets would include the current assets, which change from day-to-day. 32.2. The Act amends clause (i) of sub-section (2) of section 72A to clarify that the assets referred to in this clause are "fixed assets" and the value, is the "book value". 32.3. This amendment will take effect retrospectively from 1st April, 2000, and shall accordingly apply in relation to the assessment year 2000-2001 and subsequent years. [Section 29] 33. Deduction in respect of repayment of loan taken by a student for pursuing higher studies : 33.1. Section 80E of the Income-tax Act provides relief to students taking loan for higher studies. The repayment of the amount of loan taken for graduate or post-gratuate courses in any branch of engineering, medicine or management is allowed as a deduction from the gross total income up to a maximum amount of rupees twenty-five thousand in a year. The first year in which the deduction is available is the year in which the person starts repaying the loan. The deduction is allowed for a maximum period of eight years or till the principal of such loans together with interest is liquidated. 33.2. The amendment to the provision seeks to raise the limit of deduction from rupees twenty-five thousand to rupees forty thousand. 33.3. The modified provision will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 30] 34. Phasing out of tax concessions in respect of foreign exchange earnings —Sections 80HHB, 80HHBA, 80HHC, 80HHD, 80HHE, 80HHF, 80R, 80RR and 80RRA : 34.1. A large number of fiscal concessions are not compatible with a regime of low tax-rates. The Act, therefore, seeks to rationalize provisions relating to deductions in respect of foreign exchange earnings. 34.2. Under Chapter-VI-A of the Income-tax Act, fiscal concessions for earnings in foreign exchange may be availed of by assessees. Under sections 80HHB, 80HHBA and 80-O of the Income-tax Act, an assessee, being an Indian company or a person (other than a company) who is a resident in India and has derived income from the business of a foreign project or a housing project awarded to it on the basis of a global tender, or from export of patent, copyright, etc., is entitled to a deduction of an amount equal to 50 per cent. of income. 34.3. Similarly, under the existing provisions of sections 80HHC, 80HHE and 80HHF of the Income-tax Act, an assessee, being an Indian company or a person (other than a company) who is a resident in India, engaged in the business of exports of goods or merchandise or computer software or films, etc., is allowed a deduction of the profits derived by it from such exports. 34.3. Under section 80HHD of the Income-tax Act, an assessee, being an Indian company or a person (other than a company) who is a resident in India, engaged in the business of a hotel or such assessee being a tour operator or a "travel agent" is allowed a deduction, in computing its total income, of a sum equal to— (i) Fifty per cent. of the profits derived from services provided to foreign tourists ; and (ii) So much of the profits as are credited to a reserve fund to be utilized in the manner specified in sub-section (4) of that section. 34.4. Under section 80R of the Income-tax Act, a professor, teacher or research worker rendering service abroad, is entitled to a deduction from the remuneration received from a foreign university, institution, etc., while computing his income chargeable to tax. The deduction is of an amount equal to seventy five per cent. of such remuneration. 34.5. Under section 80RR, a similar deduction is available to an artist, playwright, musician, actor, etc., deriving income from a foreign source, in exercise of his profession. 34.6. A similar deduction is also available under section 80RRA, to persons rendering service outside India. 34.7. The amendment seeks to phase out all the above benefits over a five-year period. This would imply that under the provisions of sections 80HHC, 80HHE and 80HHF, the assessee would be entitled to a deduction of eighty per cent. of export profits in the assessment year 2001-2002, sixty per cent. in the assessment year 2002-2003, forty per cent. in the assessment year 2003-2004, and twenty per cent. in the assessment year 2004-2005. 34.7. Under sections 80HHB, 80HHBA and 80-O, the assessee would be entitled to a deduction of forty per cent. of export profits in the assessment year 2001-2002, thirty per cent. in the assessment year 2002-2003, twenty per cent. in the assessment year 2003-2004 and ten per cent. in the assessment year 2004-2005. 34.8. In those cases where individual assessees are entitled to a deduction of seventy-five per cent., the deduction would be reduced to sixty per cent. in the assessment year 2001-2002, forty-five per cent. in the assessment year 2002-2003, thirty per cent. in the assessment year 2003-2004 and fifteen per cent. in the assessment year 2004-2005. Thus, all the benefits would be phased out by the assessment year 2004-2005. 34.9. No deduction shall be available under any of these provisions for the assessment year 2005-2006 and subsequent years. 34.10. These amendments shall take effect from 1st April, 2001, and shall, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Sections 32, 33, 34, 35, 36, 37, 41, 42, 43 and 44] 35. Export benefits under section 80HHF extended to non-corporate entities : 35.1. Under the existing provisions of section 80HHF, corporate assessees engaged in the business of export of film software, television software, music software and television news software including telecast rights are entitled to a full deduction of such profits, received in converti-ble foreign exchange. 35.2. The provision has been amended to include assessees other than companies. 35.3. The amendment will be effective from 1st April, 2000, and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. [Section 37] 36. Solid Waste Management and Water Treatment Systems provided tax holiday for development of urban infrastructure : 36.1. Under the existing provisions of the Income-tax Act, a five year tax holiday and a deduction of 30 per cent. in the subsequent five years (within a period of initial fifteen years), is allowed to a company or a consortium of companies, operating and maintaining infrastructure facilities in the nature of roads, highways, bridges, airports, ports, rail system or any other public facility of a similar nature. Water supply projects, irrigation projects, sanitation and sewerage systems also form part of infrastructure facilities under the provision. 36.2. The country needs large investments in the areas of urban infrastructure, including public health. In order to attract commercial enterprises to operate such facilities, the Act proposes to extend the benefit of tax holiday to water treatment and solid waste management systems as well. 36.3. The Finance Act, 1999, substituted new provisions sections 80-IA and 80-IB in place of the existing section 80-IA. Sub-section (3) of section 80-IA provides that the newly introduced provisions of section 80-IA would apply to any industrial undertaking that fulfils certain conditions. Doubts were raised in certain quarters that no reference having been made to sub-section (4), the deduction may be applicable to any industrial undertaking. This was not the intention of the Legislature. To remove any doubts in this regard, the words "any industrial undertaking" have been substituted by the words, "industrial undertaking referred to in clause (iv) of sub-section (4)". 36.4. The amendment will take effect from the 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 38] 37. Tax holiday in respect of undertakings set up in industrially backward States and Union Territories of the Eighth Schedule and industrially backward districts extended up to 31st March, 2002 : 37.1. Under the existing provisions of section 80-IB of the Income-tax Act, 1961, a deduction is allowed, in computing the taxable income, in respect of profits derived from a new industrial undertaking or the business of a hotel. 37.2. For encouraging industrialization in industrially backward States, the Finance Act, 1993, provided for a five year tax holiday for industrial undertakings set up in industrially backward States and Union Territories specified in the Eighth Schedule, which start manufacture or production during the period beginning on the 1st day of April, 1993, but before the 31st day of March, 2000. After the first five years, a deduction of 30 per cent. of profits in the case of companies (25 per cent. in the case of other assessees) is allowed for the subsequent five years. Similarly, a five year tax holiday is available to undertakings set up in notified industrially backward districts of Category "A" and a three year tax holiday to those set up in industrially backward districts of Category "B", which begin manu-facture or production after 1st October, 1994, but on or before 31st March, 2000. 37.3. The Act extends the tax holiday to undertakings set up in industrially backward States and Union Territories as specified in the Eighth Schedule, which start manufacture/production even after 31st March, 2000, but on or before 31st March, 2002. It also seeks to extend the tax holiday to undertakings set up in industrially backward districts on or before 31st March, 2002. 37.4. The amendments will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 39] 38. Tax holiday to a company carrying on scientific research and development : 38.1. To give impetus to knowledge based industries, the Act provides tax holiday for ten consecutive years to companies carrying on scientific research and development. The period of ten years is reckoned from the year in which approval is given by the prescribed authority. To avail of this benefit, such company— (i) should be registered in India ; (ii) should have its main object to the scientific research and development ; (iii) should be approved by the prescribed authority at any time after 31st March, 2000, but before the 1st April, 2003 ; (iv) should fulfil such other conditions as may be prescribed. 38.2. Other conditions and requirements as are applicable to section 80-IB will continue to apply to this provision. 38.3. The amendment will take effect from 1st April 2001, and shall be applicable for the assessment year 2001-2002 and subsequent years. [Section 39] 39. Rebate of income-tax in case of senior citizens : 39.1. Section 88B of the Income-tax Act provides for a special relief in the form of rebate of an amount equal to hundred per cent. of income-tax or an amount of ten thousand rupees, whichever is less, to individual residents in India who attain the age of sixty-five years or more at any time during the previous year. 39.2. The rebate to the senior citizens has been provided to help them in meeting the rising cost of old age care and medical expenses. 39.3. The amendment seeks to raise the existing tax rebate from rupees ten thousand to rupees fifteen thousand in the case of such individuals while retaining the other requirements of the provision. 39.4. The amendment will take effect from 1st April, 2001, and will, accordingly apply in relation to the assessment year 2001-2002 and subsequent years. [Sections 45 and 47] 40. Limit of repayment of housing loan qualifying for rebate raised to Rs. 20,000 : 40.1. Under the existing provisions of section 88, contributions made in specified savings are allowed a tax rebate of 20 per cent. of the amount invested subject to a ceiling of Rs. 60,000 (Rs. 70,000 if investments made in infrastructure bonds). The qualifying amount of Rs. 60,000 includes re-payment of loan for purchase or construction of a residential house up to Rs. 10,000. 40.2. The Act raises the limit of investment in infrastructure bonds from Rs. 10,000 to Rs. 20,000 thereby raising the ceiling in such cases to Rs.80,000. The limit for repayment of loan for purchase or construction of a residential house is also raised from Rs. 10,000 to Rs. 20,000 within the overall limit of Rs. 60,000. 40.3. The amendments shall take effect from 1st April, 2001 and shall, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 46] 41. Tax rebate for women : 41.1. To encourage women to become financially independent, new section, namely, section 88C has been inserted in the Income-tax Act. Under the provision, an assessee being a woman, who has not attained the age of sixty-five years in the previous year, shall be entitled to a tax rebate of an amount equal to the income-tax payable by her or an amount of rupees five thousand, whichever is less. 41.2. The amendment will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 48] 42. Concessional rate of tax on long-term capital gains on securities extended to units of Unit Trust of India and units of mutual funds : 42.1. Under the existing provisions contained in the proviso to the sub-section (1) of section 112 of the Income-tax Act, tax on long-term capital gains arising out of transfer of listed securities shall not exceed 10 per cent. of the capital gains before allowing adjustment for cost inflation index. The definition of securities follows the definition given in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. 42.2. The Act amends the proviso to sub-section (1) of section 112 to provide that long-term capital gains arising from transfer of units of the Unit Trust of India and units of mutual funds specified under section 10(23D) of the Income-tax Act shall also not exceed 10 per cent. of the capital gains before allowing adjustment for cost inflation index. 42.3. This amendment takes effect retrospectively from the 1st day of April, 2000, and shall accordingly apply in relation to the assessment year 2000-2001 and subsequent years. [Section 49] 43. Minimum Alternate Tax on companies : 43.1. In recent years, as the number of zero tax companies and companies paying marginal tax had grown, minimum alternate tax was levied under section 115JA of the Income-tax Act from the assessment year 1997-98. The efficacy of the existing provision, however, declined in view of the exclusions of various sectors from the operation of MAT and the credit system. The Act has, therefore, modified the scheme of MAT. The existing section 115JA has been made inoperative with effect from 1st April, 2001. In its place, the Act inserts a new provision, section 115JB of the Income-tax Act. 43.2. The new provisions provide that all companies having book profits under the Companies Act, prepared in accordance with Part II and Part III of Schedule VI to the Companies Act, shall be liable to pay a minimum alternate tax at a lower rate of 7.5 per cent. as against the existing effective rate of 10.5 per cent., of the book profits. These provisions will be applicable to all corporate entities without any exception. 43.3. The new provisions further provide that for purposes of MAT, the company shall follow same accounting policies and standards as are followed for preparing its statutory account. 43.4. The amended provision discontinues the system of allowing credit for MAT in future. However, the taxes paid under the existing provisions of section 115JA shall get the credit. 43.5. The export profits under sections 10A, 10B, 80HHC, 80HHE and 80HHF are kept out of the purview of this provision as these are being phased out. The new provisions also exempt companies registered under section 25 of the Companies Act. 43.6. Certificate from an auditor has also been prescribed with a view to ascertaining the extent of book profits 43.7. These amendments will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Sections 50, 51 and 52] 44. Tax on distributed profits of domestic companies : 44.1. Under the existing provisions of section 115-O, in addition to the income tax chargeable in respect of the total income of a domestic company, any amount declared, distributed or paid by way of dividends is charged to additional income tax at the rate of ten per cent. 44.2. The Act amends this section, so as to increase the tax on distributed profits of domestic companies from ten per cent. to twenty per cent. 44.3. The existing provisions of section 115P of the Income-tax Act, 1961, provide for the levy of simple interest at the rate of two per cent. per month or part thereof, if the additional income-tax on dividends is not paid within the time allowed under sub-section (3) of section 115-O. 44.4. The rate of interest to be charged under the Income-tax Act for various defaults has been reduced by the Finance Act, 1999 from 2 per cent. to 1.5 per cent. Sections 234A and 234B respectively, have also been amended by the Finance Act, 1999 with effect from 1st June, 1999, to reduce the interest charged under these sections from two per cent. per month to one and a half per cent. per month. 44.5. In view of the above, the Act amends section 115P to bring down the rate of interest to be charged under section 115P from two per cent. per month to one and a half per cent. per month with effect from 1st June, 2000, so that there is uniformity in the rate of penal interest being charged under the Income-tax Act under different provisions. 44.6. These amendments will take effect from the 1st day of June, 2000. [Sections 53 and 54] 45. Tax on income distributed by Unit Trust of India and mutual funds : 45.1. Under the existing provisions, any amount of income distributed by the Unit Trust of India or by mutual funds to their unit holders is chargeable to tax and the Unit Trust of India or mutual funds are liable to pay tax on such distributed income at the rate of ten per cent. The provisions of section 115R, which require that the tax at the rate of 10 per cent. only is to be paid by the Unit Trust of India and the mutual funds (other than US-64 and other open-ended equity oriented funds) on their distributed income, have created a distortion in favour of debt instruments of Unit Trust of India and the mutual funds vis-a-vis the bank and company deposits. To lessen the effect of this distortion, the rate of tax has been increased from 10 per cent. to 20 per cent. 45.2. The Act also amends section 115R to provide that the person responsible for making payment of the income distributed by the Unit Trust of India or the mutual fund and the Unit Trust of India or the mutual fund, as the case may be, shall be liable to furnish a statement to the prescribed authority, in the prescribed form and manner giving details of income distributed to unit holders, tax paid thereon and other relevant details. 45.3. Under the existing provisions, section 115S of the Income-tax Act, 1961, provides for the levy of simple interest at the rate of two per cent. per month or part thereof, if the tax on distributed income is not paid within the time allowed under sub-section (3) of section 115R. 45.4. The Act amends section 115S to reduce the rate of interest to be charged under section 115S from two per cent. per month to one half per cent. per month with effect from 1st June, 2000, so that there is uniformity of the rate of penal interest being charged under the Income-tax Act under different provisions. [Sections 55 and 56] 46. Power delegated to the Central Government to notify class or classes of persons for whom it will be obligatory to apply for permanent account number (PAN) : 46.1. Sub-section (1) of section 139A of the Income-tax Act lays down the circumstances where it is mandatory to apply for PAN and also the circumstances where PAN can otherwise be allotted. It is obligatory to apply for PAN under the following circumstances,— (i) persons who have taxable income beyond the threshold limit of exemption ; (ii) persons carrying on any business or profession where the total sales/turnover/gross receipts exceed Rs. 5 lakhs in any previous year. (iii) any person who is in receipt of income derived from property held under trust as provided under section 139(4A). 46.2. In addition, the Assessing Officer may allot PAN to any other person by whom tax is payable. Further, any person may apply to the Assessing Officer for allotment of PAN and the same shall be allotted to him. 46.2. With a view to progressively making PAN a common business identification number for other Departments such as the Central Board of Excise and Customs and the Director-General of Foreign Trade, the Act delegates power to the Central Government to notify a class or classes of persons, for whom it will be obligatory to apply for PAN. However, in relation to such class or classes of persons, tax has to be payable under the Income-tax Act or any tax or duty has to be payable under any other law in force. The power has also been delegated to notify importers and exporters whether any tax or duty is payable by them or not. 46.3. This amendment takes effect from the 1st day of June, 2000. [Section 58] 47. Insertion of reference to section 246A of the Income-tax Act and section 23A of the Wealth-tax Act at several places in the respective Acts : 47.1. Appeal lies before the Commissioner (Appeals) under section 246A of the Income-tax Act and under section 23A of the Wealth-tax Act, as the case may be, on or after October 1, 1998. Consequential references to these sections are required at several places in the respective Acts. 47.2. The Act makes the necessary amendments to insert reference to section 246A in sub-section (3) of section 158BFA, sub-section (6) of section 220, section 267 and sub-section (1) of section 275 of the Income-tax Act. 47.3. Similar insertions of references to section 23A are made in sub-sections (2) and (6) of section 31, sub-section (4B) of section 34A and sub-section (1) of section 35 of the Wealth-tax Act. 47.4. These amendments take effect from the 1st day of June, 2000. [Sections 59, 62, 69, 70, 74, 75 and 76] 48. Rationalisation of TDS provisions : 48.1. Under the existing provisions of section 194A(3) of the Income-tax Act, no tax is deductible at source by the person responsible for paying to a resident any income by way of interest other than income by way of "interest on securities" if the aggregate of amounts of such income credited or paid or likely to be credited or paid during the financial year to the payee does not exceed Rs. 2,500. 48.2. As a measure of rationalisation, the Act has amended section 194A(3) so as to enhance the said monetary limit from Rs. 2,500 to Rs.5,000. 48.3. This amendment will take effect from 1st June, 2000. [Section 60] 49. Modification of provision regarding tax deduction at source of payment of compensation relating to compulsory acquisition of a capital asset: 49.1. Section 194L of the Income-tax Act was inserted by the Finance Act, 1999, to provide for deduction of income-tax at source on payment of compensation or consideration on account of compulsory acquisition of any capital asset. Under the existing provisions of section 194L, any person responsible for paying to a resident any sum being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any capital asset shall at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 10 per cent. of such sum as income-tax comprised therein. No such deduction is to be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to a resident during the financial year does not exceed one hundred thousand rupees. 49.2. A large number of representations had been received from various quarters pointing out various difficulties which had arisen on account of operation of this provision. Keeping in view these difficulties, the Act has amended section 194L to provide that no deduction shall be made under the said section from any payment made on or after 1st June 2000. 49.3. This amendment will take effect from 1st June, 2000. [Section 61] 50. Provisions relating to the Authority for Advance Rulings rationalised for resident applicants : 50.1. The provisions relating to the Authority for Advance Rulings were extended to notified categories of resident applicants through amendments carried out by the Finance (No. 2) Act, 1998. The definition of advance ruling was broadened to include decision on question of law or fact arising out of the order of assessment. The Central Government has already notified two classes of persons which are public sector companies and persons seeking advance ruling in relation to transactions undertaken or proposed to be undertaken by a resident with a non-resident. 50.2. These provisions needed to be further streamlined. There was an operational difficulty in determining the issue arising out of a transaction proposed to be undertaken by a resident with a non-resident within the existing definitions of "applicant" and "advance ruling", which require the application for advance ruling in such cases to be made by a non-resident. Further the definition of "advance ruling", for the resident applicants, was open to a possible interpretation that it provided an appeal against the assessment order in its entirety, which was not intended. The definition of "advance ruling", therefore, needed to be streamlined and broadened to include pre-assessment determination as well as post-assessment decision of issues relating to the computation of total income. 50.3. The Act amends sections 245N to define the terms "advance ruling" and "applicant" as follows : "advance ruling" shall mean,— (i) a determination of any question of law or fact arising out of a transaction undertaken or proposed to be undertaken by a non-resident, and (ii) a determination of any question of law or fact arising out of a transaction undertaken or proposed to be undertaken by a resident with a non-resident, and (iii) a determination or decision of any question of law or fact relating to the computation of total income pending before any income-tax authority or the Appellate Tribunal." 50.4. Similarly, an applicant will include a non-resident, a resident in relation to a transaction with a non-resident and a resident falling in a class or category of persons notified by the Central Government. 50.5. Under the existing provisions contained in the proviso to sub-section (2) of section 245R, it is, inter alia, provided that the Authority shall not allow an application if the question raised in the application is pending before any income-tax authority, the Appellate Tribunal or any court. However, such exclusion does not apply to resident applicants. 50.6. The Act substitutes the first proviso in sub-section (2) of section 245R to provide that the Authority shall not allow the application where the question raised is already pending in the applicant's case before any income-tax authority, Appellate Tribunal or any court in regard to a non-resident applicant, and, to a resident applicant in relation to a transaction with a non-resident. However, this bar would be operative for the notified category of resident applicants only when the issue is pending in a court. The existing conditions in clause (b) relating to bar of determination of the fair market value of any property will continue. The existing condition in clause (c) relating to an issue designed prima facie for avoidance of income-tax shall not be applicable to the notified category of resident applicants. 50.7. These amendments take effect from the 1st day of June, 2000. [Sections 63 and 64] 51. Sunset clauses to sub-sections (1) and (2) of section 246 of the Income-tax Act : 51.1. Section 246 of the Income-tax Act in sub-sections (1) and (2) lists out the orders passed by the Assessing Officer against which appeals may be filed before the Deputy Commissioner (Appeals) and the Commissioner (Appeals), respectively. Section 246A providing for appeals before the Commissioner (Appeals) was introduced by the Finance (No. 2) Act, 1998, with effect from 1st October, 1998, in respect of appeals against orders made before or after the appointed day. The appointed day was notified as 1st October, 1998. The introduction of a new section was necessitated by the decision to do away with one appellate level at the level of Deputy Commissioner (Appeals) 51.2. When section 246A came into effect from 1st October, 1998, no terminal clauses were provided to sub-section (1) and sub-section (2) of section 246 to take care of the pending matters, if any. The Act amends these sub-sections now by making them inapplicable to appeals filed on or after 1st June, 2000. It is also clarified that any appeal made under section 246 of the Income-tax Act on or after October 1, 1998, and before 1st June, 2000, shall be deemed to be an appeal filed under sub-section 246A. Similar amendments are made in section 23 of the Wealth-tax Act, 1957. 51.3. These amendments take effect from the 1st day of June, 2000. [Sections 65 and 72] 52. Orders passed under section 201 of the Income-tax Act made appealable before the Commissioner (Appeals) : 52.1. Sub-section (1) of section 201 of the Income-tax Act deems the principal officer to be the assessee in default in the event of his failure to either deduct the tax or make payment of tax after deduction as required under the Act. In the list of orders against which appeal lies before the Commissioner (Appeals) under section 246A, there is no reference to orders under section 201 of the Income-tax Act. In some cases, Commissioners of Appeals have declined to entertain appeals against orders under section 201. The Act amends section 246A to insert a reference to an order under section 201 and provide that any appeal filed against an order under section 201 on or after the 1st day of October, 1998, but before the 1st day of June, 2000, shall be deemed to have been filed under this section. The Act further inserts sub-section (2A) in section 249 to provide that where an order has been made under section 201 after the 1st day of October, 1998, but before the 1st day of June, 2000, and the assessee in default has not presented any appeal within the time specified in the sub-section, he may do so before the 1st day of July, 2000. 52.2. These amendments take effect from the 1st day of June, 2000. {Sections 66 and 67] 53. Advisory time limit for the Appellate Tribunal to decide appeals extended to Departmental appeals : 53.1. Sub-section (2A) of section 254 provides that the Appellate Tribunal, where it is possible, may hear and decide appeals within a period of four years from the end of the financial year in which the appeal is filed under sub-section (1) of section 253. It refers to appeals filed by the assessee. 53.2. The Act amends sub-section (2A) of section 254 to extend the advisory time-limit to the appeals filed by the Commissioner under sub-section (2) of section 253. Similar amendments have been made in sub-section (5A) of section 24 of the Wealth-tax Act, 1957. 53.3. These amendments take effect from the 1st day of June, 2000. [Sections 68 and 73] 54. Increase in the limit for submission of statements by the film producers : 54.1. Under the existing provisions of section 285B of the Income-tax Act, any person carrying on the production of cinematograph films is required to prepare and deliver or cause to be delivered to the Assessing Officer within 30 days from the end of the financial year or within 30 days of the completion of the film, whichever is earlier, a statement in the prescribed form containing particulars of all payments of over Rs. 25,000 in aggregate made by him or due from him to each such person as is engaged by him in such production. 54.2. The Act has raised the monetary limit for furnishing the above statement from Rs. 25,000 to Rs. 50,000. 54.3. This amendment will take effect from 1st April, 2001, and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years. [Section 71] 55. Amendments to Kar Vivad Samadhan Scheme, 1998 : 55.1. The provisions of the Kar Vivad Samadhan Scheme, 1998, are contained in Chapter IV of the Finance (No. 2) Act, 1998. Under section 90(2) of the Finance (No. 2) Act, 1998, the declarant is required to pay the sum determined by the designated authority within 30 days of the passing of the order. The above time-limit has created difficulties in a number of cases, where the taxpayers have interpreted the time-limit of 30 days as commencing from the date of receipt of the certificate. Consequently, the payments have been delayed by a few days in these cases. There have also been cases where certificates of the designated authority have been served late on the declarants denying them adequate time to make the payment. In some cases of delayed payments under the Scheme, the courts have also interpreted the time-limit of 30 days as starting from the date of receipt of the order. 55.2. To give statutory recognition to the judicial opinion, and to remove hardship, the Act retrospectively amends sub-section (2) of section 90 of the Finance (No. 2) Act, 1998, to clarify that the time limit of payment within 30 days will commence from the date of receipt of the order of the designated authority determining the sum payable. 55.3. Section 88 of the Finance (No. 2) Act, 1998, provides for determination of the amount payable for the settlement of tax arrears under various enactments. Clause (e) of this section deals with the determination of amount payable for the settlement of tax arrears under the Interest-tax Act, 1974. Sub-clause (i) of clause (e) provides that, where the tax arrear consists of chargeable interest, the sum payable shall be determined at two per cent. of the disputed chargeable interest. In sub-clause (ii) of clause (e), it is provided that where the tax arrear includes interest and penalty along with disputed interest, the amount payable will be determined at two per cent. of the tax arrear. There is a patent anomaly between the two sub-clauses capable of unintended interpretation even though the provisions have been clearly explained as intended in the memorandum explaining the provisions in the Finance (No. 2) Act, 1998. The Act, therefore, amends sub-clause (ii) in clause (e) to remove the anomaly and to clarify that the amount payable in such cases will be determined at two per cent. of the disputed chargeable interest. 55.4. These amendments take effect retrospectively from the 1st day of September, 1998. [Section 121] 56. Amendment of Part III of First Schedule to the Finance Act, 1999 : 56.1. Part III of the First Schedule to the Act specifies the rates at which income-tax is to be deducted at source from "salaries" and also the rates at which "advance tax" is to be paid and income-tax is to be calculated or charged in special cases for the financial year 1999-2000. 56.2. The Act amends Part III of the First Schedule to the Finance Act, 1999, so as to provide that surcharge shall be charged on the income referred to in section 115ACA, instead of section 115AC. This amendment is clarificatory in nature. 56.3. This amendment will take effect retrospectively from 1st April, 1999. [Section 122] Wealth-tax provisions The amendments made in the Wealth-tax Act by the Finance Act, 2000, which are of consequential nature, have already been mentioned above. For ready reference, these are summarised again as below : 57. Sunset clauses to sub-sections (1) and (1A) of section 23 of the Wealth-tax Act : 57.1. Section 23 of the Wealth-tax Act in sub-sections (1) and (2) listed out the orders passed by the Assessing Officer against which appeals may have been filed before the Deputy Commissioner (Appeals) and the Commissioner (Appeals) respectively. With the abolition of the post of Deputy Commissioner (Appeals), a new section 23A was introduced by the Finance (No. 2) Act, 1998, with effect from the 1st October, 1998, providing for appeals only before the Commissioner (Appeals). However, terminal clauses were not provided in sub-sections (1) and (1A) of section 23 to take care of pending matters if any. The Finance Act, 2000, amends these sub-sections to make them inapplicable to appeals filed on or after 1st June, 2000. It is also clarified that any appeal made under section 23 of the Wealth-tax Act on or after 1st October, 1998, but before 1st June, 2000, shall be deemed to be an appeal filed under section 23A. 57.2. These amendments take effect from the 1st day of June, 2000. [Section 72] 58. Advisory time limit for the Appellate Tribunal to decide appeals extended to the Departmental appeals : 58.1. Sub-section (5A) of section 24 of the Wealth-tax Act provided that the Appellate Tribunal where it is possible, may hear and decide appeals within a period of four years from the end of the financial year in which the appeal is filed under sub-section (1) of the section. This advisory time limit referred to appeals filed by the assessee. 58.2. The Act amends sub-section (5A) of section 24 to extend the advisory time limit to appeals filed also by the Commissioner under sub-section (2) of section 24. 58.3. This amendment takes effect from the 1st day of June, 2000. [Section 73] 59. Insertion of reference to section 23A in some sections in the Wealth-tax Act : 59. 1. In view of the introduction of section 23A of the Wealth-tax Act by the Finance (No. 2) Act, 1998, an appeal lies before the Commissioner (Appeals) under this section on or after 1st October, 1998. Consequential reference to this section is required at some places in the Wealth-tax Act. 59.2. The Act makes the necessary amendments to insert a reference to section 23A in sub-sections (2) and (6) of section 31, sub-section (4B) of section 34A and in clause (c) of sub-section (1) of section 35 of the Wealth-tax Act. 59.3. These amendments take effect from the 1st day of June, 2000. [Sections 74, 75 and 76] Interest-tax provision 60. Withdrawal of interest-tax : 60.1. The Interest-tax Act, 1974, has been in operation continuously with regard to interest payable on or after the 1st day of October, 1991. Under the Interest-tax Act, chargeable interest arising to credit institutions meaning banking companies, public financial institutions, state financial corporations and any other financial company, etc., is subject to interest-tax at the rate of 2 per cent. 60.2. There was a persistent demand from the banks and the financial institutions to abolish interest-tax in order to make credit cheaper to the borrowers. The Reserve Bank of India has also recommended the termination of interest-tax. The Act, therefore, amends section 4 of the Interest-tax Act to provide that the Interest-tax Act shall not be applicable in relation to interest arising to credit institutions on or after the 1st day of April, 2000. 60.3. This amendment will take effect from the 1st day of April, 2001, and accordingly apply to the assessment year 2001-2002 and subsequent years. [Section 77] (Sd.) Deepa Krishan, Director to the Government of India.