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TMI BlogTaxation Laws (Amendment) Act, 2006 Explanatory Notes on the amendmentsX X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2 The provisions of the said clause have been amended so as to enable a Tax Recovery Officer, if he is authorised by the Chief Commissioner or Commissioner, by general or special order in writing, to exercise the powers and functions which are conferred on or assigned to an Assessing Officer under the Income-tax Act, 1961 and which may be prescribed. 3.3 This amendment takes effect from 13 th July, 2006. [section 2] 4. Exemption of income of North-Eastern Development Finance Corporation Limited. 4.1 Section 86 of Finance Act, 1996 granted exemption from income-tax for a period of ten years to the North-Eastern Development Finance Corporation Limited, set up in 1995. This exemption was thus available only up to assessment year 2005-06. The exemption has been extended for a further period of four years, during which it shall be gradually phased out. To this end, a new clause (23BBF) has been inserted in section 10 of the Act to provide for exemption from income-tax for any income ofthe North-Eastern Development Finance Corporation Limited being a company formed and registered under the Companies Act, 1956. The proviso to clause (23BBF) phases out the exemption of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication under sub-clauses (iv) and (v) or for grant of approval under sub-clauses (vi) and (via) or for passing an order rejecting such application. Resultantly, applications remain pending for long. 6.2 Since a time limit is necessary to expedite disposal of applications, a new proviso has been inserted in section 10(23C) to provide that where an application under the first proviso to the said section is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under sub-clause (iv) or sub-clause(v) shall be issued or approval under sub-clause (vi) or sub-clause (via) shall be granted or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received. The assent of the President was received on 13.07.2006. 6.3 Applicability: Applications made on or after 13 th July, 2006. [Section 3] 7. Requirement of getting the accounts audited and furnishing of Audit Report by fund or trust or university or other educational institution or hospital or other medical institution referred to in sub-clauses (iv),(v),(vi) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come exceeds the maximum amount which is not chargeable to income-tax. 8.3 Applicability: Assessment year 2006-07 onwards. [Section 4] 9. Guidelines, manner and conditions on the basis of which approval is to be granted under section 35(1)(ii) and section 35(1)(iii). 9.1 Prior to amendments by the Taxation Laws (Amendment) Act, 2006 (No.29 of 2006), the provisos to clauses (ii) and (iii) of sub-section (1) of section 35 did not provide for any guidelines or manner or conditions in relation to grant of approval of the Central Government to a scientific research association, university, college or other institution. This had been resulting in delay in the processing of applications received for approval from such entities. There was, therefore, a need to provide for a step-by-step manner to be followed by the applicants, the manner in which their applications would be processed and the conditions subject to which the approval was to be granted to a scientific research association under clause (ii) of sub-section (1) of section 35 and to a university, college or other institution under clause (iii) of sub-section (1) of section 35. 9.2 The existing provisos to clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in respect of an application received on or after the date of assent to the Taxation Laws (Amendment) Bill, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed before expiry of twelve months from the end of the month in which application for approval is received by the Central Government. 9.7 Applicability: Assessment year 2006-07 onwards. [Section 5] 10. Deduction in the case of an assessee (i.e. the donor) not to be denied if approval is withdrawn in the case of the National Laboratory, etc. (i.e. the donee) Section 35(2AA) 10.1 The Act has amended sub-section (2AA) of section 35 by renumbering the Explanations therein on account of insertion of a new Explanation. The new Explanation has been numbered as Explanation 1 and the existing Explanation as Explanation 2. Explanation 1 so inserted clarifies that the deduction to which an assessee is entitled on account of payment of any sum by him to a National Laboratory, University, Indian Institute of Technology or a specified person for the approved programme [as referred to in the said sub-section (2AA)] shall not be denied to the assessee (i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of such payments in the computation of income of the payer. 13.2 The Act has amended the aforesaid sub-clause (ia) of clause (a) of section 40 to extend the existing provisions to payments of rent and royalty. Sub-clause (ia) so amended also provides for the definitions of the terms rent and royalty. 13.3 Applicability: Assessment year 2007-08 onwards. 13.4 In a few representations received after the passage of the Taxation Laws (Amendment), Bill, 2005 and assent thereto on 13 th July, 2007, apprehensions were expressed that the provisions of section 40(a)(ia) amended as above would be effective from assessment year 2006-2007 (i.e. in respect of the payments made in financial year 2005-2006) whereas the amended provisions of section 194-I relating to deduction of tax at source on rent and those of section 194J relating to deduction of tax on fees for professional or technical services had been inserted in section 40(a)(ia) with effect from 13 th July, 2006, a date which would relate to assessment year 2007-08 and not to 2006-07. It is, therefore, necessary to clarify that in any case in which tax is not deducted from payment of rent or royalty during the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause does not apply: (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer. 15.2 The Act provides that the aforementioned provisions of clause (v) shall be applicable in respect of any sum of money, exceeding the specified amount, received on or after 1.9.2004 but before 1.4.2006. 15.3 The Act has also provided for the following exclusions to which the provisions of clause (v) of section 56(2) shall not apply: (i) any sum of money received from any local authority as defined in the Explanation to clause (20) of section 10; or (ii) any sum of money received from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (iii) any sum of money received from any trust or institution registered under section 12AA. 15.4 The aforementioned three exclusions, as provided by the Act, had become effective from 13 th July, 2006. These three exclusions were, however, intended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (aa) in respect of the entities covered in clause (a) and clause (aa), clause (b) and clause (bb) of sub-section (2) to clarify that the deduction to which an assessee is entitled in respect of any sum paid by him to a scientific research association, university, college or other institution or to an association or institution for carrying out the programme of rural development, or to a public sector company, or to a local authority or to an association or institution for carrying out the eligible project or scheme referred to in section 35AC, respectively, shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee the approval granted or, as the case may be, the notification has been withdrawn. 16.2 Applicability: Assessment year 2006-07 onwards. [Section 11] 17. Furnishing of the return of income mandatory in the case of a university, college or other institution Section 139 17.1 The existing provisions of clause (e) of sub-section (4C) of section 139 provide that every fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 17.5 Applicability: Assessment year 2006-07 onwards. [Section 12] 18. Recommendation of the Assessing Officer for withdrawal of approval to the Central Government Section 143 18.1 The Act provides for the guidelines, the manner and the conditions in accordance with which an application made by a scientific research association, university, college or other institution shall be approved under clause (ii) or clause (iii) of sub-section (1) of section 35 of the Income-tax Act, 1961. The Act has also made amendments in section 35 which provide for one time approval which means the approval is to remain in force unless it is withdrawn. 18.2 A proviso has been inserted after the first proviso in sub-section (3) of section 143 to require the Assessing Officer to satisfy himself as to the activities of the university, college or other institution referred to in clause (ii) or clause (iii) of sub-section (1) of section 35 and if the activities are not being carried out in accordance with all or any of the conditions subject to which any of the said entities had been approved, the Assessing Officer may after giving a reasonable opportunity of showing cause to the concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments and dealings in foreign exchange and subsequently such income or part thereof has been or is received in, or brought into, India in the manner aforesaid, the Assessing Officer shall amend the order of assessment so as to allow deduction under section 10A or section 10B or section 10BA, as the case may be, in respect of such income or part thereof as is so received in, or brought into, India. The provisions of section 154 shall, so far as may be, apply thereto, and the period of four years shall be reckoned from the end of the previous year in which such income is so received in, or brought into, India. 19.4 This amendment takes effect from 13 th July, 2006. [Section 14] 20. Expansion of the scope of tax deduction at source on rent under section 194-I 20.1 Under the existing provisions contained in section 194-I, tax is required to be deducted at source on payment of rent. The term rent has been defined in the Explanation to the said section to, inter alia, mean payment for use of any building (including factory building) together with furniture, fittings and the land appurtenant thereto whether or not such building is owned by the payee. 20.2 The Act has am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal to the Appellate Tribunal under section 253, an order imposing a penalty shall not be passed after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later. However, this limitation is applicable only if the Commissioner (Appeals) passed the order before 1 st June, 2003 disposing of the appeal made to him; (ii) In a case where relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after 1 st June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed without hearing the assessee or giving him a reasonable opportunity of being heard , and after the expiry of six months from the end of the month in which the order of the Commissioner (Appeals) or, the Appellate Tribunal or, the High Court, or the Supreme Court is received by the Chief Commissioner or the Commissioner, or the order of revision under section 263 or section 264 is passed. 22.4 In the second proviso to the said sub-section (1A), it has been provided that the provisions of section 274 shall apply in respect of the order imposing or enhancing or reducing penalty under this sub-section. 22.5 Further, a clause (ja) has been inserted in sub-section (1) of section 246A of the Income-tax Act,1961 so as to provide for an appeal to the Commissioner (Appeals) against an order of imposing or enhancing penalty under sub-section (1A) of section 275. 22.6 These amendments take effect from 13 th July, 2006. [Sections 17 and 18] 23. Rounding off of tax, etc. 23.1 The existing provisions of section 288B of the Income-tax Act, 1961 provide that the amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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