9911796707
TMI BlogFinance Act, 2003 - Explanatory Notes on provisions relating to Direct TaxesX X X X Extracts X X X X X X X X Extracts X X X X ..... B, 153A, 153B, 153C, 158BI, 234D and 285BA and new Schedules Thirteenth and Fourteenth in the Income-tax Act, 1961; substituted new sections for sections 80DD, 80DDB, 80U and 185 of the Income-tax Act, 1961; omitted section 80M of the Income-tax Act, 1961; amended section 17 of the Wealth-tax Act, 1957; amended section 16 of the Gift-tax Act, 1958; amended sections 3 and 4 of the Expenditure Tax Act, 1987. 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 income liable to tax for the assessment year 2003-04; the rates at which the tax will be deductible at source in the financial year 2003-04 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 2003-04. (ii) Amendment of the Income-tax Act, 1961, Wealth-tax Act, 1957, Gift-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alize provisions relating to disallowance of certain incomes paid to non-residents if tax has not been deducted at source; - clarify definitions of certain terms relevant to income from Profits and gains of business or profession; - modify provisions relating to deduction in respect of certain liabilities; - clarify provisions relating to presumptive income of truck owners; - rationalize provisions of sections 44BB and 44BBB relating to presumptive taxation in case of non-residents; - insert a new section 44DA relating to special provision for computing income by way of royalties, etc. in case of non-residents; - provide for re-computation of capital gains in case of reduction in compensation received; - exempt demutualisation and corporatisation of stock exchanges from capital gains; - extend incentive for amalgamation available under section 72A to hotel and certain banks; - substitute section 80DD to provide for deduction in respect of maintenance including medical treatment of a dependant being a person with disability or a person with severe disability; - substitute section 80DDB to provide for deduction in respect of medical treatment, etc. of sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure for assessment of search cases under Chapter XIV-B; - rationalize provisions relating to assessment of firms; - rationalize provisions relating to direct payment of tax by the assessee when tax has not been deducted at source; - rationalize provisions of sections 193, 194-I and 195 in respect of payments made to non-residents; - enhance threshold limit for the purpose of deduction of tax at source from dividends and income from units; - amend section 194A to exempt interest on compensation paid to accident victims under the Motor Vehicles Act from deduction of tax at source; - amend section 194J to exclude payments of fees for professional services for personal purpose from the purview of the section; - rationalize provisions relating to certificate for tax deduction at lower rate; - amend section 197A to provide for filing of self-declarations by senior citizens; - amend section 206 to provide for compulsory filing of TDS returns on magnetic media by corporate assessees; - rationalize provisions relating to tax collection at source; - amend section 230 relating to tax clearance certificates; - insert a new section 234D to provide for char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, in the case of a non-resident Indian, a person who is not resident in India and a foreign company, no tax would be required to be deducted at source from long-term capital gains arising on the transfer of units of the Unit Scheme, 1961 where the transfer takes place after 1st April, 2002 and on transfer of equity shares of a company listed in a recognized stock exchange which are acquired on or after 1st March, 2003 but before 1st March, 2004. The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows : (i) in the case of every individual, Hindu undivided family, association of persons and body of individuals, at the rate of ten per cent of such tax where the income or the aggregate of such incomes paid or likely to be paid exceeds Rs. 8,50,000; (ii) in the case of every co-operative society, firm, local authority and company, at the rate of two and one-half per cent of such tax; and (iii) in the case of every artificial juridical person, at the rate of ten per cent of such tax. Rates for deduction of income-tax at source from Salaries, computation of advance tax and charging of Income-tax in special cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nil Rs. 50,001 to 10% Rs. 50,001 to 10% Rs. 60,000 Rs. 60,000 Rs. 60,001 to 20% + Surcharge Rs. 60,001 to 20% Rs. 1,50,000 @5% Rs. 1,50,000 Above 30% + Surcharge Above 30% + Surcharge Rs. 1,50,000 @5% Rs. 1,50,000 @ 10% in cases where total income exceeds Rs. 8.5 lakhs 4.3-2 Effect of levy of surcharge - The impact of levy of surcharge in case of individuals, HUFs, etc. at different income levels would be as under : Total income Existing Tax New Tax Additional Tax Additional liability liability Liability Tax (Rs.) (Rs.) (Rs.) (Rs.) (%) 50,000 Nil Nil Nil Nil 55,000 500 500 Nil Nil 60,000 1,000 1,000 Nil Nil 60,010 1,010* 1,002 (-)8 (-)0.79 60,020 1,020* 1,004 (-)16 (-)1.57 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s - 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. The tax payable by firms would be enhanced by a surcharge for the purposes of the Union at the rate of two and one-half 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 the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. The tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of two and one-half 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 thirty-five per cent for domestic companies and forty per cent for foreign companies. The tax payable by all companies would be enhanced by a surcharge at the rate of two and one-half per cent of the tax payable. [Section 2 and First Schedule] 5. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect from 1st April, 2004. [Section 4] 7. Definition of the term business connection 7.1 Under the existing provisions contained in sub-section (1) of section 9, all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situated in India, is deemed to accrue or arise in India. The term business connection has also been referred to in section 163 in relation to an agent. This term has, however, not been defined in the Income-tax Act. 7.2 In order to remove doubts regarding the expression business connection, and to align the provisions of the Act with those of the DTAAs, the Finance Act, 2003 has inserted two new Explanations to clause (i) of the said sub-section, clarifying that the expression business connection will include a person acting on behalf of the non-resident, who : (i) has and habitually or regularly exercises in India an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Finance Act, 2003 has amended clause (6C) in order to extend the exemption to the income arising to a foreign company, notified by the Central Government in the Official Gazette, by way of royalty received in pursuance of an agreement for providing services in connection with the security of India. 8.3 This amendment will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 6(a)] 9. Exemption of amount received under VRS Compensation allowable even if it is receivable or received in instalments 9.1 Under the existing provision contained in clause (10C) of section 10, any amount received by an employee of a public sector company or any other company or an authority established under a Central, State or Provincial Act or a local authority or a co-operative society, or a University, or Indian Institute of Technology, or State or Central Government, or an institution having national/state level importance, or a institute of management, notified by the Central Government, etc., at the time of voluntary retirement or termination of his service in accordance with any scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of which the premium payable in any of the years during the term of the policy, exceeds twenty per cent of the actual capital sum assured. In view of this, the income accruing on such policies (not including the premium paid by the assessee) shall become taxable. However, any sum received under such policy on the death of a person shall continue to remain exempt. The new provision also provides that the amounts received under sub-section (3) of section 80DD, shall not be exempt under this clause. 10.4 For the same reasons, a new sub-section (2A) has been inserted in section 88 which provides that the deduction in respect of the sums paid or deposited as premium under an insurance policy shall be available only on so much of any premium or other payment made on an insurance policy other than a contract for a deferred annuity as is not in excess of twenty per cent of the actual sum assured. 10.5 It has also been clarified in both the sections that the value of any premiums agreed to be returned or any benefit by way of bonus or otherwise, over and above the sum actually assured, which may be received under the policy by any person, shall not be taken into account for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ending on the 31st day of March, 2008. 12.3 This amendment will take effect from 1st April, 2004, and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 6(e)] 13. Clarification regarding the Credit Guarantee Fund Trust for Small Industries 13.1 Under the existing provisions contained in clause (23EB) of section 10, the income of the Credit Guarantee Fund Trust for Small Scale Industries is exempt from tax for a period of five years relevant to the assessment years beginning on the 1st day of April, 2002 and ending on the 31st March, 2007. 13.2 The Act has amended the said clause so as to clarify the name of the trust as being the Credit Guarantee Fund Trust for Small Industries. 13.3 This amendment will take effect retrospectively from 1st April, 2002 and will, accordingly, apply in relation to the assessment year 2002-03 and four subsequent years. [Section 6(h)] 14. Incentive for construction of hotels and hospitals 14.1 Under the existing provisions contained in clause (23G) of section 10, any income by way of dividend, interest or long term capital gains of an infras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1964 referred to in Schedule 1 of Unit Trust of India (Transfer of Undertaking Repeal) Act, 2002, where the transfer of such assets takes place on or after the 1st April, 2002, shall be exempt from tax. 16.2 This amendment will take effect retrospectively from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. [Section 6(l)] 17. Exemption of long term capital gains on transfer of listed equity shares 17.1 Section 10 of the Income-tax Act, 1961, relates to incomes, which do not form part of total income. 17.2 In order to give incentive for investment in equity shares, a new clause (36) has been inserted in section 10 providing that any income arising from transfer of a long-term capital asset, being eligible equity share in a company listed on any recognized stock exchange in India and acquired on or after 1st March, 2003 but before 1st March, 2004, and held for a period of twelve months or more shall be exempt from tax. The transaction of sale of such share should have been entered into on a recognized stock exchange in India. 17.3 It has also been stated in the Explanation that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve may be utilized for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India. 18.3 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. 18.4 Further, the reference of sub-section (1A) in sub-section (4) and the reference of this section instead of sub-section (1) in sub-section (5) of section 10A have also been inserted. The amendments are consequential in nature and will take effect retrospectively from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. [Section 7(a), 7(b) and 7(c)] 19. Extending the benefit of deduction under sections 10A and 10B to the business of cutting and polishing of precious and semi-precious stones 19.1 With the view to give fiscal support to the export of precious and semi-precious stones, the benefit of deduction under sections 10A and 10B have been extended to the business of cutting and polishing of precious and semi-precious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian company is transferred to another company under a scheme of amalgamation or demerger, the deduction shall be allowable in the hands of the amalgamated or the resulting company. However no deduction shall be admissible under this section to the amalgamating company or the demerged company for the previous year in which amalgamation or demerger takes place. As a consequence, sub-sections (9), (9A) and the Explanation below thereto in sections 10A and 10B, become redundant and have been omitted. 21.3 The amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Sections 7(e), 7(f), 7(g), 8(b), 8(c) and 8(d)] 22. Empowering Assessing Officers to allow inter-trust donations where a trust or institution is being dissolved 22.1 Under the existing provision contained in the proviso to sub-section (3A) of section 11, where due to circumstances beyond the control of a trust or institution in receipt of the income, the accumulated income could not be applied for the purpose for which it was accumulated or set apart, transfer of any such accumulated income to other charitable tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.2 With a view to provide tax relief to salaried taxpayers, the amount of deduction under this section has been increased. Accordingly, an assessee, whose income from salary before allowing a deduction under this clause, does not exceed five lakh rupees, shall be allowed a deduction of a sum equal to forty per cent of the salary or thirty thousand rupees, whichever is less. An assessee whose income from salary, before allowing a deduction under this clause, exceeds five lakh rupees, shall be allowed a deduction of a sum of twenty thousand rupees. 24.3 The amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 13] 25. Clarificatory amendments in respect of deduction of cost of repairs and current repairs 25.1 Under the existing provisions contained in sub-clause (i) of clause (a) of section 30, cost of repairs to the premises occupied by the assessee as a tenant is allowed as a deduction in computing the business income. As per sub-clause (ii) of clause (a) to the said section, the amount paid on account of current repairs to the premises is allowed as deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed to the assessee. 26.3 Further, sub-section (4) of section 33AB provides that no deduction shall be allowed if the amount withdrawn from the special account or from the Tea Deposit Account is utilized for the purchase of prohibited items. 26.4 The Act has also substituted sub-section (4) of section 33AB to provide that in case the sum standing to the credit of the assessee is released by the NABARD or is withdrawn from the Deposit Account and is utilized for the purchase of any of the prohibited items, the whole of such amount so utilized will be treated as taxable profits of the year and taxed accordingly. 26.5 This amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 16 ] 27. Incentive for modernization and fleet expansion of shipping business 27.1 Under the existing provisions of section 33AC of the Income-tax Act, a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships, is allowed a deduction of 100% of the profits of such business, subject to certain co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 2004 and will, accordingly apply in relation to assessment year 2004-05 and subsequent years. [Section 18(a)] 29. Fiscal incentive for provisioning in respect of bad and doubtful debts in case of scheduled and non-scheduled banks 29.1 Under the existing provisions contained in sub-clause (a) of clause (viia) of sub-section (1) of section 36, a scheduled bank (not being a foreign bank) or a non-scheduled bank is entitled to a deduction of an amount not exceeding seven and one-half per cent of its gross total income before making any deduction under the said clause and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank, in respect of provision for bad and doubtful debts. 29.2 Under the first proviso to sub-clause (a), such banks have an option to claim deduction in respect of any provision for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it. Such deduction is, however, limited to ten per cent of the amount of the doubtful assets or loss assets shown in the books of account of such bank on the last day of the previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure incurred on such developmental activities may not be allowed as a deduction while computing the income under the head Profits and gains of business or profession. 31.2 The Act has inserted a new clause (xii) in sub-section (1) of section 36 so as to provide that any expenditure (not being capital expenditure) incurred by a corporation or a body corporate, by whatever name called, constituted or established by a Central, State or Provincial Act for the objects and purposes authorized by the Act under which such corporation or body corporate was constituted or established shall be allowed as a deduction in computing the income under the head Profits and gains of business or profession. 31.3 This amendment will take effect retrospectively from 1st April, 2002 and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. [Section 18(d)] 32. Rationalisation of provisions for disallowance of interest, etc. paid to non-residents if no deduction of tax at source 32.1 Under the existing provision contained in sub-clause (i) of clause (a) of section 40, any interest, royalty, fees for technical services or other sum chargeable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of litigation, particularly on the issue as to whether buildings or furniture and fittings constitute plant. 33.3 Similarly, under the existing provisions of clause (6) of section 43, the use of the expression as appearing in the books of account was inadvertent. 33.4 The Act has amended clause (3) of section 43 to provide for exclusion of the assets, namely, buildings and furniture and fittings from the definition of the expression plant. 33.5 The Act has also omitted the words as appearing in the books of account from Explanation 2B of clause (6) so as to clarify that the written down value of the block of assets in the case of the resulting company will be the written down value of the transferred assets of the demerged company. 33.6 The amendment will take effect from the 1st day of April, 2004 and will, accordingly apply in relation to assessment year 2004-05 and subsequent years. [Section 20 ] 34. Modification of provisions relating to deduction in respect of certain liabilities 34.1 Under the existing provisions contained in section 43B, deduction for any sum payable by the assessee as tax, duty, cess, etc. or as an employer by way of contribution t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontained in sub-section (1) of section 44AE, in the case of an assessee, who owns not more than ten goods carriages and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head Profits and gains of business or profession is deemed to be the aggregate of the profits and gains from all the goods carriages owned by him in the previous year. 35.2 The Act has amended the said sub-section so as to clarify that the provisions of the section shall apply in the case of an assessee who owns not more than ten goods carriages at any time during the previous year. 35.3 This amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 24 ] 36. Rationalisation of certain provisions for presumptive taxation in case of non-residents 36.1 Under the existing provision contained in sub-section (1) of section 44BB of the Income-tax Act, income of a non-resident taxpayer who is engaged in the business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services received by foreign companies from Government or an Indian concern. Where such income is received in pursuance of an agreement made after 31st March, 1976, section 44D(b) provides that the gross amount of income by way of royalties or fees for technical services received by such foreign companies without any deduction, expenditure or allowance is chargeable to tax at the rates specified in section 115A. 37.2 Section 115A provides that royalties/fees for technical services received by foreign companies will be taxed at a concessional rate of 20% only if the agreement made with an Indian concern under which these royalties or fees for technical services are received, is approved by the Central Government or relates to a matter that is covered under the Industrial Policy. 37.3 The Act has amended clause (b) of section 44D by inserting a sunset clause and has made the section inoperative in respect of agreements after 31-3-2003. 37.4 With a view to harmonize the provisions relating to the income from royalty or fees for technical services attributable to a fixed place of profession or a permanent establishment in India with similar provisions in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years. [Sections 27, 28 and 50(ii)] 38. Recomputation of Capital Gains in case of reduction in compensation received 38.1 The existing provisions of sub-section (5) of section 45, provide for the method of computation of capital gains arising from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and where the compensation or the consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority. The said sub-section provides that the capital gain shall be computed by taking the compensation or consideration or enhanced compensation or consideration, as the case may be, as the full value of consideration and such capital gain shall be chargeable as income of the previous year in which such compensation or consideration is received by the assessee. 38.2 The Finance Act, 2003 has amended sub-section (5), by inserting a new clause (c) providing that where such amount of the compensation or consideration is subsequently reduced by any court, Tribunal or other auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India Act 1992, shall not be regarded as transfer for the purposes of capital gain. 39.6 Two new sub-clauses (h) and (i) in Explanation 1 of clause (42A) of section 2 have also been inserted so as to provide that in the case of a capital asset being equity shares, or trading or clearing rights, of a stock exchange acquired by a person pursuant to demutualization or corporatisation of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included while calculating the period for holding of such assets the period, for which the person was a member of the recognised stock exchange immediately prior to such demutualization or corporatisation. 39.7 Thus for calculating the period for holding of shares as well as trading/clearing rights acquired in the stock exchange consequent upon its corporatisation and demutualization, the period of holding of membership card by the member immediately prior to such corporatisation and demutualization shall also be included. 39.8 The existing provisions of clause (ab) in sub-section (2) of section 55 provide the meaning of cost of acquisition in relation to a capital asset, being equity share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company for availing benefit under this section are in the lines of existing provisions in sub-section (2). 40.5 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 33] 41. Deduction in respect of maintenance including medical treatment of a dependant being a person with disability or a person with severe disability 41.1 Under the existing provisions contained in section 80DD, an assessee, who is resident in India, being an individual or a Hindu undivided family, is allowed a deduction of rupees forty thousand, if the assessee has, during the previous year, incurred any expenditure for the medical treatment (including nursing), training and rehabilitation of a handicapped dependant or paid or deposited any amount under a scheme framed in this behalf by the Life Insurance Corporation or Unit Trust of India, for the maintenance of handicapped dependant. For this purpose, various criteria for defining the eligible level of disability were notified in Rule 11A of the Income-tax Rules, 1962. These rules are at variance with the rules for defining disabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed to an assessee being an individual or Hindu undivided family, who has incurred any expenditure for the medical treatment of the individual himself or his dependant relative or any member of a Hindu undivided family, in respect of any disease or ailment specified in the rules. Senior citizens are allowed a deduction of sixty thousand rupees. The assessee is required to submit a certificate from the prescribed authority and in the prescribed form. For this purpose, the prescribed authority under Rule 11DD means any doctor with post-graduate medical qualifications, who is registered with the Indian Medical Association. 42.2 With the view to rationalise the provisions, the said section has been substituted by a new section so as to provide that the amount of deduction under this section shall be equal to the amount actually paid or a sum of forty thousand rupees, whichever is less, in respect of the previous year in which such amount was actually paid. The new provision also defines the term dependant to include in the case of an individual, the spouse, children, parents, brothers and sisters of the individual, and in the case of a Hindu undivided family, a member of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nations by one more year. Accordingly, the donations received by trusts or institutions for providing relief to the victims of the Gujarat earthquake are required to be utilised for this purpose on or before 31st March, 2004 and all unutilised amounts are required to be transferred to the Prime Ministers National Relief Fund on or before 31st March, 2004. Consequential amendments have also been made in section 10(23C) and section 12. 43.3 These amendments have been brought into effect retrospectively from 3-2-2001 and made applicable to the assessment year 2001-02 and subsequent years. [Sections 6(f), 11 and 36] 44. DTA Sales to units in Special Economic Zones made eligible for deduction under section 80HHC for a period of one year 44.1 Under the existing provisions of section 80HHC, deduction is provided in respect of profits from the export of goods or merchandize by a resident assessee. 44.2 A new sub-section (4C) has been inserted in this section so as provide that the sales by any undertaking which manufactures or produces goods or merchandise anywhere in India (outside any special economic zone) to any undertaking situated in a special econo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and maintenance of such Special Economic Zone to another undertaking, the deduction under section 80-IA shall be allowed to the transferee undertaking for the remaining period in the ten consecutive assessment years, as if the operation and maintenance were not so transferred to it. 45.6 These amendments have been brought into effect retrospectively from 1st April, 2002 and made applicable to the assessment year 2002-03 and subsequent years. [Section 38] 46. Extension of time limit for the purpose of tax holiday under section 80-IB to any company carrying on scientific research and development 46.1 Under the existing provisions of sub-section (8A) of section 80-IB, any company carrying on scientific research and development is allowed a deduction of hundred per cent of the profits and gains of such business for a period of ten consecutive assessment years, if such company is for the time being approved by the prescribed authority after the 31st March, 2002, but before the 1st April, 2003. For this purpose, the prescribed authority is the Secretary, Department of Scientific and Industrial Research, Ministry of Science Technology, Government of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, accordingly apply in relation to assessment year 2004-05 and subsequent years. [Section 39(d)] 49. New provisions allowing a ten years tax holiday in respect of certain undertakings in the States of Himachal Pradesh, Sikkim, Uttaranchal and North-Eastern States 49.1 The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States, in order to give boost to the economy in these States. With a view to give effect to these new packages a new section 80-IC has been inserted to allow a deduction for ten years from the profits of new undertakings or enterprises or existing undertakings or enterprises on their substantial expansion, in the States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States. For this purpose, substantial expansion is defined as increase in the investment in the plant and machinery by at least 50% of the book value of the plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. 49.2 The section provides that the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Sections 9, 39(a), 40 and 99] 50. Increase in the deduction in respect of interest on certain securities, dividends, etc. 50.1 Under the existing provisions of section 80L, a person being an individual or a Hindu undivided family deriving any income by way of interest on certain specified deposits or income from certain mutual funds or dividend from an Indian company, is allowed a general deduction of an amount not exceeding rupees nine thousand. An additional deduction of rupees three thousand is available in respect of interest on securities of the Central Government or a State Government. 50.2 With a view to increase the returns on investments particularly for small taxpayers and retired senior citizens, the said limit of deduction of nine thousand rupees has been increased to twelve thousand rupees. The existing deduction of rupees three thousand in respect of interest on securities of the Central Government or a State Government has been continued. 50.3 The amendment will take effect from 1st April, 2003, and will, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of any lump sum consideration for the assignment or grant of any of his interest in the copyright of any book, or of royalties or copyright fees (whether receivable in lump sum or otherwise) in respect of such book. The deduction shall be allowed in respect of any book, being a work of literary, artistic or scientific nature. However, the deduction shall not be available on income from text books prescribed for schools, guides, commentaries, newspapers, journals, magazines, diaries, brouchres, tracts, pamphlets, and other publications of a similar nature, by whatever name called. Where an assessee claims deduction under this section, no deduction in respect of the same income shall be allowed under any other provision of the Income-tax Act, 1961. 52.3 The section provides that for calculating the deduction under this section, the amount of so much of eligible income shall be considered as does not exceeds 15% of the value of the books sold during the previous year. However, this condition is not applicable where the royalty or copyright fees, is receivable in lump sum in lieu of all rights of the author in the book. For claiming the deduction, the assessee shall have to fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense) in a patent, or for imparting of any information concerning the working or use thereof in India, or for rendering of any services in connection with the above. However, no deduction shall be available in respect of any consideration for sale of product manufactured with the use of patented process or of the patented article for commercial use. Further, any consideration which is chargeable under the head capital gains shall not be eligible for deduction. Where a compulsory license is granted in respect of any patent under the Patents Act, 1970, the income eligible for deduction under this section shall not exceed the amount of royalty under the terms and conditions of a license settled by the Controller under that Act. 53.3 The section also provides that where any income is earned from sources outside India on which the deduction under the proposed section is claimed, only so much of the income shall be considered, as is brought into India by, or on behalf of the assessee in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf. For this purpose, compet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and Full Participation) Act, 1995, under which disability means any disability over 40% and also includes in addition to physical disabilities, mental illness. 54.2 The existing section 80U has been substituted with a view to harmonize the criteria for defining disability as existing under the Income-tax Rules with the criteria prescribed under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 and to increase the amount of deduction. A deduction of an amount of rupees fifty thousand has been provided under this section, in respect of a person with disability, as defined under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. A higher deduction of rupees seventy-five thousand shall be allowed in respect of a person with severe disability under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, having any disability over 80%. 54.3 For claiming the deduction, the assessee is required to furnish a copy of the certificate issued by the medical authority under the Persons with Disability (Equal Opportunities, Prot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax on their total income in any assessment year, of an amount equal to hundred per cent of such income-tax or an amount of fifteen thousand rupees, whichever is less. 56.2 With a view to provide tax relief to the senior citizens, the said limit of tax rebate as been enhanced to twenty thousand rupees. The amendment will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Section 48] 57. Double Taxation Avoidance Agreements - extending the scope to include agreements for developing mutual trade and investment 57.1 Under the existing section 90 the Central Government may enter into an agreement with the Government of any country outside India for the granting of relief in respect of income on which have been paid both income-tax under the Income-tax Act and income-tax in that country, or for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, etc. 57.2 In order to encourage international trade and commerce, the Finance Act, 2003 has inserted a new clause in sub-section (1) of section 90 so as to provide that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 196C on dividend income in respect of bonds or Global Depository Receipts. Section 196D provides for deduction of tax at source in respect of securities referred to in clause (a) of sub-section (1) of section 115AD. 58.5 The Act has substituted sub-section (1) of section 115-O of the Income-tax Act to provide that the amounts declared, distributed or paid on or after 1st April, 2003 by a domestic company by way of dividends shall be charged to additional income-tax at the flat rate of twelve and one-half per cent, in addition to the normal income-tax chargeable on the income of the company. 58.6 It has also been provided that dividends received from domestic companies on or after 1st April, 2003 shall be exempt from income-tax. Consequently, deductions under sections 80L and 80M in respect of dividends have been discontinued. The provisions relating to tax deduction at source have also been suitably amended so as to provide for no deduction of tax at source from income by way of dividends other than dividends referred to in section 115-O. 58.7 Since provisions of section 115-O would now be operative, reference to other than dividends referred to in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the specified company on or after 1st April, 2003 shall be exempt from income-tax. Consequently, deduction under section 80L in respect of income from units has been discontinued. The provisions relating to tax deduction at source from income in respect of units have been suitably amended so as to provide for no deduction of tax at source from such income. 59.7 It has also been provided that the specified company or a Mutual Fund shall be liable to pay interest at the rate of one and one-fourth per cent for every month or part thereof on the amount of the additional income-tax not paid within the specified time. The person responsible for making payment of income distributed by the specified company or a Mutual Fund shall be deemed to be an assessee in default in respect of the amount of tax payable by him or it in case the additional income-tax is not paid to the credit of the Central Government. 59.8 Consequential amendments have also been made in section 10(23D) of the Income-tax Act so as to provide that the exemption in respect of income of a Mutual Fund shall be subject to the provisions of Chapter XII-E of the Income-tax Act. 59.9 These amendments shall be ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia, if the concerned person makes an application to the Assessing Officer within thirty days from the end of the month in which the asset was seized. 61.3 This amendment will take effect from 1st June, 2003. [Section 60(a)] 62. Modification of provisions relating to survey under section 133A 62.1 Under the existing provisions of section 133A of the Income-tax Act, an income-tax authority conducting a survey is authorised to verify and make an inventory of cash, stock or other valuable article, record the statement of any person, inspect books of account or documents, place mark of identification, and also impound and retain in his custody books of account or other documents after recording reasons for doing so. Such books of account or other documents can be retained by the income-tax authority for only 15 days without the approval of Chief Commissioner or Director General or Commissioner or Director, as the case may be. 62.2 Clause (ia) in sub-section (3) of the section has been amended to provide that an income-tax authority shall not retain such books of account or other documents for more than ten days without obtaining the approval of the Chief C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 64] 65. The special procedure for assessment of search cases under Chapter XIV-B be abolished 65.1 The existing provisions of the Chapter XIV-B provide for a single assessment of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and lay down the manner in which such income is to be computed. 65.2 The Finance Act, 2003 has provided that the provisions of this Chapter shall not apply where a search is initiated under section 132, or books of account, other documents or any assets are requisitioned under section 132A after 31st May, 2003 by inserting a new section 158BI in the Income-tax Act. 65.3 Further three new sections 153A, 153B and 153C have been inserted in the Income-tax Act to provide for assessment in case of search or making requisition. 65.4 The new section 153A provides the procedure for completion of assessment where a search is initiated under section 132 or books of account, or other documents or any assets are requisitioned under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of limitation for completion of such assessment or reassessment, the period during which the assessment proceeding is stayed by an order or injunction of any court; or the period commencing from the day on which the Assessing Officer directs the assessee to get his accounts audited under sub-section (2A) of section 142 and ending on the day on which the assessee is required to furnish a report of such audit under that sub-section, or the time taken in reopening the whole or any part of the proceeding or giving an opportunity to the assessee of being reheard under the proviso to section 129, or in a case where an application made before the Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing on the date on which such application is made and ending with the date on which the order under sub-section (1) of section 245D is received by the Commissioner under sub-section (2) of that section, shall be excluded. If, after the exclusion of the aforesaid period, the period of limitation available to the Assessing Officer for making an order of assessment or reassessment, as the case may be, is less than sixty days, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the business income of the firm. Such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28 of the Income-tax Act. 66.4 These amendments will take effect from 1st April, 2004 and will, accordingly, apply in relation to the assessment year 2004-05 and subsequent years. [Sections 69 and 70] 67. Rationalisation of provisions relating to direct payment of tax by the assessee when tax not deducted at source 67.1 Under the existing provision contained in section 191, in the case of income in respect of which provision is not made under the provisions of Chapter XVII of the Income-tax Act for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of the said Chapter, income-tax shall be payable by the assessee direct. 67.2 The Act has inserted an Explanation in the said section to clarify that if the principal officer or the company referred to in section 194 or the person referred to in section 200, does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account payee cheque and the amount of the dividend or, as the case may be, the aggregate of the amounts of the dividend distributed or paid or likely to be distributed or paid during the financial year does not exceed one thousand rupees. 69.2 Further, under the existing provisions contained in section 194K, no tax is required to be deducted at source by the person responsible for making the payment of any income in respect of units of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India to the account of, or to, the payee where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year does not exceed one thousand rupees. 69.3 With a view to give relief to small investors and senior citizens, the Act has amended sections 194 and 194K of the Income-tax Act to provide that no deduction of tax at source shall be made from income by way of dividends or the income from units where the amount of income or incomes, as the case may be, does not exceed two thousand five hundred rupees. 69.4 These amendments will take effect retrospec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 192, 193, 194A, 194D, 194H, 194-I, 194K, 194L and 195, and the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf give to him such certificate as may be appropriate. 72.2 The Act has amended the said section to include payments of any sum to contractors and sub-contractors referred to in section 194C, any income by way of commission, etc., on sale of lottery tickets referred to in section 194G and payment of any sum by way of fees for professional or technical services referred to in section 194J, within the scope of the said section. The reference of section 194L relating to payment of compensation on acquisition of capital asset in the said section has also been omitted. Consequential amendments have also been made in sections 194C, 194G and 194J of the Income-tax Act. 72.3 These amendments will take effect from 1st June, 2003. [Sections 75, 76, 78(b) and 84] 73. No deduction of tax at source to be made in certain cases on filing of self-de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id section further provides that the returns of tax deducted at source may be filed on computer readable media such as floppies, diskettes, magnetic cartridge tapes, etc., as may be specified by the Board and that the information in such returns shall be admitted in evidence in any proceeding under the Income-tax Act. 74.3 Sub-section (3) of the said section provides for the requirement of checking and authenticating of the return by the Assessing Officer and due care by him for preservation of the return in the computer media by duplicating, transferring, mastering or storage without loss of data. 74.4 The Act has substituted sub-section (2) to provide that the person responsible for deducting tax under the provisions of Chapter XVII-B of the Income-tax Act, other than the principal officer in the case of every company may, at his option, deliver or cause to be delivered such return to the prescribed income-tax authority in accordance with such scheme as may be specified by the Board in this behalf, by notification in the Official Gazette, and subject to such conditions as may be specified therein, on or before the prescribed time after the end of each financial year, on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer is fixed by or under any State Act and a buyer in the further sale of such goods obtained in pursuance of such sale. Further, the definition of seller in clause (b) of the Explanation excludes individuals and Hindu undivided families from the responsibility of collection of tax at source. 75.3 The Act has substituted the Table in sub-section (1), inter alia, to provide for collection of tax at source at the rate of ten per cent in the case of Indian made foreign liquor and scrap. 75.4 The Explanation to the section has also been amended so as to make the provisions of the section applicable in the case of a buyer where he does not obtain the goods by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act. It has also been provided that buyer shall not include a buyer in retail sale. The expression scrap has been defined for the purpose of section 206C to mean waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such because of breakage, cutting up, wear and other reasons. Further, the definition of seller has also been amended to include individuals and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 139A or in case no such permanent account number has been allotted to him, or his total income is not chargeable to income-tax or who is not required to obtain permanent account number under this Act a certificate in the prescribed form; and the purpose of his visit; and the estimated period of his stay outside India. 76.4 It has also been provided that no person, who is domiciled in India at the time of his departure and in respect of whom circumstances exist which, in the opinion of an income-tax authority render it necessary form him to obtain a certificate under this section, shall leave the territory of India by land, sea or air unless he obtains a certificate from the income-tax authority or such authority as may be prescribed stating that he has no liabilities under this Act, the Wealth-tax Act, 1957, the Expenditure-tax Act, 1957, or the Gift-tax Act, 1958, or that satisfactory arrangements have been made for the payment of all or any of such taxes which are or may become payable by that person. It is also proposed to provide that no income-tax authority shall make it necessary for any person who is domiciled in India to obtain a certificate under this section unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 254D of the Income-tax Act, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then the interest chargeable under sub-section (1), shall be reduced accordingly. It has also been provided that an assessment made for the first time under section 147 shall be regarded as a regular assessment for the purposes of aforesaid section. 77.6 This amendment will take effect from 1st June, 2003. [Section 91] 78. Clarification in the definition of Advance Ruling 78.1 Under the existing provision contained in sub-clause (ii) of clause (a) of section 245N, the expression advance ruling, inter alia, means determination of any question of law or of fact specified in the application by the Authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with a non-resident. 78.2 The Finance Act, 2003 has amended the said sub-clause so as to clarify that the determination of any question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79.5 Section 269T was amended to include the term loan by the Finance Act, 2002. In consequence of the same, section 271E has also been amended by the Finance Act, 2003, so as to provide for levy of penalty on a person if he fails to repay any loan or deposit in accordance with the provisions of section 269T. 79.6 This amendment will take effect retrospectively from 1st June, 2003. [Sections 94 and 95] 80. Amendment of section 275 relating to time limit for imposing of penalty 80.1 Under the existing provisions contained in clause (a) of sub-section (1) of section 275, no order imposing a penalty shall be passed, in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals), or to the Appellate Tribunal 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 within 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. 80.2 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax Act 82.2 Under the existing provisions contained in section 17 of the Wealth-tax Act, 1957, in a case where net wealth chargeable to tax has escaped assessment, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period not being less than thirty days as may be specified in the notice, a return of his net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice. 82.3 The existing provisions contained in section 16 of the Gift-tax Act, 1958 provide that, in a case where taxable gifts, in respect of which any person is assessable under the said Act, (whether made by him or by any other person) have escaped assessment, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period not less than thirty days as may be specified in the notice, a return of his taxable gifts made by him or by such other person during the previous year mentioned in the notice in respect of which he is assessable. 82.4 The Act has amended section 17 of the Wealth-tax Act and section 16 of the Gift-tax Act so as to omit the period of not less than thirty days for f ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
