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TMI BlogFINANCE ACT, 1988X X X X Extracts X X X X X X X X Extracts X X X X ..... Also the amount of income-tax computed in accordance with provisions of section 115BB of the Income-tax Act on any income from winnings from lotteries, etc., shall be increased by a surcharge calculated at the rate of five per cent of the income-tax. However, no surcharge shall be payable by a non-resident. Finance Act, 1988 Rates for deduction of tax at source during the financial year 1988-89 from incomes other than "salaries" 5.1 The rates of deduction of income-tax at source during the financial year 1988-89 from incomes, other than "salaries", have been specified in Part II of the First Schedule to the Finance Act. These rates apply to income by way of interest on securities, other categories of interest, dividends, insurance commission, winnings from lotteries and crossword puzzles, income by way of winnings from horse races and income of non-residents (including non-resident Indian) other than salary income. There are certain changes in these rates as compared to the rates in force during the financial year 1987-88. During the financial year 1987-88, tax deductible at source on any income by way of winnings from lotteries, crossword puzzles and horse races, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial year 1988-89 on current income in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during the financial year 1988-89, assessment of persons who are likely to transfer property to avoid tax, where an order has to be passed in a case of search and seizure for calculating the amount of tax on the estimated undisclosed income, etc. Finance Act, 1988 6.2 The amount of income-tax to be deducted at source or advance tax or income-tax payable shall, in the case of every person having income exceeding fifty thousand rupees, be increased by a surcharge calculated at the rate of five per cent of the income-tax. However, no surcharge shall be payable by a non-resident. Finance Act, 1988 6.3 Similarly, in the case of profits and gains of insurance business, the amount of advance tax payable in accordance with section 115B shall be increased by a surcharge computed at the rate of five per cent of the income-tax. Finance Act, 1988 Rates of tax applicable to individuals, Hindu undivided families, unregistered firms, etc., co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade or as investment. Hence, as a measure of rationalisation, "Interest on securities" as a separate head of income has been omitted. Such an income will now be assessed either under the head "Profits and gains of business or profession" or "Income from other sources" depending on whether the securities are held as stock-in-trade or as investment. Consequent to the deletion of sections 18 to 21 of the Income-tax Act, suitable amendments have been made in sections 56 and 57 relating to income from other sources. Further sections 86A and 181 of the Income-tax Act relating to interest on tax-free Government securities have been deleted since these provisions have outlived their relevance because no State Government has issued tax-free securities in the recent years. Section 112A of the Income-tax Act relating to interest-free National Savings Certificates (First Issue) has also been deleted since this series of N.S.C. had matured in 1975. Interest on securities has also been defined as per the new section 2( 28B ) of the Income-tax Act. Finance Act, 1988 10.2 These amendments shall come into force with effect from 1st April, 1989 and will, accordingly, apply to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hdrawn. However, as earlier, the exemption in respect of the perquisite value of tax paid by the employer of a foreign technician has been retained. Finance Act, 1988 12.2 This amendment will be applicable in the case of a foreign technician employed on or after 1st April, 1988. [Section 4 of the Finance Act, 1988] Finance Act, 1988 Tax paid by Government or an Indian concern not to form part of the income of non-residents. 13.1 Under the existing provisions of clause ( 6A ) of section 10 of the Income-tax Act, if any income is derived by a foreign company by way of royalty or fees for technical services from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after 31st March, 1976 and approved by the Central Government, the tax paid on such income under the terms of agreement by the Government of India is not to be included in computing the total income of a foreign company. A large number of public sector companies are entering into agreements with foreign companies and consortia of foreign companies whereby such companies or consortia are undertaking turnkey projects with the approv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.4 Further, by inserting a new clause ( xvif ) in sub-section (1) of section 5 of the Wealth-tax Act, it has been provided that the investments made by an individual or a Hindu undivided family in the relief bonds will be exempt from wealth-tax without any monetary limits. By amending clause ( aa ) of sub-section (3) of section 5 of the Wealth-tax Act, it has further been provided that the exemption as above will be available to the original subscriber to the bond or to a person who has held a bond for a period of at least six months before the valuation date. These amendments in the Wealth-tax Act will come into force from 1st April, 1988 and will, accordingly, apply in relation to assessment year 1988-89 and subsequent assessment years. Finance Act, 1988 14.5 The Gift-tax Act has also been amended by inserting a new clause ( iid ) of sub-section (1) of section 5 to provide for exemption from gift-tax in respect of transfer of these bonds up to a maximum of rupees five lakhs in value in the aggregate in one or more previous years. The exemption under the Gift-tax Act will, however, be available only to the initial subscriber (individual or Hindu undivided family). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to the amount of such subsidy received during the previous year. Finance Act, 1988 16.2 This amendment will come into force with effect from 1st April, 1989 and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Section 4 of the Finance Act, 1988] Finance Act, 1988 Modification of the provisions relating to industrial undertaking in free trade zones 17.1 Under the existing provisions of section 10A of the Income-tax Act, profits and gains derived by an assessee from a newly established industrial undertaking in free trade zones are not included in his total income subject to certain conditions. The Direct Tax Laws (Amendment) Act, 1987 has amended, with effect from 1st April, 1989, the provisions of section 139 of the Income-tax Act relating to return of income. By the amendment, the provisions regarding issue of notice by the Assessing Officer requiring the assessees to file their returns of income has been omitted. Further, the Assessing Officer will not have any power to extend the dates for filing the return of income. Since references to the provisions of section 139 of the Income-tax Act still continue in sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude any processing or assembling or recording of programmes on disc, tape, perforated media or other information storage device; ( ii ) That the unit has not been formed by the splitting up or reconstruction of an existing business; ( iii ) That it has not been formed by the transfer to a new business of machinery or plant previously used for any purpose. Unlike the provisions of section 10A of the Income-tax Act, even the existing hundred per cent export-oriented undertakings will be eligible to avail of the tax holiday for a full period of five assessment years in a block of eight years. For this purpose, an assessee may, at his option, before the due date of furnishing the return of income for the assessment year 1989-90, furnish to his Assessing Officer a declaration in writing that the exemption may be allowed to him for any five consecutive years falling within a period of eight years commencing on the first day of April, 1989. In respect of the new units, i.e., those which begin to manufacture or produce articles or things at any time after the commencement of the previous year relevant to the assessment year 1989-90, the exemption will be available over a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as agent under section 163 of the Income-tax Act is not deductible in the computation of income chargeable under the head "Profits and gains of business or profession". In order to ensure effective compliance of the provisions of section 195 of the Income-tax Act relating to tax deduction at source in respect of payments outside India, the scope of the above provision has been extended to cover payments in respect of royalty, fees for technical services or other sum chargeable under the Income-tax Act. Further, under the existing provisions, disallowance can be made only if there is no person who can be treated as an agent of the non-resident. The Finance Act, 1987 had amended these provisions to secure that even when a person paying is himself an agent of the non-resident, the tax should be deducted. Consequently, even if there is an agent, non-deduction of tax at source will be in contravention of the law which will now result in disallowance. The condition of their being agents is not necessary as it provides an escape route to the persons making these payments. Consequently, the words "and in respect of which there is no person in India who may be treated as an agent under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act, 1988 21.3 A marked tendency has been noticed that on one pretext or the other some taxpayers postpone the payment of interest on loans provided by the various financial institutions and thus the money recoverable by these institutions is used for business purposes even though it has been claimed as a deduction from the income. With a view to improve the liquidity position of the public financial institutions and to prevent misuse of the limited resource of finance available to trade and industry, section 43B of the Act has been amended to provide that any sum payable as interest on any loan or borrowing from any public financial institutions in accordance with the terms and conditions of the agreement governing such loan or borrowing, shall not be allowed as a deduction if the same is not actually paid before the due date applicable in his case for furnishing the return of income. As per the new Explanation 3 to section 43B of the Income-tax Act, the term "public financial institution" shall have the same meaning as assigned to it in section 4A of the Companies Act, 1956. Finance Act, 1988 21.4 These amendments will come into force with effect from 1st Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue. The amalgamated company also reduces its tax liability on the profit accruing to it in the subsequent sale of the stock-in-trade. Finance Act, 1988 22.4 With a view to counteracting the above devices for tax avoidance a new section 43C has been inserted by the Finance Act, 1988 to provide that where an asset, acquired under a scheme of amalgamation, is sold by an amalgamated company after the 29th day of February, 1988, as its stock-in-trade, then, in computing the profits and gains derived from the sale of such stock-in-trade the cost of the acquisition of stock-in-trade to the amalgamated company shall be the cost of the acquisition of such stock-in-trade or the asset, to the amalgamating company as increased by the cost, if any, of any improvement thereto and the expenditure incurred wholly and exclusively in connection with such transfer. Finance Act, 1988 22.5 The provision of the new section 43C will thus apply to the following cases of revaluation: ( i ) where the stock-in-trade of the amalgamating company is taken over at revalued price by the amalgamated company under the scheme of amalgamation; ( ii ) where a capital asset of the amalgamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Chartered Accountant before the "specified date" if the sales turnover or the gross receipts exceed the present limit. Under the existing provisions the "specified date" in relation to the accounts of the previous year means the date of the expiry of four months from the end of the previous year or where there is more than one previous year from the end of the previous year which expired last before the commencement of the assessment year or the 30th day of June of such assessment year, whichever date falls later. The Direct Tax Laws (Amendment) Act, 1987 has amended section 139 whereby different time limits have been prescribed for filing of the return of income by assessees having income from business and by those having income from sources other than business. In view of the staggering of the dates for the filing of the returns, the specified date by which the statutory audit must be completed has been amended. The "specified date" in relation to the accounts of the previous year have been amended as under: ( a ) where the assessee is a company 31st December of the assessment year; ( b ) where the assessee is a person 31st October of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 206C in the Act which provides for "collection of tax" at source, at the time of purchase of any of the goods specified in section 44AC of the Act. Finance Act, 1988 24.2 The objects of the introduction of the new provisions for working out the profits on a presumptive basis is to get over the problems being faced in assessing the income of and recovering the taxes in the cases of persons trading in country liquor, timber and forest produce. A large number of such persons either do not maintain any books of account or the books maintained are irregular and incomplete. Locating such persons after the contract or agreement became impossible in many cases, Further in such cases, even if the assessment was completed, the Income-tax Department found it extremely difficult to collect the tax from them. Thus assessment of income and recovery of taxes from such businessmen posed serious problems. Finance Act, 1988 24.3 The presumptive rate of profit will be applied in the cases of all buyers (except a "public sector company") who purchase the specified goods and trade in the same. The provisions of the section will, however, apply only in respect of the goods obtained from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the provisions of section 44AC of the Income-tax Act will not apply and no collection of tax will be required to be made, on his obtaining the requisite certificate from his Assessing Officer, Similarly, if a buyer purchases timber as an actual user for construction of a house no collection of tax will be required to be made under section 206 of the Income-tax Act. Finance Act, 1988 24.5 The term "manufacturing" has been interpreted in several court decisions. It generally refers to "production of articles for use from raw, semi-raw or prepared materials by giving these materials new forms, qualities, properties or combinations, whether by hand labour or machinery". In the case of Kutty Flush Doors Furniture Co. ( P. ) Ltd. (Civil Appeal No. 468 of 1988), a case arising under the Central Excises and Salt Act, 1944, the conversion of timber logs by sawing them into sizes and dried timber did not tantamount to any manufacture. The Supreme Court observed that "it may be worthwhile to note that 'manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the trading of any of the goods specified in the section will be allowable. However, where the business carried on by the assessee does not exclusively consist of trading in the commodities specified in section 44AC of the Income-tax Act and where separate accounts are not maintained or are not available, the amount of expenses attributable to the other business carried on by the assessee, for the purpose of allowing these would be worked out on the basis of the same proportion as the turnover of such other business bears to the total turnover of the business. Finance Act, 1988 24.9 In so far as the deductions under Chapter VI-A of the Income-tax Act are concerned, the same will be allowed from the income so determined under section 44AC of the Income-tax Act. For example, the income of a trader in biri leaves who is an exporter, will be first determined in accordance with the provisions of section 44AC of the Income-tax Act and, thereafter, he would be eligible to claim the deduction under section 80HHC of the Income-tax Act, 1961. Finance Act, 1988 24.10 As mentioned above, the "seller" referred to in section 44AC of the Income-tax Act has to collect tax at sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be issued by the Assessing Officer and accepted by the "seller" only if it is as per Form No. 27C of the Income-tax Rules, 1962, and not in any other manner. Finance Act, 1988 24.12 There may be cases where for the purchase of any of the items specified in section 44AC, the "buyer" may have to pay the cost of the item plus excise duty to a particular "seller" and any other tax or payment towards the purchase of the same item to another. For example, in some States for the purchase of liquor, the retailer has to pay the cost of liquor plus excise duty to the State Excise Department. The sales tax is paid by this retailer for the liquor directly to the Sales Tax Authorities. For the price of the bottles, labels and sealing charges the payments are made to the distilleries from where the liquor is lifted. In such cases, the State Excise Department will have to collect tax at source at 15 per cent of the total of the cost of liquor plus excise duty plus sales tax inclusive of the cost of the bottles, labels and sealing charges. This is because of the fact that cost to the buyer can be worked out only after taking into account all these amounts together. Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th, or supplying plant and machinery on hire used or to be used in the exploration for and exploitation of mineral oils is computed at ten per cent of the aggregate of the amounts paid or payable to the taxpayer or to any person on his behalf, whether in or out of India on account of the provisions of such services or facilities. On this account there are cases where hardship is caused to the resident taxpayers by eroding their financial base even though their efforts result in substantial savings in foreign exchange. With a view to give an incentive to indigenisation and to save foreign exchange, section 44BB of the Income-tax Act has been amended so as to restrict the application of these provisions to the cases of only non-resident taxpayers. In respect of resident taxpayers, their income will be computed under the other provision of the Income-tax Act. Finance Act, 1988 25.2 This amendment will come into force retrospectively from the 1st April, 1983, i.e ., the date from which the provisions of the section have come into force and will, accordingly, apply in relation to the assessment year 1983-84 and subsequent years. [Section 16 of the Finance Act, 1988] Finance Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of any eligible issue of capital. With a view to provide tax incentive for investment in units of any Mutual Fund specified under clause ( 23D ) of section 10, the Amending Act has extended the concession available under section 80CC to investment in such units also if the Mutual Fund subscribes only to eligible issue of capital. This amendment will take effect from 1st April, 1989 and will, accordingly, apply in relation to assessment year 1989-90 and subsequent years. [Section 22 of the Finance Act, 1988] Finance Act, 1988 Modification of the provisions relating to National Savings Scheme 27.2 Under the existing provisions of section 80CCA of the Income-tax Act, an individual, a Hindu undivided family and certain categories of association of persons or bodies of individuals, are allowed deduction equal to 50 per cent of the deposits made under the National Savings Scheme. The amount that qualified for deduction is limited to Rs. 20,000 in a year. Further, fifty per cent of the withdrawals representing the deposit or the interest accruing thereon is deemed to be the income of the previous year in which the withdrawal is made. With a view to provide further incentiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is beyond the intention and spirit of the provision, as a measure to provide benefit to the supporting manufacturers exporting goods through the recognised Export House or Trading House a new proviso to sub-section (1) of the section has been inserted. The said proviso provides that where an Export House or Trading House issues a certificate in a prescribed form that in respect of any amount of export turnover, deduction under sub-section (1) is to be allowed to a supporting manufacturer, the amount of deduction available to the Export House or the Trading House shall be reduced by such an amount which bears to the total profits of the export business of the Export House or the Trading House issuing the certificate, the same proportion as the amount of export turnover specified in the certificate bears to the total export turnover of the Export House or the Trading House, as the case may be. Finance Act, 1988 28.4 As a measure to extend the benefit provided under sub-section (1) to the supporting manufacturers, a new sub-section (1A) has been inserted to provide that where the supporting manufacturer has sold goods to any Export House or Trading House in respect of which the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A) provides that the deduction to the supporting manufacturer shall not be allowed unless it furnishes in the prescribed forms along with the return of its income— ( a ) the report of an Accountant certifying that the deduction has been correctly claimed on the basis of the income derived by the supporting manufacturer in respect of sale of goods or merchandise to the Export House or the Trading House. For this purpose, the Accountant shall be the one as defined in the Explanation below sub-section (2) of section 288; and ( b ) a certificate from the Export House or the Trading House that in respect of the export turnover mentioned in the certificate, the Export House or the Trading House has not claimed any deduction under this section. The certificate issued by the Export House or the Trading House shall be certified by the Auditor auditing the account of the Export House or the Trading House under the provisions of this Act or under any law. Finance Act, 1988 28.7 The working of the benefit under this section, as can be shared between a recognised Export House or a Trading House with the supporting manufacturer, has been illustrated in the example below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the aforesaid income includes any income by way of interest on deposits made under notified National Deposit Scheme or income in respect of units of the Unit Trust of India, a further deduction will be allowed of an amount which has not been allowed by way of deduction under sub-section (1) subject to an overall limit of Rs. 3,000. Finance Act, 1988 29.3 The second proviso to sub-section (1) provides that if any income by way of interest on deposits under the notified National Deposit Scheme has remained unallowed after providing deduction under sub-section (1) or under the proviso to sub-section (1), deduction shall be allowed to the unavailed part of such income, subject to an overall ceiling of Rs. 2,000. Finance Act, 1988 29.4 With a view to providing an incentive for investment in certain specified assets, the Finance Act, 1988 has amended sub-section (1) of section 80L and the proviso to the sub-section. Under the amended provisions of sub-section (1), in addition to the income from the existing modes of investment deduction shall also be allowed, subject to an overall ceiling of Rs. 7,000 in respect of income by way of interest and deposits under the Pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny institution or authority or any public sector company, or co-operative society. (ii) Income from units of Unit Trust of India (ii) Dividend from any Indian company (iii) Interest on deposits under the notified National Deposit scheme. (iii) Income received in respect of units of a Mutual Fund specified under clause (23D) of section 10; and (iv) Interest on deposits under the notified scheme framed by the Central Government (iv) Interest on deposits or dividends received from any approved public company formed and registered in India with the main object of carrying on the business of providing long term finance for construction or purchase of houses in India for residential purposes. (v) Interest on deposits under the Post Office (Monthly Income Account) Rules, 1987. - - (vi) Dividends from any Indian company. - - (vii) Income from units of Unit Trust of India. - - (viii) Income received in respect of units of a Mutual Fund specified under clause (23D) of section 10. - - (ix) Interest on deposits with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal deduction under section 80L 12,500 Example 2: Income of an assessee, being an individual, includes:— ( i ) Interest on deposits in banks 3,000 ( ii ) Income from units of UTI 2,000 ( iii ) Dividend from any approved company set up to provide long-term finance for housing 3,000 ( iv ) Dividend from Indian company 8,000 Amount qualifying for deduction 16,000 Permissible deductions ( a ) Deduction under section 80L (1) [ (i) + (iv) restricted to Rs. 7,000] 7,000 ( b ) Deduction under 1st proviso [( ii ) + ( iii )] restricted to Rs. 3,000 3,000 ( c ) Deduction under 2nd proviso [amount of ( iv ) after adjustment of Rs. 4,000 under ( a )] 3,000 Finance Act, 1988 29.8 The inter se priority for adjustment to claim deduction under sub-section (1) and the provisos thereto will be at the option of the assessee. Finance Act, 1988 29.9 These amendments will come into force from the 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under this section shall be allowed even in respect of income which has been received in convertible foreign exchange outside India or having been converted into convertible foreign exchange outside India, is brought into India in accordance with any law for the time being in force for regulating payments and dealing in foreign exchange. Finance Act, 1988 30.4 This amendment will take effect retrospectively from the 1st April, 1988 and will, accordingly apply in relation to the assessment year 1988-89, and subsequent years. [Section 26 of the Finance Act, 1988] Finance Act, 1988 Modification of the provisions relating to the determination of tax liability of the Life Insurance Corporation and for setting up a social security fund 31.1 Under the existing provisions of section 44 of the Income-tax Act, the profits and gains of life insurance business are computed in accordance with the rules contained in the First Schedule to the Act. The profits and gains so computed are charged to tax at the rate of 12.5 per cent as provided in section 115B of the Income-tax Act. Finance Act, 1988 31.2 In order to introduce a social security scheme for the wea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his account are freely transferable and, hence, it becomes difficult to verify that the invested amount has remained in the account for a minimum period of three years which entitles the non-resident to avail of the exemption under the aforesaid provisions. For better monitoring, the Finance Act has amended sub-section (1) to section 115F to exclude the Non-residents (External) Account from the prescribed modes of investment. The non-resident Indian would, however, be entitled to invest the sale proceeds in other specified assets for getting the exemption. Finance Act, 1988 32.2 This amendment will come into force with effect from 1st April, 1989, and will, accordingly, apply in relation to assessment year 1989-90 and subsequent years. [Section 32 of the Finance Act, 1988] Finance Act, 1988 Amendment of provisions concerning powers or discovery, production of evidence, etc. 33.1 Under the existing provisions of section 131(1A) of the Income-tax Act, the powers of a civil court in certain matters like issuing of commissions, enforcing attendance of witnesses, etc., have been conferred on income-tax authorities including the Director General and the Director. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 1988 Modifications of provisions relating to searches and seizures 34.1 Under the existing provision of sub-section (1) of section 132 an authorised officer may seize books of account, documents, money, bullion, jewellery or other valuable articles or things found during the search, if he finds them incriminating or unaccounted. Seizure of an article or thing by the authorised officer means that he has to take physical possession of the same and remove it to a safe place. It is, however, always not possible to take physical possession due to the volume, weight or other physical characteristics of an article or thing or due to its being of a dangerous nature. The Finance Act has, therefore, inserted a second proviso to sub-section (1) of section 132 to enable the authorised officer to take "constructive possession" by directing the person who is in immediate possession or control thereof, not to remove, part with or otherwise deal with such an article or thing without the permission of authorised officer. Such an order shall be deemed to be seizure of such valuable articles or things. Since exercising of the powers of taking "constructive possession" have been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax deduction at source. Finance Act, 1988 36.2 Under the existing rule 10 of the Income-tax Rules, 1962, it is provided as to how the income component of the payments to non-residents as mentioned above can be computed for the purposes of this section. Further, Part II of the First Schedule to the Finance Act provides the appropriate rates of tax on various forms of income payable to non-residents for purposes of tax deduction at source. Finance Act, 1988 36.3 In order to rationalise the provisions, it is proposed to amend section 195(2) of the Income-tax Act to authorise an Assessing Officer to determine the income component of the payment to non-residents by general or special order in any case which may arise, rather than giving a general power to determine the income in a prescribed manner. Finance Act, 1988 36.4 This amendment will come into force from 1st March, 1988. [Section 39 of the Finance Act, 1988] Finance Act, 1988 Liberalisation of the provisons relating to income-tax clearance certificate 37.1 The existing provisions of section 230A prohibit the registration of any transfer of immovable property valued at more than Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax is empowered to call for and examine the record of any proceeding and if he considers that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of revenue, he may pass an order enhancing or modifying the assessment or cancelling the same with a direction to make it afresh. The provisions as presently worded have given rise to two areas of controversy. The first is relating to the interpretation of the word "record" and the second is regarding the issue relating to merger of the order of the Assessing Officer with the order of the appellate authority. Courts have held in some cases that the word 'record' occurring in section 263 could not mean the record as it stood at the time of examination by the Commissioner but the record as it stood at the time when the order was passed by the Assessing Officer. Limiting the power of the Commissioner only to the situation that was existing at the time of making the assessment is to make the provision too restrictive, as many times information comes on record from various sources which indicate that the order of the Assessing Officer is erroneous and prejudicial to the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax. The section also empowers the Commissioner to compound offences mentioned in section 279 of the Income-tax Act either before or after the institution of prosecution proceedings. The existing provisions empower only the Commissioner to authorise launching of prosecution. There may be cases where an offence is committed before a Commissioner (Appeals) or an appropriate authority as referred to in section 269UA of the Income-tax Act. As both these authorities are of the same rank as the Commissioner, it should not be necessary for them to approach the Commissioner for sanction for launching a prosecution. The Finance Act has therefore amended clause (1) of section 279 so as to provide that where prosecution is to be launched by a Commissioner (Appeals) or an appropriate authority the previous sanction of the Chief Commissioner or Commissioner will not be necessary. Similarly, by amendment of sub-section (2) of section 279 it has been provided that where an offence is committed before the Commissioner (Appeals) or the appropriate authority, they will not have to approach the Commissioner for compounding the offence. Further, the Finance Act in keeping with other ena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with the prior approval of the Commissioner can provisionally attach any property belonging to the assessee to protect the interests of revenue during the pendency of any assessment or reassessment proceedings. This provision is being circumvented by a large number of persons by alienating their properties during the pendency of proceedings under section 132(5) of the Income-tax Act relating to searches and seizures which are not assessment proceedings. Further, some taxpayers file applications with the Settlement Commission so that on admission of the application, the jurisdiction of the Assessing Officer to make provisional attachment gets ousted. During the pendency of such application the taxpayers very often alienate their properties. To prevent alienation of properties in such type of cases the Finance Act has inserted an Explanation after sub-section (1) of section 281B of the Income-tax Act to extend the powers of provisional attachment so that these could be exercised even during the pendency of proceedings under section 132(5) of the Income-tax Act. Further, new section 245DD has been inserted to confer the powers of provisional attachment on the Settlement Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not the legislative intent, section 293 of the Income-tax Act has been amended to provide that no suit shall lie in any civil court to set aside or modify any order in any proceeding taken or order made under the Act. Finance Act, 1988 44.2 Similar amendments have been made in the corresponding provisions of the Wealth-tax Act (section 43) and the Gift-tax (section 42). Finance Act, 1988 44.3 These amendments will come into force with effect from the 1st March, 1988. [Sections 51, 65 and 71 of the Finance Act, 1988] Finance Act, 1988 Liberalisation of provisions in respect of taxation of profits and deduction of tax at source applicable to the General Insurance Corporation and its subsidiaries 45.1 Under the existing provisions of section 44 of the Income-tax Act, the profits and gains of any insurance business is computed in accordance, with the rules contained in the First Schedule to the Act. Under rule 5 of this Schedule, profits and gains of any business of insurance other than life insurance are taken to be balance of profits disclosed in the annual accounts furnished to the Controller of Insurance subject to certain adjustments. One of the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list of articles or things from the Eleventh Schedule. "Projectors" will, however, continue to be included as an item in the Eleventh Schedule. [Section 53 of the Finance Act, 1988] AMENDMENT TO WEALTH TAX ACT Finance Act, 1988 Modification of provisions relating to exemption of assets under the Wealth-tax Act 47.1 Under the existing provisions of section 5(1)( xxxa ) of the Wealth-tax Act the value of a building used solely for the purpose of residence of the assessee's employees working in a plantation or industrial undertaking is exempt from wealth-tax provided each such employee earns annual salary up to Rs. 10,000. In order to rationalise the provisions, the reference to the income limit of the employees has been removed in section 5(1)( xxxa ) of the Wealth-tax Act and the exemption will now be available to one or more dwelling units each having a plinth area of up to eighty square metres. Finance Act, 1988 47.2 Under the existing provisions of section 5(1)( xvie ) of the Wealth-tax Act, debentures, etc., issued by a public sector company are exempt in the hands of an assessee. With a view to rationalise the provisions, the Finance Act has amended s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General have also been given the power to conduct an enquiry or to appoint an Inquiry Officer not below the rank of a Commissioner for conducting an inquiry against the registered valuer. The persons conducting the inquiry shall have the powers as are vested in a Court under the Code of Civil Procedure, 1908, when trying a suit, etc. Finance Act, 1988 48.3 A new section 34AE has also been inserted in the Wealth-tax Act to provide that all the existing registered valuers will be required to make an application to the Chief Commissioner or the Director General for fresh registration as valuers. Further, all the pending applications on the commencement of the new provisions shall be deemed to be fresh applications. Finance Act, 1988 48.4 Rules for the registration of valuers have been notified in the Official Gazette vide S.O. No. 533(E) dated 30-5-1988 and No. 999(E) dated 31-10-1988. Finance Act, 1988 48.5 These amendments will come into force with effect from the 1st June,1988. [Sections 58, 59, 60 and 61 of the Finance Act, 1988] Finance Act, 1988 Surcharge on wealth-tax 49.1 In order to raise resources for providing relief to drought-affec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of determining net wealth of such companies, the values of certain specified assets referred to in sub-section (3) of the said section are taken into account. Finance Act, 1988 51.2 The rationale underlying the revival of levy of wealth-tax in respect of certain specified assets held by the closely-held companies was to curb the tendency of avoidance of personal wealth-tax liability by forming closely-held companies and transferring the unproductive assets like real estate, jewellery, etc., to such companies. Finance Act, 1988 51.3 Under the existing provisions, however, wealth-tax is leviable on the closely-held companies in respect of the following assets referred to in sub-section (3) held by them: ( i ) Gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals; ( ii ) Precious or semi-precious stones whether or not set in any furniture, utensil or other article or worked or sewn in any wearing apparel; ( iii ) Ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metal, whether or not cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. Finance Act, 1988 51.8 By inserting a proviso to clause ( v ), the Finance Act has provided that in a case where any unused land otherwise forming part of the net wealth under the clause, is held by the company for industrial purposes, the said land will not be taken as part of the net wealth for the purpose of levy of wealth-tax for a period of two years from the date of its acquisition. By substituting the existing clause ( vi ) of sub-section (3) by a new clause any building or part thereof and land appurtenant thereto used by the company as cinema house has been excluded from the scope of levy of wealth-tax. Finance Act, 1988 51.9 By inserting new clauses ( via ) and ( vib ) in sub-section (3) it has been provided that any building used as residential accommodation in the nature of a guest house or any building used as a residential accommodation by any Director, Manager, Secretary or any other employees of the company, such employees holding not less than one per cent of the equity share of the company or used by a relative of any person who holds not less than one per cent of such equity share, shall form part of the net wealth for purposes of levy of weal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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