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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 ..... d 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 the case of a person being a non-corporate resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents 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-operative societies, registered firms and local authorities 7.1 In the case of individuals, Hindu u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 year 1989-90 and subsequent years. [Sections 3, 4, 7, 8, 10, 18, 19, 20, 27 to 30, 36 and 37 of the Finance Act, 1988] Finance Act, 1988 Modifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill 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 approval of the Central Government. In most of the cases, the foreign companies insist that the tax on income should be borne by the Indian concern. The tax borne by the Indian concerns are considerable and go to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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). This amendment will come into force with effect from 1st April, 1988 and will, accordingly, apply in relation to assessment year 1988-89 and subsequent years. [Sections 4, 55 and 67 of the Finance Act, 1988] Finance Act, 1988 Amendment of provisions relating to exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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-sections (5) and (7) of section 10A, they have been suitably amended. Sub-section (8) has been inserted in section 10A of the Income-tax Act to provide that the amendments in section 139 of the Income-tax Act will not have any effect on the provisions of sub-section (5) of this section. Finance Act, 1988 17.2 Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 period of five consecutive assessment years falling within the block of eight years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce any article or thing. Both in respect of existing and the new units, the assessee will have the option of choosing the five consecutive assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 163", have been omitted from sub-clause (i) of clause (a) of section 40 of the Income-tax Act. Finance Act, 1988 20.2 It has been provided by the Amending Act that if, in any subsequent year, tax is deducted at source or paid, such sum will be allowed as a deduction in computing the income chargeable to tax of that year. Finance Act, 1988 20.3 These amendments will come into force with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 April, 1989 and will, accordingly, apply in relation to assessment year 1989-90 and subsequent years. [Section 12 of the Finance Act, 1988] Finance Act, 1988 Measure to check tax avoidance in cases of transfer 22.1 Under the existing provisions of section 47 of the Income-tax Act, any transfer of capital assets from the holding company to its wholly-owned subsidiary company or vice versa is not treated as a transfer, in certain circumstances. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amalgamating company is taken over as stock-in-trade by the amalgamated company after revaluation under the scheme of amalgamation. Finance Act, 1988 22.6 The situation referred to at (ii) above will, in turn, cover three situations: (a) where the capital asset is converted into stock-in-trade by the amalgamating company with revaluation and the revalued asset is taken over by the amalgamated company under a scheme of amalgamation; (b) where the capital asset is taken over as stock-in-trade by the amalgamated c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded 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 assessment year other than a company. Sub-section (6A) of section 139 of the Income-tax Act provides that an assessee engaged in any business or profession should furnish along with a return of income certain particulars. This section has been amended so as to provide that an assessee engaged in any business or profession who is required to get his accounts, audited under section 44AB of the Income-tax Act should file an audit report along with the return of income. Further, section 139(9) of the Income-tax Act has also been amended to provide that a return of income shall be regarded as defective if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a "Seller", as defined in the Explanation below sub-section (3) of section 44AC of the Income-tax Act."Seller" as per this Explanation means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm. A "buyer" who obtains goods in the course of a second sale except where such a sale is made by a "public sector company" will not come within the purview of the section. Thus, if 'A' buys logs of timber from 'B' who had purchased the same at an auction, the provisions of section 44AC of the Income-tax Act will apply only to 'B' and not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery". 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 was necessary and there must be transformation; a new and different article must emerge having a distinct name, character or use". Thus manufacture implies bringing in something new. In the case of forest produce, biris made from tendu leaves and tobacco brings into existence a new and different article. Consequently, a "buyer" who obtains tendu leaves for making biris and not for trading in such leaves will fall outside the purview of the new sections 44AC and 206C of the Income-tax Act. Finance Act, 1988 24.6 The term "processing" has a wider meaning than the term "manufacture". Buyers carrying on the activity of processing will fall within the purview of section 206C(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 source from the buyer as required by the new provisions of section 206C of the Income-tax Act when any of the items specified in section 44AC are sold. The collection of tax at source has to be made at the time when the "seller" debits the amount payable by the "buyer" or at the time of receipt of such amount, whichever is earlier. The sum to be collected by the "seller" at source will be percentage of the amount payable by the "buyer". The Table in sub-section (1) of section 206C of the Income-tax Act specifies the percentages to be collected at source by the "seller" in respect of the different commodities to which the section applies. If the total amount payable by a buyer to the "seller" is Rs. 100, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Finance Act, 1988 24.13 The amount collected by the "seller" shall be deposited in the account of the Central Government within seven days of the date of collection. Further, the "seller" has to furnish to the "buyer" a certificate within 10 days of the date of collection of tax from him stating therein the tax collected, the rate at which the tax has been collected and such other particulars as have been prescribed in Form No. 27D of the Income-tax Rules, 1962. Credit of the tax so collected will be given to the buyer at the time of his assessment. If a "seller" responsible for collecting the tax fails to do so he will still be liable to pay the tax to the credit of the Central Government within seven days of the date of collection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 1988 Modification of the provisions relating to carry forward and set off of taxes in the case of certain companies 26.1 Under the existing provisions of section 79 of the Income-tax Act, no loss incurred by a closely-held company in any year prior to the previous year in which a change in its shareholding took place, is allowed to be carried forward and set off against its income, unless the conditions mentioned in that section are satisfied. The first condition is that on the last day of the previous year, there is no change in the beneficial holding of shares of the company, carrying not less than 51 per cent of the voting power. The second condition is the satisfaction of the Assessing Officer that the change in the shareholding was not effected w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incentives to the net savings, the Finance Act has amended section 80CCA to provide that hundred per cent of the deposits made under the Scheme will be allowed as a deduction in the year of deposits and consequently the whole amount of withdrawal will be taxed as income in the previous year in which such withdrawal is made. As a social security measure, the scope of this section has been extended to any such annuity plan of the Life Insurance Corporation, as the Central Government may notify in this behalf. The annuity plans of the LIC which have been notified are the "Jeewan Dhara", and "Jeewan Akshey". Finance Act, 1988 27.3 The overall limit of investment for both the National Savings Scheme and the annuity plans of the LIC is Rs. 20,000 for the assessment year 1988-89. The maximum a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficate 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 latter has issued a certificate in the prescribed form in accordance with the provisions of sub-section (1) read with the proviso, deduction will be allowed in the computation of the income of the supporting manufacturer; of the whole of the profits derived by it from the sale of goods or merchandise to the Export House or Trading House, as the case may be, in respect of which the certificate was issued by the latter. For this purpose: (i) Export House or the Trading House has been defined as being the holder of an Export House Certificate or the Trading House Certificate, as the case may be; (ii) the new Explanation (d) defines "Export House Certificate" or "Trading House Certificate" to mean a valid Export House Certificate or the Trading House Certificate, as the case may be, issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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: Total export earnings in convertible foreign exchange of an Export House — Rs. 50 crores Net profit from exports @ 2 per cent — Rs.1 crore Amount of deduction eligible under section 80HHC(1) — Rs.1 crore Export earnings in convertible foreign exchange in respect of purchases made from supporting manufacturer — Rs. 50 lakhs Profit from such export @ 2 per cent — Rs. 1 lakh Purchase price of goods in the hands of Export House in respect of items purchased from supporting manufacturer — Rs. 45 lakhs Profit to supporting manufacturer on sale to Export House @ 10 per cent — Rs. 4.5 lakhs Case I: Where the Export House does not issue a certificate under proviso to sub-section (1) of section 80HHC. Deduction allowable to Export House under section 80HHC(1) — Rs. 1 crore Case II: Where the Export House issues certificate in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Post Office (Monthly Income Account) Rules, 1987 and interest on deposits with or dividend received from any 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, provided that the company is approved by the Central Government for the purpose of clause (viii) of sub-section (1) of section 36 of the Income-tax Act. Finance Act, 1988 29.5 The first proviso to sub-section (1) provides that in addition to interest on deposits made under the notified National Deposit Scheme and income from units of the Unit Trust of India, income received in respect of units of a Mutual Fund specified under clause (23D) of section 10 and income by way of interest on deposits with, or dividend received from any public company formed and registered in India with the main object of carrying on business of providing long-term finance for construction or purchase of houses in India for residential purposes, to the extent that such inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith banks or co-operative societies not covered by (ix) but being a ban established by or under any law made by the Parliament as approved by the Central Government. - - (xi) Interest on deposits with an approved financial corporation which is engaged in providing long term finance for industrial development in India. - - (xii) Interest on deposits with any authority constituted in India by or under any law for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both. - - (xiii) Interest on deposits with a co-operative society, not being a co-operative society referred to in item (ix), made by a member of the society. - - (xiv) Dividends from any co-operative society - - (xv) Interest on deposits with, or dividend received from any approved public company formed and registered in India with the main object of carrying on business of providing long term finance for construction or purchase of houses in India for residential purposes. - - Finance Act, 1988 29.7 The amount of deduction eligible under sub-section (1) of section 80L and the proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the Central Government. By an amendment to section 80-O, the Finance Act has delegated the power to the Chief Commissioner or the Director General, as the case may be, to give approval to the agreement. Regarding a further amendment to the second proviso to section 80-O, it has been provided that the agreements already approved by the Board prior to the 1st April, 1989, will not require fresh approval of the Chief Commissioner or the Director General. Every application pending for approval under this section with the Board immediately before the 1st April,1989, shall stand transferred to the concerned Chief Commissioner or Director General for disposal. Finance Act, 1988 30.2 The above amendments will come into force with effect from the 1st April, 1989, and will accordingly, apply in relation to the assessment year 1989-90 and subsequent years. Finance Act, 1988 30.3 An amendment to section 80-O was effected by the Finance Act, 1987 which might restrict the scope of the section by denying the deduction to an Indian company when it receives income in convertible foreign exchange outside India or when after receipt of income, it converts it into convertible foreign exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty fund. Where such a deposit is made, the amount of income-tax payable by the LIC shall be reduced by an amount equal to two and one-half per cent of such profits and gains, and the deposit of thirty-three and one-third per cent required to be made shall also be calculated on the income-tax as so reduced. Finance Act, 1988 31.4 This amendment will come into force with effect from the 1st April, 1989, and will accordingly, apply for one year, i.e., for the assessment year 1989-90 only. [Section 31 of the Finance Act, 1988] Finance Act, 1988 Modification of the provisions relating to capital gains in the case of non-resident Indians. 32.1 Chapter XII-A of the Income-tax Act, 1961, contains special provisions for taxing certain incomes of non-resident Indians being individuals. Under the existing provisions of section 115F of the Income-tax Act, any amount of capital gains arising to a non-resident Indian from the transfer of a "foreign exchange asset" is exempt from tax if the amount of net consideration received on the transfer is invested or deposited within a period of six months from the date of transfer in certain prescribed modes of investment for a minimum period of thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income-tax. There are situations where it becomes necessary to impound books of account and other documents of persons who fall within the jurisdiction of Chief Commissioners or Commissioners who are not located in the same city. In such cases obtaining their approval is a time-consuming process. In order to overcome this, an amendment has been made in sub-section (3) by amending clause (b) in the proviso [as amended by section 2 of the Direct Tax Laws (Amendment) Act, 1987] to substitute the words "the Chief Commissioner or Commissioner therefor" by the words "the Chief Commissioner or Director General or Commissioner or Director, therefor, as the case may be". The effect of the amendment would be that in those cases where it becomes necessary to retain the books of account and documents beyond a period of 15 days, by the Assistant Director, he can, in cases where the Chief Commissioner or Commissioner cannot be approached without loss of time, etc., get the approval for retention from Director General or Director, as the case may be, who are of the same rank as Chief Commissioner and Commissioner of Income-tax. Finance Act, 1988 33.3 Similar amendments have been carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a sum to a 'suspense account'. With a view to prevent postponement of liability to deduct tax at source and credit the same to the account of the Central Government through this device, an Explanation has been inserted in section 194C by the Finance Act, so that the tax will now have to be deducted at source either on accrual or at the time of credit to the account of the payee or at the time of payment whichever event occurs first. Further, it has also been clarified that any sum credited to the "suspense account" or any other account, by whatever name called, is to be deemed to be a credit for the purposes of tax deduction at source under section 194C. This amendment is on the same lines as in the Explanation to sub-section (1) of section 194A inserted by the Finance Act, 1987. Finance Act, 1988 35.2 This amendment will come into force from 1st June, 1988. [Section 38 of the Finance Act, 1988] Finance Act, 1988 Modification of the provision relating to tax deduction at source on payment to non-residents 36.1 Under the existing provision of section 195(2) of the Income-tax Act, a person responsible for paying to a non-resident any sum other than interest on securities, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 272BB" in sub-clause (o) of clause (iva) of sub-section (1) of section 246 of the Income-tax Act. Finance Act, 1988 38.2 This amendment will come into force retrospectively with effect from the 1st June, 1987. Finance Act, 1988 38.3 The Finance Act, 1987 omitted Chapter XI of the Income-tax Act containing provisions relating to additional income-tax on undistributed profits with effect from 1st April, 1988. With the deletion of section 104 of the Act an amendment was also made in clause (a) of sub-section (2) of section 246 omitting the words "or an order under section 104, made against the assessee being a company" with effect from the 1st April, 1988. The result is that there is no provision for filing an appeal against the order passed under section 104 of the Act. With a view to removing this anomaly, the Finance Act has amended clause (a) of sub-section (2) of section 246 to restore the provision as they stood before the amendment made by the Finance Act, 1987. Finance Act, 1988 38.4 This amendment will come into force with effect from the 1st April, 1988. [Section 43 of the Finance Act, 1988] Finance Act, 1988 Amendment of provision relating to revision of ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of the Assessing Officer which relates to the matters considered and decided by such an authority. Some High Courts have held that there is complete merger once an appeal is decided against an order even on one or two points alone, while a number of High Courts have held that there is only a partial merger confined to points adjudicated upon. To eliminate any further litigation, the Finance Act has amended section 263 by inserting an Explanation to the effect that the Commissioner will be competent to revise an order of assessment passed by an Assessing Officer on all matters except those that have been considered and decided in appeal. This amendment also has been carried out for removal of doubts. Finance Act, 1988 39.3 Similar amendments have been carried out under section 25 of the Wealth-tax Act and section 24 of the Gift-tax Act. Finance Act, 1988 39.4 These amendments will come into force with effect from 1st June, 1988. [Sections 44, 57 and 68 of the Finance Act,1988] Finance Act, 1988 Modification of provisions relating to offences and prosecutions 40.1 Under the existing provisions of section 279 of the Income-tax Act, prosecution for offences mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been amended on the same lines. Finance Act, 1988 40.5 These amendments will come into force with effect from the 1st April, 1989. [Sections 47, 63 and 69 of the Finance Act, 1988] Finance Act, 1988 Omission of Chapter XXII-A of the Income-tax Act relating to annuity deposits 41.1 Chapter XXII-A of the Income-tax Act contains provisions relating to annuity deposits. This was introduced in 1964 with the object of mopping up resources for the Government. The scheme which came into existence from the assessment year 1964-65 was discontinued with effect from the 1st April, 1969. The repayments under the scheme were taxable in the years of repayment of the annuity. The last of such payments fell due in 1979. The provisions have, therefore, ceased to be operative with effect from the assessment year 1980-81. The Chapter containing these provisions have, therefore, been deleted by the Finance Act, 1988, with effect from the 1st day of April, 1988. [Section 48 of the Finance Act, 1988] Finance Act, 1988 Amendment of the provisions relating to provisional attachment of properties to protect revenue in certain cases 42.1 Under the existing provisions of section 281B of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file particulars of the contract in a prescribed form to the Assessing Officer in a case where the value of the contract exceeds fifty thousand rupees. In view of the provisions of section 194C of the Income-tax Act which make it incumbent on a person to deduct tax at source while making a payment to a contractor, the requirement of obtaining information under section 285A of the Income-tax Act has been omitted. Finance Act, 1988 43.2 This amendment comes into force with effect from the 1st April, 1988. [Section 50 of the Finance Act, 1988] Finance Act, 1988 Bar of suits in civil court to set aside or modify any proceeding 44.1 Under the existing provisions of section 293 of the Income-tax Act, no suit shall lie in any civil court to set aside or modify any order made under the Act. Similar provisions are contained in section 43 of the Wealth-tax Act and section 42 of the Gift-tax Act. Some Courts while interpreting section 293 have held that the bar of suits in civil courts is confined to orders only and not to proceedings under the Income-tax Act. On this basis, stay orders have been given in respect of proceedings before the Income-tax authorities. As this was not the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on securities or dividend to the General Insurance Corporation or its subsidiaries. As a measure of administrative convenience, the General Insurance Business (Nationalization) Act, 1972, has been amended to provide that in respect of any payment of dividend or interest on securities made to the General Insurance Corporation or its subsidiaries, no tax shall be deducted at source. Finance Act, 1988 45.4 This amendment will come into force with effect from the 1st June, 1988. [Sections 52 and 86 of the Finance Act, 1988] Finance Act, 1988 Exclusion of cinematograph films from the Eleventh Schedule 46.1 The Eleventh Schedule to the Income-tax Act contains a list of non-priority articles and things to which the benefits of provisions of section 32AB and other sections of the Act are not applicable. Item 9 of this Schedule relates to "Cinematograph Films and Projectors". The articles that fall under the category of cinematograph films cater to the priority needs of the country in various vital fields like medicine, communication and education. Cinematograph films have, therefore, been excluded from the non-priority list of articles or things from the Eleventh Schedule. "Projecto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide that the intimation by a registered valuer as to whether he was convicted of any offence or sentenced to a term of imprisonment or was found guilty of misconduct in his professional capacity will now be sent to the Chief Commissioner or the Director General instead of the Board. Finance Act, 1988 48.2 The existing provisions of section 34AD of the Wealth-tax Act provide for the removal of the names of the valuers from the Register and also for their restoration. The Board has been empowered to remove the name of any person from the Register subject to fulfilment of the conditions specified in this behalf. By an amendment of section 34AD of the Wealth-tax Act, this power of the Board has also been delegated to the Chief Commissioners or the Directors General. The Finance Act by inserting sub-section (3) in section 34AD also empowered the Chief Commissioner or the Director General to review the performance of registered valuers once in three years and to remove the name of any person from the Register under certain circumstances. The Chief Commissioners or the Directors General have also been given the power to conduct an enquiry or to appoint an Inquiry Officer not below the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be in line with those of the Income-tax Act. Finance Act, 1988 50.2 Under the existing provisions of section 24 of the Expenditure Tax Act,the provisions of certain sections and Schedules to the Income-tax Act and the Income-tax (Certificates Proceedings) Rules, 1962, as they are enforced from time to time, apply with necessary modifications to the Expenditure Tax Act. The Direct Tax Laws (Amendment) Act, 1987 has omitted and amended some of these provisions of the Income-tax Act. With a view to ensure that the provisions of these sections which have been omitted are not made applicable to the expenditure tax, certain amendments of consequential nature have been made in the Expenditure Tax Act. [Sections 72, 73, 74 and 75 of the Finance Act, 1988] Finance Act, 1988 Exclusion of certain assets from the net wealth in the case of closely-held companies 51.1 Under the existing provisions of section 40 of the Finance Act,1983, wealth-tax is levied in respect of the net wealth of all closely-held companies. For the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a surcharge calculated at the rate of 10 per cent of the wealth-tax so calculated. Finance Act, 1988 51.6 With a view to removing the unintended hardship of the closely-held companies on account of provisions of sub-section (3), and provide incentive for growth and modernisation, the Finance Act, 1988 has amended sub-section (3) of section 40 of the Finance Act, 1983 by amending clause (i), inserting a proviso to clause (v), substituting the existing clause (vi) by new clauses (vi), (via) and (vib) and inserting a proviso to the sub-section. Finance Act, 1988 51.7 By amending clause (i) to sub-section (3), it has been provided that where any precious metal or alloy is held by a closely-held company for use as a raw material for industrial undertakings such assets will not be taken as part of the net wealth for the purpose of levy of wealth-tax. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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