9911796707
TMI BlogExplanatory notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 [as amended by the Direct Tax Laws (Amendment) Act, 1989]--Part-IIIX X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 6(f) of the Amending Act, 1987, which have come into effect from 1st April, 1986, are also explained in this circular. 1.3 This circular also explains those provisions of the Amending Act, 1989, which have further amended the provisions of the Amending Act, 1987, which are discussed in this circular. Withdrawal, of certain new provisions introduced by the Amending Act, 1987 2.1 As mentioned in para. 3.1 of Part I of these explanatory notes, the provisions dealing with following matters, introduced by the Amending Act, 1987, have been withdrawn by the Amending Act, 1989 :-- (i) Scheme of taxation of firms and partners. (ii) Scheme of tax treatment in respect of charitable and religious institutions, trusts, etc., as also scientific and sports associations and institutions of national importance. (iii) Charging of additional tax in lieu of penalty for concealment of income/wealth/gift. 2.2 Since the aforesaid new provisions have been withdrawn, the same are not discussed in detail in these explanatory notes. However, the provisions of the Income-tax, Wealth-tax and Gift-tax Acts, which were first amended, omitted or newly inserted by the Amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed firms omitted. 95(g) 9. 20 New sub-section (1) substituted in section 78 Consequential amendments made in the provision regarding carry forward and set off of losses in case of change in the constitution of a firm. 95 (g) *10. 21 New sub-section (3) section 80A. Consequential amendment substituted in made to exclude references to firms and partners. 95(g) *11. 29 New section 86 substituted Provisions for rebate on the share income of a partner in an unregistered firm, which is included in his total income omitted. 95(g) 12. 61(a) 155(1)(Amended) Provisions regarding rectification of a partner's share in the income of the firm made applicable up to assessment year 1988-89 only. 95(i)(1) 13. 62 158(Amended) Provisions regarding intimation of the assessment of the firm and apportionment of its income among partners made applicable up to assessment year 1988-89 only. 95(j) *14. 66 New section 167A Tax is levied at the maximum substituted marginal rate in the case of a firm (after allowing deduction for interest and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of persons and body of individuals or in some other provisions have been incorporated again by the Amending Act, 1989, in the concerned sections 40, 64, 67, 80A(3), 86 and 167B of the Income-tax Act. These are discussed at the appropriate places in this part of the explanatory notes. **(2) Section 43(a)(i) of the Amending Act, 1989, has amended clauses (g) and (h) of sub-section (1) of the new section 246 of the Income-tax Act, as substituted by section 99 of the Amending Act, 1987, to remove the stipulation that the provisions of these clauses would apply up to assessment year 1988-89 only. 2.4 Scheme of tax treatment in respect of charitable and religious institutions, trusts, etc., as also scientific research and sports associations and institutions of national importance.--A number of sections of the Income-tax Act were amended, omitted or newly inserted by the Amending Act, 1987, to introduce a scheme of tax treatment of charitable and religious institutions, trusts, etc., as also scientific research and sports associations and institutions of national importance. The Table below shows sections of the Amending Act, 1987, which introduced the said scheme, sections of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ientific research, rural development and conservation of natural resources, and for 50% deduction in respect of sums donated to other trusts or institutions covered under section 80F. This is in replacement of the provisions of sections 35, 35CCA, 35CCB and 80GGA. 95(h) 8. 26 80GGA (omitted) Provisions regarding deductions in respect of certain donations for scientific or rural development omitted. 95(g) 9. 122 New section 296 substituted. Consequential amendments made in section 296 relating to placing of rules, etc. before Parliament, pursuant to the omission of section 10(23C)(iv). 95(j) 10. 126(8) and (13) 43A (1) and 80G(5) (Amended) Consequential amendments made pursuant to the omission of sections 10(23) and 35. 95(o) NOTES : *(1) While restoring back clauses (21), (23), (23C)(iv) and (v) of section 10 of the Income-tax Act, the Amending Act, 1989, has further amended the said clauses of section 10 to introduce certain conditions for safeguarding against the misuse of the exemptions provided under these clauses. These are discussed at the appropriate places in this part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amending Act, 1987, which introduced, the charge of additional tax in lieu of penalty for concealment of income/ wealth/gift Sections of the Income-tax, Wealth-tax, Gift- tax Acts which were affected Subject-matter of the amendments in brief Sections of the Amending Act, 1989, which have omitted the sections of the Amending Act, 1987, mentioned in column 2 to restore the old position. 1 2 3 4 5 1. 63 New section 158B inserted in the Income-tax Act. Additional income-tax to be levied, where income assessed on regular assessment exceeds the returned income, @ 30% of such excess amount. 95(j) *2. 99 New section 246A inserted in the Income-tax Act. Application can be moved by the assessee before the Deputy Commissioner (Appeals) or the Commissioner (Appeals) after submission of return for deciding any issue even when the assessment is not completed. 44 **3. 106 New section 271 substituted in the Income-tax Act. Provisions for the levy of penalty for concealment of income omitted. 95(m) 4. 126(23) 253(1)(a) of the Income-tax Act. Consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43 of the Amending Act, 1989. These are discussed at the appropriate places in this Part of the Explanatory Notes. **(2) Sections of the Amending Act, 1987, indicated at Serial Nos. 3, 5 and 9 are of composite nature and relate, not only to the provisions regarding charging of additional tax in lieu of penalty for concealment of income/wealth/gift, but also to provisions regarding other penalties under the Income-tax, Wealth-tax and Gift-tax Acts. Consequent to the omission of these sections by the Amending Act, 1989, necessary amendments relating to other penalties have been incorporated again by the Amending Act, 1989, in the concerned section 271 of the Income-tax Act, sections 18 and 18A of the Wealth-tax Act and sections 17 and 17A of the Gift-tax Act. These are discussed at the appropriate places in this Part of the Explanatory Notes. Amendments to the Income-tax Act, 1961 INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME (SECTION 10) 3.1 Section 10 of the Income-tax Act deals with incomes which do not form part of total income, i.e., incomes which are totally exempt from income-tax. This section contains a large number of clauses, which provide various types of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is intended to be exempt, will also be notified in the official gazette in the same manner as securities. Consequently, the specific mention of the type of bonds, which occurred in the old clause (4), does not find place in sub-clause (i) of the new clause (4). (ii) Sub-clause (ii) of new clause (4), which corresponds to the old clause (4A), incorporates the provisions of the Explanation to the old clause (4A) in the main provision itself. It also clearly mentions that its provisions are applicable to an individual who is a "person resident outside India", as defined in section 2(q) of the Foreign Exchange Regulation Act, 1973. 3.6 Amendment of provisions relating to exemption of travel concession and assistance received from employers [clause (5)].--Under the old provisions of clause (5), the value of any travel concession or assistance received by an employee, who was a citizen of India, from his employer was exempt if it was in connection with his proceeding on leave with his family to any place in India, or if it was in connection with their proceeding to any place in India after retirement from service or after termination of service of the employee. The clause consisted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not covered under sub-clauses (i) and (ii) above. 3.10 Under the old provisions of sub-clause (iii) of clause (10), any gratuity received by an employee of a private employer on his retirement or on termination of his employment or on his becoming incapacitated before retirement or any gratuity received by his legal heirs on his death was exempt from tax to the extent it did not exceed one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity was paid. The gratuity was further subject to the maximum limit of Rs. 36,000 or 20 months' salary so calculated, whichever was less. 3.11 With a view to rationalise the provisions of the said sub-clause (iii), the Amending Act, 1987, has made the following amendments therein :-- (i) Calculation of the amount of gratuity to be exempted is now to be made on the basis of the average salary for 10 months immediately preceding the month of retirement, etc., instead of the average of three years, as was the case under the old provisions. (ii) The maximum limits of exemption, namely, Rs. 36,000 or 20 months' salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion received from private employers is exempt to the extent mentioned in sub-clause (ii) of clause (10A). A proviso to the clause provided that the limits of payment mentioned in sub-clause (ii) shall not apply in respect of any such payment made before 19th August, 1965. The Amending Act, 1987, has omitted this proviso, as its provisions had become redundant. 3.16 Amendment of provisions relating to exemption of the amount received by an employee as cash equivalent of leave salary to his credit on his retirement [clause (10AA)].--Clause (10AA), which exempts from tax the cash equivalent of leave salary in respect of earned leave to the credit of an employee, received by him at the time of retirement covers two classes of employees as follows :-- (i) Sub-clause (i) deals with employees of the Central Government or a State Government. (ii) Sub-clause (ii) deals with employees other than employees of the Central Government or a State Government. 3.17 Under the old provisions of sub-clause (ii) of the said sub-clause (10AA), any payment received by an employee, other than an employee of the Central Government or a State Government, as cash equivalent of leave salary in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions relating to exemption of compensation received by a workman under the "Industrial Disputes Act", 1947, etc. [Clause (10B)].--Under the old provisions of clause (10B), compensation received by a workman under the Industrial Disputes Act, 1947, or under any other Act or an award or contract of service or otherwise at the time of retrenchment was exempt subject to a maximum of the compensation allowable under the Industrial Disputes Act, 1947, or Rs. 50,000 whichever was less. This limit of Rs. 50,000 mentioned in the clause was Rs. 20,000 earlier, but was raised to Rs. 50,000 by the Finance Act, 1985. Thus, to enhance the limit every time, an amendment of the Act would have been necessary. 3.22 To avoid frequent amendments of the Act, the Amending Act, 1987, has amended clause (10B) to provide that the amount of compensation exempt under this clause shall not exceed-- (i) the amount calculated in accordance with the provisions of the Industrial Disputes Act, 1947, or (ii) such amount, not being less than Rs. 50,000, as the Central Government may, by notification in the Official Gazette, specify in this behalf, whichever is less. Thus, under the amended clause, whene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (14) has been omitted, as its provisions have been incorporated in sub-clause (ii) of the new clause (14). (ii) Sub-clause (i) of the new clause contains the provisions of the old clause (14) relating to the exemption of special allowance or benefit granted to the employees to meet the expenses incurred in the performance of their duties. It further provides that only those allowances and benefits will be exempt which the Central Government may specify by notification in the Official Gazette. (iii) Sub-clause (ii) of the new clause provides that any allowance granted to an assessee, either to meet his personal expenses at the place of his posting or at the place where he ordinarily resides or to compensate him for the increased cost of living, will be exempt only if the Central Government specifies them by notification in the Official Gazette. 3.25 The Amending Act, 1989, has amended clause (24) of section 2. Allowances and benefits, which are mentioned in section 10(14), have been included in the definition of "income" by using the same language as is used in section 10(14). The amendment has been made retrospectively from 1st April, 1962. 3.26 The combined eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Monthly payment on 15-Year Annuity Certificates of the Central Government or other annuity certificates notified by the Central Government in this behalf [sub-clause (i)]. (ii) Annual payment on National Defence Gold Bonds, 1980 [sub-clause (ia)]. (iii) Premium on the redemption of Special Bearer Bonds, 1991 [sub-clause (ib)]. (iv) Interest on various savings certificates mentioned in the sub-clause and interest on deposits in post office savings bank account, etc. [sub-clause (ii)]. (v) Interest on fixed deposit under any scheme framed and notified by the Central Government in this behalf [sub-clause (iia)]. These sub-clauses were inserted and also amended from time to time, as and when the Government floated certain securities or bonds or savings certificates, etc., to exempt from tax, interest or any other income therefrom. 3.30 The Amending Act, 1987, has omitted all these sub-clauses and replaced them by a single clause (i), which provides exemption in respect of income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following payments made, whether in cash or in kind, will be exempt :-- (i) Those in pursuance of any award instituted in public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf. (ii) Those given as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in public interest. As a result of these amendments, there is no need now to mention in the Act the various awards and rewards granted or instituted by the Central or State Governments or to mention their purposes. 3.33 Omission of clauses (21) and (23) and sub-clauses (iv) and (v) of clause (23C) by the Amending Act, 1987, and their restoration, with adequate safeguards against misuse, by the Amending Act, 1989.--The Amending Act, 1987, omitted the following clauses of section 10 :-- (i) Clause (21), which exempted the income of a scientific research association. (ii) Clause (23), which exempted the income of a sports association or institution. (iii) Sub-clauses (iv) and (v) of clause (23C) which exempted the income of a notified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendments made to section 35 relating to allowance of expenditure on scientific research from income from business or profession (refer to para 5.4 in these explanatory notes). 3.36 Provisions of the new clause (23) relating to exemption of income of a sports association or institution.--The new clause (23) exempts the income of an association or institution established in India, which may be notified in the official gazette by the Central Government, having regard to the fact that the association or institution has as, its objects, the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf. However, the exemption is subject to the following conditions :-- (i) The conditions regarding application of income, investment of funds in assets specified in section 11(5) and income from business are essentially the same as those in the case of clause (21) relating to scientific research associations, which have been enumerated at serial Nos. (i) to (iii) in the preceding para. It is, however, provided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.38 Thus, the main provisions of the said new sub-clauses (iv) and (v) of clause (23C) are essentially the same as those of the old sub-clauses (iv) and (v). However, a number of conditions have been laid down in the new sub-clauses (iv) and (v) which must be satisfied before exemption under these sub-clauses can be granted or continued. Thus, while there was only one proviso to the old sub-clauses (iv) and (v), which provided that the notification issued under those clauses shall have effect for such assessment year or years as is specified in the notification, there are six provisos to the new sub-clauses (iv) and (v), which lay down various conditions. 3.39 The conditions laid down for grant of exemption or continuation thereof under the said sub-clauses (iv) and (v) are essentially the same as those in the case of clause (23) relating to sports associations, which have been enumerated at serial Nos. (i) to (v) in para 3.36 ante, with the following difference :-- (i) The provisions of sub-sections (2) and (3) of section 11 are not made applicable to the accumulation of income by institutions, etc., exempt under sub-clauses (iv) and (v) of clause (23C), while they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come into force with effect from 1st April, 1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years. The following amendments, however, come into force from the dates mentioned against them :-- (i) Amendments to clause (10AA) of section 10, as indicated in paras 3.18 to 3.20 ante, come into force retrospectively with effect from 1st July, 1986. (ii) Amendments to section 2(24) by the Amending Act, 1989, as indicated in para 3.25 ante, come into force with effect from 1st April, 1962. (iii) Substitution of new clauses (21) and (23) and new sub-clauses (iv) and (v) of clause (23C) in section 10, as indicated in paras 3.34 to 3.40, shall come into force with effect from 1st April, 1990. (Clauses (a) to (1) of section 6 of the Amending Act, 1987). (Sub-clause (ii) of clause (a) of section 2, clauses (c), (d) and (e) of section 4 and clause (b) of section 95 of the Amending Act, 1989). TAX TREATMENT OF CHARITABLE AND RELIGIOUS TRUSTS, INSTITUTIONS ETC. 4.1 Omission of sections 11, 12, 12A and 13 by the Amending Act, 1987, and their restoration by the Amending Act, 1989 :--The Amending Act, 1987, omitted the following sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donations received by a charitable or religious trust or institution, including corpus donations, were treated as income of such trust or institution. However, under the provisions of the new section 80F, also introduced by the Amending Act, 1987, such corpus donations, along with other income of the trust or institution, would have been exempt if spent for charitable purposes or invested in specified assets mentioned in section 80F. 4.4 As already pointed out, the Amending Act, 1989, omitted the new section 80F introduced by the Amending Act, 1987, and revived the old section 11. Consequently, corpus donations to trusts, etc., would also be governed by the provisions of section 11. Since stipulations in clauses (a) and (b) of sub-section (1) of section 11 that 75 per cent. of the income of the trust should be spent during the year and only 25 per cent. can be accumulated for application to its purposes in future could not have been made applicable to corpus donations, the Amending Act, 1989, has further amended section 11 to exclude corpus donations from the total income of the trust, as explained in para 4.2 above. 4.5 The effect of the amendment of the definition of "inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent assessment years. [Clause (j) of section 3 and section 7 of the Amending Act, 1987] [Sub-clause (i) of clause (a) of section 2, section 5 and clause (c) of section 95 of the Amending Act, 1989] EXPENDITURE-LINKED CONCESSIONS FOR COMPUTING INCOME FROM BUSINESS OR PROFESSION 5.1 Omission of sections 35, 35B, 35C, 35CC, 35CCA and 35CCB by the amending Act, 1987.--The Amending Act, 1987, omitted the following sections of the Income-tax Act for reasons mentioned against each : (i) Section 35 relating to deduction for expenditure on scientific research, as deduction for payments made to scientific research associations was to be allowed under the provisions of section 80G, as amended by the Amending Act, 1987, read with the provisions of the new section 80F, also inserted by the Amending Act, 1987. (ii) Section 35B relating to weighted deduction in respect of expenditure incurred for promoting exports, as the concessions had already been withdrawn by the Finance Act, 1983, in respect of expenditure incurred after February 28, 1983. (iii) Section 35C relating to deduction for expenditure on agricultural development, as the concessions had already been withdra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gazette. Note :--As explained in para 3.41 ante, under the new rule 6 inserted in the Income-tax Rules, the prescribed authority for this purpose shall be the Director-General (Income-tax Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research, Government of India. 5.4. The Amending Act, 1989, has further inserted three provisos in sub-section (1) of section 35 to provide the following conditions for approval or continuance of approval by the prescribed authority under clauses (ii) and (iii) :-- (i) The scientific research association, university, college or institution should make an application in the prescribed form and manner to the prescribed authority for the purposes of grant of such approval or continuance thereof. (ii) Before granting the approval, the prescribed authority may, for satisfying itself about the genuineness of the activities of the scientific research association university, college or institution, call for such documents (including audited annual accounts) or information from the said association, university, college or institution as it thinks necessary. The prescribed authority may also make such enquirie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission (Explanation 1 to section 28 and section 39).--The managing agency system having been abolished long back, the provisions in the Income-tax Act regarding managing agency for computing income under the head " Profits and gains of business or profession ", had also lost their relevance. The Amending Act, 1987, has, therefore, omitted the following :-- (i) Explanation 1 to section 28, which provided that the profits and gains of business shall include the profits and gains of managing agency. (ii) Section 39, which provided for the sharing of the managing agency commission by the managing agent with a third party or third parties. 6.3 Amendments to sections 36(1)(ii) and 43B to rationalise provisions regarding allowability of bonus and commission payments.--The old provisions of clause (ii) of sub-section (1) of section 36 provided for allowance of bonus or commission paid to an employee subject to certain conditions laid down in the two provisos to the said clause (ii). The first proviso laid down the condition that deduction in respect of bonus paid to an employee governed by the Payment of Bonus Act, 1965, shall not exceed the amount of bonus payable under that Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on shall not be allowed again in the year in which the same is actually paid. 6.6 Amendments to sections 36(1)(vii) and 36(2) to rationalise provisions regarding allowability of bad debts.--The old provisions of clause (vii) of sub-section (1) read with sub-section (2) of the section laid down conditions necessary for allowability of bad debts. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the Assessing Officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalise the provisions, the Amending Act, 1987, has amended clause (vii) of sub-section (1) and clause (i) of sub-section (2) of the section to provide that the claim for bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee. 6.7 Clauses (iii) and (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perquisite paid by a company to its directors and certain connected persons. This clause has been omitted so that the artificial ceiling is now removed. Even otherwise, there was not much rationale for this ceiling, as a company can pay such remuneration, etc., only after getting the approval of the Company Law Board. However, if the remuneration paid is excessive or unreasonable having regard to the services rendered by the directors or the connected persons, the same can still be disallowed under the provisions of section 40A(2). 6.10 Amendment to section 40A(3) relating to mode of payment for expenses.--The old provisions of sub-section (3) of the section required payments in respect of expenditure, which exceeded Rs. 2,500 to be made by a crossed cheque or a crossed bank draft. On failure to do so, the payments made were disallowed in the computation of income. In order to remove hardship to smaller assessees, the Amending Act, 1987, has raised this ceiling to Rs. 10,000. 6.11 Omission of sub-sections (5) and (6) of section 40A.--Sub-section (5) of the section laid down ceilings on the remuneration and perquisites paid by any assessee to its employees or former employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividual. A provision to this clause, however, provided that the said clause shall not apply where the spouse possessed technical or professional qualifications. The Amending Act, 1987, substituted this provision by a new proviso, which provided that the said clause shall not apply only where the remuneration, etc., was received by the spouse from a firm carrying on profession referred to in section 44AA(1) and the spouse possessed any technical or professional qualification in the nature of a degree or diploma of a university. 7.2 Following representations against the new scheme of assessment of firm and partners and also against the provisions of the new proviso to clause (ii) of section 64(1), the Amending Act, 1989, has withdrawn the new scheme of assessment of firm and partners and the new proviso to clause (ii) of section 64(1). Consequently, all the amendments to section 64(1), as mentioned in the preceding para, have been reversed (refer to item 6 of the Table given in para 2.3 ante). Thus, the old provisions of clauses (i), (ii) and (iii) of section 64(1) along with Explanations 1A and 2A have been restored. 7.3 Other amendments to section 64(1) by the Amending Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. A new section 80F inserted by the Amending Act, 1987, has, however, been omitted by the Amending Act, 1989. All these amendments are discussed in the following paras. 8.2 Amendments to section 80A, containing general principles regarding deductions allowable under Chapter VIA, by the Amending Act, 1987 and their reversal by the Amending Act, 1989.--Under the old provisions of sub-section (3) of section 80A, where deductions under certain sections of Chapter VIA, mentioned in the said sub-section (3), were allowed in the case of a firm, association of persons or body of individuals, the same deductions would not be allowed in the assessments of the partners or members in respect of shares from such firm, association or body. The Amending Act, 1987, substituted a new sub-section (3) after making the following amendments :-- (i) Reference to a firm and its partners was omitted from the new sub-section (3), as under the new scheme of assessment of firm and partners introduced by the Amending Act, 1987, such a reference was not necessary in the said sub-section (3). (ii) Since section 80T had already been omitted by the Finance Act, 1987, and sections 80GGA and 80QQ were bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligious trusts and institutions and also institutions of national importance, including those involved in scientific research, sports, rural development and conservation of natural resources. However, following representations against the provisions of the new section 80F, the Amending Act, 1989, has omitted the same. (Refer to item 6 of the Table given in para 2.4 ante and also paras 3.33, 4.1, 5.1 and 5.2 ante). 8.7 Amendments to section 80G by the Amending Act, 1987, and reversal of most of the amendments by the Amending Act, 1989.--Section 80G provides for deduction in respect of donations to certain funds and charitable institutions while computing the total income of an assessee. The Amending Act, 1987, made the following amendments in this section :-- (i) Consequent upon the omission of clauses (21), (23) and sub-clauses (iv) and (v) of clause (23C) of section 10 and sections 11 to 13 and their replacement by a new section 80F, amendments were also made in section 80G to bring the provisions of this section in line with those of the new section 80F. Further consequent upon the omission of sections 35, 35CCA, 35CCB and 80GGA, the provisions of those sections, with appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d clauses (g) and (h) of section 95 of the Amending Act, 1989]. POWERS OF INCOME-TAX AUTHORITIES 9.1 Amendment of the provisions conferring powers of a civil court in certain matters on the income-tax authorities (Section 131).--Under the old provisions of sub-section (1A) of section 131, the powers of a civil court in certain matters like enforcing attendance of witnesses and examining them on oath, compelling the production of books of account and documents, etc., which are normally exercised by the Assessing Officers and appellate or revisionary authorities under the provisions of sub-section (1), were also conferred on an Assistant Director of Inspection, who generally deals with searches and seizures, and enabled him to exercise the powers even when no proceedings were pending. However, these powers were not available to the Directors and the Deputy Directors, who are generally associated with investigation of cases and intelligence work in connection with searches and seizures under section 132. Another difficulty felt was that an authorised officer could record a statement on oath only during the course of search under the provisions of section 132(4). Sometimes it b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. NOTE : The Finance Act, 1988, has further clarified that these amendments would come into force with effect from 1st April, 1988 [clause (b) of section 88] of the Finance Act, 1988. 9.5 Sub-section (3) empowers the authorised officer to issue a prohibitory order on a person in control of books of account, documents, valuable articles, etc., directing him not to remove, part with or otherwise deal with them without his permission, if he finds it not practicable to seize them. It is clearly the intention of the Government that the issue of such a prohibitory order does not amount to seizure. However, various High Courts have differed on the point as to whether the issue of a prohibitory order under sub-section (3) amounts to seizure or not. While the Punjab and Delhi High Courts held that it did not amount to seizure [O. P. Jindal v. CIT [1976] 104 ITR 389] and Mrs. Kanwal Shamsher Singh v. Union of India [1974] 95 ITR 80], the Bombay High Court held in a case that the effect of the prohibitory order under section 132(3) is in essence to bring out a seizure of articles and things and so it would amount to seizure [N. M. R. Gillani v. CIT (1976) Tax LR 688]. In order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation connected with any proceedings under the Act. 9.8 Sub-section (5) provides that where any money, valuable articles, etc., have been seized, the Income-tax Officer has to pass a summary order within 120 days of the seizure, estimating the extent of the concealed income and calculating the amount of tax, penalty and interest thereon, and appropriate the seized assets against the liability so determined or against any other existing liability of the assessee. Explanation 1 at the end of the section provides that the period of stay or injunction order by a court is to be excluded in computing the limit of 120 days mentioned in sub-section (5). The mention of " 120 days " in Explanation 1 is not necessary and the purpose will be served by making a reference to the period referred to in sub-section (5). The Amending Act, 1987, has, therefore, made the necessary amendment to Explanation 1. The effect is that amendment of the Explanation will not be necessary if the period of 120 days mentioned in sub-section (5) is enhanced or reduced subsequently. NOTE :-- For further amendments to section 132 by the Finance Act, 1988, refer to paras 34.1 to 34.3 of the Explanatory Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required by the Director-General or Director for proper investigation or intelligence work. The Amending Act, 1987, has, therefore, inserted a proviso at the end of the section to provide that the powers referred to in clause (6) of the section can also be exercised by the Director-General, Chief Commissioner, Director and the Commissioner. 9.12 Amendment of the provisions relating to power of survey (section 133A).--Under the old provisions of clause (a) of the Explanation to the section, the income-tax authorities, who were empowered to conduct survey under the section and take various actions during the survey operations, included an Inspector of Income-tax for certain purposes, if so authorised by the Income-tax Officer. This meant that an Inspector of Income-tax could conduct survey only when so authorised by the Income-tax Officer and the Deputy Commissioner or Assistant Director could not authorise an Inspector to conduct a survey. To remove this lacuna, the Amending Act, 1987, has amended clause (a) of the Explanation to provide that instead of only the Income-tax Officer, any income-tax authority mentioned in the section can authorise the Inspector of Income-tax to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or obtained by any income-tax authority in the performance of his functions under the Act. 9.15 These amendments (except the amendments mentioned in para 9.2 which come into force with effect from 1st June, 1988, and the amendments mentioned in paras 9.4 and 9.9 which come into force with effect from 1st April, 1988), come into force with effect from 1st April, 1989. [Sections 36 to 41 of the Amending Act, 1987] LIABILITY IN SPECIAL CASES--TRUSTS, ETC., WHERE SHARES OF BENEFICIARIES UNKNOWN AND ORAL TRUSTS 10.1 Amendments to section 164 by the Amending Act, 1987, and reversal of the amendments by the Amending Act, 1989.--Section 164 provides that in the case of trusts, etc., if the individual shares of persons on whose behalf or for whose benefit the income is receivable are indeterminate or unknown, tax shall be charged at the maximum marginal rate on the entire income. The section further lays down certain circumstances under which the tax may not be charged at the maximum marginal rate. The Amending Act, 1987, made the following amendments to this section :-- (i) Sub-sections (2) and (3) of the section, which dealt with taxation of charitable or religious trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an association of persons were indeterminate or unknown, the entire income of the association was taxed at the maximum marginal rate. Since the instrumentality of the association of persons and body of individuals had been widely used in the past for tax evasion, the Amending Act, 1987, introduced a new scheme for their taxation by inserting section 167B in the Income-tax Act, which provided that in the case of an association of persons or body of individuals, tax shall be charged at the maximum marginal rate in the following circumstances :-- (i) Where the shares of the association or body are indeterminate or unknown (this was the earlier position also). (ii) Where the shares of the members of the association or body are determinate, but any one of whose members has income above the maximum amount not chargeable to tax in the case of an individual. It was also provided that if any member of such association or body was taxable at a rate higher than the maximum marginal rate, then the entire income of the association or body would be taxed at such higher rate. NOTE :-- It may be clarified that the Amending Act, 1987, substituted the old section 167A relating to taxati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is or are relatable to the share or shares of such member or members and the balance of the total income of the association or body shall be taxed at the maximum marginal rate. (3) An Explanation at the end of the section explains the circumstances in which the shares of the members of the association or body in the income of such association or body shall be deemed to be indeterminate or unknown. 11.3 The effect of the provisions of the new section 167B is that only those association of persons and body of individuals will be taxed at the normal rates applicable to individuals, etc., where the shares of the members are determinate and none of the members has taxable income or none of the members is taxable at a rate higher than the maximum marginal rate. Thus, only small associations of persons or body of individuals formed by persons who, themselves are not taxable will henceforth be taxed at the normal rates. Persons who are taxable in the high income brackets or are taxable at a rate higher than the maximum marginal rate shall no longer be tempted to form an association of persons or body of individuals for being taxed at lower rates. 11.4 Amendments in the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by a firm to its partners and vice versa. It may be clarified that even before the insertion of this clause, such payments made by an association of persons or body of individuals to its members were not being allowed as a deduction in the hands of the association or body, as they were regarded as payments to self. This has now been given a statutory recognition. 11.6 Provisions of new section 67A.---The new section 67A, which has sub-sections (1) to (3) and an Explanation, provides for the method of computing a member's share in the income of an association of persons or body of individuals wherein the shares of the members are determinate, in the same manner as provided for in section 67 for computing a partner's share in the income of the firm. However, the provisions of sub-section (4) of section 67, which deals with set off or carry forward of share of loss of a partner in a registered firm do not find place in section 67A, because there are no provisions in the Income-tax Act for the set off or carry forward of the share of loss of a member in an association or body in his own assessment. 11.7 The old and the new provisions of clause (v) of section 86, Under the old p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to individuals, etc., but has income below taxable limit so that no income-tax is chargeable on the total income of the association or body, the share of a member in such association or body shall be fully taxable in his own assessment. 11.9 Change of sub-heading " DD--Association of persons--Special cases " of Chapter XV.--The old sub-heading " DD.--Association of persons--Special cases " of Chapter XV had only one section 167A dealing with taxation of certain association of persons at the maximum marginal rate. Since the new section 167B inserted under this sub-heading now deals with taxation of certain association of persons as well as body of individuals at the maximum marginal rate, the sub-heading has also been changed to " DD--Association of persons and body of individuals ". 11.10 These amendments come into force with effect from 1st April, 1989, and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years. [Clause (ii) of section 13, sections 17, 29 and 66 of the Amending Act, 1987] [Sections 9, 12, 17, 26, 27, 28 and clauses (f), (g) and (i) of section 95 of the Amending Act, 1989] COLLECTION AND RECOVERY OF TAX 12.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of Tax Recovery Officer was a legacy of the past when arrears of direct taxes were recovered by the officers of the State Governments as arrears of land revenue. However, the Department's own machinery for recovery came into existence long back and gradually the entire work of recovery throughout the country was taken over by the Departmental officers working as Tax Recovery Officers. So, it was no longer necessary for the State Government officers to be authorised to work as Tax Recovery Officers. Further, the necessity for the issue of notification in the Official Gazette by the Board before the Departmental officers could be authorised to work as Tax Recovery Officers, caused avoidable delay and difficulties in this respect. 12.4 To remove the above difficulties and anomalies, the Amending Act, 1987, has substituted the old clause (44) by a new clause, which defines a Tax Recovery Officer to mean any Income-tax Officer authorised by the Chief Commissioner or Commissioner, by general or special order in writing, to exercise the power of the Tax Recovery Officer. Thus, Collector, Additional Collector and other State Government officials have been excluded from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Settlement Commission under section 245D(4). (iii) A second proviso has been inserted in sub-section (2) to provide that where the duration of default includes both the period prior to 1st April, 1989, and the period subsequent to this date, calculation of interest for the earlier period will be on the basis of the old provisions (i.e., at 15 per cent. per annum) and the calculation of interest for the subsequent period shall be on the basis of the new provisions (i.e., at 1.5 per cent. per month or part of a month). 12.8 Amendments of the provisions regarding issue of recovery certificate to the Tax Recovery Officer (section 222). --Under the old provisions of section 222, the Income-tax Officer was required to forward to the Tax Recovery Officer a certificate under his signature specifying the amount of arrears due from the assessee and only then the Tax Recovery Officer assumed jurisdiction for recovering the said arrears of tax in that case. This unnecessarily delayed the commencement of recovery proceedings by the Tax Recovery Officer, as recovery certificates were generally issued by the Income-tax Officer after a lapse of more than three years when the time l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timation sent to the Tax Recovery Officer. Thus, the new sections provide as follows :--- (i) Section 223 now specifies the Tax Recovery Officer or the Tax Recovery Officers by whom the recovery is to be effected. (ii) Section 224 now provides that the assessee cannot dispute the validity of the certificate drawn by the Tax Recovery Officer, but if necessary, the Tax Recovery Officer may himself cancel the certificate or correct any clerical or arithmetical mistakes therein. (iii) Section 225 now provides for grant of time for payment of a demand under a certificate by the Tax Recovery Officer himself. Similarly, the Tax Recovery Officer can himself cancel or amend a recovery certificate pursuant to the modification of demand in appeal or other proceedings under the Act. 12.11 Thus, instead of waiting for the Assessing Officer to amend or cancel the recovery certificate as a result of any appeal or other proceedings under the Act, the Tax Recovery Officer shall now take action himself in this respect. This will quicken the recovery work as well as save the assessee the botheration of going to more than one officer, i.e., the Assessing Officer as well as the Tax Recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .--The Amending Act, 1989, has further amended sections 222, 223, 224, 225, 226, 228 and 228A and the provisions of the Amending Act, 1987, to secure that the words " Income-tax Officer " occurring in these sections, as they stood immediately before their amendment by the Amending Act, 1987, are substituted by the words " Assessing Officer " retrospectively with effect from 1st April, 1988. This was to enable the Assessing Officers (including Assistant Commissioners and Deputy Commissioners) to issue recovery certificates on 31st March, 1989, under the old provisions. However, in section 226, the amendments, which empower the Tax Recovery Officer to take action under the section, after he has drawn up a certificate of recovery under section 222 (as discussed in para 12.12 ante) shall take effect from 1st April, 1989 only. 12.16 Amendments of the provisions relating to the issue of tax clearance certificate to persons leaving India (sub-section (1) of section 230). --Under the old provisions of sub-section (1) of section 230, no person, who was not domiciled in India or who, even if domiciled in India, had in the opinion of an income-tax authority, no intention of returning to In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imit to Rs. 1,00,000. NOTE : The Finance Act, 1988, further increased this limit to Rs. 2,00,000 and made the amended provisions effective from 1st April, 1988 [section 41 and clause (d) of section 88 of the Finance Act, 1988]. 12.19 Omission of section 231 relating to the time limit for commencing recovery proceedings.--Section 231 provided that no proceedings for the recovery of any sum payable under the Act shall normally be commenced after the expiry of three years from the last date of the financial year in which the demand was made. This meant that a recovery certificate could not be issued by the Assessing Officer after the expiry of the aforesaid period. Since, with the amendment of section 222, the requirement of the issue of a recovery certificate by the Assessing Officer has been dispensed with and the Tax Recovery Officer can now draw the statement of arrears and assume jurisdiction as soon as the assessee is in default, the provisions of section 231 are no longer necessary. The Amending Act, 1987, has, therefore, omitted the same. 12.20 Amendment of the provisions of the Second Schedule relating to procedure far recovery of tax by the Tax Recovery Officer.-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price has been specified, has been postponed for want of a bid of an amount equal to or greater than the reserve price, the Income-tax Officer, if so authorised by the Commissioner in this behalf, can bid for the property on behalf of the Central Government at any subsequent sale. However, rule 57 requires the purchaser to deposit immediately after the declaration of sale to him, 25 per cent. of the amount of the purchase money with the officer conducting the sale and to pay the balance amount to the Tax Recovery Officer within 15 days of the sale. This requirement of rule 57, apart from being unnecessary where the Department is the successful bidder, is an impediment to the bidding by the Income-tax Officer. To overcome this difficulty, a new sub-rule (3) has been inserted in rule 59 to provide that where the Income-tax Officer is declared a purchaser of a property at any subsequent sale, the provisions of rule 57 shall not apply to the case and the amount of the purchase price shall be adjusted towards the outstanding amount specified in the recovery certificate. (v) Under the provisions of rule 61, the Income-tax Officer can also apply to the Tax Recovery Officer for setting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and Deputy Commissioners) to continue to take actions envisaged in the old provisions of the Second Schedule during the period 1-4-1988 to 31-3-1989. The Amending Act, 1989, has, however, further secured that other amendments to the Second Schedule made by the Amending Act, 1987, shall take effect from 1-4-1989 only. 12.23 Amendments to the Third Schedule by the Amending Act, 1987, and the Amending Act, 1989.--The Third Schedule to the Income-tax Act lays down the procedure for distraint and sale of movable property where outstanding dues are to be recovered from the assessee by this method under the provisions of section 226(5) of the Income-tax Act. Since action under the old provisions of section 226(5) could be taken only by the Income-tax Officer, the old provisions of the Third Schedule referred to an Income-tax Officer only. However, since under the amended provisions of section 226(5), action envisaged in that section can now be taken by the Assessing Officer as well as by the Tax Recovery Officer, the Amending Act, 1987, has amended the Third Schedule to substitute the reference therein to " Income-tax Officer " by a reference to the " Assessing Officer or Tax Recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order was passed. On the other hand, granting of such refund created difficulty, because, in many cases, with the passage of time it became very difficult to recover the additional demand created on fresh assessment. Further, where additional demand was created on fresh assessment, after refund of tax on setting aside of the original assessment had already been granted, the Department lost interest due to it on the amount of the additional demand created, for the intervening period (i.e., period between the issue of refund to the assessee and completion of fresh assessment). The remove this difficulty, the Amending Act, 1987, has inserted a proviso in the said section 240 to provide that where the assessment is set aside or cancelled with the direction to make an order of fresh assessment, any refund shall become due only on the making of a fresh assessment. 13.2 Further, where the assessment had been annulled in appeal, say for want of jurisdiction or for any other technical reason, and such annulment became final, the judicial pronouncement did not permit retention of even the tax due on the basis of the returned income. Several High Courts had held that in such a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer (other than a Deputy Commissioner against which an assessee may appeal to the Deputy Commissioner (Appeals). The changes effected are : (i) Appeals against orders passed under the following sections/sub-sections of the Income-tax Act have been omitted consequent to the omission of the said sections/sub-sections from the Act :--- (1) An order imposing fine under section 131(2). (2) An order under section 146 refusing to reopen an ex parte assessment under section 144. (3) An order imposing a penalty under section 140A. (4) An order imposing a penalty under section 270. (ii) Appeals, which, under the old provisions, were allowed to be filed against orders of charge of interest under section 216 or against orders of penalties passed under sections 272, 272B and 273, are now allowed only in respect of orders passed under these sections for the assessment year 1988-89 or any earlier assessment years consequent upon the omission of these sections or the barring of the applicability of these sections after the assessment year 1988-89. (iii) Appeals are now provided against orders levying penalties under sections 271B and 272A [for which there were earlier no app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) instead of from the Appellate Assistant Commissioner to the Commissioner (Appeals). This is consequential to the changes in designations. 14.5 Amendment of the sub-heading ' A ' of Chapter XX relating to appeals and revisions. --The old sub-heading ' A ' of Chapter XX read as under : "Appeals to the Appellate Assistant Commissioner and Commissioner (Appeals)". As a result of amendments made to the sub-heading, first by the Amending Act, 1987, and then by the Amending Act, 1989, the said subheading ' A ' now reads as under : "Appeals to the Deputy Commissioner (Appeals) and Commissioner (Appeals)". 14.6 Insertion of new section 246A by the Amending Act, 1987, and its omission by the Amending Act, 1989.--A new section 246A was inserted by the Amending Act, 1987, which provided for filing of applications by the assessees before the Deputy Commissioner (Appeals) or the Commissioner (Appeals), after submission of returns, for advance decision on any issue in certain cases even before the assessment had been completed. This was in consequence of the charge of additional income-tax under a new section 158B, which was also inserted by the Amending Act, 1987. Since, followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad made the deposit, if the amount of the deposit or the aggregate amount of the deposits together with interest was Rs. 10,000 or more. A deposit was defined to mean any deposit of money which is repayable after notice or is repayable after a period. The provisions of section 269T were being circumvented in the following ways : (i) The provisions had limited applicability, as the same applied to banks, companies, co-operative societies and firms. This meant that individuals, Hindu undivided families, association of persons, etc., were not covered by these provisions. (ii) The limited meaning given to the term deposit had been instrumental in the circumvention of the provisions by many, " Shroff bankers" and money-lenders, who maintained running accounts of the nature of current account and claimed non-applicability of the provisions of section 269T on the plea that the amount credited in such accounts of the customers were payable on demand and were not deposits. This problem did not arise in the case of companies, because they were prohibited by the Companies (Acceptance of Deposits) Rules, 1975, from accepting any deposits which are repayable on demand or on notice, except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew penalty provisions have been introduced to provide for imposition of penalties for failure to deduct tax at source and for failure to comply with the provisions of sections 269SS and 269T. (iv) As far as possible, provisions for imposition of penalties for defaults of miscellaneous nature, which were contained in different sections of the Act have been consolidated at one place in a single section. (v) The period of limitation for imposition of penalties has been substantially reduced. The amendments made to various sections relating to imposition of penalties are discussed in detail in the following paras. 16.2 Omission of sections 270, 272 and 272B consequent upon the incorporation of the provisions thereof in a new section 272A. --The Amending Act, 1987, has omitted the following sections of Chapter XXI of the Income-tax Act, consequent upon the incorporation of the provisions of these sections in the new section 272A :--- (i) Section 270 relating to penalty for failure to furnish information regarding securities, etc. (ii) Section 272 relating to penalty for failure to give notice of discontinuance of business or profession. (iii) Section 272B relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch default. Under the old provisions, penalty was computed with reference to the amount of tax which would have been avoided if the returned income had been accepted as the correct income. (iii) The quantum of penalty for concealment of income or furnishing inaccurate particulars of income has been increased from "twice" to "three times" the tax sought to be evaded. (iv) A new Explanation VI has been inserted in sub-section (1) of the section to provide that penalty for concealment of income shall not be imposed on that portion of income which is enhanced as a result of adjustments made under section 143(1)(a) and on which additional income-tax has been charged under section 143(1A). (v) A new sub-section (5) has been inserted in the section to provide for a transitory provision, namely, that penalties for the assessment year 1988-89 and earlier assessment years shall be levied in accordance with the provisions of section 271, as they stood immediately before their amendment by the Amending Act, 1989 (i.e., as they stood prior to 1-4-1989). 16.4. Amendments to section 271A relating to penalty for failure to keep, maintain or retain books of account, documents, etc. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, omitted the said sections 276DD and 276E from the Income-tax Act and has inserted two new sections 271D and 271E to provide for penalties for these defaults. The amount of penalty is a sum equal to the amount of loan or deposit taken or deposit repaid in contravention of the provisions of sections 269SS or 269T. 16.7. Substitution of a new section 272A to provide for levy of penalties for miscellaneous defaults.--Under the old provisions of section 272A of the Income-tax Act, penalties were provided for various defaults of miscellaneous nature. Some penalties for defaults of miscellaneous nature were also provided for in certain other sections of the Act. The Amending Act, 1987, has substituted a new section 272A, which contains provisions for levy of penalties for defaults of miscellaneous nature, which were earlier mentioned in the old section 272A as well as various other sections of the Act, and which have now been consolidated in the said new section 272A. 16.8 Various penalties leviable under the new section 272A fall under two categories. The first category is dealt with in various clauses of sub-section (1) of the section, where minimum and maximum penalties are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of declaration filed by the payee under section 197A. (2)(f) (2)(ba) 11. Failure to furnish certificate of tax deducted at source, as required by section 203. (2)(g) (2)(c) 12. Failure to deduct arrears of tax from salary and pay to the Central Government in accordance with the order of the Assessing Officer or the Tax Recovery Officer under section 226(2).s (2)(h) (2)(d) * NOTE : Penalties for failure to furnish in due time the prescribed returns mentioned in sections 206A and 206B, which are to be filed by a person, who pays interest or dividends without deducting tax therefrom, were not leviable under the old provisions of section 272A or under any other sections of the Income-tax Act. These have been newly included in the provisions of section 272A. 16.9 The penalty leviable in respect of defaults covered by sub-section (1) of section 272A (mentioned at serial Nos. 1 to 4 in the above chart) is a minimum of Rs. 500 extending up to the maximum of Rs. 10,000 for each default. The penalty leviable in respect of failures covered by sub-section (2) of section 272A (mentioned at serial Nos. 5 to 12 in the above ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regarding payment of advance tax have been omitted and replaced by charge of mandatory interest under the new sections 234A and 234B inserted by the Amending Act, 1987, which are applicable from the assessment year 1989-90. Consequently, the provisions of section 273A have also been amended by the Amending Act, 1987, and again by the Amending Act, 1989. The combined effect of the amendments made to section 273A by the two Amending Acts, is indicated below. (i) Under the amended sub-section (1) of section 273A, only the penalty leviable under section 271(1)(iii) for concealment of income or furnishing inaccurate particulars of income [mentioned at serial No. (ii) in the preceding para] can be reduced or waived. The amended sub-section (1) does not now cover penalty and interest mentioned at serial Nos. (i) and (iii) to (v) mentioned in the preceding para, as these are not leviable under the new provisions. (ii) A new sub-section (6) has been inserted in the section to provide that the provisions of the section, as they stood immediately before their amendment by the Amending Act, 1989 (i.e., as they stood prior to 1-4-1989), shall apply up to the assessment year 1988-89. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty had been initiated, were completed. Where, however, the relevant assessment or other order was the subject-matter of appeal by the assessee to the Deputy Commissioner (Appeals) or Commissioner (Appeals) or was the subject-matter of appeal by the Department to the Appellate Tribunal, the penalty order could be passed within the aforesaid period of two years or within six months from the end of the month in which the order of the appellate authority was received by the Commissioner, whichever period expired later. Thus, under the old provisions, penalty proceedings were completed long after the completion of assessment proceedings during which penalty proceedings had been initiated. It was felt that levy of penalty can have the requisite deterrent effect only when the penalty proceedings are disposed of expeditiously. Further, although under the old provisions, the limitation was extended where the assessment order, etc., were the subject-matter of appeals, it was not extended where the assessment order was the subject-matter of revision by the Chief Commissioner or Commissioner under section 263. This was a lacuna in the Act. 16.19 In order to achieve quicker disposal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiated from 1st April, 1989 onwards. NOTE : This clarificatory amendment has subsequently been incorporated in section 275 itself by the Direct Tax Laws (Second Amendment) Act, 1989, which received the assent of the President on 20-10-1989, as Act No. 36 of 1989 (See [1989] 180 ITR (St.) 45). [Sections 105 to 116 of the Amending Act, 1987]. [Sections 50 to 52, clause (4) of section 57 and clause (m) of section 95 of the Amending Act, 1989]. OFFENCES AND PROSECUTIONS 17.1 Insertion of new section 276 to provide punishment for certain fraudulent actions to thwart tax recovery.--The Amending Act, 1987, has inserted a new section 276 in the Income-tax Act, which provides punishment for fraudulent removal, concealment, transfer or delivery of property or any interest therein, intending thereby to prevent the property or interest therein from being taken in execution of a certificate under the provisions of the Second Schedule relating to procedure for recovery of tax. The punishment provided is rigorous imprisonment for a term which may exceed to two years and also fine. The provisions of this section are in substitution for the provisions of rule 89 of the Second Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 276DD and 276E, which provided prosecution for contravention of the provisions of sections 276SS and 269T, as these defaults would now attract penalties under the newly inserted sections 271D and 271E (refer to para 16.6 ante.). 17.6 Consequential amendment to section 278AA.--Section 278AA provides that where a person proves that there was a reasonable cause for the failure, the punishment for defaults covered under the sections mentioned in the said section 278AA need not be imposed. Consequent upon the omission of sections 276DD and 276E, the Amending Act, 1987, has omitted references to these sections from the said section 278AA. 17.7 These amendments come into force with effect from 1st April, 1989. [Sections 117 to 120 of the Amending Act, 1987]. MISCELLANEOUS PROVISIONS 18.1 Insertion of a new section 293B to empower the Central Government or Board to condone delays in obtaining approval.--Under the provisions of section 119(2)(b) of the Income-tax Act, the Board is empowered to authorise any income-tax authority [except a Deputy Commissioner (Appeals) or a Commissioner (Appeals)] to admit belated applications or claims for any exemption, deduction, refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, which have been so amended, are indicated in the following chart :-- Sl. No. Clause of section 126 of the Amending Act, 1987, which has carried out consequential amendment Section of the I. T. Act, which has been amended 1. 2 3 1. (2) 10(15)(iiia) 2. (3) 10A 3. (4) 29 4. (6) 40A(2)(a) 5. (7) 41 6. (9) 44 7. (10) 80 8. (12) 80HHA 9. (14) 132B(1)(iii) 10. (15) 133A(6) 11. (16) 139(8)(b) 12. (17) 144A 13. (18) 174(4) and (6) 14. (19) 176(5) and (7) 15. (20) 199 16. (21) 219 17. (22) 234 (omitted) 18. (24) 276CC 19. (26) 288(4)(b) 20. (27) First Schedule : rule 5(a) Amendments to the Wealth-tax Act, 1957 The Amending Act, 1987, has made amendments to the provisions of the Wealth-tax Act relating to powers of income-tax authorities, assessment of association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer 6. 148 of the Amending Act, 1987. 31 220 Amendments to section 31 relating to time for payment of tax, demand and charge of interest for delayed payments. 7. 149(b) of the Amending Act, 1987. 32 221-232, Second and Third Schedules Amendments to section 32 relating to mode of recovery consequent upon the abolition of the post of "Tax Recovery Commissioner". 8. (i) 150(i) of the Amending Act, 1987. (ii) 73(a) of the Amending Act, 1989. 34A(1) 240 Amendments to section 34A(1) relating to refund on appeals, etc 9. 152 of the Amending Act, 1987. 35K 279(1A) (3) Amendments to section 35K relating to bar on prosecution and in- admissibility of evidence under certain circumstances. *10. 153 of the Amending Act, 1987. 37 131 Amendments to section 37 relating to power to take evidence on oath, etc. *11. 154 of the Amending Act, 1987. 37A 132 Amendments to section 37A relating to power of search and seizure. 12. 155 of the Amending Act, 1987. 37B 132A Amendments to section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendments made by the two Amending Acts to these sections is that the penalty provisions under the Wealth-tax Act have been brought, as far as possible, on the same lines as the corresponding provisions in the Income-tax Act. The changes made in sections 18 and 18 A are as follows : (i) Changes made in section 18 (corresponding to sections 271, 274 and 275 of the Income- tax Act), -- (1) Provisions for levy of penalty for default in furnishing return of wealth have been omitted. (2) The new provisions for levy of penalties for failure to comply with notices under sections 16(2) and 16(4) provide for a minimum penalty of Rs. 1,000 and a maximum penalty of Rs. 25,000 for each default. Under the old provisions, penalty was computed with reference to the amount of wealth-tax which would have been avoided if the returned net wealth would have been accepted as the correct net wealth. (3) Provisions for levy of penalty for concealment of wealth remain the same. (4) A new Explanation 6 has been inserted in sub-section (1) to provide that penalty for concealment of wealth should not be imposed on that portion of wealth which is enhanced as a result of adjustments made under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 272A of the Income-tax Act), -- (1) Penalty for non-compliance of a summons issued under section 37(1) either to attend to give evidence or produce books of account or other documents at a certain place and time has been included in a new clause (c) of sub-section (1) of the section. Earlier, penalty for this default was provided in section 37(2). (2) Penalty leviable for defaults covered by sub-section (1) of the section is a minimum of Rs. 500 and a maximum of Rs. 10,000 for each default. Under the old provisions, the penalty leviable could extend up to Rs. 1,000 only and no minimum penalty was provided. (3) Penalty leviable for default covered by sub-section (2) of the section is a minimum of Rs. 100 and a maximum of Rs. 200 for every day during which the default continues. Under the old provisions of sub-section (2), the penalty leviable could extend to Rs. 10 only for every day of default and no minimum penalty was provided. (4) It has been provided that a penalty under this section can be imposed by the Deputy Director or the Deputy Commissioner. However, where the failure or default occurs in the course of any proceedings before a wealth-tax authority not l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 95 (g) of the Finance Act, 1988] Amendments to the Gift-tax Act, 1958 24. The Amending Act, 1987, has made amendments to the provisions of the Gift-tax Act, relating to powers of gift-tax authorities, collection and recovery of tax, refunds, appeals, penalties and non-application of the Act in certain cases, in order to bring these provisions in line with the corresponding provisions of the Income-tax and the Wealth-tax Acts, as they have emerged after their amendment by the said Amending Act, 1987, and which have been discussed in the preceding paras in this Part of the explanatory notes. Any gap or shortcomings in this respect have been removed through certain amendments made by the Amending Act, 1989. The Table below shows the provisions of the Gift-tax Act that have been so amended and the corresponding provisions, if any, in the Income-tax Act. The Table also indicates the sections of the Amending Act, 1987, and the Amending Act, 1989, which have carried out the necessary amendments and the subject-matter of the amendments in brief. Sl No. Section of the Amending Act, 1987/ Amending Act, 1989 Section of the Gift-tax Act that has been amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call for information returns and statement. *11. (i) 184 of the Amending Act, 1987, (ii) 93 94(t) of the Amending Act, 1989 45 Amendments to section 45 relating to non-application of the provisions of Gift-tax Act in certain cases. * NOTES : (i) Sections 175 and 177 of the Amending Act, 1987, had introduced new sections 18B and 22A in the Gift-tax Act to provide for charging of additional gift-tax at 20% of gifts and for moving an application by the assessee before the Deputy Commissioner (Appeals) or the Commissioner (Appeals) for deciding an issue before completion of assessment. These new sections have, however, been omitted by the Amending Act, 1989. This has been discussed in Para 256 ante. and items at serial No. 10 and 11 in the Table given in that Para. (ii) The amendments indicated at serial Nos. 4, 9 and 11 of the above Table, which are star-marked, are further explained in the following paras : 25. Amendments to sections 17 and 17A, relating to penalties under the Gift-tax Act, by the Amending Art, 1987, and the Amending Act, 1989. --Sections 17 and 17A of the Gift-tax Act contain provisions for levy of penalties under the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company which is not a private company, as listed in clauses (a) to (d) of the section ; (ii) any company to art Indian company in a scheme of amalgamation ; (iii) any institution or fund, income whereof is exempt from income-tax under section 11 or section 12 of the Income-tax Act. 27.2 This section started with the opening words " The provisions. of this Act shall not apply to gifts made by ". The purpose of the enactment of section 45 is that no gift-tax should be levied in respect of gifts made by Government companies and corporations, public limited companies and public charitable and religious trusts. The intention of the section would be more clear if the section starts with the opening words "No tax shall be levied under this Act in respect of gifts made by". It may be mentioned that these opening words have been used in the corresponding section 45 of the Wealth -tax Act. 27.3 Further, the object of the section to exempt all Government companies and Corporations and public limited companies from the purview of the Gift-tax Act will be achieved it, instead of listing all these in clauses (a) to (d), it is simply stated that the gift-tax shall not be levied on a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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