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TMI BlogFINANCE (NO. 2) ACT, 1991X X X X Extracts X X X X X X X X Extracts X X X X ..... se of every other non-corporate tax-payer, having income exceeding seventy-five thousand rupees, the income-tax shall be increased by a surcharge calculated at the rate of 12 per cent of such income-tax. In the case of companies having income exceeding rupees seventy-five thousand, the amount of income-tax shall be increased by a surcharge at the rate of 15 per cent of such income-tax. However, no surcharge shall be payable by a non-resident or a foreign company. Finance (No. 2) Act, 1991 II. Rates for deduction of tax at source during the financial year from income other than "Salaries" 5. The rates for deduction of income-tax at source during the financial year 1991-92 from incomes other than "Salaries" have been specified in Part II of the First Schedule to the Act. These rates apply to income by way of interest (including interest on securities), dividends, insurance commission, winnings from lotteries, crossword puzzles and horse-races and income, other than salary income, of non-residents (including non-resident Indians). These rates are basically the same as those specified in Part II of the First Schedule to the Finance Act, 1990 as modified by the Taxation Laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance (No. 2) Act, 1991 IIIA. Individuals, Hindu undivided families, associations of persons, bodies of individuals, co-operative societies and local authorities 7. In the case of individuals, Hindu undivided families, associations of persons, etc., the rates of income-tax have been specified in Paragraph A of Part III of the First Schedule to the Act. In the case of co-operative societies and local authorities, the rates of income-tax have been specified in Paragraph B and Paragraph D, respectively of Part III of the First Schedule to the Act, which is the same as in Part III of the First Schedule to the Finance Act, 1990 as modified by the Taxation Laws (Amendment) Act, 1991. The slabs of income and the rates of tax will remain unchanged. In the case of such taxpayers having income exceeding seventy-five thousand rupees, surcharge shall be levied at the rate of 12 per cent of such income-tax as reduced by the amount of rebate calculated under Chapter VIIIA. However, no surcharge will be payable by a non-resident taxpayer. Finance (No. 2) Act, 1991 IIIB. Firms 8. In the case of registered firms, the rates of tax have been specified in paragraph C of Part III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of section 10( 15 )( iv )( f ) of the Income-tax Act relating to exemption from income-tax in respect of interest on certain foreign borrowings. Keeping in view the legislative intent, an Explanation has been inserted at the end of section 10( 15 )( iv ) of the Income-tax Act to define the term "industrial undertaking" for the purpose of this provision. An industrial undertaking will mean an undertaking engaged in the business of— ( i ) manufacture or processing of goods, or ( ii ) generation or distribution of electricity, or any other form of power, or ( iii ) mining, or ( iv ) construction of ships, or ( v ) operation of ships or aircrafts. Finance (No. 2) Act, 1991 11.1 This amendment takes effect from 1st April, 1991. [Section 5 of the Finance Act] Finance (No. 2) Act, 1991 Relief to Kuwait returnees in respect of interest on deposits in Non-resident(External) Accounts 12. Under the existing provisions of the Income-tax Act, interest on deposits in a Non-resident (External) Account is exempt from income-tax in the case of persons resident outside India as defined in section 2( q ) of the Foreign Exchange Regulation A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961 has been amended in order to exempt from income-tax in India the remuneration or fee received by non-resident consultants and their foreign employees in cases where such consultants have been engaged by the World Bank or any other multilateral agency for rendering assistance under technical assistance grant agreement, and such remuneration, etc., is paid, directly or indirectly, from such grant. This exemption is also available to consultants or their employees who, being Indian citizens, are not ordinarily resident in India. The agreement relating to the engagement of the consultants and to the contract of service of their employees have to be approved by the prescribed authority. Finance (No. 2) Act, 1991 13.2 This amendment takes effect from 1st April, 1991 and will, accordingly, apply in relation to assessment year 1991-92 and subsequent years. [Section 5] Finance (No. 2) Act, 1991 Exemption from income-tax of bonus paid on Life Insurance policy 14. Payments received under an insurance policy are not treated as income and hence not taxable. However, in a recent judicial pronouncement, a distinction has been made between the sum assured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or trust or institution lose tax exemption. The trusts or institutions will, however, be required to dispose or convert the assets not conforming to the requirement of section 11(5) into permissible investment within one year from the end of the financial year in which such bonus shares or other assets are received on 31-3-1992, whichever is later. Finance (No. 2) Act, 1991 15.3 These amendments take effect retrospectively from 1st April, 1983. Finance (No. 2) Act, 1991 15.4 Another provision relating to exemption from tax of charities is contained in section 10( 23C )( iv ) and ( v ) of the Income-tax Act. Prior to the amendment made by the Direct Tax Laws (Amendment) Act, 1989 income of a fund or institution established for charitable or public religious purposes and notified by the Central Government was exempted from tax under this provision without any conditions. The Direct Tax Laws (Amendment) Act, 1989 amended this provision to secure that notified funds or institutions can claim exemption from tax only if the following conditions are fulfilled: ( i ) the income of the fund or institution is applied wholly and exclusively to the object for which the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date of the creation of the trust or establishment of the institution only if the Chief Commissioner or Commissioner is satisfied that the delay is for valid reasons. If not, the provisions of sections 11 and 12 will apply from the first day of the financial year in which the application is made. [Sections 5, 6, 7 and 8] Finance (No. 2) Act, 1991 Exemption of perquisite in the form of medical facilities provided by the employers 16. Taxable salary includes the value of any benefit or amenity granted or provided free of charge or at concessional rate by the employer. Accordingly, the value of free medical facility provided to employees and members of their families is required to be included in the taxable income of the employee. However, under administrative circulars, the perquisite value of medical facility provided by the employer is not charged to tax up to certain limits. Finance (No. 2) Act, 1991 16.1 With a view to providing, in the law itself, exemption from tax in respect of perquisite in the form of medical facilities provided by the employer, section 17 of the Income-tax Act has been amended. Finance (No. 2) Act, 1991 16.2 Exemption f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profession carried on by the assessee in another country, depreciation shall be allowed on such a car. Finance (No. 2) Act, 1991 17.1 Further, under the existing provisions of section 32 read with rule 5 of the Income-tax Rules, 1962, full depreciation is allowed on an asset even if it has been acquired by the assessee towards the end of the relevant previous year and has been used for one day during that previous year. This results in excessive allowance of depreciation in the year in which the asset is first put to use thereby depleting the taxable profits of that year by an amount which bears no relationship to the user of that asset for earning the profits of that year. Section 32 has, therefore, been amended to provide that, where in a previous year an asset is acquired and put to use for the purposes of business or profession for less than 180 days, depreciation thereon shall be allowed at 50% of the depreciation allowable according to the percentage prescribed in respect of the block of assets comprising such asset. Furthermore, no depreciation will be allowed in respect of any plant or machinery the cost of which gets amortised in one or more years, under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng social and economic welfare of the people 19. A new section 35AC for promoting social and economic welfare or uplift of the public has been inserted in the Income-tax Act. Finance (No. 2) Act, 1991 19.1 Under the new section 35AC, taxpayers carrying on a business or profession will be entitled to deduct, while computing their taxable profits from any business or profession, the expenditure incurred in financing any eligible project or scheme for promoting social and economic welfare or uplift of the public. The qualifying expenditure would consist of payment made to a public sector company, a local authority or an approved association or an institution for being used for any such eligible project or scheme. Companies may, however, also incur expenditure directly on any such project or scheme. Finance (No. 2) Act, 1991 19.2 A National Committee of eminent persons has been constituted, in accordance with the rules prescribed in the Income-tax Rules, for approving associations and institutions for executing projects or schemes for promoting social and economic welfare or uplift of the public and for recommending such projects and schemes for being notified by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in providing long-term finance for industrial or agricultural development in India is entitled to a deduction, in the computation of its taxable profits, of an amount up to 40% of the total income carried to a special reserve. A public company providing long-term finance for construction or purchase of residential houses in India is also entitled to a similar deduction. In respect of this, the intention of the Government is that the term "financial corporation" should include a "public company". However, a view has been expressed that in the context of the provisions of the said clause ( viii ), the term "corporation" does not include a "public company". Finance (No. 2) Act, 1991 21.1 To make the Government's intention clear, a new Explanation has substituted the earlier Explanation . The new Explanation provides that for the purposes of this clause, the term "financial corporation" shall include a "public company". Finance (No. 2) Act, 1991 21.2 This amendment will take effect retrospectively from 1st April, 1987 and will, accordingly, apply in relation to the assessment year 1987-88 and subsequent years. [Section 14] Finance (No. 2) Act, 1991 Chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to tax only in the year in which it is received Finance (No. 2) Act, 1991 23.1 It has been brought to the notice of the Government that in cases of compulsory acquisition of assets, at times there is a considerable gap between the dates of acquisition and payment of compensation. The result is that the existing provisions of capital gains taxation operate harshly inasmuch as the affected persons are unable to avail of the exemption for roll-over of capital gains, within the specified time period, through investment in specified assets. Finance (No. 2) Act, 1991 23.2 Section 45 of the Income-tax Act has, therefore, been amended to provide that capital gains arising from the transfer of the capital asset by way of compulsory acquisition under any law shall be charged to tax in the previous year in which the compensation is first received. Finance (No. 2) Act, 1991 23.3 This amendment takes effect retrospectively from 1st April, 1988. Finance (No. 2) Act, 1991 23.4 Further, a new section 54H has been inserted in the Income-tax Act, to provide that in cases where compensation in respect of any asset acquired compulsorily is received after the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over within a specified time through investment in certain specified assets. These specified assets include, inter alia , the Capital Gains Account Scheme, Capital Bonds of UTI, IDBI, HUDCO and National Housing Bank and National Rural Development Bonds. Finance (No. 2) Act, 1991 25.1 With a view to neutralising the impact of inflation since 1986 when the monetary ceiling of Rs. 10,000 in respect of exemption of long-term capital gains, was fixed, the monetary ceiling has been increased from Rs. 10,000 to Rs. 15,000. Consequential amendments have been made in sections 54, 54B, 54D, 54F and 54G. Finance (No. 2) Act, 1991 25.2 This amendment will take effect from 1st April, 1992 and will accordingly, apply in relation to assessment year 1992-93 and subsequent years. [Sections 19 and 72] Finance (No. 2) Act, 1991 Modification of the provisions relating to set-off of capital gains 26. Under the existing provisions of the Income-tax Act, capital loss arising from the transfer of a capital asset is allowed to be set-off against the gain from the transfer of any other asset. Any remaining loss is allowed to be adjusted against other incomes. This provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Fund, and to the Government or to certain approved associations, etc., for promoting family planning where it is allowed at the rate of 100 per cent. Finance (No. 2) Act, 1991 28.1 As an expression of our traditional support towards fighting apartheid in South Africa, the benefit of 100 per cent deduction has been extended to donations made to the Africa (Public Contributions - India) Fund. Finance (No. 2) Act, 1991 28.2 This amendment takes effect from the 1st day of April, 1991 and will, accordingly, apply in relation to assessment year 1991-92 and subsequent years. [Section 26] Finance (No. 2) Act, 1991 Tax concession in respect of contributions made to Rajiv Gandhi Foundation. 29. The Rajiv Gandhi Foundation has been included in the list of funds and institutions, donation to which qualify for deduction under section 80G. Taxpayers making donations to the Rajiv Gandhi Foundation will be entitled to deduction of 50 per cent of the amount donated in computing their taxable income. There will be no ceiling on the amount qualifying for the deduction. Finance (No. 2) Act, 1991 29.1 This amendment will take effect from 1st April, 1992 and will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of transactions. The Finance Act has, therefore, amended section 80HHC in order to address to these problems. Finance (No. 2) Act, 1991 32.1 One of the problems arises in respect of a scheme evolved by the Reserve Bank of India under which exporters are allowed to open a line of credit with a bank outside India. The payments for purchase of raw material is made from these accounts. The exporters, in such cases, are required to bring into India only such amount of foreign exchange as relates to the value addition. Finance (No. 2) Act, 1991 32.2 Since, under the scheme, the entire sale proceeds are not actually brought into India, the exporters availing this facility would be denied full deduction under section 80HHC. Finance (No. 2) Act, 1991 32.3 With a view to removing this difficulty, an Explanation has been inserted in section 80HHC of the Income-tax Act to secure that sale proceeds will be deemed to have been received in India, in case where these are credited to a separate account maintained by the exporter for the aforesaid purpose with the approval of the Reserve Bank of India. Finance (No. 2) Act, 1991 32.4 This amendment will take effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufactured by the taxpayer computed by allocating the profits of the business net of profits relating to business of exporting third party goods, in the ratio of the export turnover of the manufactured goods to the total turnover of the manufactured goods; ( ii ) profits relating to export of goods purchased from third party by deducting from the sale proceeds of such goods, the direct and indirect costs attributable to such exports; ( d ) the profits shall be increased by the amount which bears to ninety per cent of export incentives [profits on sale of Exim scrips, receipts by way of duty drawback or payments under the International Price Reimbursement Scheme (IPRS)] the same ratio as the export turnover bears to the total turnover. Finance (No. 2) Act, 1991 32.9 This amendment will take effect from the 1st day of April, 1992 and will accordingly apply, in relation to the assessment year 1992-93 and subsequent years. Finance (No. 2) Act, 1991 32.10 The existing formula often gives a distorted figure of export profits when receipts like interest, commission, etc., which do not have element of turnover, are included in the profit and loss account. Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1991 32.17 This amendment takes effect retrospectively from 1st April, 1986, the day on which the substituted section 80HHC took effect. It will, accordingly, apply in relation to assessment year 1986-87 and subsequent years. Finance (No. 2) Act, 1991 32.18 Whereas the definition of the term "export turnover" excludes freight and insurance attributable to transport, no such exclusion has been specified in respect of the term "total turnover". As a result, in c.i.f. transactions, while the export turnover is taken at fob value, the total turnover includes the sale proceeds of exports at cif value. Finance (No. 2) Act, 1991 32.19 With a view to removing this anomaly, it has now been clarified that "total turnover" will also not include such freight or insurance. Finance (No. 2) Act, 1991 32.20 This amendment takes effect retrospectively from 1st day of April, 1987, the day from which "total turnover" became relevant for the purpose of computation of deduction under section 80HHC. It will accordingly, apply in relation to assessment year 1987-88 and subsequent years. [Section 28] Finance (No. 2) Act, 1991 Modification of provisions relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tourist groups are lodged. Since the foreign exchange is received only by the tour operator, it is only he who can claim the tax concession under section 80HHD. The hotel owner is denied the benefit of section 80HHD, even though the payment for service to the foreign tourists rendered by the hotel may constitute the major part of the expenditure by the foreign tourist in India. Finance (No. 2) Act, 1991 33.5 With a view to securing that the benefits under section 80HHD for all the three segments of the tourism industry, section 80HHD has been amended to provide that, in cases where payments for services to the foreign tourist provided by hotel, tour operator or a travel agent are received in Indian currency from another hotel, tour operator, travel agent or airline, the person providing the service to the foreign tourists will be eligible for deduction under section 80HHD in relation to profits derived therefrom, subject to the condition that the payment in Indian currency is made out of funds obtained by conversion of foreign exchange brought into India, through an authorised dealer in foreign exchange, by the tour operator, travel agent or the airline, on behalf of the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground that what is imported is commodity. At the same time, since import of software is generally under a licence from the foreign licensor, the lump sum payments made for using the software are regarded as payment of royalty within the meaning under Explanation 2 of section 9(1)( vi ) of the Income-tax Act and taxed accordingly. Finance (No. 2) Act, 1991 34.4 In order to prevent this dual levy, the Income-tax Act has been amended to provide that any lump sum payment for obtaining use of systems software supplied by a non-resident manufacturer along with the computer hardware will not be subjected to income-tax. This tax concession will not be available in relation to payments in respect of system software imported otherwise than under an approved Computer Software Export Scheme or where the software is supplied separately or independently of the computer hardware even though the software has been developed or marketed by the supplier of the computer hardware. Finance (No. 2) Act, 1991 34.5 This amendment takes effect from 1st April, 1991 and will accordingly apply for assessment year 1991-92 and subsequent years. Finance (No. 2) Act, 1991 34.6 The presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... couraging development of tourism infrastructure in remote regions where such facilities do not exist, section 80-IA seeks to secure that, in addition to the benefits now available under section 80-I, deduction in respect of new hotels in hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may specify, will be admissible at the rate of 50 per cent of the profits as against 30 per cent at present provided under section 80-I of the Act. Section 80-I will cease to operate from 1st April, 1991. Finance (No. 2) Act, 1991 35.2 To be eligible for the tax concession at the enhanced rate, the hotel in the remote region will have to comply with the conditions prescribed in the Income-tax Rules and will also require approval of the prescribed authority. Finance (No. 2) Act, 1991 35.3 As a further measure to encourage tourism in remote areas, expenditure tax will not be charged for a period of 10 years commencing from 1-4-1991, on any expenditure incurred in such new hotel in a hilly area or a rural area or a place of pilgrimage or such other place as the Central Government may specify which fulfils the conditions for its being elig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37.2 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in relation to the assessment year 1992-93 and subsequent years. [Section 34] Finance (No. 2) Act, 1991 Revival of tax concession in respect of profits from the business of publication of books 38. Under the provisions of section 80QQ of the Income-tax Act prior to its omission by the Direct Tax Laws (Amendment) Act, 1987, any person carrying on a business in India, of printing and publication of books or only publication of books without the activity of printing, was entitled to a deduction in the computation of his taxable income of an amount equal to 20 per cent of the profits from such business. Finance (No. 2) Act, 1991 38.1 Keeping in view the vital role of the publishing industry in the development of human resources, a new section 80Q has been inserted in the Income-tax Act to revive the aforesaid tax concession for five years commencing with the assessment year 1992-93. [Section 35] Finance (No. 2) Act, 1991 Revival of fiscal incentive to authors of textbooks in Indian languages 39. Under the provisions of section 80QQA of the Income-tax Act, an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of a permanent physical disability specified in the Income-tax Rules. In addition, the amount of deduction allowed has been increased from Rs. 15,000 to Rs. 20,000. Finance (No. 2) Act, 1991 40.3 This amendment will take effect from 1st April, 1992 and will, accordingly, apply in relation to the assessment year 1992-93 and subsequent years. [Section 37] Finance (No. 2) Act, 1991 Deduction in respect of repayment of loans taken for purchase or construction of new residential houses 41. Under the existing provisions of section 88, tax rebate is available only in respect of a residential house only if constructed or purchased after 31st March, 1987. No tax rebate is available in case the residential house was purchased or constructed prior to 31st March, 1987. Finance (No. 2) Act, 1991 41.1 Tax rebate has now been extended even in cases where payment of instalment or repayment of loan is in respect of a house purchased or constructed before 1st April, 1987. Finance (No. 2) Act, 1991 41.2 This amendment will take effect from 1st April, 1991 and will, accordingly, apply in relation to assessment year 1991-92 and subsequent assessment years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Finance (No. 2) Act, 1991 43.3 Under the provisions of section 195 of the Income-tax Act, any person responsible for paying to a non-resident taxpayer or to a foreign company any sum, other than interest on securities, salary or dividends, chargeable to income-tax in India, is required, to deduct income-tax thereon at the rates in force. Where the person responsible for paying any sum to a non-resident, considers that the whole amount would not be income chargeable to tax, he may apply to the Assessing Officer to determine the appropriate proportion of such sum chargeable to tax. In such cases, tax is required to be deducted from the portion as determined by the Assessing Officer. Finance (No. 2) Act, 1991 43.4 This facility of deducting tax only from a portion of the sum payable is not available in cases where the payment is by way of interest, royalty or fee for technical services to a foreign company. Finance (No. 2) Act, 1991 43.5 In some of the bilateral agreements for the avoidance of double taxation, it has been provided that any or all of the incomes referred to above would be taxed in India on net basis. Further, under certain tax treaties, income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of incomes which are taxed at special rates in respect of foreign companies, section 44D has been amended to clarify that the income from units of a Mutual Fund in the hands of a foreign company would also be taxed on gross basis. Finance (No. 2) Act, 1991 43.14 This amendment takes effect retrospectively from 1st April, 1989. [Sections 3, 16, 39 and 56] Finance (No. 2) Act, 1991 Tax incentive to off-shore mutual funds for investment in India 44. At present, under section 115A of the Income-tax Act, in the case of foreign companies, the income by way of dividend (including income from Unit Trust of India) and income in respect of units of mutual funds, purchased in foreign currency, is charged to tax at the rate of 25 per cent. A lower rate of tax on these incomes is provided in the double taxation avoidance agreement between India and certain foreign countries. Tax on capital gains is charged at the normal rate of 65 per cent, after deducting from the amount of gain the deduction allowed under section 48 of the Income-tax Act. Finance (No. 2) Act, 1991 44.1 The Unit Trust of India and some other mutual funds have, during the last few years, floa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est for deferment of advance tax may sometimes need to be relaxed in cases of genuine hardship. At present, it is not possible for the Board to relax these provisions. Finance (No. 2) Act, 1991 45.1 Therefore, a reference to sub-section (1A) of section 201, sections 211 and 234C has been incorporated in clause ( a ) of sub-section (2) of section 119 so that the Board is empowered to relax the provisions of these sections applicable to any class of incomes or class of cases. Finance (No. 2) Act, 1991 45.2 This amendment takes effect from 1st April, 1991. Finance (No. 2) Act, 1991 45.3 The existing provisions of sub-section (2) of section 119 of the Income-tax Act do not empower the Board to relax the requirements contained in any of the provisions of Chapter IV (Computation of income) and Chapter VI-A in cases of genuine hardship. Finance (No. 2) Act, 1991 45.4 Therefore, a new clause ( c ) has been inserted in sub-section (2) to empower the Board to relax any of the provisions of Chapter IV or Chapter VI-A of the Act, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases. However, this can be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claims cannot be verified by the Assessing Officer. This provision has also disturbed the continuity of assessment records in certain cases. Finance (No. 2) Act, 1991 47.1 Sub-section (10) of section 139 of the Income-tax Act has, therefore, been omitted. Finance (No. 2) Act, 1991 47.2 This amendment takes effect from 1st April, 1991 and will be applicable to the assessment year 1991-92 and subsequent years. [Section 44] Finance (No. 2) Act, 1991 Removal of anomalies in respect of section 140A of the Income-tax Act 48. Under the existing provisions of sub-section (1) of section 140A relating to payment of self-assessment tax, etc., an assessee is required to pay the tax payable on the basis of the return required to be furnished under section 139 or section 148, after taking into account the taxes already paid, before filing the return. With effect from 1st April, 1989, section 142 of the Income-tax Act was amended to provide that a notice thereunder can be served on the person, who has not made a return within time allowed under sub-section (1) of section 139, to furnish a return of his income or the income of any other person in respect of which he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50.1 Whenever any such adjustment is made to the returned income the Assessing Officer is required to send an "intimation" to the taxpayers. The taxpayers have no remedy against such adjustment, except to apply for rectification of any mistake in the "intimation". Finance (No. 2) Act, 1991 50.2 With a view to providing another avenue for taxpayers' grievance, section 143 of the Income-tax Act has been amended in order to bring an intimation within the ambit of section 264 which empowers the Commissioner of Income-tax to exercise his revisional jurisdiction. Finance (No. 2) Act, 1991 50.3 Similar amendments have been made to the corresponding provisions in section 16 of the Wealth-tax Act and in section 15 of the Gift-tax Act. Finance (No. 2) Act, 1991 50.4 These amendments take effect from 1st October, 1991. [Sections 46, 74 and 86] Finance (No. 2) Act, 1991 Modification of provisions relating to time limit for completion of assessments and reassessments 51. Under the existing provisions in Explanation 1 to section 153 of the Income-tax Act, period relating to certain contingencies specified therein is to be excluded while computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 80-O was denied on the ground that income otherwise qualifying for deduction had not been received in India in convertible foreign exchange. Under this provision, the assessment order could be rectified within a period of 4 years from the date on which the qualifying income was received. Finance (No. 2) Act, 1991 52.2 Through the Finance Act, 1987, certain amendments were made in section 80-O under which the Chief Commissioner or Commissioner is authorised to grant extension of time for bringing in the foreign exchange into India if he is satisfied that the taxpayer was prevented by reasons beyond his control from bringing the income within specified time. As a consequence, section 155(12) was deleted with effect from 1st April, 1988. An unintended effect of these changes has been that taxpayers who were denied the benefit of section 80-O for any of the assessment years up to assessment year 1987-88 on the ground that qualifying income was not received in convertible foreign exchange during the relevant previous year would lose the benefit even though the qualifying income is brought into India at a subsequent date and the delay in the remittance wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amendments to clause ( 29C ) of section 2 and sub-section (1A) of section 161 of the Income-tax Act take effect from 1st April, 1991. [Sections 3 and 49] Finance (No. 2) Act, 1991 Provision for enabling Central Government to authorise deduction of tax at source at a lower rate on income of scheduled banks 54. Under the provisions of section 193 of the Income-tax Act, income-tax is deductible at source on income by way of interest on securities, either at the time of credit to the account of the payee or at the time of payment thereof in cash or by issue of a cheque, etc., whichever is earlier, at the rates in force. Finance (No. 2) Act, 1991 54.1 The scheduled banks are required to invest a sizeable portion of their funds in various Government securities, in order to comply with the reserve requirements prescribed by the Reserve Bank of India. Representations have been received that certain scheduled banks have been put to considerable hardship as a substantial portion of their funds gets blocked in the form of tax deducted at source which is far in excess of their ultimate tax liability. On the other hand, the Government has to pay interest at the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hundred rupees in a financial year. The "term of time deposits" has been defined to mean deposits, excluding "recurring deposits", repayable on the expiry of fixed periods. Thus, interest on savings bank accounts and recurring deposits accounts is not subject to deduction of tax at source. Finance (No. 2) Act, 1991 55.3 For the purpose of computing the threshold limit of rupees two thousand and five hundred below which there is no requirement of deduction at source, the interest paid or credited between 1st April to 30th September, 1991, will also be taken into account. Finance (No. 2) Act, 1991 55.4 These amendments take effect from 1st October, 1991. [Section 52] Finance (No. 2) Act, 1991 Modification of the tax deduction at source provisions regarding winnings from horse races 56. Under the existing provisions of sub-section (3) of section 10 of the Income-tax Act, casual and non-recurring receipts up to five thousand rupees are not to be included in the total income of a previous year of any person with certain exceptions. As a result, income by way of winnings from races including horse races up to five thousand rupees in a financial year is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deceased assessee (depositor), and ( c ) where in the case of a resident individual, the tax on whose estimated total income of the previous year including the amount of withdrawal from National Savings Scheme would be nil and such individual furnishes a declaration in writing to the above effect in the prescribed form and verified in the prescribed manner, to the person responsible for payment. Finance (No. 2) Act, 1991 57.2 The aforesaid amendments take effect from 1st October, 1991. [Sections 54 and 59] Finance (No. 2) Act, 1991 Insertion of a provision for deduction of tax at source from payments to lottery agents 58. The Income-tax Act contains a provision for deduction of tax at source from any income by way of winnings from any lottery or crossword puzzle. The rate of deduction of tax at source at present is forty per cent of such income. While tax is required to be deducted at source in respect of payments to the winner of a lottery or crossword puzzle, there is no requirement under the law for deduction of tax at source from payments, in the nature of bonus or reward (allowed on prize winning tickets, etc.) or for that matter, commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt may specify in this behalf by notification in the Official Gazette, having regard to the extent of inconvenience caused or likely to be caused to them and being satisfied that it will not be prejudicial to the interests of the revenue. Finance (No. 2) Act, 1991 59.2 For the removal of doubts, it is clarified that the provisions of section 194H shall also apply in cases where commission, etc., is retained by the agent/consignee, etc. Finance (No. 2) Act, 1991 59.3 These amendments take effect from 1st October, 1991. [Section 55] Finance (No. 2) Act, 1991 Exemption from tax deduction at source on income from units of UTI received by charitable trusts, institutions, etc. 60. At present, mutual funds are not required to deduct tax at source from payments by way of distribution of income on their units to persons other than foreign companies. In the case of the Unit Trust of India, the exemption from requirement of deducting tax at source applies only where the payments are to individuals. Charitable or religious trusts and institutions can obtain payments from UTI without deduction of tax at source only by filing a statement in the prescribed form stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial year. Finance (No. 2) Act, 1991 62.2 This amendment takes effect retrospectively from 1st April, 1989. [Section 63] Finance (No. 2) Act, 1991 Modification of the provisions relating to interest on refunds. 63. Under the existing provisions of section 244A of the Income-tax Act relating to interest on refunds, the rate of interest payable by the Government is one and one-half per cent for every month or part of a month. Finance (No. 2) Act, 1991 63.1 This section has been amended to reduce the aforesaid rate of interest from one and one-half per cent to one per cent. Finance (No. 2) Act, 1991 63.2 Similar amendments have been made to the corresponding provisions in section 34A of the Wealth-tax Act and section 33A of the Gift-tax Act. Finance (No. 2) Act, 1991 63.3 These amendments take effect from 1st October, 1991. [Sections 64, 80 and 89] Finance (No. 2) Act, 1991 Provision for constitution of Special Benches of the Settlement Commission 64. Under the existing provisions of section 245BA of the Income-tax Act, a Bench of the Income Tax Settlement Commission is to consist of three Members which in certain c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh the report within the said period, the Settlement Commission may make the order on the application without such report. The provisions relating to filing of objection by the Commissioner against proceeding with the application made under section 245C contained in sub-section (1A) of section 245D, have also been omitted. Finance (No. 2) Act, 1991 65.2 Similar amendment has been made to the corresponding provisions in section 22D of the Wealth-tax Act. Finance (No. 2) Act, 1991 65.3 These amendments take effect from 27th September, 1991, i.e., the date on which the Act received the assent of the President. [Sections 66 and 78] Finance (No. 2) Act, 1991 Modification of the provisions regarding the service of the orders of the Appellate Tribunal. 66. Under the existing provisions of sub-section (3) of section 254 of the Income-tax Act, the Appellate Tribunal has to send a copy of any order passed by it to the Commissioner or Chief Commissioner. On the other hand, section 256 of the Income-tax Act provides, that a Commissioner may, within sixty days of receipt of the order of the Appellate Tribunal, by an application, require the Tribunal to refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending on 30th September and 31st March of the financial year within one month from the said dates, to the prescribed income-tax authorities. However, no penalty has been provided in the Income-tax Act in the event of failure of a person to comply with the requirements of the aforesaid provisions of section 206C. Such a penalty is essential to enforce compliance with these provisions. Finance (No. 2) Act, 1991 67.2 The quantum of penalty for cases in which default is of continuous nature is provided in sub-section (2) of section 272A. The minimum and maximum penalty is prescribed at the rate of Rs. 100 and Rs. 200 for every day during which the default continues. Representations have been received that the aforesaid provision creates hardship in cases where the amount of tax deductible for which the return under section 206 is to be furnished is very small and the return could not be furnished in time for various reasons. Finance (No. 2) Act, 1991 67.3 Section 272A of the Income-tax Act has, therefore, been amended to,— ( a ) provide for levy of penalty for failure to furnish the certificate and the return required by section 206C, and ( b ) provide that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been clearly demarcated. In order to give effect to this, sub-section (1) of section 279 has been amended to provide that prosecution proceedings shall be launched with the previous sanction of the Commissioner or Commissioner (Appeals) or appropriate authority. It is also being provided that the Chief Commissioner or, as the case may be, Director General may issue such instructions or directions to the aforesaid income-tax authorities as he may deem fit in relation to initiation of such proceedings. Finance (No. 2) Act, 1991 69.1 Under the existing provisions of sub-section (2), any offence under Chapter XXII, either before or after the institution of proceedings, may be compounded by— ( i ) the Board or a Chief Commissioner or a Director General authorised by the Board in this behalf in a case where the prosecution would lie at the instance of the Commissioner (Appeals) or the appropriate authority, and ( ii ) Chief Commissioner, Director General or Commissioner, in any other case. Finance (No. 2) Act, 1991 69.2 As the Board has been issuing instructions from time to time laying down guidelines for compounding the offences for the benefit of the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act by the Finance Act, 1968, such contributions were made eligible for deduction under section 80C relating to the deduction in respect of savings. The amount standing to the credit of a taxpayer's account in the Public Provident Fund was also excluded from the net wealth under section 5(1)( xviia ) of the Wealth-tax Act. Finance (No. 2) Act, 1991 70.1 Hindu undivided families (HUF) and association of persons (AOP) or bodies of individuals (BOI) consisting only of husband and wife governed by the Portuguese Civil Code were made eligible to contribute in the Public Provident Fund in 1983. With a view to extending to these categories of taxpayers the same concession as was available to individuals, section 80C was amended in 1983. Corresponding amendment to section 5 of the Wealth-tax Act had, however, remained to be made. Finance (No. 2) Act, 1991 70.2 With a view to removing this anomaly, section 5(1)( xviia ) of the Wealth-tax Act has been amended to provide exemption from wealth-tax in respect of deposits under the Public Provident Fund Scheme held by the HUFs and AOPs or BOIs consisting of husband and wife governed by the Portuguese Civil Code. Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g effect caused by an upsurge in the share market, rule 9A of Schedule III of the Wealth-tax Act has been amended so that, for valuation of quoted shares, averaging of the market quotation of shares will now be over a period of ten years instead of over a period of five years. Finance (No. 2) Act, 1991 72.2 This amendment will take effect from 1st April, 1992 and will, accordingly apply in relation to assessment year 1992-93 and subsequent years. [Section 83] Finance (No. 2) Act, 1991 Modification in the provisions relating to valuation of assets in the case of closely-held companies. 73. Under the provisions of section 40 of the Finance Act, 1983, wealth-tax at the rate of 2 per cent is levied in the case of closely-held companies on the net value of certain unproductive assets. The value of these assets, for the purpose of levy of wealth-tax is determined at the price which in the opinion of the Wealth-tax Officer or the Valuation Officer these assets would fetch if sold in the open market. This provision was made on the same lines as in the then existing provisions in section 7 of the Wealth-tax Act relating to valuation of assets. The Direct Tax Laws (Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for investment in NRI Bonds. 75. Under the existing provisions of section 5(1)( iiie ) of the Gift-tax Act, gifts made by the non-resident Indians, to any-relative, of NRI Bonds specified in section 10( 15 )( iid ) of the Income-tax Act, 1961, are exempt from gift-tax. Such bonds are to be notified by the Central Government for the purposes of exemption. One of the conditions for exemption in respect of such bonds is that the gift should be made after a period of three years from the date of purchase. Finance (No. 2) Act, 1991 75.1 To make the new issues of NRI Bonds more attractive, it is considered necessary to do away with the conditions that the gift should be made to a relative and that it should be made after a period of three years from the date of purchase. Accordingly, section 5(1)( iiie ) has been amended to omit both these conditions. Finance (No. 2) Act, 1991 75.2 This amendment will take effect from 1st April, 1991 and will, accordingly, apply in relation to the assessment year 1991-92 and subsequent years. [Section 85] INTEREST-TAx Act Finance (No. 2) Act, 1991 Revival of the Interest-tax Act, 1974. 76. As an anti-inflationary m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll pay interest-tax in advance during the financial year immediately preceding the relevant assessment year. The due dates for payment of instalment of advance interest-tax and the amount payable as advance interest-tax, are similar to the corresponding provisions in the Income-tax Act, which will be as under : Due date of instalment Amount payable On or before 15th September not less than 20% of interest-tax payable in advance. On or before 15th December not less than 50% of interest-tax payable in advance as reduced by the amount already paid On or before 15th March whole amount of interest payable in advance as reduced by the amount already paid. Finance (No. 2) Act, 1991 76.6 The income-tax authorities will also perform the functions of interest-tax authorities and they shall exercise powers and perform functions and will be subject to control as income-tax authorities are under the corresponding provision in the Income-tax Act. Finance (No. 2) Act, 1991 76.7 Credit institutions will be required to file return of chargeable interest by 31st December of the relevant assessment year. Finance (No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be levied on expenditure incurred by diplomatic personnel and others enjoying diplomatic immunities. However, unlike in the case of expenditure-tax on hotels, there is no exemption from tax in respect of expenditure incurred in a restaurant for which payment is made in foreign exchange. Finance (No. 2) Act, 1991 77.2 The Finance Act has given a very wide meaning to the term "restaurant". Restaurant has been defined as any premises where business of sale of food or drink to the public is carried on and such premises are equipped with or have access to facilities for air-conditioning. Chargeable expenditure in relation to a restaurant means any expenditure or payment in connection with the provisions of food or drink by the restaurant, whether inside or outside, or by any other person in the restaurant. Accordingly, expenditure incurred in all restaurants, confectionery shops, pastry shops, ice cream parlours, etc., which are air-conditioned will be covered by the new tax. Likewise, expenditure incurred in packed food or drinks stalls in air-conditioned super markets will also be covered. The tax will also be liable where such restaurant, etc., provides food outside whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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