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TMI BlogExplanatory Notes on the provisions relating to direct taxesX X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act, 1961; omitted sections 44AC, 53, 67, 182, 183 and 247 of the Income-tax Act, 1961; amended sections 2, 3, 4, 5, 7, 21, 21A, 21AA, 35, 45, Schedule I and Schedule III to the Wealth-tax Act, 1957; inserted new section 35HA in the Wealth-tax Act, 1957 omitted Schedule II of the Wealth-tax Act, 1957 omitted section 13 of the Finance Act, 1960, and section 40 of the Finance Act, 1983 amended sections 2 and 5 of the Interest-tax Act, 1974 amended sections 3, 4, 5 and 7 of the Expenditure-tax Act, 1987. PROVISIONS IN BRIEF 3. The provisions in the Finance Act, 1992, in the sphere of direct taxes relate to the following matters: (i) Prescribing the rate of income-tax on incomes liable to tax for the assessment year 1992-93; the rates at which tax will be deductible at source during the financial year 1992-93 from interest (including interest on securities), dividends, salaries, winnings from lotteries or crossword puzzles, winnings from horse-race, insurance commission and other categories of income liable to deduction of tax at source under the Income-tax Act; rates for computation of ' advance tax " and charging of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantially interested % modifying the definition of the expression rates in force % removing the condition of approval by the Central Government of the contract of service of a foreign technician for the purposes of section 10(6)(viia) and of the agreements under which royalty, etc., is paid to a foreign company for the purposes of sections 10(6A) and 115A, extending the benefit of section 33AC to Government shipping companies, deferment of one-third of the unabsorbed carried forward depreciation and investment allowance in the case of companies, enlarging the definition of the expression " financial corporation " for the purposes of section 36(1)(viii) by including therein a Government company, increasing the limits of allowable business expenses for entertainment, etc., 1 excluding persons assessed on presumptive basis from the requirement of compulsory audit, withdrawing presumptive taxation in respect of certain trades, rationalising the provisions relating to tax concession for exports, amending the definition of "small scale industrial undertaking" for the purposes of section 80-IA of the Income-tax Act, with a view to bringing it in line with the industrial policy of the coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any unit of accommodation is Rs. 1,200 or more per day per individual; 2. withdrawing the levy of expenditure tax on air-conditioned restaurants, and 3. withdrawing the exemption granted in respect of payment made in foreign exchange. INCOME-TAX Rate Structure L Rates of income-tax in respect of incomes liable to tax for the assessment year 1992-93 4. In respect of incomes of all categories of taxpayer (corporate as well as non-corporate) liable to tax for the assessment year 1992-93, the rates of income-tax (including surcharge thereon) have been specified in Part I of the First Schedule to the Act and are the same as those laid down in Part III of the First Schedule to the Finance (No. 2) Act, 1991, for the purposes of computation of advance tax, deduction of tax at source from salaries and charging of tax payable in certain cases during the financial year 1991-92. 4.1 Accordingly, in the case of every individual, Hindu undivided family or body of individuals or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 1992-93 on current incomes in cases where accelerated assessments have to be made e.g. provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during the financial year 1992-93, assessment of persons who are likely to transfer property to avoid tax or where an order has to be passed in a case of search and seizure for calculating the amount of tax on the estimated undisclosed income. 6.1 Accordingly, in the case of every individual, Hindu undivided family or body of individuals or association of persons governed by the Portuguese system of community of property, having income exceeding one hundred thousand rupees, the amount of income-tax shall be reduced by the amount of rebate calculated under Chapter VIIIA and the income-tax so reduced shall be increased by a surcharge calculated at the rate of 12 per cent. of such income-tax. In the case of every other non-corporate taxpayer, having income exceeding one hundred thousand rupees, the income-tax shall be increased by a surcharge calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 50% Table 2 Slabs of income with rates in the cases of Hindu undivided families having one or more members with independent income exceeding the exemption limit : Income slab Rate of tax for income arising in financial year 1991-92 Income slab Rate of tax for income arising in financial year 1992-93 Up to Rs. 12,000 Nil Up to Rs. 18,000 Nil Rs. 12,001-Rs. 20,000 25% Rs. 18,001-Rs. 1,00,000 30% Rs. 20,001-Rs.40,000 30% Above Rs. 1,00,000 40% Rs. 40,001-Rs. 60,000 40% Rs. 60,001 -Rs. 1,00,000 50% Above Rs. 1,00,000 50% IIIB. Co-operative Societies 8. In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Schedule to the Act. IIIC. Firms 9. In the case of firms, the rates of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of sub-clauses of clause (18) of section 2 is treated as a company in which the public are substantially interested and is taxed at a rate lower than the rate applicable to other companies. Under the hitherto existing provision, a company formed by co-operative societies could not be treated as a company in which the public are substantially interested. 14.1 An amendment has been made by the Finance Act, 1992, to insert a new sub-clause (ad) in clause (18) of section 2 of the Income-tax Act, to provide that a company where shares carrying not less than fifty per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are throughout the relevant previous year held by one or more co-operative societies shall be treated as a "company in which the public are substantially interested". 14.2 This amendment will take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and onwards. [Section 3] Modification of the provisions regarding "rates in force" 15. Under the scheme of deduction of tax at source as it hitherto existed, even in cases where a lower rate of tax is provided with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suance of an agreement made after the 31st day of March, 1976, and approved by the Central Government, the tax on such income was payable, under the terms of such agreement, by Government or the Indian concern, the tax so paid was not to be included in the total income of the foreign company. 17.2 Section 115A of the Income-tax Act provided that where the total income of a foreign company included any income by way of royalty or fees of technical services received from the Government or an Indian concern in pursuance of an agreement made after the 31st day of March, 1976, and where such agreement was with an Indian concern, the agreement was approved by the Central Government, the income-tax payable on income by way of royalty or fees for technical services was to be thirty per cent. thereof. 17.3 The Government tabled a Statement on Industrial Policy in both the Houses of Parliament on 24th July, 1991. A copy of the statement is annexed to this circular. The statement has substantially liberalised the provisions and simplified the procedures regarding foreign technology agreements. For hiring of foreign technicians, no approval of the Government is henceforth necessary. For f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10(10C) of the Income-tax Act to provide income-tax exemption to any amount received by an employee of a public sector company or of any other company at the time of his voluntary retirement in accordance with any scheme or schemes of voluntary retirement. The schemes of the said companies are to be in accordance with the guidelines prescribed which may include the criteria of economic viability. In the case of companies other than public sector companies, the schemes are to be approved by the Chief Commissioner or Director-General. 18.3 This amendment takes effect from 1st April, 1993, and, accordingly, applies to assessment year 1993-94 and subsequent assessment years. [Section 4] Provision for exemption from income-tax on interest payable by SIDBI on Moneys borrowed by it front sources outside India 19. Section 10(15)(iv)(d) of the Income-tax Act provides that interest payable by certain financial institutions on moneys borrowed by them from sources outside India, to the extent to which such interest does not exceed the amount of interest calculated at the rate approved by the Central Government in this behalf, having regard to the terms of the loan and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of other co-operative societies and such society is financed by the members thereof and the Government, will be exempt from income-tax. 21.1 This amendment takes effect retrospectively from 1st April, 1989, and will, accordingly, apply, in relation to assessment year 1989-90 and subsequent assessment years. [Section 4] Exemption of compensation received by victims of Bhopal Gas Leak Disaster 22. Pursuant to the decision of the Supreme Court, victims of Bhopal Gas Leak Disaster are to be paid compensation in accordance with the provisions of the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985. With a view to providing relief to these persons, a new clause (10BB) has been inserted by the Finance Act, 1992, in section 10 of the Income-tax Act, providing for exemption from income-tax to such compensation. However, compensation received by an assessee in respect of an expenditure which has been incurred and allowed as a deduction from taxable income, will not be exempt from income-tax. 22.1 This clause comes into effect from 1st April, 1992, and, accordingly, applies in relation to assessment year 1992-93 and subsequent assessment years. [Section 4] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 13(1)(d) so that it shall not apply in relation to any accretion to the assets, being shares of a company, forming part of the corpus of the trust or institution, as on 1st June, 1973, where such accretion arises by way of allotment of bonus shares. (iii) amends clause (iia) in the proviso to section 13(1)(d) to provide that where an asset, other than an investment or deposit mentioned in section 11(5), is held by the trust or institution, and can be disinvested by 31st day of March, 1992, it can now be disinvested by 31st day of March, 1993. 23.2 The amendments at (i) and (ii) above take effect retrospectively from 1st April, 1983, and the amendment at (ill) takes effect from 1st April, 1992. 23.3 Under the provisions of section 10(21), section 10(23), and clauses (iv) and (v) of section 10(23C) of the Income-tax Act, the notified scientific research associations, the notified sports associations or institutions, the notified charitable funds or institutions and the notified wholly public religious and charitable trusts or institutions are required to invest or deposit their funds in any one or more of the forms and modes specified in section 11(5) of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1993-94 and subsequent years. [Section 7] Exemption of perquisite in the form of medical benefits provided by employer in private hospitals 25. For the purpose of computing income under the head "Salaries", the taxable salary includes the value of any benefit or amenity granted free of charge or at concessional rate by the employer. Section 17 of the Income-fax Act, however, provides for exemption from tax in respect of perquisite in the form of medical facilities provided by the employer. Exemption from tax is available, inter alia, in respect of reimbursement, by the employer, of expenditure incurred by the employee in hospitals, dispensaries, etc. maintained by the Government, local authority, or in a hospital approved by the Government for the purposes of medical treatment of its employees. 25.1 The restriction that, for claiming exemption, medical treatment should be in a hospital approved by the Government leaves out all cases where the treatment has been undergone in a hospital not so approved. With a view to mitigating this hardship, the Finance Act has, liberalised the provisions relating to medical benefit provided by the employer in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, many taxpayers claim deduction of the entire 6% of the "annual value' as, collection charges, irrespective of the actual expenditure incurred. This leads to avoidable disputes and administrative work, without any significant revenue implication. 26.3 With a view to rationalising and simplifying the aforesaid deductions, the Finance Act has. provided for a composite standard deduction, both for repair of the house property and for collection of rent of an amount equal to 1/5th of the "annual value" of the property. 26.4 Section 2.4 of the Income-tax Act also provides for a deduction in respect of the current interest liability on money borrowed for the acquisition, construction, repair, renewal or construction of the property. It has been noticed that in many cases, taxpayers show negative income from house property, largely because of the deduction allowed in respect of interest on money borrowed. This negative income is then set off against income from other sources such as salaries, business or professional income etc. 26.5 The Finance Act has amended the provisions in Chapter VI of the Income-tax Act, relating to carry forward and set off, with a view to providing. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not apply to any shortfall in the payment of any tax due on the assessed income or returned income where such shortfall is due to the restriction on the quantum of unabsorbed depreciation or investment allowance and the assessee has made good the shortfall by paying the amount before filing the return of income under section 139(1). 28.3 This section will take effect from 1st April, 1992, and will accordingly, apply in relation to the assessment year 1992-93 only. [Section 13] Enlarging the meaning of "financial corporation to include "Government); company" 29. Under the provisions of clause (viii) of sub-section (1) of section 36 of the Income-tax Act, a deduction in respect of a special reserve of an. amount not exceeding 40% of the total income, as stipulated therein, carried to such reserve account is allowed, within specified limits, inter alia, to a financial corporation engaged in providing long-term finance for industrial or agricultural development. 29.1 The term "financial corporation" has been defined in the Explanation to the aforesaid clause to include a public company. It has been provided in clause (b) of the Explanation that public company shall have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. Under the provisions of sub-section (1) of section 41 of the Income tax Act, where an assessee who has been allowed deduction in respect of any loss, expenditure or trading liability in any year obtains any amount in respect of such loss or expenditure or any benefit in respect of trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him is deemed to be profits and gains of business or profession. However, it has been held by Courts that such an amount or benefit can be charged to tax only if the assessee who receives the amount or benefit is the same person who was allowed the deduction earlier. 31.2 With a view to ensuring that there is no loss of revenue and undue enrichment, sub-section (1) of section 41 has been substituted by the Finance Act, 1992, so as to bring to tax the amount or benefit, as the case may be, also in cases where the recipient is a successor in business and is other than the person who- was allowed the deduction earlier. 31.3 This provision will take effect from 1st April, 1993, and, will, accordingly, apply for the assessment year 1993-94 and subsequent assessment years. [Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply. Accordingly, assessees deriving income of the nature referred to in the aforesaid provisions have been excluded from the purview of compulsory audit. 33.2 The amendment will take effect retrospectively from 1st April, 1985, and, will, accordingly, apply to assessment year 1985-86 and subsequent assessment years. [Section 20] Withdrawal of Presumptive tax in respect of certain trades 34. Under section 44AC of the Income-tax Act, for computing profits and gains of persons engaged in the trading of country liquor, timber obtained under forest lease, timber obtained by any other mode other than under a forest lease and any other forest produce not being timber, a prescribed percentage of the purchase price is deemed to be the profit in respect of trading in such specified goods. 34.1 Having regard to the controversy on the interpretation of the provisions of section 44AC and the administrative difficulties in the implementation of this provision, this section has been deleted through the Finance Act. 34.2 This amendment takes effect from 1st April, 1993, and accordingly, applies in relation to the assessment year 1993-94 and subsequent years. 34.3 However, section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mprovement thereto; 35.2 "Indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the first day of April, 1981, whichever is later. Similarly, "Indexed cost of any improvement " means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place. "Cost Inflation Index" for any year means such index as the Central Government may, having regard to 75% of average rise in the Consumer Price Index for urban non-manual employees for that year, by notification in the official gazette, specify in this behalf. The Cost Inflation Index for the financial years 1981-82 to 1992-93 have been notified as under Financial Year Cost Inflation Index 1981-82 100 1982-83 109 1983-84 116 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ements taking place on or after this date will be taken into account for indexation. 35.6 For the financial year 1981-82, Cost Inflation Index is 100 and the C. I.I. for each subsequent year would be determined in such a way that 75% of the rise in Consumer Price Index for urban non-manual employees would be reflected in the rise in C.I.I. It would be seen that the date of transfer of an asset would be immaterial as long as it is within a particular financial year. That means that transfers of assets in any part of the year would be subject to indexation using the same C.I.I. as applicable to an asset transferred on 1st April of the year. This has the effect of all the assets transferred during the year to be deemed to be sold on the first day of the year. 35.7 These amendments come into force with effect from 1st April, 1993, and accordingly, will apply to assessment years 1993-94 and subsequent years. 35.8 The provisions of section 53 have been omitted with effect from 1-4 1993, and, accordingly, will not apply for assessment years 1993-94 onwards. Under the existing. provisions long-term capital gains arising to an individual or a Hindu undivided family from sale of a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, the provisions of section 54E will be enforced in respect of only such cases where the assessee has made deposits or investments in specified assets from out of the advance money received on or before 29-2-1992. 35.12 These amendments will come into force with effect from 1-4-1992 and will accordingly apply to assessment year 1992-93 and subsequent years. 35.13 Section 47 prescribes certain transactions which are not regarded as transfers for the purpose of computing capital gains. One of these is contained in clause (vi) which refers to any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company, if the amalgamated company is an Indian company. It has been represented that, in the case foreign companies, which have invested in Indian companies, a situation may arise where there may be transfer of shares of the Indian company from one foreign company to another by way of amalgamation. The Finance Act has, therefore, inserted a new clause (via) in section 47 providing for one more situation where there is no transfer, in a scheme of amalgamation, of a capital asset, being a share or shares held in an Indian company, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income-tax payable on the total income without including in it the long-term capital gains. Surcharge is payable on the capital gains tax on the same lines as that on other income. 35.17 These amendments come into force with effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. 35.18 As a consequence of recasting of the provisions of section 48, the Explanation to subsection (2) to each of sections 54, 54B, 54D, 54G and Explanation to sub-section (4) of section 54F have been omitted. These explanations provide for disallowance of the initial deduction of Rs. 15,000 under sub-section (2) of section 48 while charging tax on capital gains, exempted earlier and subsequently withdrawn, when certain conditions laid down in the respective sections granting exemption from capital gains tax are breached in subsequent years. 35.19 As a consequence of omission of section 53, section 45 has been amended so as to omit reference to section 53. Section 54H has been amended to omit reference to section 54E in it. As per the new provisions of section 48, non-residents have been protected from fluctuation of rupee value in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t parent whose total income is greater. Once clubbing of minor's income is done with that of one parent, it will continue to be clubbed with that parent only, in subsequent years. The Assessing Officer may, however, club the minor's income with that of the other parent if, after giving the other parent an opportunity to be heard, he is satisfied that it is necessary to do so. Where the marriage of the parents does not subsist, the income of the minor will be includible in the income of that parent who maintains the minor child in the relevant previous year. 36.3 The Act has also inserted clause (32) in section 10 of the Income-tax Act, to provide that in case the income of an individual includes the income of his minor child in terms of section 64 of the Act, such individual shall be entitled to exemption of one thousand five hundred rupees in respect of each minor child if the income of such minor as includible under section 64 exceeds that amount. However, where the income of any minor so includible is less than one thousand five hundred rupees, the aforesaid exemption shall be restricted to the income so included in the total income of the individual. This provision is to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a deduction from the income, a tax rebate of 20 per cent. of the amount invested in the. National Savings Scheme or an annuity plan of LIC (such as Jeevan Akshay and Jeevan Dhara) or any Equity Linked Savings Scheme will be allowed. The enhanced overall investment level of Rs. 60,000 is subject to the condition that, in respect of Equity Linked Savings Schemes, the tax rebate will be allowed only for subscription up to Rs. 10,000 during the previous year. 37.3 A person who has already effected a contract for annuity plan of LIC will, if he continues with the annuity plan, now be eligible for the tax rebate under section 88. However, in order to mitigate the hardship of any person who desires to opt out of the annuity plan of the LIC before 1st October, 1992, as a result of the withdrawal of the tax concession under section 80CCA, the amount received on surrender of such annuity plan will not be deemed to be his income in the year of receipt. 37.4 Under the existing provisions of section 80L of the Income-tax Act, deduction in respect of income from interest on certain securities, deposits, debentures as well as income from dividends and from units of the Unit Trust of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 80DD as against six thousand allowed earlier. Further, since treatment and rehabilitation of handicapped dependants is a heavy burden on all parents, no matter what their level of income be, the income ceiling of one lakh rupees for being eligible for this deduction has been removed. 39.2 These amendments will take effect from 1st April, 1993, and will accordingly apply in relation to assessment year 1993-94 and subsequent years. [Section 45] Rationalisation of provisions relating to tax concession for export profits 40. Under the provisions of section 80HHC of the Income-tax Act, exporters are allowed, in the computation of their total income, a deduction of the entire profits derived from export. There exists a dual system for computation of export profits. The first method operates in cases where the export is of goods manufactured by the taxpayer. The export profit is computed on the basis of the ratio of export turnover to. total turnover. In effect, - export turnover 80HHC concession = export profits - total profits × ____________________ total turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods x ________________________________ total export turnover 40.2 These amendments will take effect from 1st April, 1992, the date from which the dual system of computation of export profits comes Into effect. [Section 46] Rationalisation of the Definition of "small scale industrial undertaking" in the provisions relating to concessions for new industrial undertakings 41. Section 80-IA of the Income-tax Act, provides that, in computing the total income of a taxpayer, a deduction of 25 to 30 per cent. of the profits earned by a new industrial undertaking or a hotel or a ship is allowed for a period of ten years. In the case of a hotel set up in a remote area, this deduction is allowed at the rate of 50 per cent. of the profits earned. In the case of co-operative societies, the deduction is for an increased period of twelve years. The deduction is not allowed if the industrial undertaking manufactures or produces any article listed in the Eleventh Schedule to the Income-tax Act. This condition, however, does not apply to small scale industrial undertakings. 41.1 With a view to bringing the definition of "small scale industrial undertaking" in the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rupees. 43.1 This amendment will take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Section 52] Tax incentive for investment in bonds or shares of Indian companies issued abroad 44. Under section 115AB of the Income-tax Act, in the case of offshore funds, income in respect of units purchased in foreign currency and income by way of long-term capital gains arising from the transfer of such units are charged to tax at the rate of ten per cent. 44.1 The Government had approved, in principle, the scheme of permitting issue abroad of foreign currency convertible bonds/equity by established Indian companies. These bonds and shares can be purchased by the non-residents in foreign currency. The object of the scheme is to augment the foreign exchange resources of the country. It was, therefore, necessary that the tax regime for the non-resident investors of these bonds/ equities was competitive vis-a-vis tax regime of other such instruments of investment available in the international market. Accordingly, a new section 115AC has been inserted in the Income-tax Act to provide for special rates of tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their taxes, the Finance Act has introduced a new simplified procedure for taxation. The new procedure is intended to help small shopkeepers in meeting their tax liability by filing a simple statement-cum-challan at the bank counter without having to go through the intricacies of income-tax law and procedure. The salient features of the simplified procedure are as follows : (a) the scheme is optional ; (b) it is open to individuals and HUFs, not assessed to tax earlier, who have income of not more than Rs. 35,000 from the business of retail trade or of running an eating place or any vocation and, in the case of business of retail trade, have an annual turnover of upto Rs. 5 lakhs ; (c) a person carrying on the business of retail trade and opting for the simplified procedure will be deemed to have a turnover of Rs. 5 lakhs and his total income will be deemed to be seven per cent. of this turnover. Thus, in effect, his total income will be presumed to be Rs. 35,000. A person running an eating place or engaged in any vocation and opting for the simplified procedure will be deemed to have total income of Rs. 35,000. Thus, the tax in respect of income from the business of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the return of income in certain case 46. Section 139(1A) of the Income-tax Act provides that if the total income of a person consists only of income chargeable under the head " Salaries " or income chargeable under that head and also income in the nature of dividends, interest or income from units referred to in clauses (j) and (ix) of sub-section (1) of section 8OL, it is not necessary for such a person to furnish a voluntary return of income, subject to certain conditions. 46.1 As the Finance Act restricts the deduction under section 80L from Rs. 13,000 to Rs. 7,000 and also raises the income-tax exemption limit from Rs. 22,000 to Rs. 28,000, it also omits the provisions of sub-section (1A) of section 139. It is only in order that the persons who pay income tax are on the register of the Income-tax Department. 46.2 The aforesaid amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [Section 59] Modification in the procedure for assessment 47. Under section 143(1A) of the Income-tax Act, an assessee is required to pay additional income-tax at rate of 20 per cent. of the tax payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Income-tax Act or not. In the case of a registered firm, the firm paid tax on its total income according to the rates prescribed in the Schedule for registered firms. An unregistered firm was taxed at the rates applicable to individuals, with the share income included in the hands of the partners for rate purposes only. There has been a consistent demand for removal of the double taxation. A new scheme of assessment of firms has been introduced from assessment year 1993-94. The scheme is modelled after the scheme introduced by the Direct Tax Laws (Amendment) Act, 1987, with suitable modifications to take care of the difficulties pointed out in the context of the 1987 Scheme. The scheme contained in Direct Taxes Laws (Amendment) Act, 1987, sought to tax firms at the maximum marginal rate after allowing interest and remuneration to partners. Further there was a rigorous definition of "whole time working partners " to whom alone remuneration was payable. The deduction for remuneration and interest allowable to partners and allowing remuneration to any partner or partners at the discretion of the firm have been suitably restructured. 48.1 A firm will now onwards be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofession ". 48.4 The payment of remuneration only to a working partner is allowable (defined in Explanation 4 to section 40(b)). Only individuals are capable of being working partners. 48.5 The payments should be duly authorised by and in accordance with the terms of the partnership deed. These payments will be allowed as deduction only for a period beginning with the date of the partnership deed and not for any earlier period. Thus, if a partner is allowed a higher remuneration by varying the terms of the deed on a particular date, such higher remuneration cannot be allowed to him for any period prior to the said date. However, as the financial year 1992-93 had already commenced by the time the Bill received the Presidential assent, it would not have been possible for assessees to change the partnership deed with effect from 1-4-1992. Therefore, the Finance Act has provided that for the previous year 1992-93, interest or remuneration would be allowed if the partnership deed provides for such payment anytime during the accounting period. Thus, for the previous year 1992-93, relevant to the assessment year 1993-94, the terms of the partnership deed may be amended to have retr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mind the assurance given by the Finance Minister to Parliament. 48.8 Interest paid to a partner would be allowed as a deduction in the hands of the firm. The payment of interest should be in pursuance of the partnership deed. The maximum rate of interest allowed would be 18% simple interest per annum. [section 40(b)(iv)] 48.9 Changes have been made in the scheme of set off and carry forward of losses. The existing provisions relating to firms and their partners in sections 76 and 77 have been omitted. Under the new scheme, the firms are treated as a separate entity and the losses suffered by them would be allowed to be carried forward in their hand only. There would be cases where brought forward losses apportioned to a partner have not been set off in the hands of the partner prior to assessment year 1992-93. A provision has been made for dealing with brought forward losses pertaining to assessment years prior to assessment year 1993-94. In such cases, the carried forward losses of a partner will be allowed as a set-off in the assessment income of the firm subject to the condition that the partner continued to remain a partner in the said firm [section 75]. 48.10 Althou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 194H of the Income-tax Act, to provide that the deduction of income-tax at source from income by way of commission or brokerage will not be required to be made on or after 1st June, 1992. 49.2 Under the provisions of section 194C of the Income-tax Act, income-tax is deductible at source from income comprised in payments made by the persons stipulated therein to resident contractors engaged for carrying out any work (including supply of labour for carrying out any work) at the rate of two per cent., of such payments. Statutory authorities set up for the purpose of development or improvement of cities, etc., registered societies, trusts and universities, which award contracts for carrying out works involving substantial consideration were not referred to in section 194C. 49.3 The Act, therefore, amends section 194C of the Income-tax Act, with a view to including the following categories of persons who will be required to deduct income-tax at source from payments made by them to contractors : (i) any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purposes of planning, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 197 of the Income-tax Act, with a view to making the provisions thereof applicable to any person including a company. 49.8 As all the persons are proposed to be covered within the ambit of section 197 of the Income-tax Act, the Act also amends section 193 of the Income-tax Act, relating to interest on securities, with a view to omitting the first proviso to section 193, which enabled the Central Government to specify a lower rate at which deduction of income-tax is to be made in respect of a scheduled bank. 49.9 Under the provisions of the proviso to sub-section (1) of section 194A, relating to deduction of tax at source from income by way of interest other than interest on securities, a person (other than a company or a registered firm) could furnish an affidavit or a statement in writing for non-deduction of income-tax at source in its case. The statement in writing had to be signed in the presence of a gazetted officer, etc. On the other hand, sub-section (1) of section 197A of the Income-tax Act also provided for furnishing of a declaration by a resident individual deriving income from interest other than interest on securities, for the purpose of non deduction of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 15th day of September, and (ii) sixty per cent. of the tax due on the returned income and advance tax paid by the assessee on or before the 15th day of December. 50.5 The aforesaid amendment takes effect from 1st June, 1992. 50.6 The Act also makes an amendment of clarificatory nature in the Explanation to sub-section (1) of section 234C to make it clear that interest under that section will be chargeable even in cases where no advance tax is paid. 56.7 This amendment takes effect retrospectively from 1st April, 1989. [Sections 80 and 81] Reduction in the period for claiming deduction 51. Under the provisions of section 239 of the Income-tax Act, as these hitherto existed, a taxpayer claiming refund had to file a claim in the prescribed form within a period of two years from the last day of the assessment year to which the claim for refund related. Every claim for refund has to be accompanied by a return of income unless the claimant has already filed such return. However, under the provisions of sub-section (4) of section 139, a refund of income can be filed only within a period of one year from the date of the relevant assessment year or before the completion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 245-I or has become final, as the case may be, in terms of the provisions of Chapter XX of the Income-tax Act. The period of three years shall stand extended by one year in certain cases where the sale falls through. Further, certain periods during which the order is stayed by any court, are also to be excluded from the aforesaid period of limitation. 53.3 This amendment takes effect from 1st June, 1992. [Section 87] WEALTH-TAX Restructuring of the taxation of wealth 54. With a view to stimulating investment in productive assets, the Finance Act has abolished wealth-tax on all assets except certain specified assets. The term "asset" will include guest houses and residential houses including farm houses within twenty-five kilometres from the local limits of any municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board but does not include a house which has been allotted by a company to an employee or an officer, or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to wealth-tax, simultaneously claiming the benefit of a deduction in respect of such a charge. 54.4 The list of assets which were exempt from wealth-tax contained in section 5 of the Wealth-tax Act have been substantially reduced by the Finance Act, 1992. The exemption is now available in respect of the following five categories of assets only : (a) any property held by the assessee under trust or other legal obligation for any public purpose of a charitable or religious nature in India. (b) the interest of the assessee in the coparcenary property of any Hindu undivided family of which the assessee is a member, since the asset is already liable to tax in the hands of the Hindu undivided family. (c) any one building which was in the occupation of a Ruler which, before the commencement of the Constitution (Twenty-sixth) Amendment, was declared as his official residence. (d) jewellery in the possession of a Ruler, not being his personal property and recognised by the Government as his heirloom or which the Board had recognised as his heirloom at the time of his first assessment to wealth-tax. (e) moneys and value of assets or the value of assets acquired by a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lth on the valuation date of every individual, Hindu undivided family and company at the rate of one per cent. of the amount by which the net wealth exceeds fifteen lakhs rupees. 54.10 These amendments will come into effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Sections 89 to 102] INTEREST-TAX Modification of the scope of the term "credit institution" 55. Under the provisions of the Interest-tax Act, 1974, tax is levied at the rate of 3 per cent. on the gross interest income accruing or arising to a credit institution. "Credit institution" has been defined in clause (5A) of section 2 of the Act to include, inter alia, a banking company or a co-operative society engaged in the business of banking, not being a co-operative society providing credit facilities to farmers or artisans. 55.1 With a view to encouraging the growth of the co-operative movement in the country, the Finance Act has exempted from the levy of interest-tax, co-operative societies engaged in the business of banking. Further, chargeable inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last few years, inflation adjustment has been imperative. In view of this, the Finance Act has raised the chargeability criterion to expenditure incurred in hotels where the room charge for any unit of accommodation is Rs. 1,200 or more per day per individual. 56.2 After the exchange rate adjustments made last year and the liberalised exchange rate mechanism announced this year, there is no justification in allowing exemption in respect of payment made in foreign exchange especially. In view of this, the Finance Act has withdrawn the exemption granted in respect of payment made in foreign exchange after 30th September, 1992. 56.3 By the Finance (No. 2) Act, 1991, the scope of expenditure tax had been extended to expenditure incurred in air-conditioned restaurants. The tax was levied at the rate of 15 per cent. on the expenditure incurred in, or any payment made to, such restaurants for the provision of food and drink. The Finance Act, 1992, has withdrawn the levy of expenditure tax on air-conditioned restaurants with effect from 1st June, 1992. [Sections 105 to 108] (Sd.) K. M. Sultan, Director (TPL-II). - Circular - Trade Notice - Public Notice - Instructions - Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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