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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 ..... tted 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 income-tax on current incomes in certain cases for the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e % 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 country, providing exemption in the case of winnings from races including horse rac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 association of persons governed by the Portuguese system of community of property, having income exceeding seventy-five 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 calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Income-tax will be levied in the case of every firm at the rate of forty per cent. on the whole of the total income. The distinction for income-tax rate purposes between firms deriving income mainly from profession and other firms has been deleted. IIID. Local Authorities 10. In the case of local authorities, the rate of income-tax has been specified in Paragraph D of Part III of the First Schedule to the Act. In such cases, income-tax will now be levied at the rate of thirty per cent. instead of at the rate of fifty per cent. as in the past, on the whole of the total income. IIIE. Companies 11. In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule to the Act. Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated 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 regard to an item of income in a tax treaty entered into by the Central Government with the Government of a country outside India, tax had to be deducted at the rate prescribed in the Income-tax Act, or the relevant Finance Act. As a result, in many cases, the amount of tax deducted from sums remitted to the residents of tax treaty partner countries was larger than the final tax liability, thus requiring filing of claims for refund. 15.1 With a view to correcting this position, the Act amends section 2(37A) of the Income-tax Act to secure that deduction of tax at source from payments made to non-residents will be at the rate or rates of tax specified in an agreement entered into by the Central Government under section 90 of the Income-tax Act, or the rate or rates of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. 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 foreign testing of indigenous raw materials and products and indigenously developed technology, the powers of the Government have been delegated to the Reserve Bank of India. 17.4 The Act, therefore, amends,-- (i) section 10(6)(viia) of the Income-tax Act, so as to omit the condition of approval by the Central Government of the contract of service of a foreign technician or extension of his employment after a period of 24 months commencing from the date of his arrival in India. (ii) section 10(6A) of the Income-tax Act to provide that the agreement under which royalty or fees for technical services received by a foreign company, should either be approved by the Central Government or where the agreement relates to a matter included in the Industrial Policy, for the time being in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 repayment, shall not be included in the total income of the person. The effect of the aforesaid provision is that the cost of borrowing in the case of the financial institutions specified in the said item is reduced. 19.1 The Act amends section 10(15)(iv)(d) of the Income-tax Act with a view to including Small Industries Development Bank of India among the financial institutions mentioned in the said item. 19.2 This amendment takes effect retrospectively from 1st April, 1992. [Section 4] Enlarging the scope of the provision relating to exemption of income of specified Mutual Funds 20. Section 10(23D) of the Income-tax Act hitherto provided exemption from income-tax to any of such Mutual Funds set up by a public sector bank or a financial institution as the Central Government may by notification in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, 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] Provisions relating to charitable trusts and other institutions 23. Under the existing provisions of section 13(1)(d) of the Income-tax Act, exemption from income-tax provided to a charitable or religious trust or institution will be forfeited if any funds of the trust or institution are invested or deposited after 28th February, 1983, otherwise than in any one or more of the forms or modes specified in section 11(5) of the Act. The specified forms or modes of investment, generally, are Government securities, units of the Unit. Trust of India, bonds issued by certain financial corporations, deposits in Post Office Savings Bank or in any scheduled bank or immovable property other than plant or machinery. However, the proviso to section 13(1)(d) provided that the aforesaid provisions shall not apply to,-- (i) any assets held by the trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntific 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 Act. If there is a violation of the aforesaid requirement, the exemption from income-tax is denied to such associations, institutions, trusts, etc. It is also provided that where the funds are not so invested, such investments are to be converted into permissible investments by 30th March, 1992. 23.4 It had been represented that whereas the trusts or institutions which claim exemption under section 11 are allowed to retain the assets forming part of their corpus as on 1st June, 1973, or debentures of a company or corporation acquired before 1st March, 1983, this facility was not available to the associations, institutions, trusts, etc. referred to in sections 10(21), 10(23) and clauses (iv) and (v) of section 10(23C). 23.5 The Act, therefore, amends the aforesaid provisions to provide that in case of the associations, institutions, funds or trusts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption, 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 case of hospitalisation. The exemption has now been extended to expenses incurred by the employer on medical treatment of the employee or his family in hospitals other than those approved by the Government for the medical treatment of its employees. However, this concession will be allowed only where the payment in respect of the expenditure is made directly by the employer to the hospital and in respect of specified diseases or ailments which have been prescribed in the Income-tax Rules. The hospitals and nursing homes, treatment in which the concessions will be extended to, will be those approved by the Chief Commissioner of Income-tax in accordance with prescribed guidelines. 25.2 Under the existing provisions of section 17 of the Income-tax Act, there is a restriction that the expenditure on travel abroad for medical treatment would be exempt only in the case of emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest 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. that the loss from house property will not be allowed to be set off against income under any other head of income. Further, the carry forward of loss of any year from house property will be allowed to be set off only against income from house property of subsequent years. 26.6 These amendments will take effect from 1st April, 1993, and will, accordingly apply in relation to assessment year 1993-94 and subsequent years. [Sections 9, 10, 37 and 38] Extension of benefit of section 33AC to Government shipping companies 27. Under the provisions of section 33AC of the Income-tax Act, before being amended by the Finance Act, a deduction of an amount credited to a reserve account for the purpose of utilisation in a specified manner was allowed, subject to certain conditions, in case of a public company formed and registered in India with the main object of carrying on the business of oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 the meaning assigned to it in section 3 of the Companies Act, 1956. As the expression " public company" does not include "Government company", the deduction was not available to Government companies. The Finance Act has enlarged the definition of "financial corporation" so as to include "Government company" as defined in section 617 of the Companies Act, 1956, to become eligible for deduction under clause (viii) of sub-section (1) of section 36. 29.2 This amendment will take effect retrospectively from 1st April, 1987, and, will, accordingly, apply in relation to assessment year 1987-88 and subsequent assessment years. [Section 14] Increasing the limit of allowable business expenses 30. Under section 37 of the Income-tax Act, there were restrictions on the quantum of expenses allowable as entertainment expenditure. Similarly, there were restrictions under sub-section (12) of section 40A of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. [Section 18] Raising of monetary ceiling of income and turnover for the purpose of maintenance of accounts 32. Under the provisions of section 44AA of the Income-tax Act, every person carrying on business or profession other than the profession specified in sub-section (1) thereof (legal, medical, engineering profession etc.) is to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Income-tax Act, if, - (i) his income from business or profession exceeds Rs. 25,000 or his total sales, turnover or gross receipts exceed rupees two hundred and fifty thousand in any one of the three years immediately preceding the previous year, or (ii) his income from business or profession, where the business or profession is newly set up in any previous year, is likely to exceed twenty-five thousand rupees or his total sales, turnover or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, 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 206C providing for collection of tax at source in respect of these cases shall continue to remain in force with certain amendments consequential to the deletion of section 44AC of the Income-tax Act. The amended section takes effect from 1st April, 1992. [Sections 21 and 79] Taxation of capital gains 35. The Finance Act has recast the system of taxation of long-term capital gains. At present, an asset is considered to be long-term if it is held for a period of more than 36 months except for shares of a company, where the period of holding should be more than 12 months. This definition continues to be the same in the changed format. In the scheme prior to 1-4-1992, a basic deduction of Rs. 15,000 and a fixed percentage of the balance amount of capital gains was allowed as deduction under section 48(2). The percentage depended on the nature of the asset and the status of the assessee, but was unrelated to the length of the period of holding. This deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 1992-93 have been notified as under Financial Year Cost Inflation Index 1981-82 100 1982-83 109 1983-84 116 1984-85 125 1985-86 133 1986-87 140 1987-88 150 1988-89 161 1989-90 172 1990-91 182 1991-92 199 1992-93 223 35.3 Under the provisos to section 48(1)(a), non-resident Indians were given protection from fluctuation in the rupee value in terms of the foreign currency utilised for the purpose of shares or debentures while computing capital gains on transfer of assets being such shares or debentures. Under the first proviso to section 48, the protection has now been extended to all non-residents in respect of long-term capital gains arising, out of transfer of shares and debentures originally purchased by utilising foreign currency. However, in the earlier scheme, the non-resident Indians were allowed further deduction under section 48(2). As protection from fluctuation in rupee value in terms of foreign currency ensures protection from inflation, further relief in terms of indexation will not be available to non-residents who will enjoy the concession available in the first proviso to section 48. 35.4 These amendments come into force with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,00,000. If it exceeds Rs. 2,00,000 then a proportionate amount out of the capital gains is exempt from lax. As a measure of rationalisation, this provision has been withdrawn from assessment year 1993-94. 35.9 Exemption from tax in respect of long-term capital gains is allowed under section 54E to the extent the net consideration is invested or deposited in any specified asset prescribed in that section. As a measure of rationalisation and simplification, this provision also stands withdrawn from assessment year 1993-94. The provisions of section 54E will be available for all sales made before 1-4-1992, if the whole or any part of the net consideration is invested in specified assets within six months after the date of such transfer. 35.10 According to the second proviso to section 54E(1), as it stood before 1-4-1992, where long-term capital gains arises out of compulsory acquisition of an asset under any law and there is any delay in receipt of the compensation, then the period of six months for depositing or investing in specified assets was to be reckoned from the date immediately following the date on which such compensation was received by the assessee. However, as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be fulfilled :-- (a) At least 25% of the shareholders of the amalgamating foreign company should continue to remain shareholders of the amalgamated foreign company. (b) Such transfer, in a scheme of amalgamation, does not attract tax on capital gains in the country, in which the amalgamating company is incorporated. A consequential amendment has been made in section 49(1)(iii)(e) that in a case where the amalgamated foreign company comes to hold shares in an Indian company by way of transfer from the amalgamating foreign company, the cost of the capital asset shall be deemed to be the cost for which the amalgamating company acquired it. 35.14 These amendments come into force with effect from 1st April, 1993, and will accordingly apply in relation to the assessment year 1993-94 and subsequent years. 35.15 Long-term capital gains is to be taxed separately at a flat rate and other incomes at appropriate slab rates prescribed in the Finance Act. For an assessee having income from long-term capital gains, the manner of taxation has been prescribed in a new section 112 inserted through the Finance Act, 1992. The rates of taxation for long-term capital gains are as under : S.No Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 48 will not be applicable. Sub-section (2) of each of sections 115AB and 115D have been amended to provide that while computing long-term capital gains, indexation in terms of the second proviso to section 48 shall not be applicable. 35.20 These amendments come into force with effect from 1-4-1993 and, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Sections 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 53 55 and 57] Clubbing of minors' income 36. Section 64 of the Income-tax Act provided that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to a minor child of such individual from-- (i) the admission of the minor to the benefits of partnership in a firm, (ii) assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration, and (iii) assets transferred directly or indirectly by such individual to any person or association of persons otherwise than for adequate consideration, to the extent to which income from such assets is for the immediate or deferred benefit of such individual's minor child. 36.1 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1993-94 and subsequent years. [Sections 4 and 35] Modification of the tax concessions relating to savings 37. Under the provisions of section 80CCA of the Income-tax Act, full deduction is allowed from the gross total income of a taxpayer in respect of deposits made under National Savings Scheme or payment to a deferred annuity plan subject to a limit of Rs. 40,000. When any amount standing to the credit of the taxpayer under the aforesaid schemes in respect of which a deduction has been allowed, together with interest accrued thereon, is withdrawn, it is deemed to be the income in the year of withdrawal. Similarly any amount received on surrender of a policy or as annuity or bonus in accordance with the notified annuity plan of the Life Insurance Corporation is also deemed to be the income of the taxpayer in the year of its receipt. 37.1 Likewise, the provisions of section 80CCB stipulate full deduction in relation to investment made in the units of any plan, framed in accordance with the Equity-Linked Savings Scheme of specified Mutual Funds or of Unit Trust of India, subject to a limit of Rs. 10,000. When an amount in respect of which deduction has been allowed is return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the concession available under section 80L, the deduction has been reduced to Rs. 7,000 in all cases without any additional deduction allowed earlier in respect of income from certain savings instruments. 37.6 These amendments will take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Sections 42, 43, 48 and 51] Increase in the tax relief in respect of medical insurance premia 38. Under the provisions of section 80D of the Income-tax Act, a deduction of Rs. 3,000 is allowed in respect of any sum paid by an assessee to effect an insurance on his health and that of his family (including dependent parents). 38.1 Since self-employed persons do not have the support of any employer for their medical treatment, it is necessary to provide adequate incentives to them for effecting medical insurance for themselves and for their families in order to cover unforeseen expenses on account of medical treatment. It is also desirable to encourage salaried persons who are not provided adequate medical facilities by their employers to take up medical insurance. In view of this, section 80D has been amended with a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts + indirect costs) "Trading goods" have been defined to mean goods not manufactured by the assessee. Thus, even where goods are processed by the taxpayer, they are treated as trading goods. To remove !his anomaly, the Finance Act, 1992, has amended the definition of "trading goods" to mean "goods not manufactured or processed by the assessee". Thus, in effect, where goods processed by the taxpayer are exported, the first method of computation will apply. 40.1 Another amendment to section 80HHC made by the Finance Act, 1992, relates to the provision concerning the disclaimer of the tax concession under section 80HHC by a recognised Export or Trading House in favour of supporting manufacturers. When an Export or Trading House disclaims the concession, the tax concession in the case of the Export or Trading House is reduced by the amount which bears to the total export profits of the assessee the same proportion as the disclaimed export turnover bears to the total export turnover. That is to say,-- 80HHC concession = export profits disclaimed export turnover] - [export profits x ________________________________ total export turnover With the adoption of the dual system f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 88 of the Income-tax Act, a rebate at the rate of 20 per cent. of the amount paid by way of life insurance premia, contribution to provident fund or subscription to certain notified schemes etc., is allowed to an individual from the tax payable. This is subject to a limit of fourteen thousand rupees in the case of authors, playwrights, artists, musicians, actors and sportsmen. 42.1 The earning life of an author, playwright, artist, musician, actor or sportsman from his respective profession is substantially shorter than in most other cases. His earnings depend substantially on popularity, current trends and form. He, therefore, requires an incentive for higher than normal savings during the short but active and remunerative period of his career. With this end in view, the Finance Act has provided for a higher tax rebate for authors, playwrights, artists, musicians, actors and sportsmen, at the rate of 25 per cent. of the contribution to life insurance premia, provident fund or subscription to certain notified schemes, etc., as against 20 per cent. allowed normally. The ceiling of the maximum rebate in their case has been raised from fourteen thousand rup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above without allowing for any deduction under sections 2 8 to 44C, 48 and 5 7 and Chapter VI-A. The provisions for protection from fluctuation of rupee value against foreign currency for computing capital gains in the case of non-residents are not to apply to the aforesaid shares. Further, when the said bonds or shares are transferred outside India by a non-resident to another non-resident, it is not to be regarded as transfer for the purpose of capital gains tax. It has also been provided that it shall not be necessary for a non-resident to furnish a return of income under section 139(1) if his total income consists only of interest or dividends referred to above and tax has been deducted on such income. 44.3 These amendments take effect from 1st April, 1993, and, accordingly, apply in relation to assessment year 1993-94 and subsequent assessment years. 44.4 In order to facilitate collection of tax from the non-resident investors of these bonds/equity, a new section 196C has been inserted in the Income-tax Act, to provide that any person responsible for paying any income payable in respect of these bonds, etc., shall deduct income-tax at the rate of ten per cent. of such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file any income tax return.Chapter XIV relating to " Procedure for assessment" will not apply in their case. Instead, a simple prescribed statement containing the name, address, nature of business, and a declaration that the conditions mentioned in (b) above are fulfilled ; (f) the tax is required to be paid along with the prescribed statement by the 31st March of the financial year in which the income is earned ; (g) there will be no enquiry nor assessment ; (h) no proceeding under any other provision of the Income-tax Act will be initiated against a person opting for the scheme, in respect of his income from retail trade, from running an eating place or from any vocation, for the assessment year for which the statement under the scheme has been filed, unless the Department has evidence in its possession that the statement furnished by the person is untrue ; (i) the scheme will be in force initially for two assessment years viz. assessment years 1993-94 and 1994-95. 45.1 For the purposes of this provision, vocation has been defined to include tailoring, hair-cutting, washing clothes, typing, photocopying, repair work of any kind and other services of a similar nature. Oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and, accordingly, applies to the assessment year 1989-90 and subsequent years. 47.2 Under the provisions of the Income-tax Act, an assessee can file an application for rectifying any mistake in the intimation referred to in clause (a) of sub-section (1) of section 143. The assessee can go in appeal only against the order passed under section 154 in respect of the application for rectification, no order of appeal being available against such intimation. In order to expedite the disposal of such applications and to provide a right of appeal within a fixed time frame, sub-section (2) of section 154 of the Income-tax Act has been amended. Under the amended provisions, the Assessing Officer is required to take action on the application for rectification within a period of three months from the end of the month in which the application is filed. Where no order is made within the said period, the assessee will have a right to appeal to the Deputy Commissioner (Appeals) or as the case may be, to the Commissioner (Appeals). 47.3 This amendment takes effect from 14th May, 1992, i.e. the date on which the Finance Bill, 1992, received the assent of the President. [Sections 60 and 61] Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l firms has been removed. Partners are not liable to tax in respect of the share of income from the firm. However, remuneration and interest allowed to partners will be charged to income-tax in their respective hands. The only distinction between professional and non- professional firms will be in respect of slabs for allowing deduction to firms in respect of remuneration. 48.2 The share of a partner in the income of the firm will not be included in computing his total income (section 10(2A)). However, interest, salary, bonus, commission or any other remuneration allowed by the firm to a partner will be liable to be taxed as business income in the partner's hand (section 2(24)(ve) and section 28(v)). An Explanation has been added to the newly inserted clause (2A) of section 10 to make it clear that the remuneration or interest which is disallowed in the hands of the firm will not suffer taxation in the hands of the partner. In case any remuneration paid to a partner is disallowed in the hands of the firm or the amount is varied in subsequent proceedings, the partner's assessment can be rectified (section 155(1A)). 48.3 The gross total income of the firm is to be determined in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the aggregate payment exceeds the limit of Rs. 50,000, certain monetary limits have been prescribed under section 40(b)(v) in the form of a percentage of "book profit" [defined in Explanation 3 to section 40(b)]. Up to a "book-profit" of Rs. 1,00,000 or a loss, in the case of a professional firm and Rs. 75,000 in the case of a nonprofessional firm, the limit is 90% of the "book-profit" or Rs. 50,000 whichever is higher. For "book-profit" exceeding Rs. 1,00,000 in the case of a professional firm and Rs. 75,000 in the case of a non-professional firm, the limit is 60% of the "book-profit" in this slab. For the balance of the "book-profit" after these two slabs, the limit is 40%. 48.7 Under the provisions of section 40A(2) an Assessing Officer can disallow any expenditure, if it is excessive, having regard to the legitimate needs of the business. There have been several representations on this issue. A demand has been raised that this provision should not be used in the case of remuneration paid by a firm to its partners, since a ceiling is already separately provided. The Finance Minister, in his speech dated 30-4-1992 in Parliament during the budget discussion stated as follows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilarly filed. Where a firm does not comply with the provisions of section 184 for any assessment year, the firm shall be assessed as for the assessment year in the same manner as an association of persons and all the provisions of this Act shall accordingly be applicable (section 185). [Sections 3, 4, 6, 11, 16, 35, 36, 39, 40, 41, 49, 62 to 69, 83, 84, 86 and 88] Modification of the provisions regarding deduction of tax at source 49. Under the provisions of section 194A of the Income-tax Act, deduction of income-tax at source is to be made from interest in respect of time deposits with banks, etc., at the rates in force. Similarly, under the provisions of section 194H of the Act, deduction of income-tax at source is to be made from income by way of commission (other than insurance commission) or brokerage, at the rate of ten per cent. thereof. These changes came into force from 1st October, 1991. 49.1 A large number of representations have been received from members of public, representative bodies and banks pointing out various difficulties which had. arisen on account of the operation of these provisions. Keeping in view these difficulties, the Act amends, - a section 194A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ten per cent. thereof. 49.5 In order to obviate the hardship in the cases of persons who have no tax liability or who have tax liability which is below the rate of deduction of tax at source prescribed in section 194G, the Act amends section 194G of the Income-tax Act to provide that where the Assessing Officer is satisfied that the total income of a person who is or has been stocking, distributing, purchasing or selling lottery tickets justifies the deduction of income-tax at any lower rate or no deduction of tax, as the case may be, the Assessing Officer, shall, on an application made by such person in this behalf, give to him such certificate as may be appropriate. It also seeks to provide that where any such certificate is given, the person responsible for paying the income by way of commission, remuneration or prize (by whatever name called) on lottery tickets shall, until such certificate is cancelled by the Assessing Officer, deduct income-tax at the rate specified in such certificate or deduct no tax, as the case may be. 49.6 Section 197 of the Income-tax Act provides that the Assessing Officer can issue a certificate to a non-corporate person for deduction of income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talments during each financial year. The due date of, and the amount payable in, each such instalment were as follows : Due date of instalment Amount payable On or before the 15th September Not less than 20% of such advance tax On or before the 15th December Not less than 50% of such advance tax, as reduced by the amount, if any, paid in the earlier instalment. On or before the 15th March The whole amount of such advance tax as reduced by the amount or amounts, if any, paid in the earlier instalments. 50.1 Thus, in the first instalment of advance tax, an assessee was required to pay minimum of 20% of advance tax only, even though about six months had passed in the financial year. Similarly, in the second instalment, an assessee was required to pay minimum of 50% of advance tax only, even though about nine months had passed in the financial year. 50.2 As a measure of rationalisation, the Act amends section 211 of the Income-tax Act to provide that the advance tax payable in a financial year,- (a) on or before the 15th day of September, shall not be less than thirty per cent., and (b) on or before the 15th day of December, shall not be less than sixty per cent. of such ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200. After the amendment, the fee will be Rs. 250, where the total income computed by the Assessing Officer is up to Rs. 1 lakh and Rs. 1,500 in cases where the total income as so computed is more than Rs. 1 lakh. The former type of cases would include cases where the total income computed by the Assessing Officer is a negative figure. 52.1 These amendments come into force with effect from 1st June, 1992. [Section 85] Provision of limitation for the sale of immovable property attached towards recovery of tax 53. Section 222 of the Income-tax Act prescribes the modes of recovery of tax from an assessee who is in default in making payment of tax, in accordance with the rules laid down in the Second Schedule to the Income-tax Act. One of the prescribed modes is attachment and sale of the assessee's immovable property. Part III of the Second Schedule to the Income-tax Act contains the rules for attachment and sale of immovable property. No limitation of time had been provided for sale of the immovable property attached towards recovery of tax. 53.1 The recovery provisions without the prescribed time limit of disposal of attached immovable properties had not proved as coercive and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent to assessment years 1993-94. "Urban land" means land situate-- (i) in any area which is comprised within the jurisdiction of a municipality (by whatever name called) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date ; or (ii) in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to above, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations specify in this behalf by notification in the Official Gazette. 54.2 The definition of urban land has been amended to exclude the following : (a) land on which construction of a building is not permissible on account of any law for the time being in force ; and (b) land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him. 54.3 The Finance Act has amended clause (m) of section 2 of the Wealth-tax Act to provide that only debts which have been incurred in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has no place of business in India ; (d) any social club ; (e) any political party ; (f) a Mutual Fund specified under clause (23D) of section 10 of the Income-tax Act. 54.6 Part C of Schedule III of the Wealth-tax Act relates to valuation of shares in or debentures in companies. The Finance Act has omitted these provisions as shares or debentures in companies are no longer assets for the purpose of wealth-tax. However, Schedule II of the Gift-tax Act, provides that the value of gifts of shares or debentures in companies will be taken as for wealth-tax purposes. It is clarified that for the limited purpose of valuation of these gifts, Part C of Schedule III of the Wealth-tax Act shall be taken into account. 54.7 Further, in order to prevent tax avoidance, it is proposed that the wealth of a minor, except in respect of such assets as have been acquired by a minor child from manual work or from any activity involving his specialised knowledge or experience, will be clubbed with the wealth of that parent whose net wealth (excluding the assets of the minor) is greater. It may be mentioned that the scheme of clubbing of minor's income adopted in the Income-tax Act has been incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the Government's intention is to impose tax on the gross amount of interest earned. by all banks, financial institutions and non-banking financial companies, in respect of loans and advances made in India, the Finance Act has included, in the definition of financial company, all residuary non-banking companies. 55.5 This amendment will take effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [Sections 103 and 104] EXPENDITURE-TAX Modification in the scope and applicability of expenditure tax 56. Under the provisions of the Expenditure-tax Act, 1987, a tax at the rate of 20 per cent. is levied on expenditure incurred in hotels where the room charge for any unit of accommodation is Rs. 400 or more per day per individual. This tax is charged on expenditure on food or drink, accommodation and other services incurred in a hotel. However, expenditure for which payment is made in foreign exchange or any expenditure incurred by persons within the purview of the Vienna Convention on Diplomatic Relations, 1961, or the Vienna Convention on Consular Relations, 1963, are exempt from levy of expenditure tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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