9911796707
TMI BlogFINANCE (NO. 2) ACT, 1998X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission, winnings from lotteries or crossword puzzles, winnings from horse races and income of non-residents (including non-resident Indi ans). Finance (No. 2) Act, 1998 Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in spe cial cases during the financial year 1998-99 4.3 The rates of deduction of income-tax at source from "Sal aries" during the financial year 1998-99 and also the computation of "advance tax" payable during that year in the case of various categories of taxpayers, have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 1998-99 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 that financial year or assessment of persons who are likely to transfer property to avoid tax, etc. The salient fea tures of the rates specified in the said Part III are indicated in the following paragraphs. 4.3- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eties - In the case of co-operative socie ties, 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. 4.3-4 Firms - In the case of firms, the rate of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Act. This rate is 35% which is the same as that specified in the corresponding paragraph of Part I of the First Schedule to the Act. 4.3-5 Local authorities - 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. This rate is 30% which is the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. 4.3-6 Companies - In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule of the Act. These rates are the same as those specified in the corresponding paragraph of Part I of the First Schedule to the Act. There is no change in the existing rates of 35% for domestic companies and 48% for foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. 5.8 Identical amendments have also been made in the Wealth-tax Act, Interest-tax Act, Gift-tax Act and the Expenditure-tax Act. 5.9 These amendments have taken effect from the 1st day of Octo ber, 1998. [Sections 3, 4, 39, 66, 67, 76, 77 82] Finance (No. 2) Act, 1998 Removal of certain exemptions 6.1 The remuneration received by foreign nationals who come to India in connection with shooting of a cinematograph film is exempt from income-tax under the provisions of clause (5A) of section 10. This provision was inserted with effect from 1-4-1982 and has since outlived its utility. The Act, therefore, omits the same. 6.2 Several perquisites of foreigners employed in India were exempt from income-tax under clause (6) of section 10. These include perquisites specified in the following sub-clauses :— 6.2-1 Sub-clause (i)(aa) provides for exemption in respect of passage fare of children, paid by the employer of a foreign national, proceeding to India during vacation. 6.2-2 Sub-clause (via) provides exemption in respect of remunera tion to employees or consultants of a foreign philanthropic b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes and not for the purposes of profit. In the absence of any monitoring mechanism for check ing the genuineness of their activities, these provisions have been misused. 8.2 The Act omits the aforesaid clause (22) and (22A) from the statute. The exemption would, however, continue in respect of any university or other educational institution, hospital or other medical institution which is wholly or substantially financed by Government, under the new sub-clause (iiiab) and (iiiac) inserted in section 10(23C) of the Income-tax Act by the Finance (No. 2) Act, 1998. 8.3 Further, under sub-clauses (iiiad) and (iiiae) in section 10(23C), the income of other educational and medical institutions would also be exempt if their annual receipts are below a limit to be prescribed. The limit has since been prescribed at Rs. one crore vide Notification No. SO 897(E) dated 12th October, 1998. 8.4 The income of the remaining educational and medical institu tions would be exempt if they are approved by the prescribed authority on application made by them under sub-clauses (vi) and (via) of section 10(23C). This approval would be subject to their adherence of conditions similar to those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ationalisation of clause (23G) of section 10 10.1 In recognition of the vital role played by the infrastruc ture in the development of economy, Finance (No. 2) Act, 1996 with effect from 1-4-1997, inserted section 10(23G) of the Income-tax Act to provide tax exemption to any 'infrastructure capital fund' or 'infrastructure capital company' in respect of income by way of dividends, interest and long term capital gains derived from investment in the form of shares or long term finance in an enterprise carrying on the business of developing maintaining and operating an infrastructure facility. This provision came in to effect from the assessment year 1997-98. 10.2 Since no safeguards had been provided to ensure that the tax free funds raised by companies were invested in infrastructure development, it was not possible to ascertain, whether the pur pose for which the section was introduced, viz., the development of infrastructure facility, was being achieved or not. To serve this purpose, the provisions of section 10(23G) have been amend ed by Finance (No. 2) Act, 1998 to provide, inter alia, that the exemption under this clause shall be available only in respect of the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, standard deduction of a sum equal to 331/3% of the salary or Rs. 20,000, whichever is less, is allowed to an individual having income from salary. 12.2 With a view to minimising the hardship that would have been caused to employees and also pensioners who are receiving salary or pension in the lower income slab, section 16 has been amended to raise the limit of standard deduction for assessees having salary income up to Rs.1,00,000 from Rs. 20,000 to Rs. 25,000. 12.3 The terms of employment of highly paid salaried employees are so arranged that these provide them benefit and facilities, whereby incidental expenses are not born by them. The amendment, therefore seeks to withdraw the benefit of standard deduction for the assessee having salary income of more than Rs. 5,00,000. The existing provisions of standard deduction shall continue to apply in respect of salary income between Rs. 1 lac to Rs. 5 lacs. 12.4 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 6] Finance (No. 2) Act, 1998 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... patents, copyrights, trade mark, licences or franchises or any other business or commercial rights of similar nature, ac quired on or after the 1st day of April, 1998. The Act also amends the definition of the term 'block of assets' so as to include these intangible assets within the meaning of block of assets. The rate of depreciation in respect of these intangible assets has since been prescribed at 25% vide Notification S.O. No. 781(E), dated 4-9-1998. 15.2 As a consequence of this amendment, the deductions allowable under section 35A of the Income-tax Act in respect of any expend iture of a capital nature incurred on the acquisition of patent rights or copyrights and under section 35AB in respect of expend iture on know-how have been withdrawn with effect from the as sessment year 1999-2000. 15.3 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Sections 9, 4, 12 13] Finance (No. 2) Act, 1998 Depreciation for power sector 16.1 Section 32 of the Income-tax Act was amended by the In come-tax (Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively from 1st day of April, 1998 and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years. [Section 9, 16 23] Finance (No. 2) Act, 1998 Site Restoration Fund 17.1 A new section 33ABA has been inserted in the Income-tax Act to provide for tax incentives to the petroleum and natural gas sector. This section provides for a deduction in computing the taxable profits in the case of an assessee carrying on business of pros pecting for, or extraction or production of, petroleum or natural gas both in India and in relation to which the Central Government has entered into an agreement with such assessee for such busi ness. The assessee will be allowed deduction in respect of the amounts deposited during the previous year in the special account with the State Bank of India in accordance with and for the purpose specified in the scheme approved by the Ministry of Petroleum and Natural Gas and in the Site Restoration Account opened by the assessee in accordance with and for the purposes specified in the scheme framed by the said ministry. The maximum amount of deduction will be rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion'. 17.6 The section also provides that where any amount standing to the credit of the assessee in the above accounts is withdrawn on closure of the account during any previous year by the assessee, the amount so withdrawn from the account, as reduced by the amount, if any, payable to the Central Government by way of profit or production share, as provided in the agreement referred to in section 42, shall be deemed to be the profits and gains of business or profession of that previous year and shall be taxed accordingly. Further, where any amount is withdrawn in a previous year on closure of the account, in which the business carried on by the assessee is no longer in existence, the provisions shall still apply as if the business is in existence in that previous year. 17.7 There is an overriding condition that the deduction under this section cannot be allowed in relation to the amounts uti lised for the purchase of any machinery or plant to be installed in an office premises or residential accommodation including guest house, any office appliances other than computers, any machinery or plant the whole of the actual cost of which is allowed as deduction whether by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the existing provisions of section 35D, deduction for certain preliminary expenses is allowed at an amount equal to 1/10th of such expenditure for each of the 10 successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of industrial undertaking is completed or new industri al unit commences production or operation. Further, the aggregate amount of such expenditure is also restricted to two and a half per cent of the cost of the project or where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company. 19.2 As an incentive for development of capital market, the Act amends section 35D so as to enhance the allowable deduction to an amount equal to 1/5th of such expenditure for each of the five successive previous years. The aggregate limit of the expenditure is also enhanced to 5% of the cost of the project or where the assessee is an Indian company, of the capital employed in the business of the company. 19.3 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the previous year in which the business or interest therein, whether wholly or partly, had been transferred. In case the proceeds of transfer are not less than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in re spect of any subsequent year or years. 21.3 Assuming that the transfer of business takes place during the previous year relevant to the assessment year 1999-2000, the following examples illustrate how the amended provisions will be applied : Proceeds less than the expenditure remaining unallowed Proceeds exceeding the expenditure remaining unallowed Proceeds equal to the expenditure remaining unallowed Situation A Situation B (a)Expenditure incurred 10,000 10,000 10,000 10,000 (b) Expenditure remaining unallowed 6,000 6,000 6,000 6,000 (c) Proceeds of transfer 5,000 7,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursement shall not be included in the actual cost of the asset to the assessee. Cost incurred/payable by the assessee alone could be the basis for any tax allowance. This Explanation further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly re latable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same propor tion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. 22.3 The amendment made through Explanation 9 will take effect retrospectively from 1st April, 1994 and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. The amendment made through Explanation 10 will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 18] Finance (No. 2) Act, 1998 Certain expenses to be allowed only on payment 23.1 Under the existing provisions, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, turnover or gross receipts, as the case may be, in business of profession, exceed or exceeds five hundred thousand rupees in any one of the three years immediately preceding the previous year. In a case where the business or profession is newly set up in any previous year, then he is required to keep and maintain such books of account etc., if his income from busi ness or profession is likely to exceed forty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in a business or profession are or is likely to exceed five hundred thousand rupees during such previous year. 24.2 The Act enhances the above limits of forty thousand rupees to one lakh twenty thousand rupees and of five hundred thousand rupees to ten lakhs rupees. Accordingly, under the amended provi sions, the assessees carrying on business or profession are re quired to keep and maintain the books of account and other docu ments if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in the business or profession exceed or exceeds ten lakhs rupees during the relevant previous year. 24.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 Exemption from levy of capital gains tax and allowance of carry forward of losses and unabsorbed depreciation in certain cases of business re-organisation 27.1 Business reorganisations have definite tax implications under the existing provision of the Income-tax Act. Transfer of assets attracts levy of capital gains tax. Similarly, carry forward of losses and that of unabsorbed depreciation are not available to successor business entities. However, in cases of amalgamation, capital gains tax is not levied and losses and unabsorbed depreciation are allowed to be carried forward under certain conditions. The Expert Group, in the draft Income-tax Bill, has recognised the need to encour age business reorganisation when they are in consonance with the whole objective of economic development and not merely devices to secure tax advantage. 27.2 The Act, following the recommendation of the Expert Group, has amended the relevant sections of the Income-tax Act to allow tax benefits in cases of business reorganisation where a firm or a proprietary concern is succeeded by a company in the business carried on by it. 27.3 Section 47 of the Income-tax Act has been amended to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act in cases of compulsory acquisition under any law. 28.1 Section 54H of Income-tax Act caters to the situation where the transfer of the long-term asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of transfer. In such cases the period available to the assessee for investing the long-term capital gains for the purpose of exemp tion is reckoned from the date of receipt of compensation and not from the date of transfer. The Act has inserted references to sections 54EA and 54EB in section 54H of Income-tax Act whereby extension of time shall be available for investing amount of capital gains under sections 54EA and 54EB in cases of compulsory acquisition. 28.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 24] Finance (No. 2) Act, 1998 Amendment of section 69C 29.1 Under the existing provisions, where an expenditure incurred by the taxpayer in respect of which he either offers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross total income, of an amount not exceeding Rs. 20,000, deposited in a year in any scheme of LIC, UTI, etc., specifically framed for providing recurring or lump sum payment for the maintenance and upkeep of a handicapped dependent. 31.3 It has been felt that the parents or guardian of handicapped dependents may not have to incur expenditure or medical treatment of a handicapped dependent every year. However, the parent or the guardian would always feel the need to provide for the future maintenance of the disabled dependent. The existing provisions to do not take such situations into account. In order to allow a choice to the parent or the guardian to spend either on the medical treatment of or for the future needs of the handicapped dependent, as the case may be, the amendment seeks to provide a new section 80DD. With the new provision, the parent or the guardian could claim a deduction upto Rs. 40,000 for the medical treatment and for future needs of the handicapped dependent in the manner most suited to his needs. The existing sections 80DD and 80DDA get consequentially merged with increase in overall limit of deduction from Rs. 35,000 to Rs. 40,000. 31.4 This amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture in excess of 10% of his total income towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purpose of his own residence. The amount of allow able deduction will be as under: (i) the excess of actual rent paid over 10% of the total income; (ii) Rs. 2000 per month; (iii) 25% of the total income; whichever is less. 33.3 The benefit of above deduction will not be available to an assessee in a case where he, his spouse or minor child or the HUF of which he is a member, owns any residential accommodation at a place where the assessee ordinarily resides, performs the duties of his office or employment or carries on his business or profes sion. The deduction will also be denied to an assessee who owns any residential accommodation at any other place and the conces sion in respect of self-occupied property is claimed by him in respect of such accommodation. 33.4 This amendment will take effect retrospectively from 1st April, 1998 and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years. [Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA have been provided by amending the sec tions, so that such unintended benefits are not passed on to the assessees. 35.3 These amendments will take effect from 1-4-1999 and will, accord-ingly, apply in relation to assessment year 1999-2000 and subsequent years. [Sections 32 34] Finance (No. 2) Act, 1998 Modification in the provisions relating to export of software under section 80HHE 36.1 Under the existing provisions of section 80HHE, 100% deduc tion is allowed on profits derived from export of computer soft ware provided the sale consideration is received in or brought into India inconvertible foreign exchange. Software exports have grown exponentially in recent years. With a view to increasing India's market share in the international arena, the Explanation (b) below this section has been extended to include 'any custo mised electronic data' within the meaning of "computer software". The benefits of deduction have also been extended to supporting software developers. With this in view, proviso to sub-section (1); and sub-sections (1A), (3A) and (4A) have been inserted by the Act so that the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accounts of the exporting company under the provisions of this Act or under any other law. 36.5 These amendments will take effect from the 1st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 33] Finance (No. 2) Act, 1998 Tax holiday in respect of undertaking set up in industrially backward States and industrially backward districts extended up to 31-3-2000 37.1 Under the existing provisions of section 80-IA of the Income-tax Act, deduction is allowed in computing the taxable income in respect of profits derived from a new industrial undertaking, or a ship or the business of a hotel. 37.2 For encouraging industrialisation in industrially backward States, the Finance Act, 1993 had provided for a five-year tax holiday for industrial undertakings set up in industrially back ward States specified in the Eighth Schedule, which start manufac ture or production during the period beginning of the 1st day of April, 1993 and ending on 31st day of March, 1998. After the first five years, deduction of 30% of the profits of such under taking in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies engaged in scientific and industrial research and development activities. The incentive was made available to any company that had as its main objective, activities in the areas of scientific and indus trial research and development and which had been accorded ap proval by the prescribed authority. The prescribed authority for this purpose is the Secretary, Department of Scientific and Industrial Research. The tax holiday available to any company, which is accorded approval by the prescribed authority at any time before 31st March, 1998 has been extended by one year, i.e., up to 31st March, 1999. 39.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 Tax holiday to radio-paging, domestic satellite service, network of trunking and electronic data inter-change services. 40.1 Under the existing provisions of 80-IA, a five-year tax holiday in respect of profits and gains of an assessee engaged in telecommunication services is allowed with a further deduction of 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42.2 Subject to the above conditions being satisfied, 100% of profits from such business shall be deductible. 42.3 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 Inland Port and Waterways regarded as infrastructure facility 43.1 Under the existing provisions of section 80-IA, roads, highways, bridge, airport, port and rail system are regarded as infrastructure facilities and the undertakings engaged in develop ing, maintaining or operating such infrastructure facility are entitled to a tax holiday for 5 years and a deduction of 30% of profits for the next 5 years. These companies have the choice of availing such benefits in any 10 consecutive years out of initial 12 years from the year in which they commence production. 43.2 The Government has identified national waterways, the fourth mode of transport, for improving the transport infrastructure in the country. Inland waterways and inland ports play a vital role in improving a country's infrastructure. With the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this objective, a new section 80JJAA has been inserted in the Income-tax Act. The deduction under this section can be availed of by an Indian company. Under the provisions of the new section, an amount of 30% of additional wages paid to the new workmen is to be allowed as a deduction for a period of three years beginning with the year in which the new workman is employed, provided other conditions as laid down in the provision are met. The conditions are :— (i) The new workman should be employed on regular basis. In other words, he should not be a casual workman, and he should not be employed under contract labour. The term 'workman' shall have the same meaning as in the Industrial Disputes Act. (ii) Such a workman shall be in employment for at least three hundred days during the year. (iii) In case of an existing undertaking, the increase in the number of regular workman should be at least 10% of the existing number of workmen and further that the number of workmen hitherto in employment was at least one hundred. (iv) In case of a new undertaking, the number of such workmen must be at least one hundred. The benefit of the aforesaid deduc tion shall be available only in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7] Finance (No. 2) Act, 1998 Tax on income of Foreign Institutional Investors from securi ties or capital gains arising from their transfer 47.1 The method of computation of the income of foreign institu tional investors from securities or capital gains arising from the transfer of such securities is given in section 115AD. The Act amends clause (a) of sub-section (1) so as to extend the tax concessions available on income of Foreign Institutional Investors on their investment in listed securities to unlisted securities also. 47.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 38] Finance (No. 2) Act, 1998 Addition of two more economic indicators for obligatory filing of returns 48.1 Under the existing provisions, it is obligatory for a person not furnishing return under sub-section (1) of section 139 but residing in a specified area and fulfilling any two of the four following conditions to file return of income : (i) occupation of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment of Permanent Account Number 49.1 According to the existing provisions, every person who is carrying on any business or profession and whose total sales, turnover, or gross receipts are likely to exceed Rs. 50,000 in any previous year is required to apply for the allotment of Permanent Account Number. This provision was inserted by the Taxation Law (Amendment) Act, 1975 w.e.f. 1-4-1976 and has ceased to be a realistic eligibility criteria for applying for PAN. 49.2 The Act has amended clause (ii) of sub-section (1) of sec tion 139A to enhance the limit of Rs. 50,000 to Rs. 5,00,000. 49.3 This amendment will take effect from 1st August, 1998 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 41] Finance (No. 2) Act, 1998 Compulsory quoting of PAN 50.1 The existing provisions of section 139A of the Income-tax Act provide for compulsory quoting of Permanent Account Number (PAN) in all documents pertaining to transactions as may be prescribed by Board and entered into by the concerned persons. This section has been amended to provide that a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch time PAN is allotted to him. If he does not have either PAN or GIR No. and is making transactions in cash or otherwise than by way of crossed bank cheque or crossed bank draft, he is required to fill decla ration in Form No. 60 giving his name and address and particulars of the transaction along with proof of his residential address. Persons having income from agriculture and not having any other income chargeable to tax are required to file similar declara tions in Form No. 61. Non-residents visiting the country can produce copies of their passports. [Section 41] Finance (No. 2) Act, 1998 Providing for issue of refund in assessment under sub-section (3) of section 143 51.1 Under the existing provisions, the Assessing Officer deter mines the sum payable by the assessee on the basis of assessment in accordance with the provisions of sub-section (3) of section 143 of the Income-tax Act. There is no provision to issue refund under this sub-section. 51.2 The Act has amended sub-section (3) of section 143 of the Income-tax Act to provide for determination of sum payable by the assessee as well as the refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... An authorisation is deemed to have been executed in the case of search on the conclusion of search as recorded in the last panchanama drawn in relation to any person in whose case the warrant of authorisation has been issued. In regard to requisition under section 132A of the Income-tax Act, the authorisation would be deemed to have been executed on actual receipt of books of account or other documents or assets by the authorised officer. 53.3 The above amendments will take effect retrospectively from 1st July, 1995 and will, accordingly, apply in relation to the assessment year 1996-97 and subsequent years. 53.4 The Act has amended section 158BB of the Income-tax Act to clarify that the deduction of salary, interest, commission, bonus or remuneration, by whatever name called, in Explanation (b) in sub-section (1) of section 158BB is in relation to any partner not being a working partner. This amendment is effective from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Sections 44, 45 46] Finance (No. 2) Act, 1998 Adjustment of loss from ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity or the Appel late Tribunal from deciding any issue in respect of which an application has been made by the resident applicant to the au thority. 55.3 The amendment has taken effect from the 1st day of October, 1998. [Section 48] Finance (No. 2) Act, 1998 Abolition of the appellate level at Deputy Commissioner (Appeals) 56.1 Under the existing provisions of Income-tax Act, Deputy Commissioner (Appeals) are hearing appeals in very small cases. The Commissioner (Appeals) are also doing the identical functions. In the same case, appeal in one year may be pending before Deputy Commissioner (Appeals) and in the other year before the Commissioner (Appeals) depending upon the quantum of addi tion. Presently, only a few posts of Deputy Commissioner (Ap peals) are functioning in the country. 56.2 A new section i.e., section 246A has been inserted to pro vide for filing of appeals before the Commissioner (Appeals) against all order where appeals earlier lay either with Deputy Commissioner (Appeals) or Commissioner (Appeals). It also pro vides that every appeal which is pending before the Deputy Com missioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal at a younger age as they are required to put in only 10 years of serv ice. 58.3 To redress this imbalance, the Act has amended section 252 of the Income-tax Act so as to make a Grade-II Officer of Indian Legal Service and an Additional Commissioner of Income-tax with 3 years' experience in either case eligible to appointed as Judicial Member and Accountant Member respectively. [Section 51] Finance (No. 2) Act, 1998 Enhancement of fee payable for filing appeal before appellate Tribunal 59.1 Under the existing provisions, the appeal fee payable to Tribunal was Rs. 250 for appeals involving assessed total income upto Rs. 1,00,000 and Rs. 1,500 when the assessed total income exceeded Rs. 1,00,000. The above small scale of fee did not prohibit filing of a large number of unnecessary appeals on decided issues and on issues having petty tax effect, thus slow ing down the disposal of appeals. In view of the above, the Act has enhanced the scale of fee payable to Appellate Tribunal as under by amending sections 253 and 254 of the Income-tax Act :— Particulars Fee for filing the appeal before I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the High Court or Supreme Court have decided on the question of law, a copy of the judgment is sent to the Registrar of the Appellate Tribunal for passing such order as in necessary to dispose of the case. The above provision again contributes to the delay. 61.2 The Act has, therefore, inserted a new sub-heading, "CC-Appeals to High Court" and sections 260A, 260B in Chapter XX and has also amended sections 256, 257, 260 and 261 to provide that an appeal shall lie against the orders of the Tribunal directly to the High Court if the High Court is satisfied that the case involves a substantial question of law. The memorandum of appeal shall precisely state the substantial question of law involving the appeal and where the appeal is made by the assessee, such appeal shall be accompanied by a fee of Rs. 10,000 (Rs. 5,000 in the case of Wealth-tax). Where the High Court is satisfied that a substantial question of law is involved in any case, it may itself formulate that question. The appeals shall be heard on the question so formulated. However, nothing would take away or abridge the power of the Court to hear for reasons to be recorded the appeal on any other substantial question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides for penalty of Rs. 500 only in case of failure to file return under proviso to sub-section (1) of section 139]. The interest chargeable under section 234A of the Income-tax Act for not furnishing the return or furnishing the same after the due date is calculated on the basis of tax pay able. If no taxes are payable, no interest can be charged. It is seen that a large number of persons having salary income which are subject to deduction of tax at source do not file their returns. Since the Act has amended section 192(2B) of the Income-tax Act to provide that loss from house property shall be allowed to be adjusted against salary income at the source itself, filing of returns has become absolutely necessary to find out that the claim of set off of loss is being correctly made. The penal provisions are also necessary to ensure that all such persons having taxable income file their returns of income. 63.2 Therefore, section 271F has been amended to provide for a penalty of Rs. 1,000 for not filing of return under sub-section (1) of section 139 before the end of the relevant assessment year. 63.3 This amendment will take effect from 1st April, 1999 and will, accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance business are taken to be the balance of profits disclosed by the annual accounts under the Insurance Act, 1938 and are subject to the adjustments of expenditure or allowance which are not admissible under sections 30 to 43B. 66.2 The Act amends rule 5 of the First Schedule so as to explic itly provide for the disallowance of provision for any tax, dividend, reserve or any other provision, as may be prescribed, debited to such profit and loss account, putting an end to the litigation in this regard. 66.3 This amendment will take effect retrospectively from 1st April 1989 and will, accordingly, apply in relation to the as sessment year 1989-1990 and subsequent years. [Section 64] Finance (No. 2) Act, 1998 Consequential amendments 67.1 In view of abolition of appellate level at Deputy Commis sioner (Appeal), the Act has made consequential amendments in sections 119, 154, 177, 189, 248, 250, 251, 267, 271, 271A, 275, 287 and 295 to omit references to Deputy Commissioner (Appeals). 67.2 These amendments have taken effect from the 1st day of October, 1998. [Section 65] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents have taken effect from the 1st day of Octo ber, 1998. [Sections 3, 4, 39, 66, 67, 76, 77 82] Finance (No. 2) Act, 1998 Removal of certain exemptions 6.1 The remuneration received by foreign nationals who come to India in connection with shooting of a cinematograph film is exempt from income-tax under the provisions of clause (5A) of section 10. This provision was inserted with effect from 1-4-1982 and has since outlived its utility. The Act, therefore, omits the same. 6.2 Several perquisites of foreigners employed in India were exempt from income-tax under clause (6) of section 10. These include perquisites specified in the following sub-clauses :— 6.2-1 Sub-clause (i)(aa) provides for exemption in respect of passage fare of children, paid by the employer of a foreign national, proceeding to India during vacation. 6.2-2 Sub-clause (via) provides exemption in respect of remunera tion to employees or consultants of a foreign philanthropic body. 6.2-3 Sub-clause (viia) provides exemption in respect of tax perquisites of foreign technicians. 6.2-4 Sub-clause (ix) provides exemption in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been misused. 8.2 The Act omits the aforesaid clause (22) and (22A) from the statute. The exemption would, however, continue in respect of any university or other educational institution, hospital or other medical institution which is wholly or substantially financed by Government, under the new sub-clause (iiiab) and (iiiac) inserted in section 10(23C) of the Income-tax Act by the Finance (No. 2) Act, 1998. 8.3 Further, under sub-clauses (iiiad) and (iiiae) in section 10(23C), the income of other educational and medical institutions would also be exempt if their annual receipts are below a limit to be prescribed. The limit has since been prescribed at Rs. one crore vide Notification No. SO 897(E) dated 12th October, 1998. 8.4 The income of the remaining educational and medical institu tions would be exempt if they are approved by the prescribed authority on application made by them under sub-clauses (vi) and (via) of section 10(23C). This approval would be subject to their adherence of conditions similar to those specified for sub-clauses (iv) and (v) of section 10(23C) regarding maintenance of accounts, expenditure and accumulation of funds and investments of fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (No. 2) Act, 1996 with effect from 1-4-1997, inserted section 10(23G) of the Income-tax Act to provide tax exemption to any 'infrastructure capital fund' or 'infrastructure capital company' in respect of income by way of dividends, interest and long term capital gains derived from investment in the form of shares or long term finance in an enterprise carrying on the business of developing maintaining and operating an infrastructure facility. This provision came in to effect from the assessment year 1997-98. 10.2 Since no safeguards had been provided to ensure that the tax free funds raised by companies were invested in infrastructure development, it was not possible to ascertain, whether the pur pose for which the section was introduced, viz., the development of infrastructure facility, was being achieved or not. To serve this purpose, the provisions of section 10(23G) have been amend ed by Finance (No. 2) Act, 1998 to provide, inter alia, that the exemption under this clause shall be available only in respect of the investments in an enterprise,— (i) which is wholly engaged in the business of developing, main taining and operating an infrastructure faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual having income from salary. 12.2 With a view to minimising the hardship that would have been caused to employees and also pensioners who are receiving salary or pension in the lower income slab, section 16 has been amended to raise the limit of standard deduction for assessees having salary income up to Rs.1,00,000 from Rs. 20,000 to Rs. 25,000. 12.3 The terms of employment of highly paid salaried employees are so arranged that these provide them benefit and facilities, whereby incidental expenses are not born by them. The amendment, therefore seeks to withdraw the benefit of standard deduction for the assessee having salary income of more than Rs. 5,00,000. The existing provisions of standard deduction shall continue to apply in respect of salary income between Rs. 1 lac to Rs. 5 lacs. 12.4 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 6] Finance (No. 2) Act, 1998 Amendment of the provisions relating to perquisite value of medical benefits. 13.1 Under the existing provisions, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c quired on or after the 1st day of April, 1998. The Act also amends the definition of the term 'block of assets' so as to include these intangible assets within the meaning of block of assets. The rate of depreciation in respect of these intangible assets has since been prescribed at 25% vide Notification S.O. No. 781(E), dated 4-9-1998. 15.2 As a consequence of this amendment, the deductions allowable under section 35A of the Income-tax Act in respect of any expend iture of a capital nature incurred on the acquisition of patent rights or copyrights and under section 35AB in respect of expend iture on know-how have been withdrawn with effect from the as sessment year 1999-2000. 15.3 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Sections 9, 4, 12 13] Finance (No. 2) Act, 1998 Depreciation for power sector 16.1 Section 32 of the Income-tax Act was amended by the In come-tax (Amendment) Act, 1998 to provide for allowance of depre ciation, in the case of assets of an undertaking engaged in generati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years. [Section 9, 16 23] Finance (No. 2) Act, 1998 Site Restoration Fund 17.1 A new section 33ABA has been inserted in the Income-tax Act to provide for tax incentives to the petroleum and natural gas sector. This section provides for a deduction in computing the taxable profits in the case of an assessee carrying on business of pros pecting for, or extraction or production of, petroleum or natural gas both in India and in relation to which the Central Government has entered into an agreement with such assessee for such busi ness. The assessee will be allowed deduction in respect of the amounts deposited during the previous year in the special account with the State Bank of India in accordance with and for the purpose specified in the scheme approved by the Ministry of Petroleum and Natural Gas and in the Site Restoration Account opened by the assessee in accordance with and for the purposes specified in the scheme framed by the said ministry. The maximum amount of deduction will be restricted to 20% of the profits of such business, computed under the head 'Profits and gains of business or profession' be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts is withdrawn on closure of the account during any previous year by the assessee, the amount so withdrawn from the account, as reduced by the amount, if any, payable to the Central Government by way of profit or production share, as provided in the agreement referred to in section 42, shall be deemed to be the profits and gains of business or profession of that previous year and shall be taxed accordingly. Further, where any amount is withdrawn in a previous year on closure of the account, in which the business carried on by the assessee is no longer in existence, the provisions shall still apply as if the business is in existence in that previous year. 17.7 There is an overriding condition that the deduction under this section cannot be allowed in relation to the amounts uti lised for the purchase of any machinery or plant to be installed in an office premises or residential accommodation including guest house, any office appliances other than computers, any machinery or plant the whole of the actual cost of which is allowed as deduction whether by way of depreciation or otherwise in any one previous year or any new machinery or plant to be installed in an industrial und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to 1/10th of such expenditure for each of the 10 successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of industrial undertaking is completed or new industri al unit commences production or operation. Further, the aggregate amount of such expenditure is also restricted to two and a half per cent of the cost of the project or where the assessee is an Indian company, at the option of the company, of the capital employed in the business of the company. 19.2 As an incentive for development of capital market, the Act amends section 35D so as to enhance the allowable deduction to an amount equal to 1/5th of such expenditure for each of the five successive previous years. The aggregate limit of the expenditure is also enhanced to 5% of the cost of the project or where the assessee is an Indian company, of the capital employed in the business of the company. 19.3 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 14] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which the business or interest therein, whether wholly or partly, had been transferred. In case the proceeds of transfer are not less than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in re spect of any subsequent year or years. 21.3 Assuming that the transfer of business takes place during the previous year relevant to the assessment year 1999-2000, the following examples illustrate how the amended provisions will be applied : Proceeds less than the expenditure remaining unallowed Proceeds exceeding the expenditure remaining unallowed Proceeds equal to the expenditure remaining unallowed Situation A Situation B (a)Expenditure incurred 10,000 10,000 10,000 10,000 (b) Expenditure remaining unallowed 6,000 6,000 6,000 6,000 (c) Proceeds of transfer 5,000 7,000 15,000 6,000 (d) Amount allowable as deduction in A.Y. 1999-2000 (b-c) 1,000 NIL NIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alone could be the basis for any tax allowance. This Explanation further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly re latable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same propor tion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. 22.3 The amendment made through Explanation 9 will take effect retrospectively from 1st April, 1994 and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. The amendment made through Explanation 10 will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 18] Finance (No. 2) Act, 1998 Certain expenses to be allowed only on payment 23.1 Under the existing provisions, the sums referred to in clauses (a) to (e) of section 43B are allowable as deduction in the previous year in which the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rupees in any one of the three years immediately preceding the previous year. In a case where the business or profession is newly set up in any previous year, then he is required to keep and maintain such books of account etc., if his income from busi ness or profession is likely to exceed forty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in a business or profession are or is likely to exceed five hundred thousand rupees during such previous year. 24.2 The Act enhances the above limits of forty thousand rupees to one lakh twenty thousand rupees and of five hundred thousand rupees to ten lakhs rupees. Accordingly, under the amended provi sions, the assessees carrying on business or profession are re quired to keep and maintain the books of account and other docu ments if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in the business or profession exceed or exceeds ten lakhs rupees during the relevant previous year. 24.3 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain cases of business re-organisation 27.1 Business reorganisations have definite tax implications under the existing provision of the Income-tax Act. Transfer of assets attracts levy of capital gains tax. Similarly, carry forward of losses and that of unabsorbed depreciation are not available to successor business entities. However, in cases of amalgamation, capital gains tax is not levied and losses and unabsorbed depreciation are allowed to be carried forward under certain conditions. The Expert Group, in the draft Income-tax Bill, has recognised the need to encour age business reorganisation when they are in consonance with the whole objective of economic development and not merely devices to secure tax advantage. 27.2 The Act, following the recommendation of the Expert Group, has amended the relevant sections of the Income-tax Act to allow tax benefits in cases of business reorganisation where a firm or a proprietary concern is succeeded by a company in the business carried on by it. 27.3 Section 47 of the Income-tax Act has been amended to provide that the transfer of any capital asset or intangible asset from the firm to the company shall not be regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation where the transfer of the long-term asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of transfer. In such cases the period available to the assessee for investing the long-term capital gains for the purpose of exemp tion is reckoned from the date of receipt of compensation and not from the date of transfer. The Act has inserted references to sections 54EA and 54EB in section 54H of Income-tax Act whereby extension of time shall be available for investing amount of capital gains under sections 54EA and 54EB in cases of compulsory acquisition. 28.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 24] Finance (No. 2) Act, 1998 Amendment of section 69C 29.1 Under the existing provisions, where an expenditure incurred by the taxpayer in respect of which he either offers no explana tion regarding the source of such expenditure or where explana tion offered is found unsatisfactory, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally framed for providing recurring or lump sum payment for the maintenance and upkeep of a handicapped dependent. 31.3 It has been felt that the parents or guardian of handicapped dependents may not have to incur expenditure or medical treatment of a handicapped dependent every year. However, the parent or the guardian would always feel the need to provide for the future maintenance of the disabled dependent. The existing provisions to do not take such situations into account. In order to allow a choice to the parent or the guardian to spend either on the medical treatment of or for the future needs of the handicapped dependent, as the case may be, the amendment seeks to provide a new section 80DD. With the new provision, the parent or the guardian could claim a deduction upto Rs. 40,000 for the medical treatment and for future needs of the handicapped dependent in the manner most suited to his needs. The existing sections 80DD and 80DDA get consequentially merged with increase in overall limit of deduction from Rs. 35,000 to Rs. 40,000. 31.4 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion occupied by him for the purpose of his own residence. The amount of allow able deduction will be as under: (i) the excess of actual rent paid over 10% of the total income; (ii) Rs. 2000 per month; (iii) 25% of the total income; whichever is less. 33.3 The benefit of above deduction will not be available to an assessee in a case where he, his spouse or minor child or the HUF of which he is a member, owns any residential accommodation at a place where the assessee ordinarily resides, performs the duties of his office or employment or carries on his business or profes sion. The deduction will also be denied to an assessee who owns any residential accommodation at any other place and the conces sion in respect of self-occupied property is claimed by him in respect of such accommodation. 33.4 This amendment will take effect retrospectively from 1st April, 1998 and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years. [Section 30] Finance (No. 2) Act, 1998 New provisions for deduction for World Bank aided housing projects in India 34.1 A new section 80 HHBA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply in relation to assessment year 1999-2000 and subsequent years. [Sections 32 34] Finance (No. 2) Act, 1998 Modification in the provisions relating to export of software under section 80HHE 36.1 Under the existing provisions of section 80HHE, 100% deduc tion is allowed on profits derived from export of computer soft ware provided the sale consideration is received in or brought into India inconvertible foreign exchange. Software exports have grown exponentially in recent years. With a view to increasing India's market share in the international arena, the Explanation (b) below this section has been extended to include 'any custo mised electronic data' within the meaning of "computer software". The benefits of deduction have also been extended to supporting software developers. With this in view, proviso to sub-section (1); and sub-sections (1A), (3A) and (4A) have been inserted by the Act so that the benefit of export can also be passed on to software developers by software exporting companies. 36.2 The said proviso provides that where an exporting company issues and certificate in the prescribed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1999-2000 and subsequent years. [Section 33] Finance (No. 2) Act, 1998 Tax holiday in respect of undertaking set up in industrially backward States and industrially backward districts extended up to 31-3-2000 37.1 Under the existing provisions of section 80-IA of the Income-tax Act, deduction is allowed in computing the taxable income in respect of profits derived from a new industrial undertaking, or a ship or the business of a hotel. 37.2 For encouraging industrialisation in industrially backward States, the Finance Act, 1993 had provided for a five-year tax holiday for industrial undertakings set up in industrially back ward States specified in the Eighth Schedule, which start manufac ture or production during the period beginning of the 1st day of April, 1993 and ending on 31st day of March, 1998. After the first five years, deduction of 30% of the profits of such under taking in the case of companies (25% in the case of other asses sees) was allowed for the subsequent five years. The undertakings which started manufacture or production after 31st March, 1998 in backward States ceased t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial research and development and which had been accorded ap proval by the prescribed authority. The prescribed authority for this purpose is the Secretary, Department of Scientific and Industrial Research. The tax holiday available to any company, which is accorded approval by the prescribed authority at any time before 31st March, 1998 has been extended by one year, i.e., up to 31st March, 1999. 39.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 Tax holiday to radio-paging, domestic satellite service, network of trunking and electronic data inter-change services. 40.1 Under the existing provisions of 80-IA, a five-year tax holiday in respect of profits and gains of an assessee engaged in telecommunication services is allowed with a further deduction of 25% (30% in the case of companies) of profits from such busi ness in the next 5 years. 40.2 The country needs to augment its telecommunication serv ices. For this purpose, the Act has extended the benefit of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 Inland Port and Waterways regarded as infrastructure facility 43.1 Under the existing provisions of section 80-IA, roads, highways, bridge, airport, port and rail system are regarded as infrastructure facilities and the undertakings engaged in develop ing, maintaining or operating such infrastructure facility are entitled to a tax holiday for 5 years and a deduction of 30% of profits for the next 5 years. These companies have the choice of availing such benefits in any 10 consecutive years out of initial 12 years from the year in which they commence production. 43.2 The Government has identified national waterways, the fourth mode of transport, for improving the transport infrastructure in the country. Inland waterways and inland ports play a vital role in improving a country's infrastructure. With the objective of improving the transport infrastructure, the Act has included inland waterways and inland ports in the definition of 'infra structure facility' as given in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new section, an amount of 30% of additional wages paid to the new workmen is to be allowed as a deduction for a period of three years beginning with the year in which the new workman is employed, provided other conditions as laid down in the provision are met. The conditions are :— (i) The new workman should be employed on regular basis. In other words, he should not be a casual workman, and he should not be employed under contract labour. The term 'workman' shall have the same meaning as in the Industrial Disputes Act. (ii) Such a workman shall be in employment for at least three hundred days during the year. (iii) In case of an existing undertaking, the increase in the number of regular workman should be at least 10% of the existing number of workmen and further that the number of workmen hitherto in employment was at least one hundred. (iv) In case of a new undertaking, the number of such workmen must be at least one hundred. The benefit of the aforesaid deduc tion shall be available only in respect of wages paid to workmen over and above that number both in case of new as well as exist ing undertakings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Investors from securi ties or capital gains arising from their transfer 47.1 The method of computation of the income of foreign institu tional investors from securities or capital gains arising from the transfer of such securities is given in section 115AD. The Act amends clause (a) of sub-section (1) so as to extend the tax concessions available on income of Foreign Institutional Investors on their investment in listed securities to unlisted securities also. 47.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 38] Finance (No. 2) Act, 1998 Addition of two more economic indicators for obligatory filing of returns 48.1 Under the existing provisions, it is obligatory for a person not furnishing return under sub-section (1) of section 139 but residing in a specified area and fulfilling any two of the four following conditions to file return of income : (i) occupation of an immovable property exceeding a speci fied floor area by way of ownership, tenancy or otherwise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the existing provisions, every person who is carrying on any business or profession and whose total sales, turnover, or gross receipts are likely to exceed Rs. 50,000 in any previous year is required to apply for the allotment of Permanent Account Number. This provision was inserted by the Taxation Law (Amendment) Act, 1975 w.e.f. 1-4-1976 and has ceased to be a realistic eligibility criteria for applying for PAN. 49.2 The Act has amended clause (ii) of sub-section (1) of sec tion 139A to enhance the limit of Rs. 50,000 to Rs. 5,00,000. 49.3 This amendment will take effect from 1st August, 1998 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 41] Finance (No. 2) Act, 1998 Compulsory quoting of PAN 50.1 The existing provisions of section 139A of the Income-tax Act provide for compulsory quoting of Permanent Account Number (PAN) in all documents pertaining to transactions as may be prescribed by Board and entered into by the concerned persons. This section has been amended to provide that a person shall quote his Permanent Account Num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been allotted PAN, he may quote his GIR No. till such time PAN is allotted to him. If he does not have either PAN or GIR No. and is making transactions in cash or otherwise than by way of crossed bank cheque or crossed bank draft, he is required to fill decla ration in Form No. 60 giving his name and address and particulars of the transaction along with proof of his residential address. Persons having income from agriculture and not having any other income chargeable to tax are required to file similar declara tions in Form No. 61. Non-residents visiting the country can produce copies of their passports. [Section 41] Finance (No. 2) Act, 1998 Providing for issue of refund in assessment under sub-section (3) of section 143 51.1 Under the existing provisions, the Assessing Officer deter mines the sum payable by the assessee on the basis of assessment in accordance with the provisions of sub-section (3) of section 143 of the Income-tax Act. There is no provision to issue refund under this sub-section. 51.2 The Act has amended sub-section (3) of section 143 of the Income-tax Act to provide for determination o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act has inserted a new clarifi catory Explanation. An authorisation is deemed to have been executed in the case of search on the conclusion of search as recorded in the last panchanama drawn in relation to any person in whose case the warrant of authorisation has been issued. In regard to requisition under section 132A of the Income-tax Act, the authorisation would be deemed to have been executed on actual receipt of books of account or other documents or assets by the authorised officer. 53.3 The above amendments will take effect retrospectively from 1st July, 1995 and will, accordingly, apply in relation to the assessment year 1996-97 and subsequent years. 53.4 The Act has amended section 158BB of the Income-tax Act to clarify that the deduction of salary, interest, commission, bonus or remuneration, by whatever name called, in Explanation (b) in sub-section (1) of section 158BB is in relation to any partner not being a working partner. This amendment is effective from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Sections 44, 45 46] Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act which bars the Income-tax Authority or the Appel late Tribunal from deciding any issue in respect of which an application has been made by the resident applicant to the au thority. 55.3 The amendment has taken effect from the 1st day of October, 1998. [Section 48] Finance (No. 2) Act, 1998 Abolition of the appellate level at Deputy Commissioner (Appeals) 56.1 Under the existing provisions of Income-tax Act, Deputy Commissioner (Appeals) are hearing appeals in very small cases. The Commissioner (Appeals) are also doing the identical functions. In the same case, appeal in one year may be pending before Deputy Commissioner (Appeals) and in the other year before the Commissioner (Appeals) depending upon the quantum of addi tion. Presently, only a few posts of Deputy Commissioner (Ap peals) are functioning in the country. 56.2 A new section i.e., section 246A has been inserted to pro vide for filing of appeals before the Commissioner (Appeals) against all order where appeals earlier lay either with Deputy Commissioner (Appeals) or Commissioner (Appeals). It also pro vides that every appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial office can become a member of Appellate Tribunal at a younger age as they are required to put in only 10 years of serv ice. 58.3 To redress this imbalance, the Act has amended section 252 of the Income-tax Act so as to make a Grade-II Officer of Indian Legal Service and an Additional Commissioner of Income-tax with 3 years' experience in either case eligible to appointed as Judicial Member and Accountant Member respectively. [Section 51] Finance (No. 2) Act, 1998 Enhancement of fee payable for filing appeal before appellate Tribunal 59.1 Under the existing provisions, the appeal fee payable to Tribunal was Rs. 250 for appeals involving assessed total income upto Rs. 1,00,000 and Rs. 1,500 when the assessed total income exceeded Rs. 1,00,000. The above small scale of fee did not prohibit filing of a large number of unnecessary appeals on decided issues and on issues having petty tax effect, thus slow ing down the disposal of appeals. In view of the above, the Act has enhanced the scale of fee payable to Appellate Tribunal as under by amending sections 253 and 254 of the Income-tax Act :— P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d take a fresh look on this matter. Similarly, after the High Court or Supreme Court have decided on the question of law, a copy of the judgment is sent to the Registrar of the Appellate Tribunal for passing such order as in necessary to dispose of the case. The above provision again contributes to the delay. 61.2 The Act has, therefore, inserted a new sub-heading, "CC-Appeals to High Court" and sections 260A, 260B in Chapter XX and has also amended sections 256, 257, 260 and 261 to provide that an appeal shall lie against the orders of the Tribunal directly to the High Court if the High Court is satisfied that the case involves a substantial question of law. The memorandum of appeal shall precisely state the substantial question of law involving the appeal and where the appeal is made by the assessee, such appeal shall be accompanied by a fee of Rs. 10,000 (Rs. 5,000 in the case of Wealth-tax). Where the High Court is satisfied that a substantial question of law is involved in any case, it may itself formulate that question. The appeals shall be heard on the question so formulated. However, nothing would take away or abridge the power of the Court to hear for reasons to be rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der sub-section (1) of section 139 [section 271F provides for penalty of Rs. 500 only in case of failure to file return under proviso to sub-section (1) of section 139]. The interest chargeable under section 234A of the Income-tax Act for not furnishing the return or furnishing the same after the due date is calculated on the basis of tax pay able. If no taxes are payable, no interest can be charged. It is seen that a large number of persons having salary income which are subject to deduction of tax at source do not file their returns. Since the Act has amended section 192(2B) of the Income-tax Act to provide that loss from house property shall be allowed to be adjusted against salary income at the source itself, filing of returns has become absolutely necessary to find out that the claim of set off of loss is being correctly made. The penal provisions are also necessary to ensure that all such persons having taxable income file their returns of income. 63.2 Therefore, section 271F has been amended to provide for a penalty of Rs. 1,000 for not filing of return under sub-section (1) of section 139 before the end of the relevant assessment year. 63.3 This amendment will take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he First Schedule, the profits and gains of such insurance business are taken to be the balance of profits disclosed by the annual accounts under the Insurance Act, 1938 and are subject to the adjustments of expenditure or allowance which are not admissible under sections 30 to 43B. 66.2 The Act amends rule 5 of the First Schedule so as to explic itly provide for the disallowance of provision for any tax, dividend, reserve or any other provision, as may be prescribed, debited to such profit and loss account, putting an end to the litigation in this regard. 66.3 This amendment will take effect retrospectively from 1st April 1989 and will, accordingly, apply in relation to the as sessment year 1989-1990 and subsequent years. [Section 64] Finance (No. 2) Act, 1998 Consequential amendments 67.1 In view of abolition of appellate level at Deputy Commis sioner (Appeal), the Act has made consequential amendments in sections 119, 154, 177, 189, 248, 250, 251, 267, 271, 271A, 275, 287 and 295 to omit references to Deputy Commissioner (Appeals). 67.2 These amendments have taken effect from the 1st day of Oct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the attempts for tax evasion. Hence with a view to simplify and rationalise the direct tax provisions, section 3 of the Gift-tax Act is amended so as to provide that the provisions of this Act shall cease to apply and shall have no effect whatsoever in respect of any gift made on or after the 1st day of October, 1998. [Section 75] Finance (No. 2) Act, 1998 Expenditure-tax Increasing the limit of room charges for attracting the charge of Expenditure-tax 70.1 Under the existing provisions of the Expenditure-tax Act, tax is charged on expenditure incurred in a hotel where the room charges for a unit of residential accommodation are one thousand two hundred rupees or more per day per individual. 70.2 The Act has amended section 3 of the Expenditure-tax Act to enhance this limit to two thousand rupees or more per day per individual. 70.3 This amendment will take effect from 1st October, 1998 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 81] Finance (No. 2) Act, 1998 Kar Vivad Samadhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift where the tax arrears include gift-tax or interest payable and penalty levied in addition to gift-tax. Where tax arrear is only interest payable or penalty levied, 50% of such amount shall be paid. (vii) In respect of tax arrears payable under the Ex penditure-tax Act, the amount payable shall be 10% of the disput ed chargeable expenditure where the tax arrear comprises expend iture-tax or includes interest payable and penalty in addition to expenditure-tax. Where the arrear is only in respect of interest or penalty, only 50% of the arrear shall be payable. (viii) In respect of tax arrears payable under the Inter est-tax Act, the amount payable shall be @ 2% of the disputed chargeable interest where tax arrear includes interest tax or interest payable and penalty levied in addition to interest tax. If the tax arrears includes only interest or penalty, the amount payable will be 50% of the tax arrear. 71.3 A person desiring to avail the Scheme is required to file a declaration in the prescribed form before the designated authori ty notified for this purpose. The designated authority shall pass an order within sixty days of the declaration determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffence; (v) in respect of a person against whom an order of deten tion has been issued under the COFEPOSA Act; (vi) in respect of a person who has been notified under the Specified Court (Trial of Offences relating to Transactions in Securities) Act, 1992. [Sections 86 to 98] Finance (No. 2) Act, 1998 Export Import Bank of India liable to pay income-tax and other taxes. 72.1 The Export Import Bank of India was formed by the Export-Impoty Bank of India Act, 1981. Section 37 of the said Act provided that the Export Import Bank of India shall not be liable to pay income-tax, surtax or any other tax, in respect of any income, profits and gains specified therein. The Act has omitted section 37 of the aforesaid Act to make the bank liable for payment of income-tax or any other tax, in respect of profits and gains accruing to the bank. 72.2 The amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 117] - Circular - Trade Notice - Public Notice - Instructions - Office orders Tax Manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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