9911796707
TMI BlogExplanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 [as amended by the Direct Tax Laws (Amendment) Act, 1989]--Part IIX X X X Extracts X X X X X X X X Extracts X X X X ..... - (i) Adoption of the financial year as the uniform previous year for all assessees. (ii) Procedure for assessment, including the furnishing of returns of income/wealth/gifts and the new scheme of assessment under the income-tax, Wealth-tax and Gift-tax Acts. (iii) Assessment or reassessment of income/wealth/gift escaping assessment. (iv) Rectification of mistakes and other amendments of orders under the Income-tax, Wealth-tax and Gift-tax Acts. (v) Payment of mandatory interest by the assessee for defaults in furnishing the return of income/wealth/gift or for default in paying advance tax. (vi) Payment of interest by the Department for delay in grant of refund due to the assessee under the Income-tax, Wealth-tax and Gift-tax Acts. (vii) Consequential amendments to the relevant sections relating to charge of income-tax, wealth-tax and gift-tax. 1.3 This circular also explains those provisions of the Amending Act, 1989, which have further amended the provisions of the Amending Act, 1987, relating to the above subjects. Amendments to the Income-tax Act, 1961 FINANCIAL YEAR AS UNIFORM PREVIOUS YEAR FOR ALL ASSESSEES 2.1 Change in the definition of previous year ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e financial year, the transitional previous year, i.e., the previous year relevant for the assessment year 1989-90 will be for a period longer than 12 months. Thus, in the case of an assessee, who closes his accounts on 30th June every year, the transitional previous year for the year 1989-90 will be from 1-7-1987 to 31-3-1989, i.e., it will be for a period of 21 months. 2.5 The new section further provides that where the assessee had adopted more than one period as the previous year for the assessment year 1988-89 for different sources of his income, so that more than one period are included in the transitional previous year relevant for the assessment year 1989-90, the longest period shall be regarded at the transitional previous year. This could be explained by the following example : Example : An assessee has three separate businesses for each one of which he closed his accounts on different dates, say, 30-6-1987, 31-12-1987 and 31-3-1988, for the assessment year 1988-89. For the assessment year 1989-90, the following periods will be included in the previous year :-- (1) 1-7-1987 to 31-3-1989 (21 months) for 1st business (2) 1-1-1988 to 31-3-1989 (15 months) for 2nd bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths). Example 2 : The assessee in Example 1, who did close the accounts of his new business on 31st March, 1988, also had two other businesses already in existence for which the previous years for the assessment year 1988-89 ended as follows :-- (1) First business--year ended 30th September, 1987. (2) Second business--year ended 31st December, 1987. For the assessment year 1989-90, the different periods included in the relevant previous year shall be :-- (1) For new business--1st July, 1987, to 31st March, 1989 (21 months). (2) For second business (old)--1st October, 1987, to 31st March, 1989 (18 months). (3) For second business (old)--1st January 1988, to 31st March, 1989 (15 months). The longest of the three periods, i.e., from 1st July, 1987, to 31st March, 1989 (21 months), shall be the previous year for all the three sources of income for the assessment year 1989-90. 2.8 Transitory provisions to remove the hardships during the extended transitional previous year for the assessment year 1989-90 (Insertion of Tenth Schedule).--The Amending Act, 1987, also inserted a Tenth Schedule in the Income-tax Act, which provides transitory provisions to avoid hardship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery or plant purchased and installed in the month of March, 1989. (v) Rule 6 provides that tax payable on the total income of the transitional previous year shall be calculated at the average rate of tax on the amount obtained by multiplying such total income by a fraction of which the numerator is twelve and the denominator is the number of months in the transitional previous year, as if the resultant amount were the total income. In simple language, the tax shall be calculated in the following manner :-- (1) Compute the total income of the whole transitional previous year under the provisions of the Income-tax Act. (2) Divide the income so computed by the number of months in the transitional previous year and multiply it by 12. (3) Agricultural income, if any, derived during the whole transitional previous year should likewise be divided by the number of months in the transitional previous year and multiplied by twelve. (4) Compute the tax payable on such total income (obtained in step No. 2) taking into consideration the net agricultural income, if any, (obtained in step No. 3). (5) The average rate of tax will be Tax payable (step No. 4) = -------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 48(2) shall be increased during the transitional previous year only where the long-term capital gain arises as a result of two or more transfers of long-term capital assets and out of these, at least one transfer is made during the initial period of twelve months and the remaining transfer or transfers is or are made beyond the said period of twelve months comprised within the transitional previous year ; (2) where more than one period in respect of different sources of income are included in the transitional previous year, the amounts mentioned in column (2) of the aforesaid Table shall be increased to such extent and in such manner as the Board may prescribe having regard to the length of the period or periods included in the transitional previous year in respect of different sources of income, the length of the transitional previous year and other relevant factors. In this regard, a new rule 125 has been inserted in the Income-tax Rules, 1962, vide the Income-tax (Sixth Amendment) Rules, 1989, issued under Notification No. S. O. 361(E), dated 18th May, 1989, to indicate as to which monetary limits mentioned in the Table shall be increased according to the length of the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rule on the total income of the extended transitional previous year, after excluding from such total income the income relatable to any such period or periods which has already been included or is includible in the total income of the assessment year 1988-89. (Refer to Examples 2 and 3 in para 2.11) 2.10 Whether there is a compulsion on the assessees to close their accounts on the 31st March.--It may be clarified that under the provisions of the new section 3, there is no compulsion on any assessee to close his accounts on 31st March only. All that the section requires is that for the purposes of income-tax, income will have to be declared for the year ending 31st March. Therefore, if for any reasons, personal, religious or on any other ground, an assessee wants to continue to close his accounts on a date different from 31st March, he can still do so. However, in such a case the assessee will be required to make up his accounts on 31st March also for the purpose of furnishing the return of income. Therefore, although it would be convenient to both the assessees as well as to the Department, if the assessees close their accounts on 31st March, if any assessee does not do so and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1989-90 would be as under :-- Rs. (i) Income for the assessment year 1988-89 :-- From business (1-7-1986--30-6-1987) 2,40,000 From other sources (1-4-1987--31-3-1988) 1,20,000 --------------- Total income 3,60,000 --------------- (ii) Income for the assessment year 1989-90 :-- From business (1-7-1987--31-3-89) (21 months) 4,20,000 * From other sources (1-7-1987--31-3-89) (21 months) 2,10,000 --------------- Total income 6,30,000 --------------- * This includes income from other sources for the period 1st July, 1987, to 31st March, 1988 (9 months) amounting to Rs. 90,000 which has already been taxed in the assessment year 1988-89. Rs. (iii) Computation of tax for the assessment year 1989-90 :-- (1) Income for 12 months = Rs. 6,30,000 x 12/21 = 3,60,000 (2) Tax on Rs. 3,60,000 = 1,67,212 (3) Average rate of tax Rs. 1,67,212/Rs. 3,60,000 = 0,4645 (4) The above average rate of tax will be applied on the total income of the transitional previous year minus income from other sources for a period of 9 months which has already been taxed in the year 1988-89, i.e., Rs. 6,30,000 - Rs. 90,000 = 5,40,000 (5) Tax payable = Rs. 5,40,000 x 0.4645 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nhanced depreciation for 15 months =36,000 x15/12 = 45,000 80,000 (3) Total income for the assessment year 1989-90 2,10,000 (4) Completion of tax for the assessment year 1989-90 :-- (i) Income for 12 months=2,10,000x 12/21 = 1,20,000 (ii) Tax on Rs. 1,20,000 = 41,212 (iii) Average rate of tax = 41,212/1,20,000 = 0.3434 (iv) The above average rate of tax will be applied on the income of the transitional previous year (Rs. 2,10,000 minus income from second business for the period of 6 months, viz., Rs. 50,000 which has already been taxed in the assessment year 1988-89, i.e., Rs. 2,10,000---Rs. 50,000 = Rs. 1,60,000 (v) Tax payable---1,60,000 x 0.3434 = Rs. 54,944 ------------------ 2.12 These amendments come into force with effect from the first day of April, 1989, and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. [Sections 4 and 125 of the Amending Act, 1987] [Sections 3 and 56 of the Amending Act, 1989] Consequential amendments to section 4 reliating to charge of income-tax 3.1 Under the old provisions of section 4 of the Act, income-tax was chargeable for the assessment year at the rate or rates prescribed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le their returns by 31st July, after closing their accounts on 31st March. This would have resulted in heavy pressure of work on the audit profession, because all those assessees, who are required to get their accounts audited, would have been obliged to do so within a short span of four months. Also, all such returns would have been filed with the Department mostly towards the end of July every year, causing a glut of such returns within a very short period. To remove these difficulties, the Amending Act, 1987, has substituted a new sub-section (1), which staggers the dates for filing the returns of income by different classes of assessees as under :-- (a) Where the assessee is a company By 31st December (b) Where the assessee is a person other than a company,-- (i) who is required to get his accounts audited under By 31st October the Income-tax Act or under any other law, or in the case of a co-operative society : (ii) who derives income from business or profession, By 31st August but does not fall under item (i) above : (iii) in any other case By 30th June. 4.3 The Amending Act has also removed the discretion of the Assessing Officer to extend the dates for filing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll file the same within two years from the end of the relevant assessment year, provided the assessment had not been completed. This gave the assessee a time of three years or more for filing the return of income after he had closed his accounts and was an impediment in early completion of assessments. The Amending Act, 1987, has, therefore, substituted a new sub-section (4) whereby the time limit is reduced to one year from the end of the relevant assessment year. Reference to sub-section (2) has also been omitted. It has, however, been provided that in respect of the assessment year 1988-89 or any earlier assessment year, the return can still be filed within two years from the end of the relevant assessment year. 4.7. Under the old provisions of sub-section (5), an assessee, having furnished a return under sub-section (1) or (2), could file a revised return at any time before the assessment was made. This could be up to two years from the end of the relevant assessment year. The Amending Act, 1987, has substituted a new sub-section (5) whereby this time limit for filing a revised return is also reduced to one year from the end of the relevant assessment year. Reference to sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the term "accounting year" is omitted. (ii) The Board is empowered to prescribe categories of documents pertaining to the business or profession of the persons to whom permanent account numbers have been allotted in which such numbers are to be quoted by them. 4.12. Provisions relating to persons competent to sign the returns of income (section 140).--Under the old provisions of clause (a) of section 140, the return of income, in the case of an individual, had to be signed by the individual himself. Only two exceptions were provided to this general rule, namely :-- (i) where the individual was outside India, the return could be signed either by the individual himself or by a person duly authorised by him in this behalf ; (ii) where the individual was mentally incapacitated from attending to his affairs, the return could be signed by his guardian or any other person competent to act on his behalf. Apart from the above, there can be other contingencies where the individual may not be able to sign the return himself. For example, a person suffering from a serious ailment or physical disability may also not be able to sign the return himself. Such contingencies have alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax. To remove this lacuna, the Amending Act, 1987, has inserted a new clause (dd) in the section to provide that in the case of a political party referred to in section 139(4B), the Chief Executive Officer thereof shall be the person competent to sign and verify the return. 4.15. Provisions relating to payment of self-assessment tax before filing the return (section 140A).--Under the old provisions of sub-section (1) of section 140A, the assessee was required to pay tax on the basis of the return, after taking into account taxes already paid at the time of filing the return. Such tax, known as the self-assessment tax, was to be paid before filing the return and proof of payment thereof was to be attached with the return. The old provisions covered the limited aspect of paying, at the time of filing the return, the tax only and not the "interest" payable by the assessee for late filing of return or for default or delay in payment of advance tax. 4.16. For delay in filing the return of income and for delay or default in payment of advance tax, mandatory interest is now payable under the provisions of new sections 234A to 234C inserted by the Amending Act, 1987. Further, u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the new section 143(1)(a) (refer to para 5.2 of these Explanatory Notes). 4.20. Amendments of the provisions of section 142(1) relating to enquiry before assessment, to include power to call for a return.--Under the old provisions of sub-section (1) of section 142, the Income-tax Officer, for the purposes of making an assessment, could require an assessee, who had made a return or to whom a notice under section 139(2) had been issued (whether the return had been made or not) to produce specific books of account, documents or information which he thought were relevant to make an assessment. However, the Assessing Officer could not initiate any enquiries by issue of a notice under section 142(1), if the assessee had defaulted in voluntarily filing a return under the provisions of section 139(1). Consequent upon the omission of sub-section (2) of section 139 and more emphasis on voluntary compliance under section 139(1), as explained earlier, the Amending Act, 1987, has amended sub-section (1) of section 142 to omit reference to sub-section (2) of section 139 and to provide that a notice under the said sub-section (1) of section 142 can be issued even where the assessee has not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the production by him of any evidence in support of the return. However, sub-section (1) of the new section, substituted by the Amending Act, 1987, has done away with this requirement and it only provides for proper recovery of tax or interest due from the assessee or issue of refund due to the assessee on the basis of the return. Clause (a) of sub-section (1) of the new section provides that after a return has been filed under section 139 or in response to notice under section 142(1), the following action shall be taken :-- (i) if any tax or interest is found due on the basis of the return, after adjustment of the pre-paid taxes, an intimation shall be sent to the assessee specifying the amount so payable and such intimation shall be deemed to be the notice of demand ; and (ii) if any refund is due, it shall be granted to the assessee. Thus, if the tax on the basis of the returned income and interest, if any, due under various provisions of the Act (as explained in para 4.16 of these Explanatory Notes) has been correctly paid so that no sum is found payable by or refundable to the assessee, no further action on the return is necessary, unless, of course, the case is picked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accompanying documents. (ix) Deduction under section 80C in respect of provident fund contributions or life insurance premia or N. S. C. VI or VII Issue not claimed, though the information is available in the documents accompanying the return, or claimed at a figure which is less than or is in excess of the permissible amount. (x) Deduction under section 80L not claimed or claimed at a figure which is less than or is in excess of the permissible amount. (xi) Deduction under section 80G not claimed, although allowable on the basis of the information available in the return or the accompanying documents or claimed at a figure which is less than or is in excess of the permissible amount. (xii) Deduction under section 80M claimed at 60 per cent of gross dividend income instead of on net dividend income in violation of the provisions of section 80AA. It may be mentioned that the above is not an exhaustive, but only an illustrative, list of prima facie admissibles or inadmissibles for which adjustments can be made to the returned income or loss. 5.5 Amendment made by the Amending Act, 1989, to provide for time limit for sending an intimation to the assessee under section 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile dispensing with the necessity of passing assessment orders in all cases, did not contain any deterrent provision against filing of incorrect returns to show lesser tax liabilities. Consequently, the new scheme of assessment was liable to be misused by unscrupulous taxpayers, who might return lesser income by making obvious mistakes or by claiming obviously incorrect deductions and taking a chance that if the same are detected by the Department, they would have to pay the correct tax only. The Amending Act, 1989, has, therefore, inserted a new sub-section (1A) in the section to provide for the levy of 20% additional tax in such cases. Besides its deterrent effect, the purpose of this levy is also to persuade all the taxpayers to fill their returns of income carefully to avoid mistakes. It is thus a sort of negligence tax on the assessee and compensates the Department for the effort involved in detecting the obvious mistakes committed by the taxpayers in their returns of income or loss. The provisions are discussed in greater detail in the following sub-paragraphs. 5.8 The new sub-section (1A) provides that where the total income as a result of adjustments made under the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (1), he could make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment. 5.12 Since, under the provisions of sub-section (1) of the new section 143, an assessment is not to be made now, the provisions of sub-sections (2) and (3) have also been recast and are entirely different from the old provisions. A notice under sub-section (2) which will be issued only in cases picked up for scrutiny, is now issued only to ensure that the assessee has not understated his income or has not computed excessive loss or has not underpaid the tax in any manner while furnishing his return of income. This means that, under the new provisions, in an assessment order passed under section 143(3) in a scrutiny case, neither the income can be assessed at a figure lower than the returned income, nor loss can be assessed at a figure higher than the returned loss, nor a further refund can be given except what was due on the basis of the returned income, and which would have already been allowed under the provisions of section 143(1)(a)(ii). 5.13 A proviso to sub-section (2) provides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than two years for completion of regular assessment under section 143(3). Therefore, collection of demand due or issue of refund due on the basis of return need not wait for such a long period. It may further be pointed out that no refund can now be granted on completion of an assessment under the provisions of section 143(3). For this reason also, action under section 143(1)(a)(ii) for issue of a refund on the basis of a return of income or loss must be completed before an assessment order under section 143(3) is passed in that case, as otherwise the provisions of section 143(1)(a)(ii) and 143(3) would get mixed up and may create confusion and uncertainty. 5.16 From the above discussion, it follows that, even in cases selected for scrutiny it is desirable that action under section 143(1)(a) for issue of an intimation for any sum due from the assessee or for issue of a refund due to the assessee on the basis of the return must be completed soon after the filing of the return and in any case before completion of assessment under section 143(3). In fact, it will be preferable if action under section 143(1)(a) is completed even before the issue of a notice under section 143(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponse to notice under section 139(2) or failed to comply with notices under section 142(1) or 143(2) or with direction issued under section 142(2A). It was not necessary to give a specific opportunity to the assessee under this section before completing the assessment ex parte. Consequent to the deletion of sub-section (2) of section 139 and the substitution of a new section 143, the Amending Act, 1987, has made the following amendments in section 144 :-- (i) A best judgment assessment can now be completed on assessee's failure to file a return of income under sub-section (1) of section 139. (ii) A best judgment assessment under this section can now be made only after giving the assessee an opportunity of being heard. (iii) Two provisos have been inserted in the section to provide that such opportunity shall be given to the assessee calling upon him to show cause why the assessment should not be completed to the best of judgment. It is further provided that such opportunity shall not be necessary where a notice under section 142(1) has already been issued to the assessee. (iv) The words "or refundable to the assessee", which occurred in the old section 144, have been delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome escaping assessment 7.1 Simplification of the provisions relating to assessment or reassessment of income escaping assessment (section 147).--Under the old provisions of section 147 of the Income-tax Act, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed, as follows :-- (i) Clause (a) empowered the Income-tax Officer to assess or reassess the income escaping assessment if he had reason to believe that income had escaped assessment on account of omission or failure on the part of the assessee to file a return of income for an assessment year or to disclose fully and truly all material facts necessary for assessment for that year. (ii) Clause (b) empowered the Income-tax Officer to reopen an assessment, notwithstanding the fact that there had been no omission or failure, as mentioned in clause (a), on the part of the assessee if the Income-tax Officer, on the basis of information in his possession, had reason to believe that income had escaped assessment for the relevant assessment year. Since under the new scheme of assessment (refer to para 5.1 of these Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that the meaning of the expression, "reason to believe" had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression "has reason to believe" in the place of the words "for reasons to be recorded by him in writing, is of the opinion". Other provisions of the new section 147, however, remain the same. 7.3. Deemed cases of income escaping assessment (Explanation 1 to section 147).--Under the old provisions of Explanation 1 to section 147, income chargeable to tax was deemed to have escaped assessment if it had been under-assessed or assessed at too low a rate or if any excessive relief or loss or depreciation allowance had been allowed. The new provisions in this respect, as contained in Explanation 2 to new section 147, are more elaborate and cover those cases where assessments have been completed (called as scrutiny cases) as well as those cases where no assessments have been completed (called as non-scrutiny cases) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, no notice under section 148 could be issued in a case falling under clause (b) after the expiry of four years and in a case falling under clause (a) after the expiry of eight years from the end of the relevant assessment year. However, in a case falling under clause (a) if the income which had escaped assessment amounted to Rs. 50,000 or more in that year, the case could be reopened up to 16 years. 7.7. In view of the new procedure for assessment (refer to para 5.1 of these Explanatory Notes) whereby the majority of cases will be non-scrutiny cases, while only a very small percentage will be scrutiny cases (i. e., where an assessment order will be passed under section 143(3) or 147), the Amending Act, 1987, has substituted a new sub-section (1) in section 149, which contains an entirely different basis for the time limits. The time limits now depend upon whether the case is a scrutiny case or a non-scrutiny case and also the amount of income which has escaped assessment. The income limits for opening or reopening a non-scrutiny case are lower than those for reopening a scrutiny case. The new provisions of section 149(1) are explained in a chart given in para 7.11 post. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chief Commissioner or Commissioner. A non-scrutiny case can be opened or reopened by any Assessing Officer and after the expiry of four years from the end of the relevant assessment year it can be opened or reopened with the approval of the Deputy Commissioner. However, where the Assessing Officer is the Deputy Commissioner himself, no sanction of the higher authority will be necessary for opening or reopening a non-scrutiny case. 7.11. The new provisions of section 149(1) regarding time limits and section 151 regarding issuing and sanctioning authorities for the issue of a notice under section 148 are explained in the following chart :-- --------------------------------------------------------------------------------------------------------------------------------------------------- Sl. No. Up to four years Beyond four years but Beyond seven years up to seven years but up to ten years ------------------------------------------------------------------------------------------------------------------------------------------------- 1 2 3 4 --------------------------------------------------------------------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceding paragraphs, which came into force with effect from 1st April, 1989, will be retrospective in the sense that these will apply to all matters which were pending on 1st April, 1989, and had not become closed or dead on this date. 7.14 Thus, from 1st April, 1989 onwards, any action for opening or re-opening an assessment for the assessment year 1988-89, and earlier assessment years will have to be taken in accordance with the amended provisions. The following examples will clarify the position :-- (i) No notice under section 148 can now be issued for the assessment years 1973-74 to 1978-79, even if the escaped income is Rs. 50,000 or more in each year, although under the old provisions this could have been done with the Board's approval. (ii) Notice under section 148 can now be issued for any of the assessment years 1979-80 to 1981-82, if the following conditions are fulfilled :-- (a) In a scrutiny case [i.e., where an assessment order had been passed under section 143(3) or 147], if the escaped income is Rs. 1 lakh or more in each year and approval of the Chief Commissioner or Commissioner has been obtained. (b) In a non-scrutiny case, if the escaped income is Rs. 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153).--Under the old provisions of sub-section (1) of section 153 of the Income-tax Act, various time limits were laid down for completion of an assessment under section 143(3) or under section 144. The old sub-section (1) consisted of four clauses (a) to (d) and clause (a) consisted of three sub-clauses (i) to (iii). The general time limit for completion of an assessment, as laid down in subclause (iii) of clause (a), was two years from the end of the assessment year in which the income was first assessable. 8.2 The Amending Act, 1987, has substituted a new sub-section (1) in section 153. The provisions of all the clauses and sub-clauses of the old sub-section (1), except the provisions of sub-clause (iii) of clause (a), have been omitted, because either these provisions have become redundant or they were impractical and were not being used in practice. Therefore, the new sub-section (1) of section 153, substituted by the Amending Act, 1987, is much shorter and provides that no order of assessment under section 143 or section 144 shall be made after the expiry of two years from the end of the assessment year in which the income was first assessable. Note.--Section 20 of the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the deletion of section 144B itself. 8.7 These amendments come into force with effect from the 1st April, 1989. [Section 59 of the Amending Act, 1987] Rectification of mistakes and other amendments of orders 9.1 Rectification of mistake in an intimation or a refund issued under section 143(1) (sub-section (1) of section 154).--Under the old provisions of sub-section (1) of section 154 of the Income-tax Act, an order passed by an income-tax authority under the provisions of the Act could be amended to rectify a mistake apparent from the record. Since an intimation for any tax or interest found due from the assessee or refund due to the assessee on the basis of the return of income issued under the provisions of new section 143(1) are not orders under the Act, any apparent mistake therein could not have been rectified under the old provisions of section 154(1). The Amending Act, 1987, has, therefore, substituted a new sub-section (1) in section 154 to extend the scope of the section by empowering an income-tax authority to amend any intimation sent by it or to reduce or enhance the amount of any refund granted by it under section 143(1) in order to rectify any apparent mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 35 has been restored by the Amending Act, 1989, the provisions of sub-sections (1) and (5B) of section 155 have also been restored by the Amending Act, 1989. 9.3. These amendments (except amendments indicated at (d) in para 9.2 above, which would come into force with effect from 1st April, 1992), come into force with effect from 1st April, 1989. [Sections 60 and 61 of the Amending Act, 1987] [Clause (i) of section 95 of the Amending Act, 1989] Payment of mandatory interest to replace various interests and penalties 10.1. The old provisions in the Income-tax Act which gave the assessing authorities discretionary powers to charge interest and also to levy penalties for the same default, were found to be rather complicated. These were contained in the following sections of the Act :-- (i) Section 139(8) relating to levy of interest for late filing or non-filing of return of income. (ii) Section 215 relating to levy of interest for underpayment of advance tax. (iii) Section 216 relating to levy of interest for deferment of instalments of advance tax. (iv) Section 217 relating to levy of interest for non-payment of advance tax. (v) Section 271(1)(a) relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be payable on regular assessment. (iii) Sub-section (3) provides for charge and mode of computation of interest where during the course of reassessment proceedings (after an assessment has been completed under section 143(3) or 144 or 147) the return of income is either filed late or not filed in response to a notice under section 148. (iv) Sub-section (4) provides for automatic revision of the amount of interest where the amount of tax is varied as a result of an order of rectification, appeal, revision or settlement mentioned in the sub-section. (v) Sub-section (5) provides that the provisions of this section shall apply to the assessment year 1989-90 and subsequent assessment years. (Refer to examples III and IV in para 10.13). 10.4. Amendments made in section 234A by the Amending Act, 1989.--The new section 234A inserted by the Amending Act, 1987, provided for calculation of interest under that section only on completion of regular assessment. It did not provide for calculation of interest under the following circumstances : (i) Where interest is to be calculated and charged under the provisions of the new section 143(1) without completing a regular assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) for the purposes of this section, an assessment made for the first time under section 147 shall be regarded as a regular assessment ; and (3) for the purposes of computing interest under this section, additional income-tax payable under the new section 158B shall not be taken into consideration. (ii) Sub-section (2) provides for the mode of computation of interest where the assessee has paid any tax under section 140A before the completion of regular assessment, as follows : (a) Interest shall be calculated in accordance with the provisions of sub-section (1) upto the date of payment of tax under section 140A and reduced by the amount of interest, if any, paid under section 140A towards interest chargeable under this section. (b) Thereafter, interest shall be calculated on the amount by which the tax paid under section 140A together with the advance-tax paid falls short of the assessed tax. (iii) Sub-section (3) provides for the charge and mode of computation of interest where the tax on total income determined on regular assessment is increased as a result of an order of reassessment or recomputation under section 147. (iv) Sub-sections (4) and (5) contain provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple V in Para 10.13). (ii) Sub-section (2) provides that the provisions of this section shall apply to the assessment year 1989-90 and subsequent assessment years. 10.9. Amendments made in section 234C by the Amending Act, 1989.--As explained earlier (para 10.2 of Part I of the Explanatory Notes), advance tax is now also payable on capital gains and income of casual nature referred to in section 2(24)(ix). Numerous representations were received pointing out hardships on account of the inability to estimate the expected income from these sources and pay advance tax thereon in three instalments, in cases where any such income arose after the due date of instalment or instalments. To remove this hardship, the Amending Act, 1989, has inserted a proviso in sub-section (1) of section 234C to provide that no interest shall be levied under the section in respect of any shortfall in the payment of instalment of advance tax, if the shortfall is on account of failure to estimate the income expected from capital gains or income of casual nature referred to in section 2(24)(ix) and the assessee has paid the whole amount of the tax payable in respect of such income as part of the instalment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 234A at the time of filing the return :-- (@ 2% per month for 4 months on Rs. 20,000) Rs. 1,600 *Note :-- Since the advance tax paid (Rs. 2,80,000) is more than 90% of the tax on returned income (90% of Rs. 3,00,000), no interest is payable under section 234B at the time of filing the return of income. If however, the returned income is increased, either as a result of adjustments made under the first proviso to section 143(1)(a) or as a result of regular assessment under section 143(3) so that the advance tax paid (Rs. 2,80,000) becomes less than 90% of the tax on total income determined under section 143(1)(a) or on regular assessment, interest under section 234B shall also become chargeable. In such a situation, interest under section 234A will also be increased on the basis of the tax on total income determined under section 143(1)(a) or on regular assessment. Example II.-- Late filing of return and underpayment of advance tax--Interest payable by the assessee under sections 234A and 234B at the time of filing the return of income : (i) Due date for filing the return for the assessment year 1989-90 31-8-89 (ii) Date of filing the return 31-12-89 (iii) Delay in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or eight months and seventeen days i.e., for nine months -- @ 18 % on Rs. 4,00,000 Rs. 72,000 Less : Interest paid under section 140A at the time of filing the return (column viii) Rs. 54,000 ------------------- Rs. 18,000 (2) @ 2% per month for twelve months (1st January, 1990 to 31st December, 1990 ) on Rs. 1,00,000 (Rs. 4,00,000--Rs. 3,00,000) Rs. 24,000 Rs. 42,000 C. Total amount of interest under sections 234A and 234B further payable on regular assessment (A--B) Rs. 50,000 *Note :-- Interest under sections 234A and 234B is to be charged for the full month, even where there is delay of part of a month. Example IV.-- Late filing of return and underpayment of advance tax in a case where tax has also been deducted at source--Interest payable by the assessee under sections 234A and 234B at the time of filing the return and on regular assessment : (i) Due date of filing the return for the assessment year 1989-90 31-8-89 (ii) Date of filing the return 31-12-89 (iii) Delay in filing the return 4 months (iv) Tax deducted at source Rs. 2,00,000 *(v) Advance tax paid Rs. 1,60,000 (vi) Tax as per returned income Rs. 4,00,000 *(vii) 90% of assessed tax % i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of advance tax in a case involving capital gains tax--Interest payable by the assessee under section 234C. Rs. Rs. (i) Tax as per returned income for assessment year 1990-91 2,00,000 *(ii) Tax on capital gains arising on 30-10-1989 included in column (i) 50,000 (iii) Instalments of advance tax payable on : 15-9-1989 30,000 15-12-1989 95,000 Total payments to be made up to 15-12-1989 --------------- 1,25,000 (iv) Advance tax paid on : 15-9-1989 20,000 15-12-1989 50,000 Total payment actually made up to 15-12-1989 ---------------- 70,000 (v) Shortfall up to 15-9-1989 10,000 (vi) Shortfall up to 15-12-1989 55,000 (vii) Interest under section 234C will be calculated as under :-- (i) Interest on Rs. 10,000 @ 1 1/2% per month for three months 450 (ii) Interest on Rs. 55,000 @ 1 1/2% per month for three months 2,475 (iii) Total interest payable under section 234C 2,925 *Note :-- The entire tax of Rs. 50,000 on capital gains is payable in the second instalment due on 15th December, 1989. Therefore, only the balance amount of tax, i.e., Rs. 1,50,000, is to be allocated in these instalments. 10.14. These amendments come into force with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also to simplify the provisions in this regard, the Amending Act, 1987, has inserted a new section 244A in the Income-tax Act, applicable from the assessment year 1989-90 and onwards which contains all the provisions for payment of interest by the Department for delay in the grant of refunds. The rate of interest has been increased from the earlier 15 per cent. per annum to 1.5% per month or part of a month comprised in the period of delay in the grant of refund. The Amending Act, 1987, has also amended sections 214, 243 and 244 to provide that the provisions of these sections shall not apply to the assessment year 1989-90 or any subsequent assessment years. 11.4. The provisions of the new section 244A.-- The provisions of the new section 244A are as under : (i) Sub-section (1) provides that where in pursuance of any order passed under this Act, refund of any amount becomes due to the assessee then, (a) if the refund is out of any advance tax paid or tax deducted at source during the financial year immediately preceding the assessment year, interest shall be payable for the period starting from the 1st April of the assessment year and on the date of grant of the refund of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed under section 143(3) for the purposes of calculation of revised interest under this sub-section. The effect is that any interest granted on refund becoming due in pursuance of the provisions of section 143(1) will also be revised if the amount of refund is reduced as a result of an assessment order under section 143(3) passed in that case. 11.8. Examples to illustrate the calculation of interest under section 244A.-- The calculation of interest under the provisions of section 244A may be illustrated by means of the following examples : Example I.-- Grant of refund under section 143(1) out of advance tax paid or tax deducted at source--Interest payable by the Department under section 244A :-- (i) Tax paid by way of advance tax/TDS before 31st March, 1989 Rs. 3,00,000 (ii) Tax due as per return of income for the assessment year 1989-90, filed on 31st August, 1989, the due date Rs. 2,40,000 (iii) Refund due to the assessee Rs. 60,000 (iv) Date of actual refund granted under section 143(1) 10-10-1989 *(v) Interest payable by the Department @ 1.5 per cent. per month for six months and ten days (1-4-1989---10-10-1989) i.e., for seven months---@ 10.5 per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return has been filed in time, neither any tax or interest is due from the assessee nor is any refund due to him. Therefore, no action under section 143(1) is necessary. 11.9. These amendments come into force with effect from the 1st day of April, 1989. As already pointed out earlier, the provisions of the new section 244A shall apply to the assessment year 1989-90 and subsequent assessment years, while the provisions of sections 214, 243 and 244, which have been replaced by the provisions of new section 244A, shall cease to apply to the assessment year 1989-90 and onwards. [Sections 82(b), 96, 97 and 98 of the Amending Act, 1987] [Section 41 of the Amending Act, 1989] Amendments to the Wealth-tax Act, 1957 12.1 The provisions of the Wealth-tax Act relating to the valuation date, procedure for assessment, charge of mandatory interest for default in furnishing the return of wealth, payment of interest by the Government on refund due to the assessee and rectification of mistake correspond with the provisions of the Income-tax Act which have been discussed in the preceding paras in this Part of the Explanatory Notes. The Amending Act, 1987, and the Amending Act, 1989, hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he new procedure of assessment. 8. (i) 138 of the 16 (new section 142, 143 Substitution of new Amending Act, substituted) and 144 section 16 relating to 1987 procedure for (ii) 64 of the assessment and its Amending Act, further amendments 1989 to streamline the procedure including the provision for charge of additional wealth-tax, where the returned wealth is increased under the provisions of section 16(1). 9. (i) 139 of the 17 147 to 151 Amendments to section Amending Act, 17 relating to 1987 assessment or reassessment. (ii) 66 of the assessment of wealth Amending Act, escaping assessment. 1989 10. 140 of the Amending Act, 1987 17A 153 Amendments to section 17A relating to time limit for completion of assessment and reassessment. 11. (i) 141 of the 17B (new sec- 234A Insertion of new section Amending Act, tion inserted) 17B to provide for 1987 charge of mandatory (ii) 67 of the interest for default in Amending Act, furnishing return of 1989 wealth. 12. (i) 150(ii) of the 34A(4A) and 243, 244 Insertion of new sub-section Amending Act, (4B) (new) and 244A. in sec. 34A to 1987 sub-sections restrict the old provisions inserted) regarding (ii) 73 of the payment of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent.-- Section 28 of the Finance Act, 1989, has further amended sub-section (1) of section 17A by substituting the proviso, which provided transitory provisions for completion of assessments under section 16 for the assessment years 1985-86 and 1986-87, by a new proviso which now provides transitory provisions for completion of such assessments for the assessment year 1988-89 and earlier assessment years. Amendments to the Gift-tax Act, 1958 13.1. The provisions of the Gift-tax Act relating to previous year, procedure for assessment, charge of mandatory interest for default in furnishing the return of gifts, payment of interest by the Government on refund due to the assessee and rectification of mistake correspond with the provisions of the Income-tax Act and the Wealth-tax Act, which have been discussed in the preceding paras in this Part of the Explanatory Notes. The Amending Act, 1987, and the Amending Act, 1989, have made amendments to these provisions of the Gift-tax Act to bring them broadly in line with the corresponding provisions in the Income-tax Act and the Wealth-tax Act, as they have emerged after their amendment by the two Amending Acts. The Table below shows thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 to 151 Amendments to section Amending Act, 16 relating to 1987 assessment or reassessment (ii) 84 of the assessment of gifts Amending Act, escaping assessment 1989 9. 172 of the Amending Act, 1987 16A 153 Amendments to section 16A relating to time limit for completion of assessment and reassessment. 10. (i) 173 of the 16B (new section 234A Insertion of new section Amending Act, inserted) 16B to provide for 1987 charging of mandatory (ii) 85 of the interest for default in Amending Act, furnishing return of gifts. 1989 11. (i) 180(ii) of the 33A (4A and 243, 244 Insertion of new sub-sections Amending Act, 4B ) (new and 244A sections in section 33A 1987 sub-sections to restrict the old (ii) 90 of the inserted) provisions regarding Amending Act, payment of interest on 1989 refunds contained in sub-sections (3), (3A) and (4) to assessment year 1988-89 and earlier assessment years, and to provide for new mode of payment of interest on refunds effective from the assessment year 1989-90. 12. 181 of the Amending Act 1987 34 154 Amendments to section 34 relating to rectification of mistake apparent from record. --------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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