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TMI BlogExplanatory notes to the provisions of the Finance (No. 2) Act, 2009X X X X Extracts X X X X X X X X Extracts X X X X ..... Other Public Sector Banks" under the expression "Public Sector Bank", 10.1-10.4 10A, 10B Extension of sunset clause for units in free trade zone under section 10A and for export oriented undertakings under section 10B, 11.1-11.3 10AA Clarification regarding computation of exempted profits in the case of units in Special Economic Zones (SEZs), 12.1-12.3 13B, 2(22AAA), 2(24) Special provisions relating to voluntary contributions received by electoral trust, 13.1-13.3 32 Aligning the definition of "block of asset", 14.1-14.2 35 Weighted deduction for in-house research and development, 15.1-15.3 35AD, 28, 43, 50B, 73A Investment-linked tax incentive for specified business, 16.1-16.6 36(1) Special deduction under section 36(1)(viii) to National Housing Bank (NHB), 17.1-17.4 40 Remuneration to partners in a firm, 18.1-18.3 40A Enhancement of limit for disallowance of expenditure made in the case of transporters, 19.1-19.4 43 Definition of written down value under section 43(6), 20.1-20.8 44AD, 44AA, 44AB, 44AE, 44AF Special provision for computing profits and gains of business on presumptive basis, 21.1-21.3 44AE Presumptive income for tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48.1-48.2 194C, 194-I Rationalisation of provisions relating to Tax Deduction at Source (TDS), 49.1-49.4 200, 203A, 206A, 206C, 272A, 139A Filing of TDS and TCS statements, 49.5 200A Processing of statements of tax deducted at source, 49.6 201 Providing time-limits for passing of orders under section 201(1) holding a person to be an assessee in default, 50.1-50.4 206AA Improving compliance with provisions of quoting PAN through the TDS regime, 51.1-51.5 208 Enhancement of the limit for payment of advance tax, 52.1-52.2 271 Rationalization of provisions relating to penalty for concealment of income, 53.1-53.3 281B Rationalization of provision relating to provisional attachment of asset, 54.1-54.3 282 Service of notice, 55.1-55.4 282B Introduction of Document Identification Number, 56.1-56.3 293C Power to withdraw approvals, 57.1-57.3 1st Schedule Taxation of investment income/loss of Non-life insurance business, 58.1-58.4 4th Schedule Recognition to Provident funds - Extension of time-limit for obtaining exemption from EPFO, 59.1-59.4 13th Schedule Amendment in Part B of the Thirteenth Schedule to the Income-tax Act, 1961, 60.1-60.4 Wealth-tax Act 3 En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he First Schedule to the Finance Act, 2008 for the purposes of computation of advance tax, deduction of tax at source from Salaries and charging of tax payable in certain cases during the financial year 2008-09. The major features of the rates specified in the said Part I are as follows : 3.1-2 INDIVIDUAL, HINDU UNDIVIDED FAMILY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS OR ARTIFICIAL JURIDICAL PERSON - Paragraph A of Part I of the First Schedule specifies the rates of income-tax in the case of every individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person (other than a co-operative society, firm, local authority and company) as under :-- Income chargeable to tax Rate of income-tax Individual (other than individual woman resident in India and senior citizen resident in India), HUF, association of persons, body of individuals and artificial juridical person Individual woman, resident in India and below the age of sixty-five years Individual senior citizen, resident in India, who is of the age of sixty-five years or more Up to Rs. 1,50,000 Nil Nil Rs. 1,50,001 - Rs. 1,80,000 Nil Rs. 1,80,001 - Rs. 2,25,000 10% 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% No surcharge shall be levied. Education Cess on income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.1-4 FIRMS - In the case of every firm, the rate of income-tax of thirty per cent has been specified in Paragraph C of Part I of the First Schedule to the Act. Surcharge at the rate of ten per cent shall be levied only in cases where the firm has total income exceeding one crore rupees. However, marginal relief shall be allowed to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over one crore rupees is limited to the amount by which the income is more than one crore rupees. In respect of fringe benefits chargeable to tax under section 115WA of the Income-tax Act, surcharge shall be levied at the rate of ten per cent of the amount of tax irrespective of the amount of fringe benefits. Additional surcharge called the Education Cess on Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds one crore rupees, marginal relief shall be provided. In respect of fringe benefits, in the case of a domestic company, surcharge shall be levied at the rate of ten per cent of the amount of tax, irrespective of the amount of fringe benefits. In the case of a company other than a domestic company, in respect of fringe benefits, surcharge shall be levied at the rate of two and one-half per cent of the amount of tax, irrespective of the amount of fringe benefits. Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge in the case of every company. Also, such amount of tax and surcharge shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of the amount of tax computed, inclusive of surcharge. 3.2 Rates for deduction of income-tax at source from certain incomes during the financial year 2008-09. 3.2-1 In every case in which tax is to be deducted at the rates in force under the provisions of sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the Income-tax Act, the rates for deduction of income-tax at source d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be Rs. 1,100. The total cess in this case will amount to Rs. 3,300 (i.e., Rs. 2,200 + Rs. 1,100). 3.3 Rates for computation of advance tax, deduction of income-tax at source from Salaries and charging of income-tax in certain cases during the financial year 2009-10. 3.3-1 The rates for deducting income-tax at source from Salaries and computing advance tax during the financial year 2009-10 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 2009-10 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, assessment of persons who are likely to transfer property to avoid tax, assessment of bodies formed for short duration, etc. The rates are as follows :-- 3.3-2 INDIVIDUAL, HINDU UNDIVIDED FAMILY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS OR ARTIFICIAL JURIDICAL PERSON - Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of every individual. Hindu undivided family, assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax of thirty per cent has been specified in Paragraph C of Part III of the First Schedule to the Act. No Surcharge shall be levied. The Education Cess on Income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed. In addition, such amount of tax shall be further increased by an additional cess called Secondary and Higher Education Cess on income-tax computed at the rate of one per cent on the amount of tax, in all cases. No marginal relief shall be available in respect of Education Cess. 3.3-5 LOCAL AUTHORITIES - In the case of every local authority, the rate of income-tax has been specified at thirty per cent in Paragraph D of Part III of the First Schedule to the Act. No surcharge shall be levied. However, Education Cess on Income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.3-6 COMPANIES - In the case of a company, the rate of income-tax has been specified in Paragraph E of Part III of the First Schedule to the Act. In case of a domestic company, the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from such activity. 4.2 Clause (15) of section 2 has been amended so as to provide that the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest would be excluded from the applicability of the aforesaid proviso which is applicable to the "advancement of any other object of general public utility". 4.3 Applicability - These amendments have been made applicable with effect from 1st April, 2009 and will accordingly, apply for assessment year 2009-10 and subsequent assessment years. 5. Taxation of Limited Liability Partnership (LLP) 5.1 The Limited Liability Partnership Act, 2008 has come into effect in 2009. LLP Rules (except some rules dealing with conversion) and forms have been notified with effect from 1st April, 2009. 5.2 The Income-tax Act has been amended to incorporate the taxation scheme of LLPs in the Income-tax Act on the same lines as the taxation scheme currently prevalent for general partnerships, i.e., taxation in the hands of the entity and exemption from tax in the hands of its partners. A "limited liability partnership" and a general pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new object or article or thing with a different chemical composition or integral structure. 6.2 Applicability- This amendment has been made applicable with retrospective effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2009-10 and subsequent years. 7. Power to issue Zero Coupon Bonds 7.1 Under the existing provision of clause (48) of section 2, only infrastructure capital company or infrastructure capital fund or public sector company are empowered to issue zero coupon bonds when they are authorized to do so. 7.2 With a view to empower the scheduled banks including nationalized banks to issue zero coupon bonds to source their long-term funds, the Act has been amended so as to include the scheduled banks as an eligible person to issue zero coupon bonds. 7.3 Further, consequential amendments also were made in Explanation to clause (iiia) of sub-section (1) of section 36 and in clause (x) of sub-section (3) of section 194A of the Income-tax Act. 7.4 Applicability- T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any amount received or receivable on his voluntary retirement or termination of service or voluntary separation, no exemption under clause (10C) of section 10 shall be allowed to him in relation to such, or any other, assessment year. 8.5 Applicability- These amendments have been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent years. 9. Extension of time-limit for filing applications for tax exemption under section 10(23C) 9.1 Clause (23C) of section 10 provides that income of institutions specified under the various sub-clauses of the section shall be exempt from income-tax. In certain cases, approvals are required to be taken from prescribed authorities, in the prescribed manner, to become eligible for claiming exemption. Under the previous provisions, any institution (having receipts of more than rupees one crore) had to make an application for seeking exemption at any time during the financial year for which the exemption is sought to be taken. 9.2 In practice, under the previous regime, an eligible institution has to anticipate its annual receipts to decide whether the application for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10B of the Income-tax Act were available only up to the assessment year 2010-11. 11.2 Sections 10A and 10B have been amended to extend the tax benefit under both these sections by one year i.e., the deduction will be available up to assessment year 2011-12. 11.3 Applicability - These amendments have been made applicable with effect from 1st April, 2009 and will accordingly, apply for assessment year 2009-10 and subsequent assessment years. 12. Clarification regarding computation of exempted profits in the case of units in Special Economic Zones (SEZs) 12.1 Under sub-section (7) of section 10AA of the Income-tax Act, the exempted profit of a SEZ unit is the profit derived from the export of articles or things or services and same is required to be calculated as under : "the profit derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the assessee." Simply stated, it means that the exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endments have taken effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent years. 14. Aligning the definition of "block of asset" 14.1 The term "block of assets" has been defined in clause (11) of section 2 and in Explanation 3 to sub-section (1) of section 32 of the Income-tax Act. However, these definitions are not identical and therefore, they are subject to misuse. Hence, the word "block of assets" has been deleted from the Explanation 3 of sub-section (1) of section 32 of the Income-tax Act so that the word "block of assets" will derive its meaning only from clause (11) of section 2. 14.2 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to the assessment year 2010-11 and subsequent assessment years. 15. Weighted deduction for in-house research and development 15.1 Under the existing provisions of the Income-tax Act, under sub-section (2AB) of section 35, weighted deduction of 150 per cent is allowed to a company engaged in the business of biotechnology or in the business of manufacture or production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior to the commencement of operations of the specified business and capitalised in the books of account of the assessee on the date of commencement of operations is also eligible for the deduction. (iii) The expenditure of capital nature shall not include any expenditure incurred on acquisition of any land or goodwill or financial instrument. (iv) The benefit is available-- (a) in a case where the business relates to laying and operating a cross country natural gas pipeline network for distribution, if such business commences its operations on or after 1st April, 2007; and (b) in any other case, if such business commences its operation on or after the 1st April, 2009. (v) The assessee shall not be allowed any deduction in respect of the specified business under the provisions of Chapter VI-A; (vi) No deduction in respect of the expenditure in respect of which deduction has been claimed shall be allowed to the assessee under any other provisions of the Income-tax Act. (vii) Any sum received or receivable on account of any capital asset, in respect of which deduction has been allowed under section 35AD, being demolished, destroyed, discarded or transferred shall be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure has been allowed or is allowable as a deduction under section 35AD shall be treated as nil. 16.6 A new section 73A has also been inserted to give effect to the consequential provisions introduced in section 35AD. Thus, any loss computed in respect of any specified business referred to in section 35AD shall not be set off except against profits and gains, if any, of any other specified business. Further, where for any assessment year any loss computed in respect of the specified business has not been wholly set off against profits and gains of another specified business, so much of the loss as is not so set off or the whole loss where the assessee has no income from any other specified business shall be carried forward to the following assessment year, subject to the other provisions of Chapter VI and - (i) it shall be set off against the profits and gains, if any, of any specified business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. 16.7 Applicability - These amendments will be effective from 1st April, 2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other firm-- (a) on the first Rs. 75,000 of the book-profit, or in case of a loss Rs. 50,000 or at the rate of 90 per cent of the book-profit, whichever is more; (b) on the next Rs. 75,000 of the book-profit at the rate of 60 per cent; (c) on the balance of the book-profit at the rate of 40 per cent. 18.2 The Act has been amended to make upward revision of the existing limits of the remuneration and also to prescribe uniform limits for both professional and non-professional firms for simplicity and administrative ease. The revised limits as under : (a) on the first Rs. 3,00,000 of the book-profit or in case of a loss Rs. 1,50,000 or at the rate of 90 per cent of the book-profit, whichever is more; (b) on the balance of the book-profit at the rate of 60 per cent. 18.3 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to the assessment year 2010-11 and subsequent assessment years. 19. Enhancement of limit for disallowance of expenditure made in the case of transporters 19.1 Under the existing provisions of the Income-tax Act, where an assessee incurs any expenditure, in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot;, the depreciation deducted in arriving at the taxable income alone can be taken into account for computing the WDV in the subsequent year. 20.4 For instance, rule 8 prescribes the taxability of income from the manufacture of tea. Under the said rule, income derived from the sale of tea grown and manufactured by seller shall be computed as if it were income derived from business, and 40 per cent of such income shall be deemed to be income liable to tax. As a result of the Court decision on depreciation to be "actually allowed" for computing WDV, the resultant computation of depreciation is as per the following illustration : Rs. Sale proceeds of made tea - 1,000 Less : Expenses-- Depreciation - (10% of Rs. 1,000) - (100) Others expenses - (300) Composite income - 600 Income subject to charge under the I.T. Act, 1961 by application of rule 8 (40% of 600) - 240 Income not chargeable to income-tax (60% of 600) - 360 20.5 According to the interpretation of the Court, the W.D.V. of the fixed asset for the immediately succeeding year is to be taken at Rs. 960 (Rs. 1,000 minus Rs. 40 being depreciation allocated for business income) and not Rs. 900 (Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is computed at the rate of a sum equal to five per cent of the total turnover. There has been a substantial increase in small businesses with the growth of transport and communication and general growth of the economy. A large number of businesses and service providers in rural and urban areas who earn substantial income are outside the tax-net. Introduction of presumptive tax provisions in respect of small businesses would help a number of small businesses to comply with the taxation provisions without consuming their time and resources. A presumptive income scheme for small taxpayers lowers the compliance cost for such taxpayers and also reduces the administrative burden on the tax machinery. In view of the above, to expand the scope of presumptive taxation to all businesses, the existing section 44AD has been substituted by a new section 44AD. 21.2 The salient features of the new presumptive taxation scheme are as under : (a) The scheme is applicable to individuals. HUFs and partnership firms excluding Limited liability partnership firms. It is also not be applicable to an assessee who is availing deductions under sections 10A, 10AA, 10B, 10BA or deduction under any provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid sum claimed to have been earned by the assessee shall be deemed to be profits and gains of such business. 22.5 Applicability - These amendments have been made applicable with effect from 1st April, 2011 and will accordingly, apply in relation to assessment year 2011-12 and subsequent assessment years. 23. Provisions for deemed valuation in certain cases of transfer 23.1 The existing provisions of section 50C provide that where the consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed by an authority of a State Government (stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of consideration received or accruing as a result of such transfer for computing capital gain. However, the present scope of the provisions does not include transactions which are not registered with stamp duty valuation authority, and executed through agreement to sell or power of attorney. 23.2 With a view to preventing the leakage of revenue, section 50C is amended, so as to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stamp duty value of such property shall be taxed as the income of the recipient. If an immovable property is received for a consideration which is less than the stamp duty value of the property and the difference between the two exceeds fifty thousand rupees (inadequate consideration), the difference between the stamp duty value of such property and such consideration shall be taxed as the income of the recipient. If the stamp duty value of immovable property is disputed by the assessee, the Assessing Officer may refer the valuation of such property to a Valuation Officer. In such cases, the provisions of existing section 50C and sub-section (15) of section 155 of the Income-tax Act shall, as far as may be, apply for determining the value of such property. 24.4 It has been provided that in a case where movable property is received without consideration and the aggregate fair market value of such property exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property shall be taxed as the income of the recipient. If a movable property is received for a consideration which is less than the aggregate fair market value of the property and the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns referred to in (i) above, shall be allowed if the deduction has not been claimed in the return of income. 25.3 Applicability - This amendment has taken effect retrospectively from 1st April, 2003, and will accordingly, apply in relation to assessment year 2003-04 and subsequent years. 25.4 Further, section 80A has been amended to also to provide that the transfer price of goods and services between the undertaking or unit or enterprise or eligible business and any other undertaking or unit or enterprise or business of the assessee shall be determined at the market value of such goods or services as on the date of transfer. 25.5 Furthermore, the expression "market value" has been defined to mean,-- (a) in relation to any goods or services sold or supplied, means the price that such goods or services would fetch if these were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions, if any; (b) in relation to any goods or services acquired, means the price that such goods or services would cost if these were acquired by the undertaking or unit or enterprise or eligible business from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004 has been amended to provide that all purchases and sales of equity and derivatives by the NPS Trust will also be exempt from the Securities Transaction Tax; and (iv) Section 197A has been amended to provide that the NPS Trust shall receive all income without any tax deducted at source. 26.3 The tax benefit under section 80CCD of the Income-tax Act, 1961 was hitherto available to "employees" only. However, the NPS now has been extended to "self-employed" also. Therefore, sub-section (1) of section 80CCD has been amended so as to extend the tax benefit thereunder also to "self-employed" individuals. The deduction to be allowed in the case of an employee should not exceed 10 per cent of his salary in the previous year, and in any other case, the same should not exceed 10 per cent of his gross total income in the previous year. 26.4 The Explanation to the said section has also been amended to provide that for the purposes of the said section the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year. 26.5 Applicability - These amendments has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment or local authority to do so. Further, clause (e) has also been substituted to widen the scope of the term "relative" so as to include a student for whom an individual assessee is the legal guardian. 28.4 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent years. 29. Donations to Certain Funds, Charitable Institutions, etc. 29.1 Section 80G of the Income-tax Act, 1961 provides for a deduction in respect of donations to certain funds, charitable institutions, etc., subject to, inter alia, the condition that such institutions and trusts are establish for 'charitable purpose'. Consequent to the amendment of sub-section (15) of section 2 by the Finance Act, 2008 a number of organizations have ceased to be charitable for the purposes of the Income-tax Act. However, such institutions and trusts continued to collect donation during the financial year 2008-09 for funding relief work for floods in Bihar and other public purposes. The donors made these donations under a bona fide belief that they would be entitled to benefit under section 80G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009 will be deemed to have been extended in perpetuity unless specifically withdrawn. However, in case of approvals expiring before 1st October, 2009, these will have to be renewed and once renewed these shall continue to be valid in perpetuity, unless specifically withdrawn. 30. Deduction in respect of contributions to political parties 30.1 Section 80GGB and section 80GGC of the Income-tax Act, 1961 provide for deduction in respect of contributions given to political parties by companies and any person respectively. 30.2 With a view to reforming the system of funding of political parties section 80GGB and section 80GGC of the Income-tax Act, 1961 has been amended to provide that donations to electoral trusts shall be allowed as a 100 per cent deduction in the computation of the income of the donor. 30.3 Further, sub-clause (iia) of clause (24) of section 2 of the Income-tax Act has also been amended to provide that donations to such electoral trusts shall be treated as income of the trusts which will be specifically exempt as per the newly inserted section 13B and not included in the total income of the previous year if :-- (a) the electoral trust distributes to any polit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me during the period beginning on 1-4-2004 and ending on 31-3-2010. 31.5 Clause (iv) of sub-section (4) of section 80-IA has been amended to extend the terminal date for a further period of one year up to 31-3-2011. 31.6 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2009-10 and subsequent assessment years. 31.7 Furthermore, clause (v) of sub-section (4) of section 80-IA provides that an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant is eligible for 10 year tax benefit if it fulfils the following conditions :-- (i) such company is formed before 30-11-2005 with majority equity participation by public sector companies for enforcing the security interest of the lenders to the company owning the power generating plant; (ii) such Indian company is notified by the Central Government before 31-12-2005; and (iii) the undertaking begins to generate or transmit or distribute power before 31-3-2008. 31.8 Sub-clause (b) of clause (v) of sub-section (4) of section 80-IA has been amended to extend the terminal da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as to extend the tax holiday under sub-section (9) of section 80-IB of the Income-tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, also to natural gas from blocks which are licensed under the VIII Round of bidding for award of exploration contracts under the New Exploration Licensing Policy (NELP-VIII) announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated 10th February, 1999 and begin commercial production of natural gas on or after 1st April, 2009. 32.6 Furthermore, a new clause (v) has been inserted to also include within the scope of the aforesaid tax holiday the undertakings engaged in commercial production of natural gas in blocks licensed under the IV Round of bidding for award of exploration contracts for Coal Bed Methane blocks which begin commercial production of natural gas on or after 1st April, 2009. 32.7 The term "undertaking" in sub-section (9) was not defined earlier. Therefore, in the context of mineral oil, the meaning of the term "undertaking" has been the subject-matter of considerable dispute. The tax-payers have been holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rospective effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2009-10 and subsequent assessment years. 33.4 The objective of the aforesaid tax concession is to provide tax benefit to the person undertaking the investment risk i.e., the actual developer. However, any person undertaking pure contract risk is not entitled to the tax benefits. 33.5 With a view to clarify accordingly, an Explanation after sub-section (10) of section 80-IB has been inserted so as to provide that nothing contained in this sub-section shall apply to any undertaking which executes the housing project as a works contract awarded by any other person (including Central or State Government). 33.6 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2001 and will accordingly, apply in relation to assessment year 2001-02 and subsequent assessment years. 33.7 Further, the objective of the tax benefit for housing projects is to build housing stock for low and middle income households. This has been ensured by limiting the size of the residential unit. However, this is being circumvented by some developers by entering into agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meat products or poultry or marine or dairy products on the above lines. 34.3 Further, in order to make the inclusion of the aforesaid business applicable for new units only, an Explanation has been inserted specifying that the provisions of the aforesaid section shall not apply to an undertaking engaged in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products if it begins to operate such business before 1st April, 2009. 34.4 Applicability - These amendments have been made applicable with effect from 1st April, 2010 and will accordingly, apply in respect of assessment year 2010-11 and subsequent years. 35. Deduction in case of a person with disability 35.1 Section 80U of the Income-tax Act provides for a deduction to an individual, being a resident, who, at any time during the previous year, is certified by the medical authority to be a person with disability. The existing limit for deduction was Rs. 50,000 if the person is suffering from disability and Rs. 75,000 if the dependant is suffering from severe disability. 35.2 The limit for severe disability has been amended to Rs. 1 lakh. The limit for ordinary disab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be adjusted by 5 per cent to arrive at the arm's length price. However, the department's contention is that if the variation between the transfer price and the arithmetical mean is more than 5 per cent of the arithmetical mean, no allowance in the arithmetical mean is required to be made. 37.4 With a view to resolving this controversy, it is proposed to amend the proviso to section 92C to provide that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such price. However, if the arithmetical mean, so determined, is within five per cent of the transfer price, then the transfer price shall be treated as the arm's length price and no adjustment is required to be made. 37.5 Applicability--The above amendment has been made applicable with effect from 1st October, 2009 and will accordingly apply in respect of assessment year 2009-2010 and subsequent years. 38. Power of Board to make Safe Harbour Rules 38.1 In India, Transfer pricing rules were introduced in 2002, since then the number of cases identified for audit and the transfer pricing adjustments locked up in disputes h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars. 40. Clarification regarding add back of 'provision for diminution in the value of asset', while computing book profits 40.1 Section 115JB of the Income-tax Act provides for levy of Minimum Alternate Tax (MAT) on the basis of book profits of a company. As per Explanation 1 after sub-section (2), the expression "book profit" means net profit as shown in the profit and loss account prepared in accordance with the provisions of Part-II and Part-III of Schedule-VI to the Companies Act, 1956 as increased or reduced by certain adjustments, as specified in that section. 40.2 A new clause (i) in Explanation 1 after sub-section (2) of the said section has been inserted so as to provide that if any provision for diminution in the value of any asset has been debited to the profit and loss account, it shall be added to the net profit as shown in the profit and loss account for the purpose of computation of book profit. 40.3 Similar amendment has also been made in section 115JA of the Income-tax Act by way insertion of a new clause (g) in the Explanation after sub-section (2) of the said section. 40.4 Applicability - The amendment to section 115JA has been made applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxation of the fringe benefits as perquisites in the hands of the employees has also been restored. Therefore, clause (2) of section 17 has also been amended,-- (a) by substituting sub-clause (vi) so as to provide that perquisite shall include the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee. For this purpose, the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, as the case may be, on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares. The "fair market value" will mean the value determined in accordance with the method as may be prescribed by the Board. (b) by inserting sub-clause (vii) to provide that perquisite shall also include the amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees. (c) by inserting sub-clause (vii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner had the power to issue authorization. 43.6 A clarificatory amendment has been made in the sub-section (1) of the section 132 to provide that Joint Director or Joint Commissioner always had the power to issue authorisation. 43.7 Applicability - This amendment has been made applicable with retrospective effect from 1st October, 1998, and will accordingly, apply in relation to the assessment year 1999-2000 and subsequent assessment years. 43.8 Similarly, consequential amendment has been made in sub-section (1) of section 132A to include Additional Director or Additional Commissioner as an authorized officer. 43.9 Applicability - This amendment has been made applicable with retrospective effect from 1st June, 1994, and will accordingly, apply in relation to the assessment year 1995-96 and subsequent assessment years. 44. Centralized Processing of Returns 44.1 In order to enable the Board to issue notification for implementing the centralized processing of return, section 143 was amended and sub-sections (1A), (1B) and (1C) were inserted vide Finance Act, 2008. Sub-section (1A) provides that for the purposes of processing of returns, the Board may make a scheme for centralized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153, pass the assessment order under sub-section (3) within one month from the end of the month in which,-- (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the,-- (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by it. (7) The Dispute Resolution Panel may, before issuing any directions referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) in clause (a) of sub-section (1) of section 246A so as to exclude the order of assessment passed under sub-section (3) of section 143 or under section 147 in pursuance of the directions of the "Dispute Resolution Panel" as an appealable order and in clause (c) of sub-section (1) of section 246 so as to exclude an order passed under section 154 of such order as an appealable order; (iii) in sub-section (1) of section 253 so as to include an order of assessment passed under sub-section (3) of section 143 or under section 147 in pursuance of the directions of the "Dispute Resolution Panel" as an appealable order. 45.4 It would be the choice of the assessee whether to file an objection against the draft assessment order before the Dispute Resolution Panel (DRP) or to pursue the normal channel of filing an appeal against the assessment order before the Commissioner of Income-tax (Appeals). In order to approach the DRP, the assessee must file an objection against the draft assessment order within the prescribed time-limit. In case the assessee does not file an objection, the Assessing Officer shall pass the assessment order. The assessee can file an appeal again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment. Further Assessing Officer may also assess or reassess such other income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section. Assessing Officer is required to record the reasons for reopening the assessment before issuing notice under section 148 with a view to reassess the income of assessee. 47.2 Some Courts have held that the Assessing Officer has to restrict the reassessment proceedings only to the reasons recorded for reopening of the assessment and he is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. 47.3 Therefore, to articulate the legislative intention clearly Explanation 3 has been inserted in section 147 to provide that the Assessing Officer may examine, assess or reassess any issue relevant to income which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es needed downward revision as they were leading to blocking of working capital funds in many cases. The rates prescribed by section 194-I is, therefore, rationalized and reduced as under :-- (a) 2 per cent for the use of any machinery or plant or equipment, (b) 10 per cent for the use of any land or building or furniture or fittings for all persons. Nature of Payment (194-I) Existing rate New rate* (w.e.f. 1-10-2009) Rent-- (a) rent of plant, machinery or equipment 10% 2% (b) rent of land, building or furniture to an individual and Hindu undivided family 15% 10% (c) rent of land, building or furniture to a person other than an individual or Hindu undivided family 20% 10% *The rate of TDS will be 20 per cent in all cases, if PAN is not quoted by the deductee with effect from 1-4-2010. (B) Under the existing provisions of section 194C of the Income-tax Act, TDS at the rate of 2 per cent is deducted on payment for a contract. However, in the case of a sub-contract, TDS is deducted at the rate of 1 per cent. Further, in the case of payment for an advertising contract, TDS is required to be deducted at the rate of 1 per cent. In order to reduce the scope for disputes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt payments to transport operators (as defined in section 44AE) from the purview of TDS. However, this would only apply in cases where the operator furnishes his Permanent Account Number (PAN) to the deductor. Deductors who make payments to transporters without deducting TDS (as they have quoted PAN) will be required to intimate these PAN details to the Income-tax Department in the prescribed format. (C) Applicability - This amendment has been made applicable with effect from 1st October, 2009 and will accordingly, apply in relation to the assessment year 2010-11 and subsequent assessment years. 49.4 Clarification regarding "work" under section 194C (A) There is ongoing litigation as to whether TDS is deductible under section 194C on outsourcing contracts and whether outsourcing constitutes work or not. To bring clarity on this issue, it is provided that "work" shall not include manufacturing or supplying a product according to the requirement or specification of a customer by using raw material purchased from a person other than such customer as such a contract is a contract for 'sale'. This will however not apply to a contract which does not en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities on account of interest and other defaults in TDS payments. (B) The following adjustments can be made during the computerized processing of statements of tax deducted at source :-- (i) any arithmetical error in the statement; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the statement, for example, in respect of rate of deduction of tax at source where such rate is not in accordance with the provisions of the Act. (C) It is provided that after making adjustments, tax and interest [e.g., under section 201(1A)] would be calculated and sum payable by the deductor or refund due to the deductor will be determined. An intimation will be sent to the deductor informing him of his tax liability or granting him the refund due within one year from the end of the financial year in which the statement is filed. It is also provided that these statements can be processed in centralized processing centre. (D) Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2011-12 and subsequent assessment years. 50. Providing time-limits for passing of or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verage time of allotment of PAN has come down to 10 calendar days. Therefore, non-availability of PAN has ceased to be an impediment. In a number of cases, the non-quoting of PANs by deductees is creating problems in the processing of returns of income and in granting credit for tax at deducted at source, leading to delays in issue of refunds. In order to strengthen the PAN mechanism, a new section 206AA has been inserted in the Income-tax Act to provide that any person whose receipts are subject to deduction of tax at source i.e., the deductee, shall mandatorily furnish his PAN to the deductor failing which the deductor shall deduct tax at source at higher of the following rates :-- (i) the rate prescribed in the Act; (ii) at the rate in force i.e., the rate mentioned in the Finance Act; or (iii) at the rate of 20 per cent. 51.3 TDS would be deductible at the above-mentioned rates will also apply in cases where the taxpayer files a declaration in Form 15G or 15H (under section 197A) but does not provide his PAN. Further, no certificate under section 197 will be granted by the Assessing Officer unless the application contains the PAN of the applicant. 51.4 These provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his income or furnished inaccurate particulars of such income. 53.2 By substituting the Explanation 5A it has been clarified that the scope extends to the cases where the assessee has filed the return of income for any previous year and the income found during the course of search relates to such previous year and had not been disclosed in the said return, then such income shall represent deemed concealment of income and assessee shall be liable to pay penalty under section 271. 53.3 Applicability - This amendment has been made applicable with retrospective effect from 1st June, 2007 and will apply in cases where search under section 132 is initiated on or after 1st June, 2007. 54. Rationalization of provision relating to provisional attachment of asset 54.1 The provisions of section 281B empower the Assessing Officer to make provisional attachment of the assets of the assessee during the pendency of any proceedings for the assessment or reassessment of any income. The sub-section (2) further provides that every attachment order shall cease to have effect after the expiry of a period of six months from the date of order made under sub-section (1). However, the period of validi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2010-11 and subsequent years. 56. Introduction of Document Identification Number 56.1 A tax administration designed to foster voluntarily compliance yields higher revenue then a sound tax policy administered by an inefficient tax administration. It has always been the endeavour of the Income-tax Department to improve the standards of its service and transparency in the functioning of the tax administration. A further step in this direction is to introduce a computer based system of allotment and quoting of Document Identification Number (DIN). Therefore, a new section 282B has been inserted in Chapter XXIII of the Income-tax Act so as to provide that every Income-tax authority shall allot a computer generated Document Identification Number in respect of every notice, order, letter or any correspondence issued by him to any other income-tax authority or assessee or any other person and such number shall be quoted thereon. Where the notice, order, letter or any correspondence issued by any income-tax authority, does not bear a Document Identification Number, such notice, order, letter or any correspondence shall be treated as invalid and shall be deemed never to have been iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority (IRDA) was created. In the financial year 2001-02, IRDA introduced "IRDA (Preparation of Financial Statements and Auditor's Report of Insurance Companies) Regulations, 2002". The regulations mandated new guidelines and formats for preparation of accounts by General Insurers. According to these changed norms, a non-life insurance company has to include profit or loss on realization/sale of investment in the profit and loss account or revenue account. This is also consistent with international best practice on taxation of investment income of non-life insurance companies. 58.3 In view of the above, the Act has been amended to provide any increase in respect of any amount taken credit for in the accounts on account of appreciation of or gains on realisation of investments in accordance with the regulations prescribed by IRDA shall be treated as income and included in the computation of the total income. Similarly, deduction shall be allowed in respect of any amount either written off or provided in the accounts to meet diminution in or loss on realisation of investments in accordance with the regulations prescribed by IRDA. 58.4 Applicability - This amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the paper industry for which tax holiday cannot be availed by new units located in Himachal Pradesh and Uttaranchal. 60.3 In order to align the provisions of the Income-tax Act, 1961 with the overall industrial policy of DIPP in respect of these two States, Part B of the Thirteenth Schedule to the Income-tax Act has been amended and Sl. No. 19 of Part B of the Thirteenth Schedule has been substituted pertaining to the paper industry with the list as per the notification dated 27-6-2008 of the DIPP. 60.4 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent years. 61. Enhancement of the limit for payment of wealth-tax 61.1 Under the existing provisions of section 3 of the Wealth-tax Act, wealth-tax is charged every year in respect of net wealth, on the valuation date, of every individual, Hindu undivided family and company at the rate of one per cent of the amount by which the net wealth exceeds fifteen lakh rupees. This limit was fixed in 1992. With a view to providing for inflation-adjustment, the Wealth-tax Act has been amended to raise the threshold li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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