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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 ..... r 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 truck owners under section 44AE, 22.1-22.5 50C Provisions for deeme ..... 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A, 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 Enhancement of the limit for payment of wealth-tax, 61.1-61.2 44A Empowering Central Government to enter into agreement with specified non-sovereign ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring 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% Rs. 2,25,001 - Rs. 3,00,000 10% 10% 10% Rs. 3,00,001 - Rs. 5,00,000 20% 20% 20% Rs. 5,00,000 and above 30% 30% 30% In the case of every individual, Hindu undivided family, association of persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all 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-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge, in all cases. In addition, such amount of tax and surcharge shall be further increased by an additional surcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 during the financial year 2009-10 have been specified in Part II of the First Schedule to the Act. The rates for deduction of income-tax at source during the financial year 2009-10 will continue to be the same as those specified in Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 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, association of persons, body of individuals or artificial juridical person (other than a co-operative society, firm, local authority and company). In the case of individuals, the basic exemption limit has been enhanced from Rs. 1,50,000 to Rs. 1,60,000. The exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rate of income-tax is thirty per cent of the total income. The tax computed shall be enhanced by a surcharge of ten per cent only where such domestic company has total income exceeding one crore rupees. In the case of a company other than a domestic company, royalties received from Government or Indian con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 partnership will be accorded the same tax treatment. 5.3 It is provided that the word 'partner' shall include within its meaning a partner of a limited liability partnership, the word 'firm' shall include within its meaning a limited liability partnership and the word 'partnership' shall include within its meaning a limited liability partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 - These amendments has been made applicable with retrospective effect from 1st April, 2009 and will accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years. 8. Compensation received on voluntary retirement or termination of service under a scheme of voluntary separation 8.1 Very often, a person receives arrears or advance of salary due to him. Since arrears and advance sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exemption is required to be filed or not. This has often led to avoidable hardship. In order to mitigate this hardship the above clause has been amended and the time-limit for filing such application has been fixed as the 30th September, in the succeeding financial year. It may also be noted that this is the time-limit to complete the audit of such institution as well. For example, where the gross r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 exempted profit of the SEZ unit is equal to : Profits of the business of the unit Export turnover of the unit Total turnover of the business carried on by the assessee 12.2 This method of computation of the profits of business with reference to the total turnover of the assessee is perceived to be discriminatory insofar as those assessees are concerned who were having multiple units in both the SEZ and the Domestic Tariff Area (DTA) vis-a-vis those assessees who were having units in only the SEZ. With a view to removing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article or thing notified by the Board and which has incurred expenditure (excepting on land and building) on in-house scientific research and development facility approved by the prescribed authority. 15.2 With a view to promoting research and development in all sectors of the economy, the Act has been amended to extend the benefit of weighted deduction to companies engaged in the business of manufacture or production of an article or thing except those specified in the Elevent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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 treated as income of the assessee and chargeable to income-tax under the head Profits and gains of business or profession . (viii) Any loss computed in respect of the specified business shall not be set off except against profits and gains, if any, of any other specified business. To the extent the loss is unabsorbed the same will be carried forward for set off against profits and gains from any specified business in the following assessment year and so on. 16.4 Further, profit-linked deduction provided under section 80-IA to the business of laying and operating a cross country natural gas distribution network will be disconti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 and will accordingly, apply in respect of assessment year 2010-11 and subsequent assessment years. 17. Special deduction under section 36(1)( viii ) to National Housing Bank (NHB) 17.1 Clause ( viii ) of sub-section (1) of section 36 [section 36(1)( viii )] provides special deduction to financial corporations and banking companies of an amount not exceeding 20 per cent of the profits subject to creation of a reserve. 17.2 National Housing Bank (NHB) is wholly owned by Reserve Bank of India and is engaged in promotion and regulation of housing finance institutions in the country. It provides re-financing support to ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 payment in excess of Rs. 20,000 is made otherwise than by an account payee cheque or account payee bank draft, such expenditure is not allowed as a deduction. 19.2 Given the special circumstances of transport operators for incurring expenditure on long haul journeys, the Act has been amended to raise the limit of payment to such transport operators otherwise than by an account payee cheque or account payee bank draft to Rs. 35,000 from the existing limit of Rs. 20,000. For this purpose a new proviso has been inserted after the proviso in sub-section (3A) of section 40A of the Income-tax Act. 19.3 The existing limit for other categories of pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % 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. 1,000 minus depreciation of Rs. 100 allowed for determining composite income). Thus, the depreciation for which deduction is allowed to the assessee while computing 'its agricultural income is to be ignored for computing the W.D.V. of the asset according to the Court ruling. 20.6 The above interpretation is not in accordance with the legislative intent. WDV is required to be computed by deducting the full depreciation attributable to composite income. Hence in the above illustration, the WDV of the fixed asset for the immediately succeeding year is to be taken at Rs. 900 and not Rs. 960 as held by the Supreme Court. The ambiguity in this case has arisen on account of the interpretation of the meaning of the phrase actually allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 provisions of Chapter VI-A under the heading C. Deductions in respect of certain incomes in the relevant assessment year. (b) The scheme is applicable for any business (excluding a business already covered under section 44AE) which has a maximum gross turnover/gross receipts of 40 lakhs. (c) The presumptive rate of income is prescribed at 8 per cent of gross turnover/gross receipts. (d) An assessee opting for the above scheme is exempted from payment of advance tax related to such business under the current provisions of the Income-tax Act. (e) An assessee opting for the above scheme is exempted from maintenance of books of account related to such business as required under section 44AA of the Income-tax Act. (f) An assessee with turnover below Rs. 40 lakhs, who shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both is less than the value adopted or assessed or assessable by an authority of State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration received or accruing as a result of such transfer for computing capital gain. 23.3 Further, Explanation 2 has been inserted in the sub-section (2) of the section 50C, so as to clarify the meaning of the term assessable . 23.4 Applicability - These amendments have been made applicable with effect from 1st October, 2009 and will accordingly, apply in relation to transactions undertaken on or after such date. 24. Taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 between the two exceeds fifty thousand rupees, the difference between the fair market value of such property and such consideration shall be taxed as the income of the recipient. 24.5 The method for the determination of fair market value of property other than immovable property has been provided in rules 11U and I1UA vide Notification No. 23/2010/F.No. 142/21/2009-SO(TPL), dated 8th April, 2010. 24.6 Consequential amendment has been made in section 2 by inserting sub-clause ( xv ) in clause ( 24 ) thus expanding the definition of income to include any sum of money or value of property referred to in clause ( vii ) of sub-section (2) of section 56. Further, section 49 has also been amended by way of inserting a new sub-section (4) providing that for the purposes of computing capital gains, if the transaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 open market, subject to statutory or regulatory restrictions, if any. 25.6 Applicability - This amendment has been made applicable with effect from 1st April, 2009 and will accordingly, apply to all cases where the proceedings are pending before any authority on or after such date. 25.7 Further, with a view to preventing the misuse of the tax holiday under section 80-IA of the Income-tax Act, the Explanation to the said section has been amended to clarify that nothing contained in the said section shall apply in relation to a business referred to in sub-section (4) of the said section which is in the nature of a works contract awarded by any person (including the Central or State Government) and executed by an undertaking or enterprise referred to in sub-section (1) thereof. 25.8 Applicability - This amendment has been made applicable with retrospect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 been made applicable with retrospective effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2009-10 and subsequent years. 27. Deduction for medical treatment of a dependant suffering from disability 27.1 Section 80DD of the Income-tax Act provides for a deduction to an individual or HUF, who is a resident in India, in respect of the following : (a) Expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; and (b) Amount paid to LIC or other insurance in respect of a scheme for the maintenance of a disabled dependant. 27.2 The existing limit for deduction was Rs. 50,000 if the dependant is suffering from disability and Rs. 75,000 if the dependant is suffering from severe disability. 27.3 The limit for severe disability has been amended to Rs. 1 lakh. However, the limit for ordinary disability has been retaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inued 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. 29.2 With a view to mitigate hardship to the donors, a one-time relaxation has been given and sub-section (5) of section 80G of the Income-tax Act has been amended so as to provide that where an institution or fund has been approved under clause ( vi ) of sub-section (5) of section 80G for the previous year beginning on 1st April, 2007 and ending on 31st March, 2008, such institution or fund shall, notwithstanding anything contained in the proviso to clause (15) of section 2, be deemed to have been, (a) established for charitable purposes for the previous year beginning on 1st April, 2008 and ending on 31st March, 2009; (b) approved under the said clause (vi) for the previous year beginning on 1st April, 2008 and ending on 31st March, 2009. 29.3 Applicability - This amendment has been made applicable with effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2009-10 only. 29.4 Further, as per clause ( vi ) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctoral 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 political party, registered under section 29A of the Representation of the People Act, 1951, during previous year 95 per cent of the aggregate donations received by it during the said previous year along with the surplus, if any, brought forward from any earlier previous years; (b) the electoral trust functions in accordance with the rules made in this regard by the Central Government. 30.4 Further, electoral trust has been defined in the new clause ( 22AAA ) of section 2 as a trust so approved by the Board in accordance with the scheme made in this regard by the Central Government. 30.5 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. 31. Extension of sunset clause for tax holiday under section 80-IA 31.1 Under the provisions of clause ( iii ) of section (4) of section 80-IA, an undertaking which develops, develops and ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 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 date for commencing the activity of generation, transmission or distribution of power in case of such undertaking from 31-3-2008 to 31-3-2011. 31.9 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2008 and will accordingly, apply in relation to assessment year 2008-09 and subsequent years. 32. Deduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil and natural gas 32.1 Sub-section (9) of section 80-IB of the Income-tax Act, 1961 provides for deduction in respect of profits and gains derived from commercial production or refining of mineral oil. The deduction under this sub-section is available to an undertaking for a period of seven consecutive assessment years including the initial assessment year (i) in which the commercial production under production sharing contract has first started; or (ii) in which the refining of mineral oil has begun. 32.2 However, no deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. 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 the view that every well in a block licensed constitutes a single undertaking and accordingly, the tax holiday is available separately for each such well. However, this view is against the legislative intent. Accordingly, sub-section (9) has been amended by inserting an Explanation so as to clarify that for the purposes of claiming deduction under sub-section (9), all blocks licensed under a single contract, which has been awarded under the New Exploration Licencing Policy announced by the Government of India vide Resolution No. O-19018/22/95-ONG.DO.VL, dated 10th February, 1999 or has been awarded in pursuance of any law for the time being in force or has been awarded by Central or a State Government in any other manner, shall be treated as a single undertaking . This definition of undertaking is applicable both in relation to mineral oil and natural gas. 32.8 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2000 and will accordingly, apply in relation to assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he size of the residential unit. However, this is being circumvented by some developers by entering into agreement to sell multiple adjacent units to a single buyer. Accordingly, new clauses have been inserted in the said sub-section to provide that the undertaking which develops and builds the housing project shall not be allowed to allot more than one residential unit in the housing project to the same person, not being an individual, and where the person is an individual, no other residential unit in such housing project is allotted to any of the following persons : (i) the individual or spouse or minor children of such individual; (ii) the Hindu undivided family in which such individual is the karta; (iii) any person representing such individual, the spouse or minor children of such individual or the Hindu undivided family in which such individual is the karta. 33.8 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. The amendments relate to restrictions on specific transactions ( i.e., allotment of residential units). Therefore, they would apply to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35.2 The limit for severe disability has been amended to Rs. 1 lakh. The limit for ordinary disability has been retained at the existing level of Rs. 50,000. 35.3 Applicability - The above amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in respect of assessment year 2010-11 and subsequent years. 36. Empowering Central Government to enter into agreement with specified non-sovereign territories 36.1 Section 90 of the Income-tax Act empowers the Central Government to enter into Double Taxation Avoidance Agreement ('DTAA') with the Government of any other country outside India for granting double taxation relief and facilitate exchange of information concerning avoidance or evasion of tax. 36.2 The scope of section 90 was restricted to 'any other country outside India'. Need was felt to expand the scope of this co-operation by entering into a DTAA or TIEA (Tax Information Exchange Agreement) with non-sovereign jurisdictions as well. 36.3 In order to enable the Government to enter into agreements with non-sovereign territories as well, section 90 of the Income-tax Act, 1961 has been amended. The corresponding provisions un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s identified for audit and the transfer pricing adjustments locked up in disputes have increased. 38.2 In order to reduce the number of transfer pricing audits and prolonged disputes a new section 92CB has been inserted to provide that the determination of arm's length price under section 92C or section 92CA shall be subject to safe harbour rules. 38.3 Applicability - The above amendment has been made applicable with effect from 2 [ 1st April, 2009 ] and will accordingly, apply in respect of assessment year 2010-11 and subsequent years. 39. Tax relief on anonymous donations in certain cases 39.1 Under the provisions of section 115BBC, wholly religious entities are outside the purview of taxation of anonymous donations. Partly religious and partly charitable entities had also been exempted from the taxation of anonymous donations, except where the anonymous donation is made to an educational or medical institution run by such entity in which case such donations were taxed at the rate of 30 per cent. In the case of wholly charitable entities, all anonymous donations are taxed at the rate of 30 per cent. 39.2 It was observed that in the case of some such institutions, there are pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility - The amendment to section 115JA has been made applicable with retrospective effect from 1st April, 1998 and will accordingly apply in relation to assessment year 1998-99 and subsequent years. The amendment to section 115JB has been made applicable with retrospective effect from 1st April, 2001 and will accordingly, apply in relation to assessment year 2001-02 and subsequent years. 41. Minimum Alternate Tax 41.1 The Income-tax Act is riddled with a plethora of tax incentives which has the effect of considerable eroding the tax base. Since tax incentives are generally sticky in nature, their distortionary impact can be reduced/eliminated only by imposing a cap thereon. The Minimum Alternate Tax (MAT) is designed to achieve this objective. 41.2 Under the existing provisions of section 115JB of the Income-tax Act, a company was required to pay a minimum tax on its book profits, if the income-tax payable on the total income, as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after 1st April, 2007, was less than such minimum. The rate of the minimum tax was ten per cent of the book profit. Sub-section (1) of section 115JB was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) by inserting sub-clause (viii) to provide that perquisite shall also include the value of any other fringe benefit or amenity as may be prescribed. 42.3 Applicability - These amendments have been made applicable with effect from 1st April, 2010 and will accordingly, apply to the assessment year 2010-11 and subsequent assessment years. 42.4 Consequently, section 49 has also been amended to provide that where the capital gain arises from the transfer of specified security or sweat equity shares referred to in sub-clause ( vi ) of clause (2) of section 17, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account for the purposes of the said sub-clause. 42.5 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply to assessment year 2010-11 and subsequent assessment years. 43. Clarificatory amendment in section 132 43.1 Under clause (B) of the sub-section (1) of section 132 such Joint Director or Joint Commissioner may authorize any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer to conduct search and seizur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... centralized processing of returns with a view to expeditiously determining the tax payable or refund due to the assessee. Sub-section (1B) provides that for the purpose of giving effect to the scheme made under sub-section (1A), the Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act relating to processing of returns shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in that notification; so, however, that no notification shall be issued after 31st March, 2009. 44.2 The work of establishing the facility for centralized processing of returns was underway; therefore, sub-section (1B) has been amended to empower the Board to issue notification up to 31st March, 2010. 44.3 Applicability - This amendment has been made applicable with effect from 1st April, 2009, and will accordingly, apply in relation to assessment year 2009-10 and subsequent assessment years. 45. Provision for constitution of alternate dispute resolution mechanism 45.1 The dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained after long drawn litigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any Income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to their interest. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been exercised, the assessee cannot withdraw the objection and opt for the normal channel of filing appeal before CIT (Appeals). 45.5 Applicability - These amendments have been made applicable with effect from 1st October, 2009, and will accordingly, apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E), dated 20th November, 2009. 46. Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation 46.1 The existing provisions of Income-tax Act provide that income chargeable under the head Profits and gains of business or profession or Income from other sources , shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon'ble Supreme Court in the case of Rama Bai v. CIT (181 ITR 400) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1989-90 and subsequent years. 48. Interest other than interest on securities 48.1 It is a consequential amendment of section 36(1), to empower the scheduled banks including nationalized banks to issue zero coupon bonds to source their long-term funds, the section 194A of the Income-tax Act has been amended. This will enable the scheduled banks as an eligible person to enjoy the benefit under TDS provisions. 48.2 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2009 and will accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years. 49. Rationalization of provisions relating to Tax Deduction at Source (TDS) 49.1 Tax deduction at source is a method of collecting taxes on behalf of the Government at the time of payment or credit. The Income-tax Act casts a legal responsibility on the deductor to deduct tax on the correct amount, at the correct rate and deposit it to the Government account. The TDS rates are specified partly in the Finance Act and partly in the provisions of the Income-tax Act. Deductors are also required to compute surcharge and cess over and above some of the prescribed rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e classifications, the Act has been amended to provide the same rate of TDS in the case of payment for advertising contracts. To avoid hardship to small contractors/sub-contractors most of whom are organized as individuals/HUFs, the following rates of TDS are prescribed : (a) 1 per cent where payment for a contract are to individuals/HUF (b) 2 per cent where payment for a contract are to any other entity. Nature of Payment (194C) Existing rate New rate** (w.e.f. 1-10-2009) Payment to ( a ) Individual/HUF contractor 2% 1% ( b ) Other than individual/HUF contractor 2% 2% ( c ) Individual/HUF sub-contractor 1% 1% ( d ) Other than individual/HUF sub-contractor 1% 2% ( e ) Individual/HUF contractor/sub-contractor for advertising 1% 1% ( f ) Other than individual/HUF contractor/sub-contractor for advertising 1% 2% ( g ) Sub-contractor in transport business 1% nil* ( h ) Contractor in transport business 2% nil* *The nil rate will be applicable if the transporter quotes his PAN. If PAN is not quoted the rate will be 1 per cent for an individual/HUF transporter and 2 per cent for other transporters up to 31-3-2010. **The rate of TDS will be 20 per cent in all cases, if PAN is not quoted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork'. It is further provided that in such a case TDS shall be deducted on the invoice value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value. (B) Applicability - This amendment has been made applicable with effect from 1st October, 2009 and will accordingly, apply in relation to assessment year 2010-11 and subsequent assessment years. 49.5 Filing of TDS and TCS statements (A) Sub-section (3) of section 200 of Income-tax Act provides that any person deducting tax in accordance with the provisions of Chapter XVII-B has to furnish, within the prescribed time, quarterly statements for the period ending on the 30th June, 30th September, 31st December and 31st March in each financial year. Similarly, filing of quarterly returns for Tax Collection at Source (TCS) have been provided in sub-section (3) of section 206C of the Act. Further section 206A provides furnishing of quarterly return in respect of payment of interest to residents without deduction of tax. (B) In order to provide admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when these proceedings are taken up or completed after substantial time has elapsed. In order to bring certainty on this issue, specific time-limits is provided in the Act within which order under section 201(1) will be passed. 50.2 It has been provided that an order under section 201(1) for failure to deduct the whole or any part of the tax as required under this Act, if the deductee is a resident taxpayer, shall be passed within two years from the end of the financial year in which the statement of tax deduction at source is filed by the deductor. Where no such statement is filed, such order can be passed up till four years from the end of the financial year in which the payment is made or credit is given. To provide sufficient time for pending cases, it is provided that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011. 50.3 However, no time-limits have been prescribed for order under sub-section (1) of section 201 where : (a) the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of Government dues, (b) the employer has failed to pay the tax whol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een them. 51.5 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. 52. Enhancement of the limit for payment of advance tax 52.1 Under the existing provisions of section 208 of the Income-tax Act, liability for payment of advance tax during a financial year arises when the amount of such tax payable during that year is five thousand rupees or more. This limit was fixed in 1996. With a view to providing for inflation adjustment, the Income-tax Act has been amended to raise the threshold limit for payment of advance tax from the present five thousand rupees to ten thousand rupees. 52.2 Applicability - This amendment has been made applicable with effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2010-11 and subsequent assessment years. 53. Rationalization of provisions relating to penalty for concealment of income 53.1 Under the existing provisions of section 271, Explanation 5A to sub-section (1) provides that where in the course of search initiated under section 132 on or after 1st June, 2007, the assessee is fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1) of section 245D is made shall be excluded from the period specified in this sub-section. 54.2 In many cases, the assessees have filed writ petition in High Court or Supreme Court and have obtained stay of the assessment proceedings. Often such stay remains in force for many years during which the validity of provisional attachment order expires. In order to rationalize the provisions, a third proviso has be inserted in sub-section (2) of section 281B to provide that the period during which the proceeding for assessment or reassessment are stayed by an order or injunction of any Court shall be excluded from the period specified in first proviso. 54.3 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 1988 and will accordingly, apply in relation to assessment year 1988-89 and subsequent assessment years. 55. Service of notice 55.1 The existing provisions of Income-tax Act provide for service of notice either by post or as if it were a summon issued under the Code of Civil Procedure, 1908. The addressee of the notice is specified, in the case of different persons, in the Act. 55.2 With the work in the department exceeding exponentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority or on behalf of such authority does not bear Document Identification Number, such document, letter or any correspondence shall be treated as invalid and shall be deemed never to have been received. 56.3 Applicability - This amendment has been made applicable with effect from 1st October, 2010, and will accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 57. Power to withdraw approvals 57.1 Under the existing provisions of Income-tax Act, an approval is required to be granted by income-tax authority for availing of various incentives by the assessees. While some provisions of Income-tax Act specifically contain provisions for withdrawal of approval but in many cases there is no such specific provisions containing power of withdrawal. 57.2 In order to provide such explicit provisions for power to withdraw approval, a new section 293C has been inserted to provide that the Central Government or the Board or an income-tax authority, who has authority to grant approval, shall also have the power to withdraw the approval at any time. However, such withdrawal can be made only after giving a reasonable opportunity of showing cause against the propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be satisfied by a Provident Fund for receiving or retaining recognition under the Income-tax Act. Rule 3 of Part A of the Fourth Schedule provides that the Chief Commissioner or the Commissioner of Income-tax may accord recognition to any provident fund which satisfies the conditions prescribed in rule 4 and the rules made by the Board in this behalf. 59.2 The proviso to sub-rule (1) of the said rule 3, inter alia, specifies that in a case where recognition has been accorded to any provident fund on or before 31st March, 2006, and such provident fund does not satisfy the conditions set out in clause ( ea ) of rule 4 on or before 31st March, 2009, the recognition to such fund shall be withdrawn. One of the requirements of this clause ( ea ) of rule 4 is that the establishment shall obtain exemption under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF MP Act). 59.3 With a view to provide further time to Employees' Provident Fund Organization (EPFO) to decide on the pending applications seeking exemption under section 17 of the EPF MP Act, it is proposed to amend the said proviso so as to extend the time-limit from 31st Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were introduced by Chapter VII of Finance Act, 2008. The commodity transaction tax to be levied on 'taxable commodities transactions' entered in a recognized association. The 'taxable commodities transactions' has been defined to mean a transaction of purchase or sale of option of goods or option in commodity derivative or any other commodity derivative. Section 104 of Finance Act, 2008 provides the rate at which commodity transaction tax shall be levied on taxable commodities transaction undertaken by seller or purchaser as the case may be. 62.2 It has been decided to do away with the power to levy Commodity Transaction Tax. Therefore, a new section 121A is inserted in Chapter VII of Finance Act, 2008 to provide that nothing contained in that Chapter shall apply to, or in relation to, the taxable commodities transactions entered on or after 1st April, 2009. 62.3 The clause ( xvi ) of sub-section (1) of section 36 provided that an amount equal to commodity transaction tax paid by the assessee in respect of taxable commodities transactions entered into in the course of business during the previous year, shall be allowed as deduction in computing the income under the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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