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TMI BlogFinance Act, 2022 - Explanatory Notes to the Provisions of the Finance Act, 2022X X X X Extracts X X X X X X X X Extracts X X X X ..... in companies 79A No set off of losses consequent to search, requisition and survey 80CCD Deduction in respect of contribution to pension scheme of Central Government 80DD Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability 80-IAC Special provision in respect of specified business 80LA Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre 92CA Reference to Transfer Pricing Officer 94 Avoidance of tax by certain transactions in securities 115BAB Tax on income of new manufacturing domestic companies 115BBD Tax on certain dividends received from foreign companies 115BBH Tax on Income from virtual digital asset 115BBI Specified income of certain institutions 115JC Special provisions for payment of tax by certain persons other than a company 115JF Interpretation in this Chapter (Chapter XII-BA) 115TD Tax on accreted income 115TE Interest payable for non-payment of tax by trust or institution 115TF When trust or institution is deemed to be assessee in default 119 Instructions to subordinate authorities 132 Search and seizure 132B Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts to related persons. 271C Penalty for failure to deduct tax at source 272A Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. 276AB Failure to comply with the provisions of sections 269UC, 269UE and 269UL 276B Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B 276CC Failure to furnish returns of income 278A Punishment for second and subsequent offences 278AA Punishment not to be imposed in certain cases 285B Submission of statements by producers of cinematograph films or persons engaged in specified activity 1. Introduction 1.1 The Finance Act, 2022 (hereafter referred to as 'FA 2022') as passed by the Parliament, received the assent of the President on 30th March, 2022 and has been enacted as Act No.6 of 2022. 1.2 This circular explains the substance of the provisions of the FA 2022 relating to direct taxes. 2. Changes made by FA 2022 2.1 The FA 2022 has,- (i) specified the existing rates of income-tax for the assessment year 2022-23 and the rates of income-tax on the basis of which tax has to be deducted at source and advance tax has to be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, shall be increased by a surcharge ,- (i) having a total income (including the income by way of dividend or income under the provisions of section 111 A and 112A of the Act) exceeding fifty lakh rupees but not exceeding one crore rupees, at the rate of ten per cent. of such income-tax; and (ii) having a total income (including the income by way of dividend or income under the provisions of section 111 A and 112A of the Act) exceeding one crore rupees but not exceeding two crore rupees, at the rate of fifteen per cent. of such income-tax; (iii) having a total income (excluding the income by way of dividend or income under the provisions of section 111A and 112A of the Act) exceeding two crore rupees but not exceeding five crore rupees, at the rate of twenty-five per cent. of such income-tax; (iv) having a total income (excluding the income by way of dividend or income under the provisions of section 111A and 112A of the Act) exceeding five crore rupees, at the rate of thirty-seven per cent. of such income-tax; (v) having a total income (including the income by way of dividend or income under the provisions of section 111A and 112A of the Act) exceeding two cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) two crore rupees but not exceeding five crore rupees shall not exceed the total amount payable as income-tax on a total income of two crore rupees by more than the amount of income that exceeds two crore rupees. (iv) five crore rupees shall not exceed the total amount payable as income-tax on a total income of five crore rupees by more than the amount of income that exceeds five crore rupees. The Health and Education Cess on income-tax shall be levied at the rate of four per cent. on the amount of tax computed inclusive of surcharge. No marginal relief shall be available in respect of Health and Education Cess. 3.1.3 Co-operative Societies. Paragraph B of Part I of the First Schedule to the FA 2022 specifies the rates of incometax in the case of every co-operative society as under: - Income chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% The amount of income-tax so computed or as computed under the provisions of section 111 A or section 112 or section 112A of the Act shall be increased by a surcharge at the rate of twelve per cent. of such income-tax in case of a co-operative society having a total income exceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The Health and Education Cess on income-tax shall be levied at the rate of four per cent. on the amount of tax computed inclusive of surcharge. No marginal relief shall be available in respect of Health and Education Cess. 3.1.6 Companies. Paragraph E of Part I of the First Schedule to the Act specifies the rates of income-tax in the case of a company. (i) In case of a domestic company, the rate of income-tax is - a) twenty-five per cent. of the total income, if the total turnover or gross receipts of the company in the previous year 2019-20 does not exceed four hundred crore rupees; b) twenty-five per cent. of the total income at the option of the company, if it opts for taxation under section 115BA of the Act; c) twenty-two per cent. of the total income, at the option of the company, if it opts for taxation under section 115BAA of the Act; d) fifteen per cent. of the total income, at the option of the company, if it opts for taxation under section 115BAB of the Act; e) thirty per cent. of the total income, in all other cases. The tax so computed or as comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the rate of deduction of tax at source, the tax shall continue to be deducted as per the provisions of these sections. 3.2.2 Surcharge. The tax deducted at source in the following cases shall be increased by a surcharge , as specified under, for purposes of the Union: The amount of tax so deducted shall be increased by a surcharge,- (a) in the case of every individual or HUF or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Act, being a nonresident, calculated,- (i) at the rate of ten per cent. of such tax, where the income or aggregate of income (including the income by way of dividend or income under the provisions of sections 111 A, 112 and 112A of the Act) paid or likely to be paid and subject to the deduction exceeds fifty lakh rupees but does not exceed one crore rupees; (ii) at the rate of fifteen per cent. of such tax. where the income or aggregate of income (including the income by way of dividend or income under the provisions of sections 111 A, 112 and 11 2A of the Act) paid or likely to be paid and subject to the deduction exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person, co-operative SOCiety, local authority, firm, being a resident or a domestic company. 3.2.3 Health and Education Cess. Health and Education Cess on income-tax shall continue to be levied for the purposes of the Union at the rate of four per cent of income-tax including tax deducted and surcharge, if any. For instance. if the amount of income of a foreign company is Rs. 1,20,00,0001- and tax to be deducted from such foreign company is Rs. 12 ,00,000/- at the rate of 10 per cent, then the surcharge at the rate of two per cent on such tax deducted shall be Rs. 24,0001-. Health and Education cess on such amount of tax deducted and surcharge (i .e. Rs. 12,00,000/- + Rs. 24,000/-; Rs. 12,24,000/-) shall be Rs. 48,960/-. 3.3 Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 2022-23. 3.3.1 Part III of the First Schedule to the FA 2022 specifies the rates for deduction of income-tax at source from "Salaries" or under section 194P of the Act during the FY 2022- 23 and also for computation of "advance tax" payable during the said year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or as computed under the provisions of section 111A or section 112 or section 112A of the Act shall be increased by a surcharge,- (a) at the rate of ten per cent. Of such income-tax, in case of a person having a total income (including any income by way of dividend or income under section 111 A, 112 and 112A) exceeding fifty lakh rupees but not exceeding one crore rupees; (b) at the rate of fifteen per cent. of such income-tax, in case of a person having a total income (including any income by way of dividend or income under section 111A, 112 and 11 2A) exceeding one crore rupees but not exceeding two crore rupees; (c) at the rate of twenty-five per cent. of such income-tax, in case of a person having a total income (excluding any income by way of dividend or income under section 111A, 112 and 112A) exceeding two crore rupees but not exceeding five crore rupees; (d) at the rate of thirty-seven per cent. of such income-tax, in case of a person having a total income (excluding any income by way of dividend or income under section 111 A, 112 and 112A) exceeding five crore rupees; (e) at the rate of fifteen per cent. of such income-tax, in case of a person having a total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in India has the option to pay tax at 22 per cent. as per the provisions of section 115BAD. Surcharge would be at 10 per cent. on such tax. Marginal relief shall be allowed in the case of co-operative society to ensure that: (i) the total amount payable as income-tax and surcharge on total income exceeding one crore rupees but not exceeding ten crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees, (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees. Heatth and Education Cess on income-tax shall be levied at the rate of four per cent. of the amount of income-tax computed inclusive of surcharge. No marginal relief shall be available in respect of Health and Education Cess. 3.3.4 Firms. Paragraph C of Part III of the First Schedule to the FA 2022 specifies the rate of incometax as thirty per cent. in the case of every firm. The amount of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, if it opts for taxation under section 115BAA of the Act; d) fifteen per cent. of the total income, at the option of the company, if it opts for taxation under section 115BAB of the Act; e) thirty per cent. of the total income, in all other cases. The tax so computed or as computed under the provisions of section 11 1 A or section 112 or section 112A of the Act shall continue to be enhanced by a surcharge of seven per cent. where such domestic company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of twelve per cent. shall continue to be levied if the total income of the company exceeds ten crore rupees. However, where the domestic company exercises the option under section 115BAA or section 115BAB, the tax computed shall be enhanced by a surcharge of ten per cent. (ii) In the case of a company other than a domestic company, the tax rate is forty per cent. The tax so computed, shall continue to be enhanced by a surcharge of two per cent. where such company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of five per cent. shall continue to be levied if the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in daily conduct of business, books of account are maintained in electronic form by a significant section of the asses sees in the current age. 4.3 Therefore, to align the definitions under the Act with the current practices, clause (12A) of section 2 of the Act has been amended so as to provide that the definition of books or books of account would include books or books of account kept in electronic or in digital form or as print outs of data stored in such electronic or in digital form. 4.4 Applicability: This amendment is effective from 1st April, 2022. 5. Definition of the term "slump sale" 5.1 Slump sale is defined in clause (42C) of section 2 of the Act, as the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to individual assets and liabilities in such sales. Vide Finance Act. 2021, the definition of "slump sale" was amended to expand its scope to cover all forms of transfer under slump sale. However, inadvertently, in the last sentence, there is reference to the word "sales" instead of "transfer", 5.2 Therefore, consequential amendment was carried out vide FA 2022 by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years. 6.3 Further, in order to widen the tax base from the transactions so carried out in relation to these virtual digital assets, section 194S has been inserted in the Act. Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to one per cent. of such sum as income-tax thereon. In cases where the consideration for transfer of virtual digital asset is- (a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or (b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset. 6.3.1 In case of specified person, the provisions of sections 203A and 206AB are not applicable. Further, no ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2022 and the Lok Sabha on 1st August, 2022. 6.3.7 Vide Notification No. 67/2022 (GSR 463E) dated 21.06.2022, rule 30 and rule 31 of the Income-tax Rules have been amended to provide conditions regarding sum deducted under section 194S by a specified person and requisite Form No. 26QE and Form NO.16E to be furnished. Necessary amendments have also been made in Form 26Q to include details of TDS deducted u/s 194S in other cases. 6.3.8 Further, vide Notification no. 73/2022 (GSR 482E) dated 30.06.2022, it has been notified that where an Exchange in accordance with the guidelines issued under subsection (6) of section 194S, agreed to pay tax in relation to a transaction of transfer of a virtual digital asset owned by it (as an altemative to tax required to be deducted by the buyer of such asset under section 194S), the Exchange shall deliver or cause to be delivered, a quarterly statement of such transactions in Form No. 26QF. 6.3.9 Applicability: This amendment is effective from 1st July, 2022. 6.4 Further, in order to provide for taxing the gifting of virtual digital assets, Explanation to clause (x) of sub-section (2) of section 56 of the Act has been amended to inter alia, prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o International Financial Services Centre (IFSC) 7.1 Over the past few years several tax concessions have been provided to units located in International Financial Services Centre (IFSC) under the Act to make it a global hub of financial services sector. In order to further incentivise operations from IFSC, the following additional incentives have been provided vide FA 2022: (i) For the purposes of clause (40) of section 10 of the Act, the definition of specified fund, inter alia, means a Category III Alternative Investment Fund (AIF) regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 of which all the units other than unit held by a sponsor or manager are held by non-residents. Finance Act, 2020 inserted clause (1 A) to section 6 of the Act to provide that an individual who is a citizen of India having income other than income from foreign sources, exceeding Rupees 15 lakh and who is not liable to tax in any other country shall be deemed to be a resident in India. It was brought to the notice that some of the unit holders, after the issue of units may become residents or deemed residents in India. It will result in the denia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , paid by a unit of an International Financial Services Centre, as referred to in sub-section (1A) of section BOLA, if the unit has commenced its operations on or before the 31st March, 2024. Further, "ship" has been defined to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof. (iii) Clause (4G) in section 10 has been amended to provide exemption to any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any International Financial Services Centre, referred to in sub-section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India. Further, it has also been provided that "portfolio manager" shall have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019; (iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome accruing or arising outside India (which is not deemed to accrue or arise in India), in respect of which the consultant was required to pay income or social security tax to the Government of the country of his or its origin. 8.4 For the purposes of this clause, if the consultant was an individual, he was required to be a foreign citizen or in case he was an Indian citizen he should be not ordinarily resident in India. In case the consultant was not an individual, such person was required to be nonresident. 8.5 Consultant was required to be engaged by the agency for rendering technical services in India in connection with any technical assistance programme or project. Such technical assistance programme or projects were required to be in accordance with an agreement entered into by the Central Government and the agency and the agreement relating to the engagement of the consultant is required to be approved by the prescribed authority. 8.6 Clause (8B) of the said section provided for exemption to an individual who is an employee of the consultant as referred to in clause (8A) of section 10. Such individuals were those who were assigned duties in India in connection with any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1st April, 2023 and accordingly, apply in relation to the assessment year 2023-24 and subsequent assessment years. 9. Rationalisation of the provision of Charitable Trust and Institutions 9.1 Income of any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 or any trust or institution registered u/s 12AA or 12AB of the Act is exempt subject to the fulfilment of the conditions provided under various sections. The exemption to these trusts or institutions is available under the two regimes: (i) Regime for any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 (hereinafter referred to as trust or institution under first regime); and (ii) Regime for the trusts registered under section 12AA112AB (hereinafter referred to as trust or institution under the second regime). 9.2 FA 2022 has rationalised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to trustee or specified persons a) Under section 13 of the Act, trusts or institution under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. In order to discourage such misuse of the funds of the trust or institution by specified persons, FA 2022 has inserted a new section 271AAE in the Act to provide for penalty on trusts or institution under both the regimes which is equal to amount of income applied by such trust or institution for the benefit of specified person where the violation is noticed for the first time during any previous year and twice the amount of such income where the violation is noticed again in any subsequent year. It has also been provided that section 271AAE shall operate without prejudice to any other provision of Chapter XXI. Thus, if any penalty is leviable under any of the other provisions of Chapter XXI, in addition to the penalty under section 271AAE, that penalty would also be applicable. b) Section 271AAE provides that, if during any proceeding under the Act, it is found that a person, being any trust or institution under the first or the second regime, has violated the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scenario, it was essential to ensure that non-genuine trusts or institutions do not get exemption provided by these provisions. ii) Differences in the provisions related to reference for the cancellation of trusts under both the regimes: Provisions of sub-section (3) of section 143 provides that no order under this sub-section shall be made, denying the benefits of clause (23C) of section 10, unless the Assessing Officer has intimated the Central Government or prescribed authority the contravention of the provisions of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 and approval granted to such trust or institution has been rescinded. There was no such provision in cases of trusts or institutions under second regime. iii) No time limit prescribed for the PCIT/CIT to decide on references for the withdrawal of approval: For the trusts or institutions under the first regime, the provisions for making reference by the Assessing Officer to the Principal Commissioner or Commissioner are contained in the first proviso to sub-section (3) of section 143 and the time limitation for the completion of assessment is extended as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by it in respect of the business which is incidental to the attainment of its objectives; or (c) the trust or the institution under the second regime has applied any part of its income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; or (d) the trust or institution under the second regime established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; (e) Any activity being carried out by the trust or the institution under the second regime, (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) the trust or the institution under the second regime has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1) of section 12AB, and the order, direction or decree, by what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to cancel the approval of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, on or before the specified date, if he is not satisfied about the occurrence of one or more specified violations; (iv) forward a copy of the order under clause (il) or (iii), as the case may be, to the Assessing Officer and such fund or trust or institution or any university or other educational institution or any hospital or other medical institution; (V) FA 2022 has inserted an Explanation 1 to the fifteenth proviso to clause (23C) of section 10 of the Act to provide that for the purposes of this proviso, "specified date" shall mean the day on which the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) expires. (VI) The term "specified violation" has been defined by inserting an Explanation (Explanation 2) to the fifteenth proviso to clause (23C) of section 10 of the Act to mean the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by him without giving effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or (i ii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or (iii) of sub-section (4) of section 12AB. Consequentially, FA 2022 has also amended the provisions of clause (iii) of Explanation to section 153 by deleting the reference to trusts or institution under the first regime and inserting a new clause (xiii) to provide that the period commencing from the date on which the Assessing Officer makes a reference to the Principal Commissioner or Commissioner under the second proviso to sub-section (3) of section 143 or is deemed to have been made under Explanation 3 to the fifteenth proviso to clause (23C) of section 10, and ending with the date on which the copy of the order under clause (ii) or (iii) of fifteenth proviso to clause (23C) of section 10 or clause (ii) or (iii) of sub-section (4) of section 12AB, as the case may be, is received by the Assessing Officer shall be excluded in computing the period of limitation. Applicability: These amendments are effective from 1st April, 2022. 9.4 Bringing consistency in the provisions of two exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e referred to in clause (a) of the third proviso, is not applied, wholly and exclusively to the objects for which the trust or institution under the first regime is established, during the previous year but is accumulated or set apart, either in whole or in part, for application to such objects, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and (c) the statement referred to in clause (a) of Explanation 3 is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; Accordingly, vide Notification No. 96/2022 (GSR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which the trust or institution under the first regime is established. If it is done, the provisions of Explanation 4 to third proviso to clause (23C) of section 10 shall apply as if the purpose specified by such person in the application under this Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of the proposed Explanation 3 of the third proviso to clause (23C) of section 10. F) inserted a proviso to proposed Explanation 5 to third proviso to clause (23C) of section 10 of the Act to provide that the Assessing Officer shall not allow the application of any accumulated income, as referred to in the proposed Explanation 3, to be credited or paid to any trust or institution under the first or second regime, as referred to in clause (d) of proposed Explanation 4 to the third proviso to clause (23C) of section 10. Applicability: These amendments will be effective from 1st April, 2023 and accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. 9.4.2 Bringing consistency in the provisions relating to payment to specified person i) Under section 13 of the Act, trusts or institutions under the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndments will be effective from 1st April, 2023. It may be noted that vide Notification No. 101/2022 (GSR 647E) dated 22.08.2022, rule 17CB of the Income-tax Rules has been amended so as to replace the reference of "trust or institution" with specified person wherever it occurs and to provide that specified person shall have the same meaning as provided in clause (iia) of the Explanation to section 115TD of the Act. 9.4.4 Filing of return by person claiming exemption under clause (23C) of section 10 of the Act i) According to clause (ba) of sub-section (1) of section 12A of the Act, if a trust or institution under the second regime does not furnish return of income in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section, then provisions of sections 11 and 12 are not applicable. However, there was no similar provision in the first regime. ii) Hence, FA 2022 has inserted twentieth proviso to clause (23C) of section 10 of the Act to provide that for the purpose of exemption under this clause, any trust or institution under the first regime is required to furnish the return of income for the previous year in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prior to amendments made vide FA 2022, different provisions mandated denial of exemption to the trusts or institutions under both the regimes. Some of the provisions under which exemption was not available for its violation are as follows: (a) In case of commercial receipts in excess of 20% of the annual receipts in violation of the provisions of proviso to clause (15) of section 2; (b) Not getting the books of account audited; (c) Not filing the return of income presently specifically provided under the second regime only; ii) There was lack of clarity on computation of taxable income in case of non-availability of exemption in these cases. For example, if the exemption was denied to the trust or institution for the late submission of the audit report, its entire receipts could be subject to tax and no deduction for any application would have been allowed. iii) In order to bring clarity in the computation of the income chargeable to tax in such cases, FA 2022 has: (a) inserted sub-section (10) in section 13 of the Act to provide that where the provisions of sub-section (8) are applicable to any trust or institution under the second regime or such trust or institution violate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (ii) such expenditure is not from any loan or borrowing; (iii) claim of depreciation is not in respect of an asset, acquisition of which has been claimed as application of income in the same or any other previous year; and (iv) such expenditure is not in the form of any contribution or donation to any person. (e) inserted an Explanation in the twenty second proviso to clause (23C) of section 10 of the Act to provide that for the purposes of determining the amount of expenditure under this proviso, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head "Profits and gains of business or profession". (f) inserted twenty third proviso in clause (23C) of section 10 of the Act to provide that for the purposes of computing income chargeable to tax under twenty second proviso, no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of the Act. Applicability: These amendments will be effective from 1st April, 2023 and accordingly apply in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the income of the trust. (d) The trusts or institutions under the first regime are also required to apply at least 85% of their income during the year. Where such trust is not able to apply 85% of its income during the year and does not accumulate such income, entire income of such trust shall be subjected to tax where the trust is approved under the second proviso to clause (23C) of section 10 of the Act since third proviso to clause (23C) of section 10 of the Act mandates minimum 85% application of income unless such income is accumulated. Denying exemption to the trust, for small amount of income applied in violation to the provisions referred in clause (a) and (b) above creates difficulties to the trusts or institutions under both the regimes as there is ambiguity about the manner of taxation of such income. Further, there was need for special provision to ensure that the income applied in violation is taxed at special rate without deduction. Accordingly, in order to rationalise the provisions, the FA 2022 has: (a) amended clause (c) of sub-section (1) of section 13 of the Act to provide that only that part of income which has been applied in violation to the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew section defines "specified income" to mean: (i) income accumulated or set apart in excess of fifteen per cent of the income where such accumulation is not allowed under any specific provisions of the Act; or (ii) deemed income referred to in Explanation 4 to third proviso to clause (23C) of section 10 or sub-section (3) of section 11 or sub-section (1 B) of section 11; or (iii) any income which is not exempt under clause (23C) of section 10 on account of violation of the provisions of clause (b) of third proviso of clause (23C) of section 10 or not to be excluded from total income under the provisions of clause (d) of sub-section (1) of section 13; or (iv) any income which is deemed to be income under the twenty first proviso to clause (23C) of section 10 or which is not excluded from total income under clause (c) of subsection (1) of section 13; or (v) any income applied outside India and which is not excluded from total income under clause (c) of sub-section (1) of section 11. Applicability: These amendments will be effective from 1st April, 2023 and accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. 9.5.3 Voluntary C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may be treated by such trust or institution, at its option, as forming part of corpus of the trust or institution, subject to the condition that the trust or institution, (a) applies such corpus only for the specific purpose for which the voluntary donation was made; (b) does not apply such corpus for making contribution or donation to any person; (c) maintains such corpus as separately identifiable; and (d) Invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11. v) FA 2022 has also inserted Explanation 1 B in the third proviso to clause (23C) of section 10 of the Act to provide that for the purposes of Explanation 1A, where any trust or institution referred to in sub-clause (v) has treated any sum received by it as forming part of the corpus and subsequently any of the conditions specified in clause (a), (b), (c) or clause (d) thereof are violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place. Applicabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from other sources". (ii) FA 2022 has inserted twenty first proviso in clause (23C) of section 10 of the Act to provide that where the income or part of income or property of any trust or institution under the first regime, has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall be deemed to be the income of such trust or institution under the first regime of the previous year in which it is so applied. Further, the said Act has also amended clause (c) of sub-section (1) of section 13 of the Act to provide that where the trusts or institutions provide any unreasonable benefit to any person referred to in sub-section (3) of section 13, the amount of such benefit shall be liable to be included in total income of such trust or institution. (iii) In view of the above amendments made vide FA 2022, clause (x) of sub-section (2) of section 56 of the Act could be interpreted in a manner that where any unreasonable benefit is passed on by any trust or institution under the first or second regime to any person referred to in sub-section (3) of section 13, the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause (iia) of sub-section (1) of section 35 of the Act to file the statement of donations received by these entities from the donors. However, an inadvertent drafting error has crept in the sub-section. Prior to amendment made vide FA 2022, the language read that no deduct ion shall be allowed to the research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause (iia) of sub-section (1) of section 35, if such statement of donations is not filed. However, that was not the intention of the law. The deduction claimed by the donor was required to be dis-allowed in such cases. In section 80G of the Act similar provisions were introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from the 1st April, 2021, whereby the deduction claimed by the donor under this section was disallowed in case the donee fails to furnish the statement of donations. ii) Hence, FA 2022 has amended sub-section (1A) of section 35 of the Act to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the legislation clear and to make it free from any misinterpretation, FA 2022 has inserted an Explanation to section 14A of the Act to clarify that notwithstanding anything to the contrary contained in the Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. Applicability: This amendment is effective from the 1st day of April, 2022. 10.5 Further, FA 2022 also amended sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Act and provide that and provide that no deduct ion shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in any other provisions of this Act. Applicability: This amendment is effective from the 1st day of April, 2022. 11. Exemption of amount received for medical treatment and on account of death due to Covid-19 11.1 Clause (x) of sub-section (2) of section 56 of the Act, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a person so admitted; (ii) all necessary documents of medical diagnosis or treatment of the employee or his family member for COVID-1 9 or illness related to COVID-19 suffered within six months from the date of being determined as COVID-1 9 positive; and (iii) a certification in respect of all expenditure incurred on the treatment of COVID-19 or illness related to COVID-19 of the employee or of any member of his family. 11.5 Further the first proviso to clause (x) of sub-section (2) of section 56 has been amended and two new clauses (XII) and (XIII) in the proviso have been inserted so as to provide that- (i) any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person; (ii) any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that such sum or aggregate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix months from the date of testing positive or from the date of being clinically determined as a COVID-1 9 case, for which any sum of money has been received by the member of the family; (ii) the family member of the individual shall keep a record of the following documents, - (a) the COVID-19 positive report of the individual, or medical report if clinically determined to be COVID-19 positive through investigations in a hospital or an inpatient facility by a treating physician; and (b) a medical report or death certificate issued by a medical practitioner or a Government civil registration office, in which it is stated that death of the person is related to corona virus disease (COVID-19). 11.9 It has also been notified that the statement of any sum of money received by a member of the family of a deceased person from the employer of the deceased person or from any other person or persons, on account of death due to COVID-19 for the purposes of clause (XIII) of the first proviso to clause (x) of sub-section (2) of section 56 of the Act shall be verified and furnished in Form A. Further, the details of the amount received in any financial year shall be furnished in Form A to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h provided aforesaid benefits and claimed it as a deductible expense in its accounts against income. 12.4 This circular was challenged in Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry vs Central Board of Direct Taxes [(2013) 335 ITR 388 (HP)], in which the Hon'ble High Court rejected the petition and held that - "The regulation of the Medical Council prohibiting medical practitioners from availing of freebies is a very salutary regulation which is in the interest of the patients and the public. This Court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, s. 37(1) comes into play. The Petitioner's contention that the circular goes beyond the section is not acceptable. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assesses to file an appeal but the circular which is totally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces to the society as a whole. The Court further held that if demanding of such commission was bad, paying it was equally bad. Both were privies to a wrong. Therefore, such commission paid to private doctors was opposed to the public policy and should be discouraged. The payment of commission by the assessee for referring patients to it cannot by any stretch of imagination be accepted to be legal or as per public policy. Undoubtedly, it is not fair practice and has to be termed as against the public policy. iv. ITAT noted earlier coordinate bench judgment in the case of DCIT vs PHL Pharma Pvt Ltd (2017) 163 ITD 10 (Mum) where it was held that the disallowance could not be sustained as the MCI guidelines bind only the medical professionals and not the pharmaceutical companies. ITAT noted that this judgment was not in line with earlie- co-ordinate bench judgment In the case of Liva Healthcare Ltd, (2016) 161 ITD 63 (Mum) where the Hon'bte Mumbai ITAT has held that the CBDT circular dated 01.08.2012 is merely a clarification in nature and creates a bar on such illegal payments being against public policy, the said bar always existed in the statute by virtue of the existence of Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it has not passed any order against the Petitioner hospital. Thus, I need not go into the question whether the adequate infrastructure facilities for appropriate post-operative care were in fact in existence or not in the Petitioner hospital and whether the principles of natural justice had been followed or not while passing the impugned order. Suffice it to say that the observations dated 27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in (he Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. 9. Since the MCI had no jurisdiction to go into the infrastructure facilities, I need not also go into the aspect that in the year 2011, the facilities available in the hospital were inspected and were found to be in order 10. The petition therefore has to succeed. I hereby issue a writ of certiorari quashing the adverse observations passed by the MCI against the Petitioner hospital highlighted in Para 1 above." ITAT thus held that in their humble understanding, the judgment of Delhi High Court does not negate, dilute, or even deal with, ratio decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 186 ITR 722 (SC)], "that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings being to light what is perceived by them as an erroneous decision in the earlier case" and that "in such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger bench". Taking a cue from the path so guided by Hon'ble Supreme Court in the case of Paras Laminates (supra), we recommend constitution of a bench of three or more Members to consider the question as to whether or not an item of expenditure on account of freebies to medical professionals, which is hit by rule 6.8.1 of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002- as amended from time to time, read with section 20A of the Indian Medical Council Act 1956, can be allowed as a deduction under section 37(1) of the Income Tax Act, 1961 read with Explanation thereto, in the hands of the pharmaceutical companies. 12.6 Thus, the legal position is clear that the claim of any expense incurred in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Apex Laboratories Pvt Ltd vs DCIT SLP - Civil No. 23207 of 2019 (dated February 22, 2022) held that pharmaceutical companies gifting freebies to doctors etc is clearly prohibited by law and therefore such expenses are not allowed to be claimed as a deduction under sub-section (1) of section 37 of the Act. The Supreme Court held that doing so would "wholly undermine public policy." (Para 33). The amendment carried out is in consonance with the judgement of Supreme Court. 13. Clarification regarding treatment of cess and surcharge 13.1 Section 40 of the Act specifies the amounts which shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". Sub- clause (ii) of clause (a) of section 40 of the Act provides that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of. or otherwise on the basis of, any such profits or gains shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". 13.2 However, It was seen that certain taxpayers were c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l point for determination is whether surcharge is an additional mode or rate for charging income tax. The meaning of the word "surcharge" as given in the Webster's New International Dictionary includes among others "to charge (one) too much or in addition" also 'additional tax". Thus, the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to s. 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Surcharge; (iii) special surcharge and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax". 21. The Hon'ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income tax. At this stage, it is pertinent to mention here that 'education cess' was brought in for the first time by the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has come to the notice of the Board where the ITO has disallowed the 'cess' paid by the assessee on the ground that there has been no material change in the provisions of s. 10(4) of the old Act and s. 40(a)(i!) of the new Act. 2. The view of the ITO is not correct. Clause 40(a)(ii) of the IT Bill, 1961 as introduced in the Parliament stood as under: "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains". When the matter cams up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the year 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided." 13.6 In the above referred Circular issued by CBDT, 'Cess' is to be allowed under sub- clause (ii) of clause (a) of section 40 of the Act. However, it is to be noted that 'Cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguage used showed that income tax which was to be charged was to be increased by a surcharge for the purpose of the Union. The word "surcharge" has thus been used to either increase the rates of Income tax and super tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term Income tax" as used in Section 2 includes surcharge." 13.8 Since the judgments of Rajasthan High Court and Bombay High Court did not consider the judgment of Hon'ble Supreme Court discussed above, the judgments of these two High Courts appear to be per incuriam. It may be mentioned that in paragraph 578 at page 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows: "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of co-ordinate jurisdiction which covered the case before it. in which case It must be decided which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all, after making the payment of the tax determined by the Assessing Officer, furnish the details of payment of tax in Form No. 70 to the Assessing Officer within thirty days from date of making the payment. 13.12 This is an opportunity given for taxpayers to acknowledge the mistake committed by them and pay taxes voluntarily and thus avoid facing penalty. 13.13 Applicability: The amendment relating to section 40 takes effect retrospectively from 1st April. 2005 and accordingly applies In relation to the assessment year 2005-06 and subsequent assessment years. The amendment relating to sub-section (18) of section 155 is effective from 1st April, 2022. 14. Clarification regarding deduction on payment of interest only on actual payment 14.1 Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Explanation 3C, 3CA and 3D of this section provides that a deduction of any sum, being interest payable on loan or borrowing from specified financial institution/NBFC/scheduled bank or a co-operative bank under clause (d), clause (da), and clause (e) of this section respectively, shall be allowed if such interest has been actually paid and any interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the assessee shall be reduced from the amount of the purchase price of the goodwill. 15.2 When the amendment was carried out through the Finance Act 2021, consequential amendment was carried out in section 50 of the Act by insertion of a proviso to clause (2) of that section. A further consequential amendment has now been carried out. 15.3 Accordingly, it has been clarified that for the purposes of section 50 of the Act, reduction of the amount of goodwill of a business or profession, from the block of asset in accordance with sub item (B) of item (ii) of sub-clause (c) of clause (6) of section 43, shall be deemed to be transfer. 15.4 Applicability: Since the amendment to the effect that goodwill of a business or profession is not a depreciable asset has been made applicable from assessment year 2021-2022, the above amendment takes effect retrospectively from 15t April 2021 and applies in relation to the assessment year 2021-22 and subsequent assessment years. 16. Cash credits under section 68 16.1 Section 68 of the Act provides that where any sum is found to be credited in the books of an assessee maintained for any previous year, and the assessee offers no explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isinvestment of public sector companies 17.1 Section 79 of the Act provides for carry forward and set-off of losses in case of certain companies. Sub-section (1) of the said section, inter-alia, provides that where a change in shareholding has taken place during the previous year in the case of a company, not being a company in which the public are subslantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, unless on the last day of the previous year, the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred. Sub-section (2) of the said section provides certain circumstances in which the provisions of sub-section (1) shall not apply. 17.2 II order to facilitate the strategic disinvestment of public sector companies, section 79 of the Act has been amended to provide that (he provisions of sub-section (1) of section 79 shall not apply to an erstwhile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e detected as a result of search or requisition or survey would help in ensuring that proper tax paid on income detected due to a search or survey. This would also result in increased deterrence against tax evasion. 18.4 The new section 79A which was inserted in the Act provides that notwithstanding anything contained in the Act, where consequent to a search initiated under section 132 or a requisition made under section 132A or a survey conducted under section 133A, other than under sub-section (2A) of section 133A, the total income of any previous year of an assessee includes any undisclosed income, no set off, against such undisclosed income, of any loss, whether brought forward or otherwise, or unabsorbed depreciation under sub-section (2) of section 32 shall be allowed to the assessee under any provision of this Act in computing his total income for such previous year. 18.5 Further, the term "undisclosed income" has been defined for the above purpose as- (i) any income of the previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government to the account of its employee. 19.3 Applicability: This amendment is effective retrospectively from the 1st April, 2020 and accordingly, applies in relation to the assessment year 2020-21 and subsequent assessment years. 20. Condition of releasing of annuity to a disabled person 20.1 The existing provision of section 80DD, inter alia, provides for a deduction to an individual or HUF, who is a resident in India, in respect of (a) expenditure for the medical treatment (including nursing), training and rehabilitation of a dependent, being a person with disability; or (b) amount paid to LIC or any other insurer or administrator or specified company in respect of a scheme for the maintenance of a disabled dependant. 20.2 Sub-section (2) of the aforesaid section provides that the deduction shall be allowed only if the payment of annuity or lump sum amount is made to the benefit of the dependant, in the event of the death of the individual or the member of the HUF in whose name subscription to the scheme has been made. 20.3 Sub-section (3) of the aforesaid section provides that if the dependant with disability predeceases the individual or the member of the HUF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been delays in setting up of such units. In order to factor in such delays and promote such eligible start-ups, the provisions of section 80-IAC of the Act have been amended by the FA 2022 to extend the period of incorporation of eligible start-ups to 31st March, 2023. 21.3 Applicability: This amendment is effective from 1st April, 2022. 22. Faceless Schemes under the Act 22.1 The Central Government has undertaken a number of measures to make the processes under the Act electronic, by eliminating person to person interface between the taxpayer and the Department to the extent technologically feasible, and provide for optimal utilisation of resources and a team-based assessment with dynamic jurisdiction. A series of futuristic reforms have been introduced in the domain of Direct Tax administration for the benefit of taxpayers and economy. This started with faceless assessment in electronic mode involving no human interface between taxpayers and tax officials. The faceless procedures are being introduced in a phased manner in the Act. 22.2 As part of this process of making the tax administration transparent and efficient, provisions for notifying faceless schemes under sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust (REIT) or Alternative Investment Fund (AIF) as the definition of the term "unit" was not amended subsequent to introduction of provisions relating to REITs, InvITs etc. Further, provisions of sub-section (7) of section 94 of the Act, i.e. provisions pertaining to dividend stripping were not applicable to the units of new pooled investment vehicles such as InvIT or REIT or AIF. 23.3 In view of the above, FA 2022 has amended sub-section (8) of section 94, pertaining to the prevention of tax evasion through bonus stripping, so as to make the said provision applicable to securities as well. 23.4 Further, Explanation to the said section has also been amended to amend the definition of unit, so as to include units of business trusts such as InvIT, REIT and AIF, within the definition of units. 23.5 Applicability: These amendments are effective from 1st April, 2023 and accordingly apply to the assessment year 2023-24 and subsequent assessment years. 24. Extension of the last date for commencement of manufacturing or production, under section 115BAB, from 31.03.2023 to 31.03.2024 24.1 Section 115BAB of the Act provides for an option of concessional rate of taxation at 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the 1st day of April, 2023 and accordingly, applies in relation to the assessment year 2023-24 and subsequent assessment years. 26. Rationalization of provisions of the Act to promote the growth of co-operative societies 26.1 Section 115JC of the Act, inter alia, provides for the alternate minimum tax (AMT) payable by co-operative societies, which is at the rate of 18.5%. However, vide the Taxation Laws (Amendment) Act, 2019, the Minimum Alternate Tax (MAT) rate for companies has been reduced to 15%. Therefore, in order to provide parity between cooperative societies and companies, sub-section (4) of section 115JC has been modified to reduce the AMT rate at which co-operative societies are liable to pay income-tax to 15%. Consequential amendment was also done in clause (b) of section 115JF in relation to the definition of "alternate minimum tax". 26.2 Applicability: This amendment is effective from 1st April, 2023 and, accordingly applies in relation to the assessment year 2023-24 and subsequent assessment years. 27. Amendment in the provisions of section 119 of the Act 27.1 Section 119 of the Act empowers the Board to issue orders, instructions and directions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of November of the assessment year; and (c) for any other assessee, it is 31st day of July of the assessment year. 28.2 Alternatively, sub-section (4) of section 139 facilitates filing of a belated return after the expiry of due date, if such return is furnished before 3 months prior to the end of the relevant assessment year or before the completion of assessment, whichever is earlier. Similarly, sub-section (5) of section 139 provides the taxpayer an opportunity to revise the return filed under sub-section (1) or sub-section (4) in case of any omission or wrong statement, after due date, which is to be filed 3 months before the end of the assessment year or before the completion of assessment, whichever is earlier. Hence, the object of section 139 is to give reasonable time to the taxpayer to file a correct statement of his income within the duration specified under the Act. 28.3 This provision provides an additional time of approximately 5 months to an individual assessee, 2 months to a company/auditable case and 1 month to an assessee who enters into an international transaction or specified domestic transaction respectively, in a financial year to file belated or revised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be furnished. (ii) this sub-section (8A) of section 139 shall not apply, if the updated return, is a return of a loss or has the effect of decreasing the total tax liability determined on the basis of return furnished under sub-section (1), sub-section (4) or sub-section (5) or results in refund or increases the refund due on the basis of return furnished under sub-section (1), subsection (4) or sub-section (5), of such person under the Act for the relevant assessment year. (iii) A person shall not be eligible to furnish an updated return under sub-section (8A) of section 139, if: - (a) search has been initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of such person, or (b) a survey has been conducted under section 133A, other than sub-section (2A) of that section, in the case such person, or (c) a notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or section 132A in the case of any other person belongs to such person, or (d) a notice has been issued to the effect that any books of account or document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 32 or tax credit carried forward under section 115JAA or under section 115JD is to be reduced for any subsequent previous year as a result of furnishing updated return for a previous year, an updated return is required to be furnished for each such subsequent previous year. (b) Sub-section (9) of section 139 provides that a return filed under sub-section (8A) of the said section 139 shall be defective unless such return is accompanied by the proof of payment of tax as required under the new section 140B. II. A new section 140B has been introduced to provide the tax required to be paid for opting to file a return under the new provisions i.e. sub-section (8A) of section 139 of the Act. I. Where no return furnished earlier: where no return of income under sub-section (1) or sub-section (4) of section 139 has been furnished by an assessee, he shall before furnishing the return under sub-section (8A) of section 139, be liable to pay the tax due together with interest and fee payable under any provision of the Act for any delay in furnishing the return or any default or delay in payment of advance tax, along with the payment of additional tax. The tax payable shall be computed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creased by the amount of refund, if any, issued in respect of such earlier return. The updated return, furnished under sub-section (8A) of section 139, shall be accompanied by proof of payment of such tax, additional tax, interest and fee. III. The additional tax, payable at the time of furnishing the return under sub-section (8A) of section 139, shall be equal to twenty-five percent of aggregate of tax and interest payable, as determined in sub-paragraphs I or II above, if such return is furnished after expiry of the time available under sub-section (4) or sub-section (5) of section 139 and before completion of period of twelve months from the end of the relevant assessment year. However, if such return is furnished after the expiry of twelve months from the end of the relevant assessment year but before completion of the period of twenty four months from the end of the relevant assessment year, the additional tax payable shall be fifty percent of aggregate of tax and interest payable, as determined in sub- paragraphs I or II above. It is clarified that all other subsequent non-compliances under the Act, if any, shall be dealt with as per the relevant provisions of the Act. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, on the income as per return furnished under sub-section (8A) of section 139, as reduced by interest paid in the earlier return, if any. However, the interest paid in the earlier return shall be considered to be nil if no earlier return has been furnished. VI. In view of the introduction of sub-section (8A) of section 139 and new section 140B, consequential amendments in section 144, section 153, section 234A, section 234B and 276CC have also been made. 28.6 Applicability: These amendments are effective from the 1st day of April, 2022. 29. Income-tax authorities for the purposes of section 133A of the Act 29.1 Section 133A of the Act enables an income-tax authority to enter any place of business or profession or any other place where charitable activity is carried on within his jurisdiction to verify the books of account or other documents, cash, stock or other valuable article or thing, which may be useful for or relevant to any proceeding under this Act. Explanation to section 133A provides the definition of an income tax authority for the purposes of this section. 29.2 Through Taxation and Other Laws (Amendment and Relaxation of Certain Provisions) Act, 2020, the Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the procedure laid down in the section. (c) the assessee shall be served a notice under sub-section (2) of section 143 or under sub-section (1) of section 142 of the Act, through the NaFAC. The assessee may file his response to the aforementioned notice under sub-section (3) of section 143, within the date specified in such notice in this regard, to the NaFAC, which shall forward the reply to the AU. (d) Thereafter, the AU may make a request, through the NaFAC, for obtaining such further information, documents or evidence from the assessee or any other person, as it may specify and the NaFAC shall serve appropriate notice or requisition on the assessee or any other person for obtaining such information, documents or evidence. The AU may also make a request, through the NaFAC, for conducting enquiry or verification by Verification Unit (VU) and the request shall be assigned by the NaFAC to a VU through an automated allocation system. The AU may also similarly make a request in respect of determination of arm's length price, valuation of property, withdrawal of registration, approval, exemption or any other technical matter by referring to the Technical Unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vey to the AU to prepare draft order in accordance with such income or loss determination proposal, which shall thereafter prepare a draft order, or assign the income or loss determination proposal to a Review Unit (RU) through an automated allocation system, which shall conduct a review of such order, prepare a review report and send it to NaFAC. (j) The NaFAC shall forward the review report received from the RU to the AU which had proposed the income or loss determination proposal. The AU may accept or reject some or all of the modifications proposed in such review report, prepare a draft order accordingly, and send it to NaFAC. The AU shall record reasons in writing if it is rejecting the modifications proposed by the RU. (k) The NaFAC shall, upon receiving draft order in a case of an eligible assessee, where there is a proposal to make any variation which is prejudicial to the interest of such assessee under sub-section (1) of section 144C for reference to Dispute Resolution Panel, serve such draft order on the assessee. In any case, other than that of eligible assessee under section 144C, the NaFAC shall convey to the AU to complete the assessment in accordance with such dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on over the said case for such action as may be required under the Act. (p) The section also provides that faceless assessment shall be made in respect of persons or class of persons, or incomes or class of incomes, or cases or class of cases or such territorial area, as may be specified by the Board. (q) The section also provides that Board may, for the purposes of faceless assessment, set up the following Centre and units and specify their functions and jurisdiction, namely:- (i) a National Faceless Assessment Centre to facilitate the conduct of faceless assessment proceedings in a centralised manner; (ii) assessment units (referred to as AU), as it may deem necessary to conduct the faceless assessment, to perform the function of making assessment, which includes identification of points or issues material for the determination of any liability (including refund) under the Act, seeking information or clarification on points or issues so identified, analysis of the material furnished by the assessee or any other person, and such other functions as may be required for the purposes of making faceless assessment and the term "assessment unit", wherever used in section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Commissioner or Additional Director or Joint Commissioner or Joint Director, as the case may be; (ii) Deputy Commissioner or Deputy Director or Assistant Commissioner or Assistant Director, or Income-tax Officer, as the case may be; (iii) such other income-tax authority, ministerial staff, executive or consultant, as considered necessary by the Board. (s) The section also provides that all communication among the AU, RU, VU or TU or with the assessee or any other person with respect to the information or documents or evidence or any other details, as may be necessary for the purposes of making a faceless assessment shall be through the NaFAC, between the NaFAC and the assessee, or his authorised representative, or any other person and all internal communications between the NaFAC and various units shall be exchanged exclusively by electronic mode. However, this provision shall not apply to the enquiry or verification conducted by the verification unit in the circumstances as may be specified by the Board in this regard. (t) It is further provided that for the purposes of faceless assessment, an electronic record shall be authenticated by the NaFAC by way of an electronic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r recording of the statement of the assessee or any other person (other than the statement recorded in the course of survey under section 133A) shall be conducted by an income-tax authority in the relevant unit, exclusively through video conferencing or video telephony, including use of any telecommunication application software which supports video conferencing or video telephony, to the extent technologically feasible, in accordance with the procedure laid down by the Board. (x) The Board shall establish suitable facilities for video conferencing or video telephony including telecommunication application software which supports video conferencing or video telephony at such locations as may be necessary, so as to ensure that the assessee, or his authorised representative, or any other person is not denied the benefit of faceless assessment merely on the consideration that such assessee or his authorised representative, or any other person does not have access to video conferencing or video telephony at his end. The Principal Chief Commissioner or the Principal Director General, as the case may be, in charge of the NaFAC shall, with the prior approval of the Board, lay down the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment unit, technical unit. verification unit, review unit etc used in the section are defined. (II) Sub-section (9) of erstwhile section 144B of the Act provided that the assessment proceedings shall be void if the procedure mentioned in the section was not followed. The said sub-section refers to violation of the procedure laid down by the law whereas a large number of disputes have been raised under the sub-section involving technical issues arising due to use of information technology, leading to unnecessary litigation. It is, therefore, omitted from its date of inception. 30.4 Applicability: In view of the above, the amendments in the provisions of section 144B of the Act are effective,- (i) from 1st April, 2022, in case of proposal in sub-paragraph (I); (ii) retrospectively from 1st April, 2021, in case of proposal in sub-paragraph (II). 31. Rationalization of provisions relating to assessment and reassessment 31.1 The Finance Act, 2021 amended the procedure for assessment or reassessment of income in the Act with effect from the 1st April, 2021. The said amendment modified, inter alia, sections 147, section 148, section 149 and also introduced a new section 148A in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese amendments are effective from 1st April, 2021. 31.4 In order to align the scheme of search assessments with the intent of the Act, changes have been made to- (i) amend sub-section (8) of section 132 to make the provisions of that section also applicable to assessment or reassessment or recomputation under sub-section (3) of 143 or section 144 or section 147, as the case may be, (ii) amend clause (i) of sub-section (1) and sub-section (4) of section 132B to provide that these provisions shall also apply to assessment or reassessment or recomputation. Applicability: These amendments are effective from 1st April, 2022. (iii) insert a new section 148B to provide that no order of assessment or reassessment or recomputation under the Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, in respect of assessments consequent to search, survey and requisition to reduce avoidable inaccuracies. Applicability: This amendment is effective from 1st April, 2022. (iv) amend section 153, by inserting a new clause to provide for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but not exceeding ten years from the end of the relevant assessment year where the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of (a) an asset; or (b) expenditure in respect of a transaction or in relation to an event or occasion; or (c) an entry or entries in the books of account, which has escaped assessment amounts to or likely to amount to fifty lakh rupees or more. (iii) insert a new sub-section (1A) in section 149 to provide that notwithstanding anything contained in sub-section (1) of the said section, where the income chargeable to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of sub-section (1) of the said section, has escaped assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant to the assessment years within the period referred to in clause (b) of subsection (1) of the said section, notice under section 148 shall be issued for every such assessment year fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153C, the books of account or document or assets seized or requisitioned are handed over u/s 153C to the Assessing Officer having jurisdiction over such other person during the financial year 2020-21, assessment or reassessment is required to be completed by 31st March, 2022. 33.2 However, the extended due date of 15th March, 2022 for filing ITR may also be applicable in cases where searches have been concluded or in case of other person referred to in section 153C, the books of account or document or assets seized or requisitioned are handed over u/s 153C to the Assessing Officer having jurisdiction over such other person during the financial year 2020-21. This led to situations where Assessing Officers have less than 15 days to conclude assessment in cases of taxpayers who choose to file the return on 15th March, 2022. 33.3 Therefore, a sixth proviso to sub-section (1) is introduced in section 153B of the Act to provide that in cases where the last of the authorisations for search or for requisition was executed during FY 2020-21 or in case of other person referred to in section 153C, the books of account or document or assets seized or requisitioned are handed over u/s 153C t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er subsection (2) of section 260A against the order of the Commissioner (appeals) or the Appellate Tribunal, as the case may be. 34.4 Further, the Commissioner or Principal Commissioner shall, on receipt of a communication from the collegium, direct the Assessing Officer to make an application to the Appellate Tribunal or jurisdictional High Court, as the case may be, in the prescribed form within one hundred and twenty days from the date of receipt of the order of the Commissioner (Appeals) or within one hundred and twenty days from the date of receipt of the order of the Appellate Tribunal, as the case may be, stating that an appeal on the question of law arising in the relevant case may be filed when the decision on the question of law becomes final in the other case. The Commissioner or Principal Commissioner shall direct the Assessing Officer to make such an application only if an acceptance is received from the assessee to the effect that the question of law in the other case is identical to that arising in the relevant case, and in case no such acceptance is received, the Commissioner or Principal Commissioner shall proceed in accordance with the provisions contained in sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of section 158AA to provide that no direction shall be given under the said sub-section on or after 1st April, 2022, as the same has been subsumed under section 158AB. 34.10 Applicability: This amendment is effective from 1st April, 2022. 35. Amendments related to successor entity subsequent to business reorganisation 35.1 Chapter XV of the Act refers to liability in certain special cases. Section 170, inter alia, governs the procedure of taxation in case of succession to business in the event of reorganisation or restructuring of the business which is discussed in the following paragraphs. 35.2 Though section 170 provides for assessment in cases of succession otherwise than by death, in practice once an entity starts the process of reorganisation by filing an application with the adjudicating authority or tribunal or any High Court, the period of time involved in coming to a conclusion with respect to such reorganisation is found to be a long-drawn process and is not time-bound. The effective date of reorganisation often is from an earlier date. During the pendency of the court proceedings, the income tax proceedings and assessments are carried on and are often ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been found where the Adjudicating Authority, as defined in clause (1) of section (5) of the Insolvency and Bankruptcy Code, 2016, as a part of the restructuring process, recast the entire liability to ensure future viability of such Sick entities and in the process, modify the demand created vide various proceedings in the past, by the Income Tax department as well, amongst other things. 35.6 However, it is observed that there is no procedure or mechanism provided in the Act to reduce such demands from the outstanding demand register. Hence, in order to remove this anomaly, a new section 156A is inserted in the Act to give effect to the orders of the competent authority and to modify such demands in accordance with such directions. 35.7 Applicability: These amendments are effective from 1st April, 2022. 36. Amendment in the provisions of section 179 36.1 Section 179 of the Act contains provisions which enables income-tax authorities to recover tax due from a private company from its directors, under certain circumstances where such tax cannot be recovered from the company itself. The section makes each director of the private company jointly and severally liable for the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the order made by the Assessing Officer in this regard; (ii) sub-section (7) of section 206C of the Act has been amended to provide that where any order is made by the Assessing Officer for the default under sub-section (6A) of the said section, the interest shall be paid by the person in accordance with the order made by the Assessing Officer in this regard . 37.4 Applicability: These amendments take effect from 1st April, 2022. 38. Rationalization of provisions of section 206AB and 206CCA to widen and deepen tax-base 38.1 In order to widen and deepen the tax-base and to nudge taxpayers to furnish their return of income, Finance Act, 2021 inserted sections 206AB and 206CCA in the Act. The said sections provide for special provision for deduction and collection of tax at source respectively, in case of specified persons at higher rates specified therein. 38.2 "Specified person" was defined to mean a person who has not filed the returns of income for both the two assessment years relevant to the two previous years immediately preceding the financial year in which tax is required to be deducted or collected, for which the time limit for filing return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from 1st April, 2022. 39. Rationalization of provisions of TDS on sale of immovable property 39.1 Section 194-IA of the Act provides for deduction of tax on payment on transfer of certain immovable property other than agricultural land. Sub-section (1) of the said section provided for deduction of tax by any person responsible for paying to a resident any sum by way of consideration for transfer of any immovable property (other than agricultural land) at the time of credit or payment of such sum to the resident at the rate of one per cent. of such sum as income-tax thereon. Sub-section (2) provided that no deduction of tax shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees. 39.2 As per the provisions of the said section, TDS is to be deducted on the amount of consideration paid by the transferee to the transferor. This section did not take into account the stamp duty value of the immovable property, whereas, as the provisions of section per 43CA and 50C of the Act, for the computation of income under the head "Profits and gains of business or profession" and "capital gains" respectively, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. For the purposes of this section, the expression 'person responsible for providing' means a person providing such benefit or perquisite or in case of a company, the company itself including the principal officer thereof. 40.2.1 Further, in a case where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite. 40.2.2 No tax is to be deducted if the value or aggregate value of the benefit or perquisite paid or likely to be paid to a resident does not exceed twenty thousand rupees during the financial year. 40.2.3 Further, the provisions of the said section shall not apply to an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4C of the Act or the DRC under section 245MA of the Act, and the AO shall pass the final order in conformity with the order by the DRC even in the case of an eligible assessee. 41.4 Applicability: The amendment is effective from 1st April, 2022. 42 Amendment in the provisions of section 248 of the Act and insertion of new section 239A 42.1 Section 248 of the Act provides that in a case where, under an agreement or other arrangement, a person who has deducted tax on any income paid to a non-resident, other than interest under section 195 of the Act, he may appeal to the Commissioner (Appeals) for a declaration that no tax was deductible on such income, if he claims that such tax is to be borne by him since no tax was required to be deducted on such income. Such appeal can be filed after making payment of tax so deducted to the credit of the Government account. Further, section 249 of the Act lays down that an appeal under section 248 of the Act should be filed within 30 days of making payment of such tax to the Government account. 42.2 To obtain a refund of the tax deducted and paid by a person, where it was not deductible, as per the provisions of section 248 of the Act, a taxp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 263 to revise the order of the TPO passed under section 92CA. 43.3 Therefore, the provisions of section 263 of the Act have been amended so as to provide that the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner who is assigned the jurisdiction of transfer pricing may call for and examine the record of any proceeding under this Act, and if he considers that any order passed by the TPO, working under his jurisdiction, to be erroneous in so far as it is prejudicial to the interests of revenue, he may pass an order directing revision of the order of TPO. 43.4 Further, section 153 of the Act is amended by inserting sub-section (5A) to provide that where the Transfer Pricing Officer gives effect to an order or direction under section 263 by means of an order under section 92CA and forwards such order to the Assessing Officer, the Assessing Officer shall proceed to modify the order of assessment or reassessment or recomputation, in conformity with such order of the Transfer Pricing Officer, within two months from the end of the month in which such order of the Transfer Pricing Officer is received by him. Further, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r statements, allow inspections etc. At present, the amount of penalty for failures listed under sub-section (2) of section 272A is one hundred rupees for every day during which the failure continues. 46.2 Section 272A ensures compliance with various obligations under the Act by penalising non-compliance and acting as a deterrent. 46.3 However, the penalty of one hundred rupees had been commented upon by the CAG in their report on the entertainment sector as being too low. The penalty had not been increased since the section was introduced in 1999 and does not have an adequate deterrence value. 46.4 Therefore, the amount of penalty for failures listed under sub-section (2) of section 272A has been increased to five hundred rupees from the existing sum of one hundred rupees, through an amendment made in the section. 46.5 Applicability: This amendment is effective from 1st April, 2022. 47. Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act 47.1 Sections 269UC/UE/UL of the Act along with other provisions of Chapter XX-C have been made inapplicable with effect from 01.07.2002. Vide Finance Act, 2002, section 269UP was introduced provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government under Chapter XVII-B of the Act. 47.7 Section 276BB of the Act makes similar provisions in case of persons who fail to pay tax collected at source to the credit of the Central Government. Considering the similar nature of offences under sections 276B and 276BB, sections 278A and 278AA have been amended to make them applicable to offences under section 276BB. 47.8 Applicability: These amendments are effective from 1st April, 2022. 48. Widening the scope of reporting by producers of Cinematograph films or persons engaged in specified activities 48.1 Under section 285B of the Act, the producer of cinematographic films was obliged to furnish within 30 days from the end of the financial year or from the date of completion of the film, whichever is earlier, a statement containing particulars of all payments over Rs. 50,000/- in the aggregate made by him or due from him to each person engaged by him. 48.2 The scope of section 285B of the Act has been widened to include persons engaged in specified activities to expand the reporting requirements in Form 52A. "Specified Activities" means event management, documentary production, production of programs for tele ..... X X X X Extracts X X X X X X X X Extracts X X X X
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