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Finance (No. 2) Act, 2004 - Explanatory Notes on provisions relating to Direct Taxes

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...., 1961; (iv) amended section 35HA of the Wealth-tax Act, 1957; (v) introduced a new Chapter VII to levy Securities Transaction Tax. 3. Provisions in brief 3.1 The provisions of the Act in the sphere of direct taxes relate to the following matters: (i) Prescribing the rates of income-tax on income liable to tax for the assessment year 2004-05; the rates at which the tax will be deductible at source in the financial year 2004-05 from interest (including interest on securities), winnings from lotteries or cross-word puzzles, winnings from horse races, insurance commission and other categories of income liable for tax deduction at source under the Income-tax Act, rates for computing advance tax, deduction of income-tax from Salaries and charging of income-tax on current income in certain cases for the financial year 2004-05. (ii) Amendment of the Income-tax Act, 1961, with a view to : - modifying the definition of income to include any sum of money exceeding Rs. 25,000 received without any consideration by an individual or HUF. - providing a sunset provision to section 10(4)(ii) relating to interest in a Non-Resident (External) Account. - reintroducing exemption under secti....

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....g buildings in slum areas. - providing tax holiday for agro-processing industry. - giving incentive to an undertaking building, operating and maintaining a hospital in a rural area. - providing for deduction in respect of a person with disability or severe disability suffering from autism, cerebral palsy or multiple disabilities. - giving rebate for repayment of housing loans taken from an authority established by a Central or State Act. - introducing a new provision for allowing deduction from tax payable for individuals having total income up to rupees one lakh. - amending section 90. - curbing tax avoidance via dividend and bonus stripping. - reducing the opportunity of arbitrage for the companies. - continuing exemption to open-ended equity oriented funds without any time-limit. - amending section 119 relating to instructions to subordinate authorities. - clarifying provisions regarding estimates by Valuation Officer in certain cases. - excluding the time taken by the Authority for Advance Rulings in rejecting an application or pronouncing an advance ruling from the period of limitation for making an assessment. - amending section 194C relating to tax ....

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....dical person, the tax computed shall be enhanced by a surcharge of ten per cent. In case of a firm, a local authority, a co-operative society and a company, the tax computed shall be enhanced by a surcharge of two and one-half per cent. Rates for deduction of income-tax at source during the financial year 2004-05 from income other than Salaries The rates for deduction of income-tax at source during the financial year 2004-05 from incomes other than Salaries have been specified in Part II of the First Schedule to the Act. These rates apply to income by way of interest on securities, interest other than interest on securities, insurance commission, winnings from lotteries or crossword puzzles, winnings from horse races and income of non-residents (including non-resident Indians). These rates are broadly the same as those specified in Part II of the First Schedule to the Finance Act, 2003, for the purposes of deduction of income-tax at source during the financial year 2003-04. The tax deducted at source in each case shall be increased by a surcharge for purposes of the Union as follows : (i) in the case of every individual, Hindu undivided family, association of persons and body o....

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....d families, association of persons, body of individuals or every artificial juridical persons other than a co-operative society, firm, local authority and company. No change has been made in the rate structure. The tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of ten per cent of the tax payable (after allowing rebate under Chapter VIII-A) in cases of individuals, Hindu undivided families, association of persons, body of individuals having total income exceeding Rs. 8,50,000. No surcharge would be payable by persons having incomes of Rs. 8,50,000 or below. Marginal relief would be provided to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over Rs. 8,50,000 is limited to the amount by which the income is more than Rs. 8,50,000. No marginal relief shall, however, be available in respect of the Education Cess. In the case of every artificial juridical person other than a co-operative society, firm, local authority and company, surcharge would be levied at ten per cent of the income-tax payable. Section 22 of the Act has inserted a new section 88D in the Income-tax Act to provide for rebate....

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....yable would be enhanced by a surcharge for the purposes of the Union at the rate of two and one-half per cent of the tax payable. The additional surcharge called Education Cess is to be levied at 2% on tax and surcharge. E. Companies In the case of companies, the rate of income-tax has been specified in Paragraph E of Part III of the First Schedule to the Act. There is no change in the existing rates of thirty-five per cent for domestic companies and forty per cent for foreign companies. The tax payable by all companies would be enhanced by a surcharge at the rate of two and one-half per cent of the tax payable. The additional surcharge called Education Cess is to be levied at 2% on tax and surcharge. [Sections 2, 22 and First Schedule] Modification of the definition of income to include any sum of money exceeding twenty-five thousand rupees received without consideration In order to curb bogus capital-building and money-laundering, a new sub-clause has been inserted in section 56 to provide that any sum received without consideration on or after the 1st day of September, 2004, by an individual or a Hindu undivided family from any person, shall be treated as income from other....

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.... section 10(15)(iv)(fa) relating to interest on Foreign Currency Deposits Under the existing provisions contained in section 10(15)(iv)(fa), the interest payable by a scheduled bank to a non-resident or to a person who is not ordinarily resident on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India shall not be included in computing his total income. The Finance (No. 2) Act, 2004 has amended clause (15)(iv)(fa) of section 10 to provide that this exemption will not be available in respect of such interest payable on or after the 1st day of April, 2005. This amendment has become applicable in relation to the assessment year 2006-07 and subsequent assessment years. [Section 5(c)(B)] Re-introduction of exemption under section 10(6BB) and withdrawal of exemption under section 10(15A) Under the existing provisions of section 10(6BB), tax paid by an Indian company, engaged in the business of operation of aircraft on income derived by the Government of a foreign State or a foreign enterprise as consideration of acquiring an aircraft or an aircraft engine on lease by the Indian concern under an agreement entered aft....

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....2005-06 and subsequent years. [Section 5(e)] Modification of definition of venture capital undertaking Under the existing provisions contained in section 10(23FB), Venture Capital Undertaking (VCU) is defined to mean a domestic company whose shares are not listed in the recognized stock exchange in India and which is engaged in the business of providing services, production or manufacture of an article or thing but does not include such activities or sectors which are specified by the Securities and Exchange Board of India (SEBI) with the approval of Central Government by way of notification in the Official Gazette. This definition was intended to be in line with the definition in the Securities and Exchange Board of India (Venture Capital Funds) Regulation, 1996 made under the SEBI Act, 1992. Therefore, any amendment in the SEBI Regulations had to be followed by a consequential amendment in the Income-tax Act. In order to eliminate the process involving a time lag, the amendment to clause (c) of Explanation seeks to define VCU as one referred to in the Securities and Exchange Board of India (Venture Capital Funds) Regulation, 1996 made under the Securities and Exchange Board ....

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....or a parent of his. This amendment takes effect from 1st April, 2005 and applies in relation to the assessment year 2005-06 and subsequent years. [Section 5(h)] Power to the Commissioner for cancelling registration under section 12AA Section 12AA provides for the procedure for registration of a trust or institution by the Commissioner of Income-tax. Although the power of cancellation of registration flows from the power to register, there has been unnecessary litigation on this issue. This section has been amended so as to specifically provide that if the Commissioner of Income-tax is satisfied that the activities of any trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he shall, after giving reasonable opportunity of being heard to the concerned trust or institution, pass an order in writing cancelling the registration granted under the said section. This amendment takes effect from 1st October, 2004. [Section 6] New provision to give effect to the New Pension Scheme A New Pension Scheme applicable to new entrants to Central Government service (except Armed Forces in the first stage) has been no....

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.... at the rate of fifteen per cent of the actual cost of new plant and machinery other than ships and aircrafts acquired and installed on or after 1-4-2002 is allowed. This deduction is available to (i) a new industrial undertaking during any previous year in which it begins to manufacture produce any article or thing on or after 1-4-2002; (ii) an undertaking existing before 1-4-2002, in the previous year in which it achieves not less than 25% increase in installed capacity. Installed capacity has been defined to mean the capacity of production as existing on the 31st day of March, 2002. With a view to give a thrust to investment in the manufacturing sector, the minimum requisite increase in installed capacity has been reduced to 10% from the existing level of 25%. This amendment takes effect from 1st April, 2005 and applies in relation to the assessment year 2005-06 and subsequent years. [Section 8] Withdrawal of approval granted to associations/institutions or withdrawal of notification of eligible project or scheme by the National Committee Under the existing provisions of section 35AC of the Income-tax Act, a deduction of the amount of expenditure incurred during the pre....

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....power of withdrawal will be in addition to the existing power of withdrawal of approvals or notifications in case the project or scheme is not being carried out in accordance with all or any of the conditions subject to which the approval was granted or project/scheme notified. This amendment takes effect from 1st October, 2004. [Section 10] Certain amounts not to be allowed as deduction while computing income under the head Profits and gains of business or profession if tax not deducted at source Under the existing provisions of sub-clause (i) of clause (a) of section 40 of the Income-tax Act, no deduction is allowed in the computation of income on account of interest, royalty, fees for technical services or any other sum which is payable outside India, or in India to a non-resident or to a foreign company, if tax is not deducted at source from payments of these sums or after deduction of tax at source, payment is not made to the account of the Central Government before the expiry of time prescribed under sub-section (1) of section 200 and in accordance with other provisions of Chapter XVII-B. Deduction of the sum is, however, allowed where tax has been deduced, or after dedu....

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....-section (2A) to provide that an assessee shall not be entitled to set off any loss under the head Profits and gains of business or profession against income under the head Salaries. This amendment takes effect from 1-4-2005 and applies in relation to the assessment year 2005-06 and subsequent years. [Section 14] Deduction in respect of maintenance including medical treatment of a dependent being a person with disability or severe disability suffering from autism, cerebral palsy or multiple disabilities Under the existing provisions contained in section 80DD, an assessee, who is resident in India, being an individual or Hindu undivided family, is allowed a deduction of an amount of rupees fifty thousand, if the assessee has during the previous year, incurred any expenditure for the medical treatment, training and rehabilitation in respect of a dependent, being a person with disability, as defined under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. A deduction of rupees seventy-five thousand is allowed, where such dependent is a person with severe disability suffering from eighty per cent or more of one or more disabil....

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....the book value of plant and machinery in the network of transmission or distribution lines, as on 1-4-2004. Further, in view of the on-going reforms of the State Electricity Boards, the restrictions imposed on the transfer of old plant and machinery and splitting up or reconstruction of an old business shall no longer be applicable in the case of splitting up or, reconstruction, or re-organisation of State Electricity Boards. However, this benefit shall be available only in such cases where the splitting up or reconstruction or reorganization of the State Electricity Board(s) has taken place on or after 1-4-2004. The proposed amendments take effect from 1-4-2005 and apply in relation to the assessment year 2005-06 and subsequent years. [Section 17(a), 17(b)(B) and 17(c)(B)] Extension of time limit for providing telecommunication services, etc. for the purpose of tax holiday under section 80-IA Under the existing provision contained in clause (ii) of sub-section (4) of section 80-IA, an undertaking which has started or starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking, broadband netwo....

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....fits for a period of 5 years, followed by 25 per cent (30 per cent in the case of a company) for the next 5 years. The deduction is not available to industries set up after 31-3-2004. The terminal date for setting up of industrial undertakings in the State of Jammu and Kashmir has been extended by one more year, i.e., till 31-3-2005. The Thirteenth Schedule has also been amended to include a negative list of commodities which should not be manufactured or produced by such undertakings. Thus the industrial undertakings which are set-up in Jammu and Kashmir and begin to manufacture or produce tobacco products, alcoholic drinks and aerated beverages etc. during the period 1-4-2004 to 31-3-2005 shall not be eligible for deduction under section 80-IB of the Income-tax Act. These amendments take effect from 1-4-2005 and apply in relation to the assessment year 2005-06 and subsequent years. [Sections 18(b) and 64] Extension of time limit for the purpose of tax holiday under section 80-IB to any company carrying on scientific research and development Under the existing provision of sub-section (8A) of section 80-IB, any company carrying on scientific research and development is allow....

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....e financial year in which the project is approved by the local authority. For this purpose the date of approval shall be the date on which the building plan is first approved by the local authority and the date of completion of the housing project, shall be the date on which the completion certificate is issued by such authority. It has also been provided that the built-up area of the shops and other commercial establishments included in the housing project should not exceed five per cent of the aggregate built-up area of the housing project or 2000 sq. ft., whichever is less. The expression built-up area has also been defined for this purpose. This section does not specifically provide area limit for the garden, the development plan roads, internal means of access, etc. in the housing project. Therefore, the same should conform to the project plan approved by the local authority in accordance with the regulations in force. Also the area limit of the plot has to be construed with reference to the area of the site on which the housing project is constructed and not with reference to the demarcation of land done by the land development authority. Further, with a view to encourage t....

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....ssment years beginning from the assessment year in which the undertaking or enterprise begins to provide medical services. The undertaking or enterprise shall be eligible for the deduction if such hospital is constructed during the period beginning on the 1-10-2004 and ending on the 31-3-2008, in accordance with the local regulations in force, and has at least one hundred beds for patients. Further, for claiming the deduction, the assessee has to file an audit report in the prescribed form, i.e., in Form No. 10CCBC along with the return of income. This amendment takes effect from 1-4-2005 and applies in relation to the assessment year 2005-06 and subsequent years. [Section 18(f) and 18(g)] Deduction in respect of a person with disability or severe disability suffering from autism, cerebral palsy or multiple disabilities Under the existing provisions contained in section 80U, a deduction of fifty thousand rupees is allowed to a resident individual who is a person with disability, as defined under the Persons with Disability (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995. A deduction of seventy-five thousand rupees is allowed where such individual is....

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....h a view to rationalize the provision, the sub-clause (c) of clause (xv) of sub-section (2) of section 88 has been amended so as to include within the purview to tax rebate under section 88, any sum paid on account of repayment of the amount borrowed by the assessee for the purchase or construction of a residential house property, from an authority or a board or a corporation or any other body established or constituted under a Central or State Act. The amendment takes effect from 1-4-2005 and applies in relation to assessment year 2005-06 and subsequent years. [Section 21] New provision for allowing deduction from tax payable for individuals having total income up to rupees one lakh To provide relief to assessees belonging to the lower income group, a new section 88D has been inserted providing for a rebate of the entire amount of the income-tax payable by an individual, resident in India whose total income does not exceed one hundred thousand rupees. Marginal relief has also been provided to ensure that the tax liability does not exceed the amount by which the total income is in excess of one lakh rupees. The amendment takes effect from 1-4-2005 and applies in relation to t....

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....hs prior to the record date and he is allotted additional units on the basis of such units without making any payment, and thereafter he sells or transfers within a period of nine months after such date all or any of such units while continuing to hold all or any of the additional units, then, the loss, if any, arising to him on account of such purchase and sale of units shall be ignored for the purposes of computing income chargeable to tax of such person and the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units as are held by him on the date of such transfer or sale. These amendments take effect from 1st April, 2005 and apply in relation to the assessment year 2005-06 and subsequent years. [Section 25] Additional income-tax on income distributed by the specified company and Mutual Funds Under the existing provisions of sub-section (2) of section 115R, any amount of income distributed by the specified company or a mutual fund to its unit holders is chargeable to tax and they are liable to pay additional income-tax on such distributed income at the rate of twelve and one-half per cent. Section 115R(2) has been amended....

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....-section (1) of section 131, is the power to issue commissions. Section 75 of CPC and order XXVI of the Schedule thereto lays down the power of issuing commission, which inter alia, empowers the Court to make a local investigation and also to hold a scientific, technical and expert investigation. Using this power, the Assessing Officer has been making a reference to the Valuation Officer for estimating the cost of construction of properties. The scope of power vested in an Assessing Officer under section 131 to make a reference to the Valuation Officer for estimating the cost of construction of properties has been a subject-matter of litigation. A new section 142A has been inserted by the Finance (No. 2) Act, 2004 to specifically provide that an Assessing Officer has the power to make a reference to the Valuation Officer for estimating the value of investment, expenditure, etc. This section has been inserted with retrospective effect from 15th November, 1972 to save the cases where such references have been made in the past and are still pending in litigation at one stage or the other. Sub-section (1) of the new section provides that where an estimate of the value of any investm....

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....rder rejecting the application is received by the Commissioner shall be excluded for computing the period of limitation under this section. Finance (No. 2) Act, 2004 has inserted clause (vii) in Explanation 1 to section 153 so as to provide that the period commencing on the date on which application has been filed to the Authority for Advance Rulings and ending on the date on which the order pronouncing the advance ruling is received by the Commissioner shall be excluded for computing the period of limitation under this section. Similarly, two new clauses (v) and (vi) in Explanation to section 153B have also been inserted so as to provide that the period commencing on the date on which application has been filed to the Authority for Advance Rulings and ending on the date on which the order rejecting the application or pronouncing the advance ruling is received by the Commissioner shall be excluded for computing the period of limitation under this section. This amendment takes effect from 1st October, 2004. [Sections 35 & 36] Amendment of section 194C relating to tax deduction at source from payments made to contractors and sub-contractors The existing provisions contained in....

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....the Income-tax Act, every person responsible for deduction of tax under the provisions of Chapter XVII-B is required to apply to the Assessing Officer for the allotment of a tax deduction account number if he has not been allotted such number. Similarly, every person responsible for collection of tax in accordance with the provisions of section 206C of the Income-tax Act is required to apply to the Assessing Officer for the allotment of tax collection account number under section 206CA. Penalty is levied under sections 272BB and 272BBB for failure to comply with the provisions of sections 203A and 206CA (provisions of section 206CA are not applicable on or after 1-10-2004) respectively. The purpose of obtaining tax deduction account number and tax-collection account number is identification of the deductor or the person responsible for collection of tax, as the case may be. Multiplicity of identification numbers is reported to have created confusion and resulted in procedural delays. Moreover, there is a single form, namely Form No. 49B, for the allotment of tax-deduction account number and tax collection account number. The Act has, therefore, amended section 206CA to do away ....

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....ter the end of each financial year, TDS returns on computer media under the scheme notified by the Board. A scheme for electronic filing of returns of Tax Deducted at Source was notified vide Notification No. 205/2003, dated 26-8-2003. This amendment takes effect from 1-4-2005. [Section 49] Collection of tax at source in respect of parking auctions, toll auctions, mining or quarrying leases Under the existing provisions of sub-section (1) of section 206C of the Income-tax Act, collection of tax is required to be made by the seller of certain specified goods from any amount payable by the buyer to the seller at the specified percentage. The Act has amended the said section by inserting a new sub-section (1C) to provide for collection of tax at the rate of two per cent by every person who grants a lease or a license or enters into a contract or otherwise transfers any right or interest in any parking lot or toll plaza or mining to another person, other than a public sector company for the use of such parking lot or toll plaza or mining for the purposes of business. The tax shall be collected from the licensee or lessee of any such license, contract of lease of the specified nat....

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....n of TCS has been dispensed with and an annual return is to be filed. It has also been provided that return of tax collected at source can be filed with any authority or agency as may be specified and that the Board may, if it considers necessary or expedient so to do, frame a scheme for the purposes of filing of returns with such other authority or agency. A scheme for furnishing of paper returns of Tax Collected at Source was notified vide Notification No. 180/2005, dated 30-6-2005. These amendments take effect from 1-10-2004. The Act has also substituted sub-section (5B) to provide that the person responsible for collecting tax other than in the case of company, the Central Government or a State Government may, at his option, deliver or cause to be delivered such return to the prescribed Income-tax authority in accordance with such scheme as may be specified by the Board in this behalf, by notification in the Official Gazette, and subject to such conditions as may be specified therein, on or before the prescribed time after the end of each financial year, on a floppy, diskette, magnetic cartridge etc, CD-ROM or any other computer media and in the manner as may be specified in....

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....perating a ship. A company is regarded as operating a ship if it operates a ship, whether owned or chartered by it, and includes a case where even a part of the ship has been chartered in by it in an arrangement for slot charter, space charter or joint charter. A company is not considered as operating a ship if the ship has been chartered out by it on bareboat charter-cum-demise terms or on bare boat charter terms for a period exceeding three years. Section 115VC provides that a company shall be a qualifying company if it is (i) an Indian company; (ii) the place of effective management of the company is in India; (iii) it owns at least one qualifying ship; and (iv) the main object of the company is to carry on the business of operating ships. The expression place of effective management of the company has been defined in the Explanation to mean the place where the board of directors of the company or its executive directors, as the case may be, make their decisions; or in a case where the board of directors routinely approve the commercial and strategic decisions made by the executive directors or officers of the company, the place where such executive directors or officers o....

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....rdance with the other provisions of the Income-tax Act. Section 115VF stipulates that the tonnage income shall be computed in accordance with the provisions of section 115VG and the income so computed shall be deemed to be the income of a tonnage tax company chargeable to tax under the head Profits and gains of business or profession. The relevant shipping income referred to in sub-section (1) of section 115V-I is not chargeable to tax. The provisions of section 115V-I only intend to specify and segregate profits from the core activities of a tonnage tax company and profits from incidental activities. Charging provision is under section 115VA read with section 115VF and 115VG. Section 115VG deals with the method of computation of tonnage income. After computation of the tonnage income, tonnage tax is to be determined by applying the prevailing corporation tax rate on the notional profit computed in accordance with this section. For the purpose of computing the tonnage income, first the daily income is to be calculated for each qualifying ship on the basis of the following rates: Qualifying ship having net tonnage Amount of daily tonnage income (1) (2) up to 1,000 Rs. 46 for....

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....age income of each company shall be computed as if each had been the only operator. Section 115V-I relates to relevant shipping income. It has been provided that relevant shipping income of a tonnage tax company means its profits from core activities and its profits from incidental activities. It has been provided that where the aggregate of all the incidental activities exceeds one-fourth per cent of the turnover from core activities, such excess shall not form part of relevant shipping income for the purposes of this chapter and shall be taxable under the other provisions of the Act. Core activities of a tonnage tax company have been specified in sub-section (2) of the said section. These include its activities from operating qualifying ships and other ship related activities being (i) shipping contracts in respect of earning from pooling arrangements and contracts of affreightment; (ii) specific shipping trades being on-board or on shore activities of passenger ships comprising of fares and food and beverages consumed on board; and slot charters, space charters, joint charters, feeder services, container box leasing of container shipping. It has also been provided that the ....

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....om. The relevant shipping income of a tonnage tax company shall include a loss and such loss shall be deemed to have never accrued for the purposes of the Act. Principles pertaining to arms length price will be applicable to transactions between tonnage tax companies and unconnected (as well as connected) non-tonnage and tonnage tax entities. This principle will also apply within a single company as between its tonnage tax activities and its non-tonnage tax activities (if any). Section 115VJ relates to treatment of common cost. Common costs and losses will be apportioned on a just and reasonable basis to determine what is attributable to a companys shipping and non-shipping activities. It has also been provided that where any asset, other than qualifying ship, is not exclusively used for the tonnage tax business by the tonnage tax company, depreciation on such asset shall be allocated between its tonnage tax business and other business on a fair proportion to be determined by the Assessing Officer, having regard to the use of such asset for the purpose of the tonnage tax business and for the other business. Section 115VK provides that the depreciation for the first previous year....

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....t for the purposes of the Act, depreciation on the block of qualifying assets and block of other assets so created shall be allowed as if such written down value has been brought forward from the preceding previous year. The expression book written down value has been defined. Section 115VL relates to general exclusion of deduction and set off, etc. It has been provided that sections 30 to 43B and section 57 shall apply as if every loss allowance or deduction referred to therein and relating to or allowable for any of the relevant previous years, had been given full effect to for that previous year itself: no loss referred to in sub-sections (1) and (3) of section 70 or sub-sections (1) and (2) of section 71 or sub-section (1) of section 72 or sub-section (1) of section 72A, in so far as such loss relates to the business of operating qualifying ships of the company, shall be carried forward or set off where such loss relates to any of the previous years when the company is under the tonnage tax scheme; no deduction shall be allowed under Chapter VI-A in relation to the profits and gains from the business of operating qualifying ships; and in computing the depreciation allowance un....

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....n will have to be made within three months of the date of the incorporation or, as the case may be, the date on which the company became a qualifying company. The Joint Commissioner may call for such information or documents as may be necessary for the purpose of satisfying himself regarding the eligibility of the company to exercise the option and after satisfying himself, he shall pass an order in writing either approving the option for the scheme or refusing the approval for such option. The order granting or refusing the option shall be passed within one month of filing the application. Where an order granting approval has been passed, the provisions of the Chapter shall apply from the assessment year relevant to the previous year in which the option for tonnage tax scheme is exercised. The company in whose case the tonnage tax option is denied, may file an appeal before the CIT (Appeals). Section 115VQ provides that an option for tonnage tax scheme, after it has been approved under section 115VP shall remain in force for a period of ten years. It has also been provided that an option for the tonnage tax scheme shall cease to have effect in cases where the qualifying company....

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....e amount credited to the reserve account are to be utilized in the manner laid down in the section. It has been provided that a tonnage tax company may transfer a sum in excess of twenty per cent of the book profits and such excess sum transferred shall also be utilized in the manner laid down in the section. The explanation below sub-section (1) defines the expression book profit. It has further been provided under sub-section (2) that where the company has book profits from the business of operating qualifying ships and book loss from any other sources, and consequently, the company is not in a position to create the full or any part of the reserves under sub-section (1), the company shall create the reserves to the extent permissible in that previous year and the shortfall, if any, shall be added to the amount of the reserves required to be created for the following previous year and such shortfall shall be deemed to be part of the reserve requirement of that following previous year. Sub-section (3) of the said section provides for the manner in which the amount credited to the reserve account under sub-section (1) shall be utilized by the company. Sub-section (4) of the said se....

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.... tonnage tax scheme shall cease to have effect from the start of the previous year following the fifth consecutive year in which the failure to comply with the minimum training requirement under sub-section (1) occurred and the company will be prohibited from exercising the option for tonnage tax scheme for a period of ten years in accordance with the provisions of section 115VS. Section 115VV relates to limit for charter-in of tonnage. Sub-section (1) of the section provides that in the case of every company which has opted for tonnage tax scheme, not more than forty nine per cent of the net tonnage of the qualifying ships operated by it during any previous year shall be chartered-in. Sub-section (2) of the said section provides that the proportion of net tonnage referred in sub-section (1) in respect of a previous year shall be calculated based on the average of net tonnage during that previous year . Sub-section (3) provides that the average of net tonnage shall be computed in the manner prescribed in Rule 11S. Sub-section (4) of the said section provides that where the net tonnage of ships chartered-in exceeds the limit under sub-section (1) during any previous year, the total....

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....s not exercised option for tonnage tax scheme within the initial period, the provisions of this Chapter shall not apply to the amalgamated company and the income of the amalgamated company from the business of operating qualifying ships shall be computed in accordance with the other provisions of the Income-tax Act. Section 115VZ relates to demerger. The section provides that in a scheme of demerger, the tonnage tax scheme shall, as far as may be, apply to the resulting company for the unexpired period if it is a qualifying company. It has also been provided that the option for tonnage tax scheme in respect of the demerged company shall remain in force for the unexpired period of the tonnage tax scheme if it continues to be a qualifying company. Section 115VZA provides that a temporary cessation of operating any qualifying ship by a company shall not be considered as a cessation of operating of such qualifying ship and the company shall be deemed to be operating such qualifying ship for the purposes of this Chapter. It has also been provided that where a company continues to operate a ship which temporarily ceases to be a qualifying ship, such ship shall not be considered as qual....

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....hips has also been amended to provide that no deduction shall be allowed under the said section from assessment year 2005-06 onwards. These amendments take effect from 1-4-2005 and apply in relation to assessment year 2005-06 and subsequent years. [Sections 9, 30, 53 and 54] Dematerialisation of TDS and TCS certificates Under the existing provisions of the Income-tax Act, for the purpose of claiming credit for tax deducted at source or tax collected at source, TDS or TCS certificates, as the case may be, are required to be filed along with the return of income. Returns are deemed to be defective in case they are not accompanied with proof of tax claimed to have been deducted/collected at source. With a view to computerising the TDS and TCS functions as also enable the process of dematerialisation of TDS and TCS certificates, the Act has incorporated certain amendments in the provisions relating to tax deduction at source and tax collection at source. Section 199 of the Income-tax Act which provides for credit for tax deducted on production of TDS certificate has been amended to provide that in cases where tax is deducted on or after 1st April, 2005 and is paid to the credit ....

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....educted has been inserted in the Income-tax Act to provide that the prescribed income-tax authority or the person authorized by such authority to whom the quarterly statements shall be delivered, shall, within the prescribed time after the end of each financial year beginning on or after 1st April, 2005 prepare and deliver to every person from whose income-tax has been deducted or in respect of whose income-tax has been paid, a statement in the prescribed form specifying the amount of tax deducted or paid and such other particulars as may be prescribed (Rule 31AB). Similar amendments have also been made in sub-section (5) of section 206C by way of insertion of the second proviso. All assessees, including non-residents, will be required to intimate the permanent account number to the person deducting or collecting tax in the absence of which credit for TDS or TCS cannot be given. Hence, the first proviso to sub-section (5A) of section 139A not requiring quoting of PAN by non-residents, has been omitted. Section 272B relating to penalty for failure to comply with the provisions of section 139A has been amended so as to provide for a penalty of a sum of ten thousand rupees in case a....

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....y a company, the company as well as the person who was in charge of, and was responsible for the conduct of the business of the company at the time when the offence was committed will be deemed to be guilty of the offence. The said section also provides that where the offence has been committed with the consent or connivance of any director, manager, secretary or other officer of the company, such director or other officer shall also be deemed to be guilty of the offence. In respect of some of the offences [wilful attempt to evade tax (section 276C), false statement in verification (section 277), failure to deposit tax deducted at source with the Government (section 276B), etc.] it has been provided that the person found guilty shall be punishable with rigorous imprisonment and with fine. There has been a judicial controversy as to whether a company, being a juristic person, can be punished with imprisonment where the statute refers to punishment of imprisonment and fine. In the case of M/s. M.V. Javali v. Mahajan Borewell & Co. [1998] 230 ITR 1, the Honble Supreme Court held that on a harmonious interpretation of section 276B read with section 278B, a company, which cannot be pun....

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....aluable sources of information, the Finance (No. 2) Act, 2004, has substituted the said section by a new section. The substituted section 285BA provides that an assessee or certain agencies responsible for registering or maintaining books of account or other documents containing a record of any specified financial transaction, under any law for the time being in force, shall furnish an annual information return in respect of such specified financial transaction as may be prescribed by the Board. The return shall be furnished in respect of transactions registered or recorded on or after the 1st day of April, 2004. Sub-section (2) of the said section provides that the annual information return shall be furnished within the prescribed time after the end of such financial year and in such form and manner as may be prescribed. Sub-section (3) of the said section defines the specified financial transaction to mean any transaction of purchase, sale or exchange of goods or property or right or interest in a property or transaction for rendering any service or transaction under a works contract or transaction by way of an investment made or expenditure incurred or a transaction for taking....

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.... acquiring bonds or debentures issued by the company or institution. 5. A company issuing shares through a public or rights issue. Receipt from any person of an amount of one lakh rupees or more for acquiring shares issued by the company. 6. Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908. Purchase or sale by any person of immovable property valued at thirty lakh rupees or more. 7. A person being an officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934, who is duly authorized by the Reserve Bank of India in this behalf. Receipt from any person of an amount or amounts aggregating to five lakh rupees or more in a year for bonds issued by the Reserve Bank of India. It has also been provided in the said rule that Annual Information Return shall be furnished on or before 31st August immediately following the financial year in which transaction is registered or recorded. Finance (No. 2) Act, 2004 has inserted a new section 271FA providing for penalty for failure to furnish the annual information return. The said section provides that where any person who is required to furnish the annual info....

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....of the opening and closing figures. It has been provided in the said Chapter that the Board may specify by rules the method of determining the value of taxable securities transaction. Securities Transaction Tax Rules, 2004, notified by the Central Government vide notification S.O. No. 1059(E) dated 28th September, 2004, lay down the method for determining the price in respect of transactions of purchase and sale of equity shares and units in three modes of settlement, i.e., netted settlement mode, trade to trade settlement mode and auction settlement mode in a recognized stock exchange. Section 100 of Chapter VII of Finance (No. 2) Act, 2004, provides that every recognised stock exchange and the prescribed person in case of every mutual fund shall collect the securities transaction tax. These persons are required to pay the same to the credit of the Central Government by the seventh day of the month immediately following the calendar month in which tax is collected. Section 101 of the said Chapter provides that the recognised stock exchange on the prescribed person in case of the mutual fund shall within the prescribed time, furnish a return in such form and verified in such ma....

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....in the rules that such amount shall be refunded by the assessee to the persons from whom it was collected within thirty days of receipt of same from the Government. Section 103 relates to rectification of mistakes apparent from the record, by the Assessing Officer in any order passed by him. Section 104 provides for charging of simple interest @ one per cent per month of delay in paying the securities transaction tax to the account of the Government within specified time. Sections 105 to 108 relates to levy of penalty for certain failures. Section 110 provides for filing of appeal to the Commissioner of Income-tax (Appeals), in such form and verified in such manner as may be prescribed by the Board, in cases where the assessee is aggrieved by any assessment order/rectification order passed by the Assessing Officer. Section 111 provides for filing of appeal to the Appellate Tribunal in such form and verified in such manner as may be prescribed by the Board, in cases where the assessee is aggrieved by any order passed by the Commissioner of Income-tax (Appeals). Forms for filing of appeal to the Commissioner of Income-tax (Appeals) and Income-tax Appellate Tribunal have been pr....