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Explanatory Notes on the provisions of the Direct Tax Laws (Amendment) Act, 1987 (as amended by the Direct Tax Laws (Amendment) Act, 1989)--Part I--Provisions which have come into force with effect from 1st April, 1988
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....), the following abbreviations have been used: - (i) The Direct Tax Laws (Amendment) Act, 1987, has been referred to as the "Amending Act, 1987. (ii) The Direct Tax Laws (Amendment) Act, 1989, has been referred to as the "Amending Act, 1989". (iii) The various provisions of the Income-tax, Wealth-tax, Gift-tax and Companies (Profits) Surtax Acts, as they stood before amendments by the Direct Tax Laws (Amendment) Act, 1987, have been referred to as the "old provisions". 2. Objects of the Act.-The Amending Act, 1987, substantially amended the provisions of the Income-tax Act, 1961, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, and the Companies (Profits) Surtax Act, 1964. The main objectives sought to be achieved were : (i) To adopt the financial year as the uniform accounting year for all the assessees. (ii) To discontinue a number of artificial exemptions and deductions as also to omit certain disallowance of business expenditure actually incurred, in order to tax the real income under the head "Profits and gains of business or profession". (iii) To introduce a new scheme of tax treatment in respect of charitable and religious institutions, trusts, etc., as also s....
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....ition regarding the dates of application is summarised as under : 4.2 Provisions applicable with effect from the 1st April, 1988.-(i) Section 2, clauses (b), (c), (d), (e), U), (g), (k), (1), (m), items (2) and (4) of sub-clause (i) and sub-clause (ii) of clause (o) of section 3, clause (i) of section 6, sections 27, 30 to 35, 73 to 81, 84 and 123, clauses (1), (13) and (25) of section 126, sections 127,, 130 to 132, 159, 161,1164, 165, 185, 187 and 188 and clause (b) of section 180. (ii) Clauses (a) and (b) of section 37, section 38, clauses (i), (ii), (iii) and (vii) of section 128, sub-clauses (b) and (f) of clause (1) and sub-clause (b) of clause (2) of section 154, sub-clause (ii) of clause (a) of section 155, section 158 and clauses (a), (b) and (c) [except in so far as it relates to omission of clause (xvii) of section 2 of the Gift-tax Act relating to definition of the term "partner"] and (g) of section 162 have also come into effect from 1 st April, 1988, as a result of the amendments carried out through section 88 of the Finance Act, 1988. (iii) Clause (r) of section 3, clause (a) of section 140 and clause (a) of section 179 are also deemed to have come into effect ....
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....Act shall be construed as a reference to an "Assessing Officer". It further provides that a reference to the "Commissioner" in that Act shall be construed as a reference to the "Chief Commissioner or Commissioner". However, a proviso below the said section 2 provides that references to the "Commissioner" occurring in sections 245D (dealing with procedure on receipt of an application by the Settlement Commission), 253 (dealing with appeals to the Appellate Tribunal), 256 (dealing with statement of a case to the High Court), 263 (dealing with revision by the Commissioner of orders prejudicial to Revenue) and 264 (dealing with revision by the Commissioner of other orders) of the Act shall not be construed as a reference to the "Chief Commissioner". The effect is that matters mentioned in these sections shall be dealt with by the concerned Commissioners only and not by the Chief Commissioner. 6.3 Substitution of new section 116 relating to income-tax authorities.-The old provisions of section 116 of the Income-tax Act enumerated the authorities for the purposes of the Act. The Amending Act, 1987, has substituted this section by a new section, which redesignates some of the existing a....
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....).-Under the old provisions of section 117 of the Income-tax Act, the appointing authorities and the various authorities to be appointed by them were specified in detail. As a result, every time a change was required to be made, it became necessary to amend the Act. The Amending Act, 1987, has, therefore, substituted a new section for the existing one to eliminate the elaborate description of appointing authorities and the authorities that can be appointed by them. The new section empowers the Central Government to appoint such persons as it thinks fit to be the income-tax authorities. It further empowers the Central Government to authorise the Board, a Director-General, a Chief Commissioner, a Director or a Commissioner to appoint income-tax authorities below the rank of Assistant Commissioner (hitherto Income-tax Officer, Group `A'). It also empowers an income-tax authority, authorised in this behalf by the Board, to appoint such executives or ministerial staff as may be necessary to assist it in the execution of its functions. 7.2 The old provisions of section 118 spelt out the control over the income-tax authorities. The section described in detail as to which income- tax auth....
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....nctions in the area or over the persons, etc., assigned to them either by the Board or by the Commissioner of Income-tax, depending upon the rank of the income-tax authority. 7.5 The old provisions of sections 125, 125A, 126, 130 and 130A pro- vided for jurisdiction under certain special circumstances. Section 125 empowered the Commissioner to assign a case from an Income-tax Officer to an Inspecting Assistant Commissioner. Section 125A empowered the Commissioner to confer concurred jurisdiction over a case to an Inspect- ing Assistant Commissioner and an Income-tax Officer. Section 126 empowered the Board to assign cases to a particular authority, notwith- standing the powers of other income-tax authorities. Section 130 clarified that where two or more Commissioners have jurisdiction over an assessee, each of them will perform only those functions as are assigned by the Board. Section 130A provided that when two or more Income-tax Officers exercise jurisdiction over an assessee, each of them shall perform such functions as are assigned to him by the Board or the Commissioner or the Inspecting Assistant Commissioner, as the case may be. 7.6 It will be observed from the above that....
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....he doing of any other act or thing under the Act or any rule made thereunder by any persons or classes of persons, by issuing a notification in the Official Gazette. 7.10 Jurisdiction of Assessing Officers (section 124).-The old provi- sions of section 124 dealt with jurisdiction of Income-tax Officers. It was also provided that in case of dispute about jurisdiction of an Income-tax Officer, the question shall be decided by the Commissioner or where the dispute related to the areas within the jurisdiction of different Commis- sioners, by the Commissioners concerned or, if they did not agree, by the Board. In regard to the provisions for questioning the jurisdiction of an Income-tax Officer, it was provided that no person shall call in question the jurisdiction,- (a) where a return of income has been filed, after the expiry of one month from the date of filing the return or after the completion of assess- ment, whichever is earlier ; (b) where no such return has been filed, after the expiry of the time allowed by the notice under section 139(2) or 148 for making of the return. 7.11 The Amending Act, 1987, has substituted a new section for the existing section 124. The provision....
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....cases from one or more income-tax authorities to other income-tax authorities. The Commissioner could transfer a case from one officer to another, within his charge. The Board had similar power to transfer cases from one officer to another irrespective of the fact that the two officers were working under different Commissioners. Even when the Commissioners agreed that the cases could be transferred among their officers, the orders Had to be passed by the Board. 7.13 The Amending Act, 1987, has substituted a new section for the existing section 127. The new section incorporates the provisions of the existing section with the following amendments :- (i) The power of transfer of cases is given to the Director-General, Chief Commissioner or Commissioner, instead of only the Commissioner, where the Assessing Officers are working under the same Director-General, Chief Commissioner or Commissioner. (ii) Cases can be transferred between the Assessing Officers working under different Directors-General or Chief Commissioners or Commissioners, (a) If the concerned Directors-General or Chief Commissioners or Commissioners agree, by the Director-General or Chief Commissioner or Commissione....
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.... of the Finance Act, 1988. In this connection, reference may be made to para 5 (pages 12 and 13) of the explanatory notes on the Finance Act, 1988 (Circular No. 528 ([1989] 176 ITR (St.) 154))]. (ii) A new clause (va) has been inserted in sub-section (1) of section 80L of the Act relating to deductions in respect of interest on certain securities, dividends, etc. The said new clause extends the deduction available under this section (up to Rs. 7,000) to the income received by the unitholders in respect of units of a mutual fund specified under section 10(23D). 8.3 The tax concessions provided in respect of the mutual funds and unitholders thereof under the Wealth-tax Act are discussed in para 14 of these explanatory notes. 8.4 These amendments have come into force with effect from 1st April, 1988, and will, accordingly, apply to the assessment year 1988-89 and subsequent years. [Clause (m) of section 6 and section 27 of the Amending Act, 1987] [Clause (f) of section 4 of the Amending Act, 1989] Notes : 1. Further tax concessions under the Income-tax Act have been allowed to the unitholders of such mutual funds by the Finance Act, 1988.These are : (i) The benefit of....
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....vernment or to the Reserve Bank of India or to a corporation established by or under a Central Act, the income of which was exempt from income-tax. Since the Amending Act, 1987, has provided tax concessions to mutual funds set up by a public sector bank or a public financial institution by exempting their income under a new clause (23D) inserted in section 10, it is but natural that no tax should be deducted at source from sums payable to such funds. Further, section 80L provides for deduction in respect of sums payable by a mutual fund to its unitholders in regard to units held by them. Mutual funds are set up to mobilise the savings of small and medium range investors for investment in equities and other securities income whereof is generally not liable to tax by virtue of deduction provided in section 80L. It is, therefore, proper that no tax is deducted from sums payable by such funds to their unitholders. The Amending Act, 1987, has, therefore, substituted two new sections 196 and 196A in place of the existing section 196 to provide as under- (i) The provisions of new section 196 are essentially the same as those of the existing section, except that a new clause (iv) has be....
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....of a mutual fund which are purchased in foreign currency. Consequently, sub-section (1) of the new section 196A, substituted by the Amending Act, 1989, does not exempt from deduction of tax at source the income received by a foreign company in respect of units of a mutual fund. Sub-section (2) of the said section 196A further provides that where the unitholder is a foreign company, the person responsible for making the payment will deduct income-tax thereon at 25%, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier. These amendments have come into force on the date of the President's assent to the Amending Act of 1989, i.e., 15th March, 1989. [Sections 30 to 32 of the Amending Act, 1989] ADVANCE PAYMENT OF TAX 10.1 The Amending Act, 1987, has introduced major changes in the provisions relating to advance payment of tax with a view to simplifying and rationalising these provisions. The main features of the new provisions are :- (i) Advance tax is now to be paid by the assessee on the current income including capital gains and income of casual nature....
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....in case the income liable to advance tax exceeded the following limits :- (i) Rs. 2,500 in the case of a company or a local authority. (ii) Rs. 20,000 in the case of a registered firm. (iii) Rs. 12,000 in the case of an HUF, which has at least one member, whose income exceeds Rs. 18,000. (iv) Rs. 18,000 in any other case. In cases at (iii) and (iv) above, if the advance tax payable did not exceed Rs. 1,500, the assessee was not required to pay any advance tax. The Amending Act, 1987, has substituted a new section 208, which has simplified the provisions by abolishing all these income limits. The new section provides that advance tax shall be payable during the financial year in every case, irrespective of the status of the assessee, where the amount of such tax payable by the assessee amounts to Rs. 1,500 or more. 10.4 Method of computation of advance tax (section 209).-The old provisions of section 209 laid down the method for computation of advance tax, either by the Income-tax Officer by sending an order under section 210 to the assessee for payment of advance tax, or by the assessee by filing the statement/estimate of advance tax under the provisions of section 209....
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....made by the Assessing Officer for making an amended order under section 210(4) on the basis of a return filed or a regular assessment completed subsequently for a previous year later than that adopted in an order under section 210(3), income-tax shall be calculated on the total income declared in such subsequent return or total income determined in such subsequent regular assessment, as the case may be, at the rates in force in that financial year. (d) The income-tax calculated under any of the above clauses shall, in each case, be reduced by the amount of income-tax which would be deductible at source under any provisions of the Act on any income which has been included in the current/total income determined under any of the above clauses. (This provision was there even in the old section 209, before its amendment by the Amending Act, 1987). 10.7 It may be pointed out that the amended section 209 does not exclude the capital gains and income of casual nature referred to in section 2(24)(ix) while determining the total income on which advance tax is to be computed. 10.8 Substitution of new section 210 relating to payment of advance tax by the assessee of his own accord or in pur....
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....essee where, subsequent to the passing of the original order, but before the first day of March, a return of income in respect of any later year has been furnished or any regular assessment for a later year has been made. (v) Sub-section (5) enables the assessee to furnish his own estimate of current income in order to reduce the amount of advance tax demanded by the Assessing Officer under sub- section (3) or (4). (vi) Sub-section (6) requires the assessee to furnish an estimate of his current income where the amount of advance tax payable on the current income is likely to be higher than the advance tax demanded by the Assessing Officer under sub-section (3) or (4). 10.10 Substitution of new section 211 relating to instalments of advance tax.-The old provisions of section 211 specified different dates for payment of instalments of advance tax due depending on whether the previous year of the assessee ended on or before the 31st day of December, or thereafter. The advance tax was payable in equal instalments. 10.11 In view of the substitution of new section 3 in the Act which provides that the financial year (year ending on 31st March) will be the previous year for all the ass....
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.... Act, 1989] (ii) The provisions of section 214 relating to interest payable by the Government on the excess amount of advance tax paid by the assessee have been replaced, with effect from the assessment year 1989-90, by the provisions of a new section 244A, which provides for interest payable by the Government on all refunds. Similarly, the provisions of sections 215, 216 and 217 relating to interest payable by the assessee for defaults in payment of advance tax have been replaced, with effect from the assess- ment year 1989-90, by the provisions of new sections 234B and 234C, which provide for charge of mandatory interest for such defaults. These will be explained at the appropriate place in Part II of the explanatory notes. POWER OF THE CENTRAL GOVERNMENT TO REMOVE DIFFICULTIES 11.1 Power to remove difficulties in giving effect to the provisions of the Income-tax Act as amended by the Amending Act, 1987.-Under the old provisions of section 298, the Central Government could, by general or special order, take action, not inconsistent with the provisions of the Act, for removing any difficulty that might arise in giving effect to the provisions of the Act. The Amending Act, 1987....
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.... In view of the reduced limitation period available under the amended provisions, a very large number of penalty proceedings, which were more than six months old, would have to be completed by March 31, 1989. 11.3 The Income-tax (Removal of Difficulties) Order, 1989, passed on March 23, 1989, therefore, removed the above difficulties by providing as under:- (i) The. provisions of section 143, as they stood before the com- mencement of the Amending Act, 1987, shall apply in respect of the assess- ments for the assessment year 1988-89, and earlier assessment years. (ii) The provisions of section 275, as they stood before the com- mencement of the Amending Act, 1987, shall apply in respect of any action for imposition of penalty initiated on or before 31st day of March, 1989. 11.4 The Wealth-tax and Gift-tax (Removal of Difficulties) Orders, 1989, were also simultaneously passed on March 23, 1989. These are dis- cussed in paras 15 and 17 of these explanatory notes. [Section 123 of the Amending Act, 1987] CONSEQUENTIAL AMENDMENTS 12.1 Certain amendments of consequential nature have also been carried out in the Act, as shown in the following Table:- Sl. No. Subject Section ....
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.... of the Wealth- tax Act that has been amended Corresponding section of the Income-tax Act Subject-matter of the amendment in brief (1) (2) (3) (4) (5) 1. 127 of the Amending Act, 1987 — — Substitution of new authorities in the Wealth-tax Act on the same lines as made by section 2 of the Amending Act, 1987, in the Income-tax Act 2. (i)128(i), (ii), (iii) and (vii) of the Amending Act, 1987. (ii) 88(e) of the Finance Act, 1988 2 2 Various clauses relating to definition of wealth-tax authorities. *3. 130 of the Amending Act, 1987 5(1)(xxiva) 80L(1)(va) Exemption in respect of units of a Mutual fund specified in section 10(23D) of the Income-tax Act. 4. 131 of the Amending Act, 1987 8,9,10 and11(new sections substi- tuted) 116,118,119, 120, 124 [except sub-section (5)] and 127 Designation, control and jurisdiction of wealth-tax authorities. 5. 132 of the Amending Act, 1987 8A, 8AA, 8B, 9A, 10A, 11A, 11AA, 11B, 12 and 13(omitted) — Separate sections relating to control, powers and jurisdiction of various wealth-tax authorities are omitted, as these provisions are incorporated in sections 8 to 11 newly substituted, as indicated above. 6. (i) 149(a)....
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.... respect of the net wealth of such a mutual fund. 14.2 These amendments have come into force with effect from 1st April, 1988, and will, accordingly, apply to the assessment year 1988-89 and subsequent years. [Sections 130 and 158 of the Amending Act, 1987, and section 88(i) of the Finance Act, 1988] 15.1 Power of the Central Government to remove difficulties.-The Amending Act, 1987, has inserted a new section 47 in the Act to empower the Central Government to remove any difficulty that may arise in giving effect to the provisions of the Wealth-tax Act, as amended by the Amending Act, 1987. The provisions of the said section 47 are exactly on the same lines. as those of the new sub-sections (3) and (4) inserted in section 298 of the Income-tax Act. 15.2 Under the provisions of the said section 47, the Wealth-tax (Removal of Difficulties) Order, 1989, was passed, vide G. S. R. No. 378(E), dated March 23, 1989 ([1989] 176 ITR (St.) 323), to provide that the provisions of section 16, as they stood before commencement of the Amending Act, 1987, shall apply in respect of assessments for the assessment year 1988-89 and earlier assessment years. This was in order to remove certain di....
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....ft-tax Act that has been amended Corresponding section of the Income-tax Act Subject-matter of the amendment in brief (1) (2) (3) (4) (5) 1. 161 of the Amending Act, 1987 — — Substitution of new authorities in the Gift-tax Act on the same lines as made by section 2 of the Amending Act, 1987 in Income-tax Act. 2. (i) 162(a) (b), (c) [except in so far as it relates to omission of clause (xvii) of section 2 of the Gift-tax Act relating to definition of the term"partner"] and(g) of the Amending Act, 1987 2 2 Various clauses relating to definition of gift-tax authorities (ii) 88(j) of the Finance Act, 1988 3. 164 of the Amending Act, 1987 7, 8, 9 and10 (new sections substituted) 116, 118, 119, 120, 124 [ex- cept sub-sec- tion(5)] &127. Designation, control and jurisdiction of gift-tax authorities 4. 165 of the Amending Act, 1987 7A, 7AA,7B, 8A, 9A, 11,11A, 11AA, 11B & 12(omitted) Separate sections relating to control, powers and jurisdiction of various gift-tax authorities are omitted as these provisions are incorporated in sections 7 to 10, newly substituted, as indicated above. 5. (i) 179 (a) of the Amending Act, 1987 — — Amendments to section ....