TaxTMI 
TaxTMI 
Explanatory Notes on the provisions relating to direct taxes
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....ections for sections 48, 75, 76, 77, 86, 184, 185, 186 and 267 of the Income-tax Act, 1961; omitted sections 44AC, 53, 67, 182, 183 and 247 of the Income-tax Act, 1961; amended sections 2, 3, 4, 5, 7, 21, 21A, 21AA, 35, 45, Schedule I and Schedule III to the Wealth-tax Act, 1957; inserted new section 35HA in the Wealth-tax Act, 1957 omitted Schedule II of the Wealth-tax Act, 1957 omitted section 13 of the Finance Act, 1960, and section 40 of the Finance Act, 1983 amended sections 2 and 5 of the Interest-tax Act, 1974 amended sections 3, 4, 5 and 7 of the Expenditure-tax Act, 1987. PROVISIONS IN BRIEF 3. The provisions in the Finance Act, 1992, in the sphere of direct taxes relate to the following matters: (i) Prescribing the rate of income-tax on incomes liable to tax for the assessment year 1992-93; the rates at which tax will be deductible at source during the financial year 1992-93 from interest (including interest on securities), dividends, salaries, winnings from lotteries or crossword puzzles, winni....
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....loyees of other companies as well; 6. simplifying and rationalizing the provisions of the Income-tax Act, 1961, by enlarging the scope of definition of the expression company in which the public are substantially interested % modifying the definition of the expression rates in force % removing the condition of approval by the Central Government of the contract of service of a foreign technician for the purposes of section 10(6)(viia) and of the agreements under which royalty, etc., is paid to a foreign company for the purposes of sections 10(6A) and 115A, extending the benefit of section 33AC to Government shipping companies, deferment of one-third of the unabsorbed carried forward depreciation and investment allowance in the case of companies, enlarging the definition of the expression " financial corporation " for the purposes of section 36(1)(viii) by including therein a Government company, increasing the limits of allowable business expenses for entertainment, etc., 1 excluding persons assessed on presumptive basis from the requirement of compulsory audit, withdrawing presumptive taxation in respect of certain trades, rationalising the provisions relating to tax concession f....
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....ny" to include therein all residuary non-banking companies. (vi) Amendment of Expenditure Tax Act, 1987, with a view to,-- 1. raising the chargeability criterion to expenditure incurred in hotels where the room charge for any unit of accommodation is Rs. 1,200 or more per day per individual; 2. withdrawing the levy of expenditure tax on air-conditioned restaurants, and 3. withdrawing the exemption granted in respect of payment made in foreign exchange. INCOME-TAX &nbs....
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....nterest on securities" dividends, insurance commission, winnings from lotteries, crossword puzzles and horse races and income of non-residents (including non-resident Indians) other than salary income. These rates are basically the same as those specified in Part II of the First Schedule to the Finance (No. 2) Act, 1991, for purposes of deduction of tax at source during the financial year 1991-92. In respect of payments referred to above, the amount of tax deducted at source shall be increased by a surcharge calculated at the rate of 12 per cent. in the case of non-corporate taxpayers and at the rate of 15 per cent. in the case of domestic companies. However, no deduction in respect of surcharge shall be made where the payment is made to a non-resident or to a foreign company. III. Rates for deduction of tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1992-93 6. The rates for deduction of tax at source from "Salaries" during the financial year 1992-93 and also for the computation of "advance tax" payable during the year in the case of all categories of taxpayers have been speci....
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....e or more members having independent income exceeding the exemption limit has been restructured. Tables 1 and 2 below give the rates of income-tax applicable to the aforesaid categories of taxpayers (a) as specified in Part I of the First Schedule to the Act i.e. the rates applicable for the assessment year 1992-93 and (b) as specified in Part III of the First Schedule to the Act i.e. the rates applicable on incomes arising in the financial year 1992-93. Table 1 Slabs of income with rates in the case of individuals, Hindu undivided families (other than those covered by Table 2) associations of persons, bodies of individuals, etc. Income slab Rate of tax for income arising in....
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.... IIIF Surcharge 12. Surcharge on income-tax for purposes of the Union was earlier levied at the rate of twelve per cent. in the case of all the categories of resident non-corporate taxpayers having total income exceeding seventy-five thousand rupees. Surcharge at the aforesaid rate, for purposes of the Union, is now leviable on income exceeding one hundred thousand rupees in these cases. In the case of domestic companies, surcharge will, however, continue to be levied at the rate of fifteen per cent. of the amount of income-tax where the income exceeds seventy-five thousand rupees. IV. Partially integrated taxation of non-agricultural income with income derived from agriculture 13. As in the past, the Finance Act provide that in the case of individuals, Hindu undivided families, associations of persons, etc., the net agricultural income is to be taken into account for the computation of "advance tax" and charging of income-tax. The net agricultural income has to be computed in accordance with the rules contained in Part IV of the First Schedule. These provisions are broadly on the same lines as those in earlier year. [Section 2 and the First Schedule to the Fina....
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....his amendment takes effect from 1st June, 1992. [Section 3] Provision for income-tax exemption on winnings front horse races 16. The income-tax exemption available to income by way of winnings from races including horse races, to the extent such income does not exceed five thousand rupees, was withdrawn with effect from 1st October, 1991. It had been represented that it is difficult for the recipients of the aforesaid income to keep a record of small amounts received. Therefore, the Act seeks to amend clause (3) of section 10 of Income-tax Act, to provide that winnings from races including horse races will not be included in the total income of a person, to the extent such receipts do not exceed two thousand five hundred rupees in the aggregate in a previous year. 16.1 This amendment takes effect from 1st April, 1992. [Section 4] Modification of the provisions of sections 10(6)(viia), 100M and 115A of the Income-tax Act 17. Section 10(6)(viia) of the Income-tax Act provides for exemption from income-tax of the tax paid by the employer on behalf of the foreign technicians for a maximum period of 48 months from the date of his arrival in India, subjec....
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....ia, such agreement is in accordance with that policy, and (iii) section 115A of the Income-tax Act to provide that the agreement under which royalty or fees for technical services received by a foreign company from an Indian concern, should be either approved by the Central Government or where the agreement relates to a matter included in the Industrial Policy, for the time being in force, of the Government of India, such agreement is in accordance with that policy. 17.5 These amendments take effect from 1st June, 1992. [Sections 4 and 5] Modification of the provisions relating to exemption in respect of payments under voluntary retirement schemes 18. Section 10(10C) of the Income-tax Act, as it existed prior to 1^st June, 1992, exempted from income-tax any payment received by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approved in this behalf. This exemption is available to any employee, whether a workman or an executive. 18.1 With a view to making themselves econom....
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....Government may by notification in the Official Gazette, specify in this behalf. Government had agreed in principle to allow Mutual Funds to be set up in the joint sector and the private sector. With a view to providing exemption from income-tax to the income of such Mutual Funds, the Act enlarges the scope of clause (23D) of section 10 by including therein the Mutual Funds authorised by the Securities and Exchange Board of India and the Reserve Bank of India. The expression "Securities and Exchange Board of India has been defined for the purposes of this clause. 20.1 This amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent assessment years. [Section 4] Income-tax exemption to co-operative societies promoting the interests of the members of the Scheduled Castes and the Scheduled Tribes 21. Section 10(26B) of the Income-tax Act provides for income-tax exemption in respect of income derived by any body, institution or association wholly financed by the Central or State Government where such body, institution or association has been set up for promoting the interests of the members of the Sche....
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....) provided that the aforesaid provisions shall not apply to,-- (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973, and such assets were not purchased by the trust or institution or acquired by it by conversion of, or in exchange for, any other asset, (ii) any debentures of a company or a corporation acquired before 1st March, 1983. So far as the assets not conforming to the provisions of section 11(5) are concerned, the proviso to section 13(1)(d) provided that holding such assets would not make the trust or institution lose tax exemption if such assets were disposed of or converted into permissible investments within one year from the end of the financial year in which such assets were received or 31st March, 1992, whichever was later. 23.1 Certain anomalies and hardships arising out of the requirements of the aforesaid investment pattern had been brought to the notice of the Government. With a view to removing these, the Act, (1) amends clause (i) in the proviso to section 13(1)(d) to provide that the provisions of section 13(1)(d) shall not apply in relation to asset....
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.... 23.5 The Act, therefore, amends the aforesaid provisions to provide that in case of the associations, institutions, funds or trusts referred to in sections 10(21), 10(23) and clauses (iv) and (v) of section 10(23C), the requirement of investment of funds in any one or more of the forms or modes specified in section 11(5) will not be insisted upon in certain cases. It provides that (i) funds held by these associations or institutions, etc., and forming part of their corpus as on 1st June, 1973, and any accretion thereto by way of bonus shares, and (ii) debentures acquired by them before 1st March, 1983, are not to be disinvested. 23.6 These amendments take effect retrospectively from 1st April, 1990. 23.7 Further, the period of disinvestment of funds held otherwise than in the forms or modes specified in section 11(5) has been extended from 30th March, 1992 to 30th March, 1993. 23.8 This amendment takes effect from 1st April, 1992. [Sections 4 and 5] Tax incentive to working women 24. Under section 16 of the Income-tax Act, a standard deduction of a sum equal to 33A/3 per cent. of the salary or twelve thousand rupees, whichever is less, is allowed in comput....
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....ines. 25.2 Under the existing provisions of section 17 of the Income-tax Act, there is a restriction that the expenditure on travel abroad for medical treatment would be exempt only in the case of employees whose gross total income is up to Rs. 1,00,000. With a view to extending the scope of the exemption to a larger number of employees, this limit has been raised to employees whose gross total income is up to Rs. 2,00,000. 25.3 These amendments will take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Section 8] Modifications relating to house property income 26. Under the provisions of the second proviso to sub-section (1) of section 23 of the Income-tax Act, a deduction of Rs. 3,600 is allowed from the annual value of a house property, in respect of new residential units. The deduction is allowed for a period of five years from the date of completion of such unit. 26.1 As part of a package which includes reduction in the rate of personal taxation and raising of the exemption limit, the provisions relating to house property income have been rationalised. The Finance Act has, accordingl....
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....ount credited to a reserve account for the purpose of utilisation in a specified manner was allowed, subject to certain conditions, in case of a public company formed and registered in India with the main object of carrying on the business of operation of ships. This deduction was not available to Government companies. 27.1 An amendment has been made to section 33AC which extends the benefit of deduction to a Government company as defined in section 617 of the Companies Act, 1956. 27.2 This amendment will take effect from 1st April, 1993, and, will, accordingly, apply in relation to the assessment year 1993-94 and subsequent assessment years. [Section 12] Deferment of unabsorbed carried forward depreciation and investment allowance 28. Under the existing provisions of the Income-tax Act, unabsorbed depreciation allowance and unabsorbed investment allowance are allowed as deductions in the computation of income from business or profession. 28.1 The Finance Act, 1992, has introduced a new section 34A in the Income-tax Act, to provide that in the case of domestic companies, only sixty-six and two-thirds per cent. of unabsorbed depreciation allowance or unabsorb....
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..... [Section 14] Increasing the limit of allowable business expenses 30. Under section 37 of the Income-tax Act, there were restrictions on the quantum of expenses allowable as entertainment expenditure. Similarly, there were restrictions under sub-section (12) of section 40A of the Income-tax Act, on the admissible expenditure for services in connection with any proceeding under the Income-tax Act. 30.1 The Finance Act has liberalised the allowable deductions as under:-- (a) In respect of entertainment expenditure, actual expenditure up to Rs. 10,000 and 50% of the balance. This has been done by substitution of a new sub-section (2) for sub-sections (2) and (2A) in section 37 of the Income-tax Act; (b) In respect of expenditure for services in connection with any (c) any proceeding under the Income-tax Act, the actual expenses. This has been achieved by omission of sub-section (12) of section 40A. Further, In case of articles of gifts, the income-tax rules have been amended by the Income-tax (Tenth Amendment) Rules, 1992, to provide that in respect of each article of gift 100% of the actual expenses up to Rs. 1,000 will be allowed and if the cost ....
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....al sales, turnover or gross receipts exceed rupees two hundred and fifty thousand in any one of the three years immediately preceding the previous year, or (ii) his income from business or profession, where the business or profession is newly set up in any previous year, is likely to exceed twenty-five thousand rupees or his total sales, turnover or gross receipts are likely to exceed two hundred and fifty thousand rupees, during such previous year. 32.1 The aforesaid monetary limits were prescribed in 1976. As a measure of rationalisation, the Finance Act has amended section 44AA of the Income-tax Act, to provide that the monetary limits of income and total sales, etc., specified in sub-section (2) of section 44AA of the Income-tax Act, shall be revised from twenty-five thousand rupees to forty thousand rupees and from two hundred and fifty thousand rupees to five hundred thousand rupees respectively. 32.2 This amendment will take effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent assessment years. [Section 19] Exclusion of persons assessed on presumptive basis from requirement of compulsor....
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....d be more than 12 months. This definition continues to be the same in the changed format. In the scheme prior to 1-4-1992, a basic deduction of Rs. 15,000 and a fixed percentage of the balance amount of capital gains was allowed as deduction under section 48(2). The percentage depended on the nature of the asset and the status of the assessee, but was unrelated to the length of the period of holding. This deduction was intended to give a rough and ready relief for inflation, to counteract bunching of profits and to exclude from the tax net capital gains which were relatively small. As an additional measure to offset the effect of inflation, all appreciation before 1-4-1974 in the value of assets was excluded from taxation. A fair method of allowing relief for these factors is to link it to the period of holding. For this purpose, the cost of acquisition of and the cost of improvement to the asset are to be inflated to arrive at the indexed cost of acquisition and indexed cost of improvement and then deduct these amounts from the sale consideration to arrive at the long-term capital gains. The cut off date for assets held for purposes of indexation is taken a....
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....0 172 1990-91 182 1991-92 199 1992-93 223 35.3 Under the provisos to section 48(1)(a), non-resident Indians were given protection from fluctuation in the rupee value in terms of the foreign currency utilised for the purpose of shares or debentures while computing capital gains on transfer of assets being such shares or debentures. Under the first proviso to section 48, the protection has now been extended to all non-residents in respect of long-term capital gains arising, out of transfer of shares and debentures originally purchased by utilising foreign currency. However, in the earlier scheme, the non-resident Indians were allowed further deduction under section 48(2). As protection from fluctuation in rupee value in terms of foreign currency ensures protection from inflation, further relief in terms of indexation will not be available to non-residents who will enjoy the concession available in the first....
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....ded family from sale of a residential house is fully exempt if the full value of consideration is up to Rs. 2,00,000. If it exceeds Rs. 2,00,000 then a proportionate amount out of the capital gains is exempt from lax. As a measure of rationalisation, this provision has been withdrawn from assessment year 1993-94. 35.9 Exemption from tax in respect of long-term capital gains is allowed under section 54E to the extent the net consideration is invested or deposited in any specified asset prescribed in that section. As a measure of rationalisation and simplification, this provision also stands withdrawn from assessment year 1993-94. The provisions of section 54E will be available for all sales made before 1-4-1992, if the whole or any part of the net consideration is invested in specified assets within six months after the date of such transfer. 35.10 According to the second proviso to section 54E(1), as it stood before 1-4-1992, where long-term capital gains arises out of compulsory acquisition of an asset under any law and there is any delay in receipt of the compensation, then the period of six months for depositing or investing in specified assets was to be reckon....
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.... being a share or shares held in an Indian company, by a foreign company to another foreign company. However, the following conditions are to be fulfilled :-- (a) At least 25% of the shareholders of the amalgamating foreign company should continue to remain shareholders of the amalgamated foreign company. (b) Such transfer, in a scheme of amalgamation, does not attract tax on capital gains in the country, in which the amalgamating company is incorporated. A consequential amendment has been made in section 49(1)(iii)(e) that in a case where the amalgamated foreign company comes to hold shares in an Indian company by way of transfer from the amalgamating foreign company, the cost of the capital asset shall be deemed to be the cost for which the amalgamating company acquired it. 35.14 These amendments come into force with effect from 1st April, 1993, and will accordingly apply in relation to the assessment year 1993-94 and subsequent years. 35.15 Long-term capital gains is to be taxed separately at a flat rate and other incomes at appropriate slab rates prescribed in the Finance Act. For an assessee having income from long-term capital gains, the manner of taxa....
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....ation of rupee value in terms of foreign currency while computing long-term capital gains on shares and debentures originally subscribed in such foreign currency. In such cases, indexation in terms of the second proviso to section 48 will not be applicable. Sub-section (2) of each of sections 115AB and 115D have been amended to provide that while computing long-term capital gains, indexation in terms of the second proviso to section 48 shall not be applicable. 35.20 These amendments come into force with effect from 1-4-1993 and, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Sections 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 53 55 and 57] Clubbing of minors' income 36. Section 64 of the Income-tax Act provided that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to a minor child of such individual from-- (i) the admission of the minor to the benefits of partnership in a firm, (ii) assets transferred directly or indirectly to the minor child by such individual otherwise than for adequate consideration, and (iii) assets transferred directly or ind....
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....of the individual. This provision is to provide relief to the individuals in whose total income the income of the minor child is to be included. 36.4 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Sections 4 and 35] Modification of the tax concessions relating to savings 37. Under the provisions of section 80CCA of the Income-tax Act, full deduction is allowed from the gross total income of a taxpayer in respect of deposits made under National Savings Scheme or payment to a deferred annuity plan subject to a limit of Rs. 40,000. When any amount standing to the credit of the taxpayer under the aforesaid schemes in respect of which a deduction has been allowed, together with interest accrued thereon, is withdrawn, it is deemed to be the income in the year of withdrawal. Similarly any amount received on surrender of a policy or as annuity or bonus in accordance with the notified annuity plan of the Life Insurance Corporation is also deemed to be the income of the taxpayer in the year of its receipt. 37.1 Likewise, the provisions of section 80CCB stipulate ful....
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....es as well as income from dividends and from units of the Unit Trust of India is allowed up to Rs. 7,000 and additional deduction of up to Rs. 6,000 is allowed in respect of income from certain specified savings schemes, thus amounting to a total deduction of Rs. 13,000. 37.5 With a view to rationalising the concession available under section 80L, the deduction has been reduced to Rs. 7,000 in all cases without any additional deduction allowed earlier in respect of income from certain savings instruments. 37.6 These amendments will take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Sections 42, 43, 48 and 51] Increase in the tax relief in respect of medical insurance premia 38. Under the provisions of section 80D of the Income-tax Act, a deduction of Rs. 3,000 is allowed in respect of any sum paid by an assessee to effect an insurance on his health and that of his family (including dependent parents). 38.1 Since self-employed persons do not have the support of any employer for their medical treatment, it is necessary to provide adequate incentives to them for ef....
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....fits - total profits × ^____________________ total turnover Where the export is of goods purchased from third parties, i.e., "trading goods ", the second method of computation operates, that is to say, the export profit is calculated by deducting from the export turnover, the direct and indirect costs attributable to such export, i.e., -- 80HHC concession = export profits = export turnover - (direct c....
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....ng goods the same proportion as the disclaimed export turnover bears to. the total export turnover of trading goods. The formula in such cases will now be, 80HHC concession = export profits disclaimed export turnover] - [export profits on trading goods x ^________________________________ total export turnover 40.2 These amendments will take effect from 1st April, 1992, the date from which the dual system of computation of export profits comes Into effect. [Section 46] Rationalisation of the Definition of "small scale industrial undertaking" in the provisions relating to concessions for new industrial undertakings 41. Section 80-IA of the Income-tax Act, provides that, in computing the total income of a taxpayer, a deduction of 25 to 30 per cent. of the profits earned by a new industrial undertaking or a hotel or a ship is allowed for a period of ten years. In the case of a hotel set up in a remote area, this deduction is allowed at the rate of 50 per cent. of the profits earned. In the case of co-operative societies, the deduction is for an increased period of twelve years. The deduction is not allo....
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....t the increased expenses in their old age, the Finance Act has inserted a new section 88B in the Income-tax Act to provide for a special tax relief in the form of an additional rebate of ten per cent. from the net tax payable by persons who have attained the age of 65 years and have a gross total income not exceeding fifty thousand rupees. 43.1 This amendment will take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. [Section 52] Tax incentive for investment in bonds or shares of Indian companies issued abroad 44. Under section 115AB of the Income-tax Act, in the case of offshore funds, income in respect of units purchased in foreign currency and income by way of long-term capital gains arising from the transfer of such units are charged to tax at the rate of ten per cent. 44.1 The Government had approved, in principle, the scheme of permitting issue abroad of foreign currency convertible bonds/equity by established Indian companies. These bonds and shares can be purchased by the non-residents in foreign currency. The object of the scheme is to augment the foreign exchange resourc....
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....205 of the Income-tax Act, relating to procedure in respect of tax deduction at source have also been amended. 44.5 These amendments take effect from 1st June, 1992. [Sections 56, 75 and 78] Special provisions for small shopkeepers, etc. 45. With a view to building an atmosphere of trust and confidence and also to widen the tax base by encouraging small shopkeepers to pay their taxes, the Finance Act has introduced a new simplified procedure for taxation. The new procedure is intended to help small shopkeepers in meeting their tax liability by filing a simple statement-cum-challan at the bank counter without having to go through the intricacies of income-tax law and procedure. The salient features of the simplified procedure are as follows : (a) the scheme is optional ; (b) it is open to individuals and HUFs, not assessed to tax earlier, who have income of not more than Rs. 35,000 from the business of retail trade or of running an eating place or any vocation and, in the case of business of retail trade, have an annual turnover of upto Rs. 5 lakhs ; (c) a person carrying on the business of retail trade and opting for the simplified procedure will be de....
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....which do not require any substantial intellectual input. Illustrations of this would be persons earning their livelihood as carpenters, electricians, plumbers, painters, welders, lathe machine operators, taxi drivers etc. The simplified procedure will, thus, not be available to professionals like lawyers, accountants, consultants, engineers, architects, teachers, etc. [Section 58] Omission of waiver of requirement of furnishing the return of income in certain case 46. Section 139(1A) of the Income-tax Act provides that if the total income of a person consists only of income chargeable under the head " Salaries " or income chargeable under that head and also income in the nature of dividends, interest or income from units referred to in clauses (j) and (ix) of sub-section (1) of section 8OL, it is not necessary for such a person to furnish a voluntary return of income, subject to certain conditions. 46.1 As the Finance Act restricts the deduction under section 80L from Rs. 13,000 to Rs. 7,000 and also raises the income-tax exemption limit from Rs. 22,000 to Rs. 28,000, it also omits the provisions of sub-section (1A) of section 139. It is only in order that t....
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.... of levy of tax on firms involved double taxation. The firm as such was taxed in respect of its total income at rates varying from 5% to 18% (the maximum rate being applicable at Rs. 1 lakh and above). After deducting the tax payable by the firm, the balance of income was distributed amongst the partners and they were again taxed at the appropriate rates. Further, the tax liability of a firm and its partners depended upon the question whether the firm was granted registration under the Income-tax Act or not. In the case of a registered firm, the firm paid tax on its total income according to the rates prescribed in the Schedule for registered firms. An unregistered firm was taxed at the rates applicable to individuals, with the share income included in the hands of the partners for rate purposes only. There has been a consistent demand for removal of the double taxation. A new scheme of assessment of firms has been introduced from assessment year 1993-94. The scheme is modelled after the scheme introduced by the Direct Tax Laws (Amendment) Act, 1987, with suitable modifications to take care of the difficulties pointed out in the context of the 1987 Scheme. The scheme containe....
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....ntity. The gross total income so computed is reduced by salary, bonus, commission, or any remuneration payable or paid to a partner (section 40(b)). Remuneration due to or received by a partner is not to be assessed as income under the head "Salaries " (Explanation 2 to section 15). Any salary, interest, bonus, commission or remuneration due to or received by a partner in view of clause (v) to section 28 shall be chargeable to income-tax under the head " Profits and gains of business or profession ". 48.4 The payment of remuneration only to a working partner is allowable (defined in Explanation 4 to section 40(b)). Only individuals are capable of being working partners. 48.5 The payments should be duly authorised by and in accordance with the terms of the partnership deed. These payments will be allowed as deduction only for a period beginning with the date of the partnership deed and not for any earlier period. Thus, if a partner is allowed a higher remuneration by varying the terms of the deed on a particular date, such higher remuneration cannot be allowed to him for any period prior to the said date. However, as the financial year 1992-93 had already commenced by th....
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....rehension that the provisions of section 40A(2) of the Income-tax Act, may be indiscriminately resorted to by the Assessing Officer to make disallowance out of salary paid to the partners as being excessive. The Central Board of Direct Taxes will be asked to issue instructions to the Assessing Officers so as to ensure that this power is not used in the case of small firms and even otherwise, it should be used sparingly." The Assessing Officers who invoke the provisions of section 40A(2) in any case, must keep in mind the assurance given by the Finance Minister to Parliament. 48.8 Interest paid to a partner would be allowed as a deduction in the hands of the firm. The payment of interest should be in pursuance of the partnership deed. The maximum rate of interest allowed would be 18% simple interest per annum. [section 40(b)(iv)] 48.9 Changes have been made in the scheme of set off and carry forward of losses. The existing provisions relating to firms and their partners in sections 76 and 77 have been omitted. Under the new scheme, the firms are treated as a separate entity and the losses suffered by them would be allowed to be carried forward in their hand only. T....
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....4A of the Income-tax Act, to restore the position as obtaining before 1st October, 1991, in relation to deduction of income-tax at source in the case of income credited or paid in respect of deposits with a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act) or with a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank), and (b) section 194H of the Income-tax Act, to provide that the deduction of income-tax at source from income by way of commission or brokerage will not be required to be made on or after 1st June, 1992. 49.2 Under the provisions of section 194C of the Income-tax Act, income-tax is deductible at source from income comprised in payments made by the persons stipulated therein to resident contractors engaged for carrying out any work (including supply of labour for carrying out any work) at the rate of two per cent., of such payments. Statutory authorities set up for the purpose of development or improvement of cities, etc., registered societies, trusts and universitie....
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....erson for deduction of income-tax at rates lower than the rates in force or for no deduction of tax at source, if he is satisfied that the income of the recipient so warrants. 49.7 Representations had been received to the effect that there was no justification for excluding from the ambit of section 197 the cases of companies which suffered losses or were not likely to have an income or their income liable to tax was likely to be inadequate to absorb the full amount of tax deducted. As a measure of rationalisation, the Act, therefore, amends section 197 of the Income-tax Act, with a view to making the provisions thereof applicable to any person including a company. 49.8 As all the persons are proposed to be covered within the ambit of section 197 of the Income-tax Act, the Act also amends section 193 of the Income-tax Act, relating to interest on securities, with a view to omitting the first proviso to section 193, which enabled the Central Government to specify a lower rate at which deduction of income-tax is to be made in respect of a scheduled bank. 49.9 Under the provisions of the proviso to sub-section (1) of section 194A, relating to deduction of tax at source ....
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....he 15th day of December, shall not be less than sixty per cent. of such advance tax. 50.3 This amendment takes effect from 1st April, 1992. 50.4 The Act also amends sub-section (1) of section 234C of the Income-tax Act relating to interest for deferment of advance tax. It has been provided that the shortfall for the purpose of charging interest for deferment of advance tax shall be the difference between,- (1) thirty per cent. of the tax due' on the returned income and advance tax paid by the assessee on or before 15th day of September, and (ii) sixty per cent. of the tax due on the returned income and advance tax paid by the assessee on or before the 15th day of December. 50.5 The aforesaid amendment takes effect from 1st June, 1992. 50.6 The Act also makes an amendment of clarificatory nature in the Explanation to sub-section (1) of section 234C to make it clear that interest under that section will be chargeable even in cases where no advance tax is paid. 56.7 This amendment takes effect retrospectively from 1st April, 1989. [Sections 80 and 81] Reduction in the period for claiming deduction 51. Under the provisions of section 239 of the....
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....ery of tax. 53.1 The recovery provisions without the prescribed time limit of disposal of attached immovable properties had not proved as coercive and deterrent as they should have been. 53.2 The Act, therefore, inserts a new rule, i.e., rule 68B, in the Second Schedule to the Income-tax Act to provide a time limit of three years from the end of the financial year in which the order, giving rise to a demand of any tax, interest, fine, penalty or any other sum for the recovery of which the immovable property has been attached, has become conclusive under the provisions of section 245-I or has become final, as the case may be, in terms of the provisions of Chapter XX of the Income-tax Act. The period of three years shall stand extended by one year in certain cases where the sale falls through. Further, certain periods during which the order is stayed by any court, are also to be excluded from the aforesaid period of limitation. 53.3 This amendment takes effect from 1st June, 1992. [Section 87] &nbs....
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....the relevant figures have been published before the valuation date ; or (ii) in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to above, as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations specify in this behalf by notification in the Official Gazette. 54.2 The definition of urban land has been amended to exclude the following : (a) land on which construction of a building is not permissible on account of any law for the time being in force ; and (b) land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him. 54.3 The Finance Act has amended clause (m) of section 2 of the Wealth-tax Act to provide that only debts which have been incurred in relation to the assets assessable to wealth-tax will be allowed to be deducted in computing the net wealth. This is to avoid a situation where an assessee creates a charge on an asset which is liable to wealth-tax and use the amount raised through such charge to acquire assets which are not liable to....
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....ares in or debentures in companies. The Finance Act has omitted these provisions as shares or debentures in companies are no longer assets for the purpose of wealth-tax. However, Schedule II of the Gift-tax Act, provides that the value of gifts of shares or debentures in companies will be taken as for wealth-tax purposes. It is clarified that for the limited purpose of valuation of these gifts, Part C of Schedule III of the Wealth-tax Act shall be taken into account. 54.7 Further, in order to prevent tax avoidance, it is proposed that the wealth of a minor, except in respect of such assets as have been acquired by a minor child from manual work or from any activity involving his specialised knowledge or experience, will be clubbed with the wealth of that parent whose net wealth (excluding the assets of the minor) is greater. It may be mentioned that the scheme of clubbing of minor's income adopted in the Income-tax Act has been incorporated in the Wealth-tax Act as well. 54.8 A new section, viz. section 35HA, has been introduced in the Wealth-tax Act to specify the person who is to be proceeded against in cases of offences by companies. 54.9 Wealth-tax will be ....
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....alments by way of contributions or subscriptions or by sale of units or certificates or other instruments. The Reserve Bank of India have, vide Notification No. DFC. 55/DG(O)-87, issued on 15th May, 1987, treated such financial companies as residuary non-banking companies. 55.4 In view of the fact that the Government's intention is to impose tax on the gross amount of interest earned. by all banks, financial institutions and non-banking financial companies, in respect of loans and advances made in India, the Finance Act has included, in the definition of financial company, all residuary non-banking companies. 55.5 This amendment will take effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [Sections 103 and 104]  ....