TaxTMI 
TaxTMI 
Explanatory notes on the provisions relating to direct taxes
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....; Provisions in brief 3. The provisions in the Finance Act, 1993, 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 1993-94 ; the rates at which tax will be deductible at source during the financial year 1993-94 from interest (including interest on securities), dividends, salaries, winnings from lotteries or crossword puzzles, winnings from horse-race, insurance commission and other categories of income liable to deduction of tax at source under the Income-tax Act ; rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases for the financ....
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....omestic companies in respect of dividend on units of the Unit Trust of India ; _ providing relief in cases where income of a handicapped minor is clubbed with that of the parents ; _ providing relief to senior citizens ; _ providing tax incentive to foreign institutional investors investing in securities ; _ extending the simplified procedure for small businessmen to transport operators ; _ modifying the provisions relating to levy of additional income-tax ; _ providing for deduction of tax at source on income by way of long-term capital gains referred to in sections 115AB and 115AC at the rates specified therein ; _ extending the facility for receipt of dividends by companies without deduction of tax at source in certain cases ; _ setting up the authority for advance rulings for the benefit of non-residents ; _ providing for hike in fees for filing appeals to the Income-tax Appellate Tribunal ; _ amending the provisions relating to pre-emptive purchase of immovable property ; _ modifying the provisions relating to power to reduce or waive penalty, etc., in certain cases ; _ consequential amendments in sections 10A, 10B and 80P. (iv) Amendment....
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....yers have been specified in Part III of the First Schedule to the Act. These rates are also applicable for charging income-tax during the financial year 1993-94 on current incomes in cases where accelerated assessments have to be made, e.g., provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during the financial year 1993-94, assessment of persons who are likely to transfer property to avoid tax or where an order has to be passed in cases of search and seizure for calculating the amount of tax on the estimated undisclosed income, etc. The salient features of the rates prescribed in the said Part III are indicated in the following paragraphs. IIIA. Individuals, Hindu undivided families, etc. 7. In the case of individuals, Hindu undivided families (other than those having at least one member whose total income exceeds the exemption limit), associations of persons, etc., the rates of income-tax have been specified in Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act. The exemption limit in the case of the aforesaid persons has been raised from Rs. 28,000 to Rs. 30,000. Excep....
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....edule to the Act. IIIE. Companies 11. In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule to the Act. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Schedule to the Act. IIIF. Surcharge 12. Surcharge on income-tax for purposes of the Union will continue to be levied at the rate of twelve per cent. in the case of all the categories of resident non-corporate taxpayers having total income exceeding one hundred thousand rupees. Similarly, in the case of domestic companies, surcharge will 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 provides that in the case of individuals, Hindu undivided families, associations of persons, etc., the net agricultural income will be taken into account for the computation of "advance tax" and charging of income-tax. The net agricultural income will be computed in accordance with the rules contained ....
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....1st day of March, 1993, irrespective of their nationality. All other features specified in sub-clause (viia) of clause (6) of section 10 have been retained in the new provision. 14.2 This amendment takes effect from 1st April, 1994, and, accordingly, applies in relation to the assessment year 1994-95 and subsequent years. 14.3 As a consequence of the aforesaid amendment, the Act also amends sub-clause (viia) of clause (6) of section 10 to restrict its application to cases where services as a technician commence after the 31st day of March, 1988, but before the 1st day of April, 1993. 14.4 This amendment takes effect from 1st April, 1993. ....
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....p; [Section 3] Extending the tax exemption on payments under voluntary retirement schemes to employees of certain authorities 16. Under the provisions of section 10(10C) of the Income-tax Act as these were prior to their substitution by the Finance Act, 1993, any payment received by an employee of a public sector company or any other company at the time of voluntary retirement, in accordance with any scheme or schemes of voluntary retirement, was exempt from income-tax. Representations had been received on behalf of the employees of statutory authorities, etc., that the benefit of the income-tax exemption under section 10(10C) should also be extended to them. The rationale for providing income-tax exemption on the amounts received under the schemes of voluntary retirement by the employees of the companies, i.e., making such schemes more attractive so that the companies can improve their efficiency, equally applies in the case of statutory authorities and local authorities. The scope of the income-tax exemption under section 10(10C) has, therefore, been extended to cover thereunder the employees of an auth....
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....nbsp; [Section 3] Modification of the provisions relating to income-tax exemption on interest payable by a scheduled bank on foreign currency deposits 17. Section 10(15)(iv)(fa) of the Income-tax Act provides for income-tax exemption on the interest payable by a scheduled bank on deposits in foreign currency where the acceptance of such deposits by the bank is approved by the Reserve Bank of India. When the aforesaid exemption was provided, through the Finance (No. 2) Act, 1991, persons resident in India were not allowed to have foreign currency deposits in banks in India. The new guidelines under the Foreign Exchange Regulation Act, however, permit persons resident in India to open and maintain foreign currency accounts with banks in India. 17.1 In order that all the aforesaid persons do not get the unintended benefit of the income-tax exemption under section 10(15)(iv)(fa) of the Income-tax Act, the Act provides that the said exemption will be applicable in the case of non-residents and in the case ....
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.... The Act, therefore, changes the name of the holder of the said account from "Registrar, Supreme Court" to "Welfare Commissioner, Bhopal Gas Victims, Bhopal" in section 10(15)(iv) of the Income-tax Act. 18.3 This amendment takes effect from 2nd November, 1992. &nb....
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....sp; [Section 3] Extension of tax holiday under section 10A to SoftwareTechnologyParks and ElectronicHardwareTechnologyParks 20. The provisions of section 10A of the Income-tax Act provides for a five-year tax holiday during the period of the initial eight assessment years for new industrial undertakings set up in free trade zones. 20.1 ....
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....the total income of the previous year of the person in receipt of the income, provided such person gives a notice in writing to the Assessing Officer in the prescribed manner specifying the purpose for which the income is being accumulated or set apart and the money so accumulated or set apart is invested or deposited in the forms or modes specified in section 11(5). However, such period of accumulation was not to exceed ten years as provided in clause (a) of section 11(2). 21.1 Section 11(3) of the Income-tax Act provides, inter alia, that where the income accumulated or set apart is not utilised for the purpose for which it is so accumulated or set apart during the period mentioned in clause (a) of section 11(2), it shall be deemed to be the income of the person of the previous year immediately following the expiry of the aforesaid period. Representations had been received to the effect that the aforesaid provisions created hardship in cases where the income accumulated or set apart could not be applied for the purpose for which it was accumulated or set apart during the said period due to an order or injunction of any court. 21.2 As a measure of rationalisation, the Act am....
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....ndingly, the higher standard deduction provided to working women has been increased from Rs. 15,000 to Rs. 18,000. 22.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. ....
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.... perquisite value of travel cost that will now remain will be that the employee's gross total income does not exceed two lakhs rupees. 23.3 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. &....
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....; [Section 9] Deduction in respect of provisions made for bad and doubtful debts relating to rural branches of banks 25. Under the existing provisions of the Income-tax Act, a mere provision for bad and doubtful debts is not allowed as deduction in computing the taxable profits of a business or profession, in order to qualify for deduction, the taxpayer has to write off the debt to claim a deduction. However, under section 36(1)(viia)(a) all scheduled and non-scheduled banks are entitled to make a provision for two per cent. of the aggregate advances made by their rural branches, and this qualifies for deduction while computing their income under the Income-tax Act. Ha....
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.... expenditure attributable to the business in India, whichever is the least. 26.1 While the amount of "adjusted total expenditure" and the amount of "expenditure in the nature of head office expenditure attributable to the business or profession of the assessee in India" has increased in monetary terms the "average head office expenditure" has remained constant. This has enabled the companies which have set up branches subsequent to 1976 to be placed on a better footing than those which had set up branches prior to 1976. The Act has deleted the limiting condition relating to "average head office expenditure". Thus, now in case of non-residents the ceiling limits for the deduction of head office expenses in computing the taxable profits will be limited to the lesser amount of "adjusted total expenditure" or the "expenditure in the nature of head office expenditure attributable to the business or profession of the assessee in India", as the case may be. This will ensure equal treatment to all non-resident assessees having branch offices in India. 26.2 The amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subs....
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....; [Section 12] Increasing the number of years for which approval can be granted by the Commissioner under section 80G 28. Deduction under the provisions of section 80G for any fund or institution, not specifically mentioned, is allowed if it is approved by the Commissioner of Income-tax. The power of approval, which was e....
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....Tax concession in respect of contributions to the National Foundation for Communal Harmony 29. Under the provisions of section 80G, deduction is allowed in computing the total income of a person in respect of donations made to certain trusts and institutions. The deduction normally allowed is at the rate of 50 per cent. of the amount of donation made. However, in the case of donations made to the Prime Minister's National Relief Fund, the Prime Minister's Armenia Earthquake Relief Fund, the Africa Fund, the Government, local authority or certain approved associations, etc., carrying on promotion of family planning the deduction is allowed at the rate of 100 per cent. of the donation. 29.1 Considering the importance of the National Foundation for Communal Harmony in acting as a catalyst for communal harmony and also considering the nature of its activity in providing assistance to the children of families affected by communal riots, the Finance Act extends the benefit of 100 per cent. deduction to donations made to the Foundation. Section 10(23C) of the Income-tax Act has also been amended in order to include the National Foundation for Communal Harmony as a fund whose i....
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....ganisations. In respect of other educational institutions, etc., the existing provisions allowing 50 per cent. deduction will continue to apply. 30.2 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. &n....
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....bsp; [Section 14] Tax holiday to new industrial undertakings set up in backward States. 32. Under section 80-IA of the Income-tax Act, 1961, deduction is allowed, in computing the taxable income, in respect of profits derived from a new industrial undertaking or a ship or the business of a hotel. The deduction under this section is allowed in the case of companies, at 30 per cent. of profits in respect of the assessment year relevant to the previous year in which the hotel starts functioning or the industrial undertaking starts manufacture or ship is first brought to use and nine assessment years immediately succeeding the initial assessment year. In the case of taxpayers being a co-operative society, similar deduction is allowed for the initial assessment year and eleven succeeding years. The deduction is allowed at the rate of 25% in the case of non-corporate assessees. Likewise, in the case of new hotels set up in hilly area or a rural area or a place of pilgrimage or such other place as the Central Governme....
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....ubstantially increasing the power generation capacity in the country, a five-year full tax holiday and thereafter a partial tax holiday have been provided for in respect of profits and gains of industrial undertakings set up anywhere in India for generation or generation and distribution of power. Such undertakings which begins to generate power during the period beginning on the 1st day of April, 1993, and ending on the 31st day of March, 1998, will be allowed deduction under section 80-IA, at the rate of 100 per cent. of profits in respect of the first five assessment years starting from the assessment year relevant to the previous year in which the undertaking begins generation of power. For the subsequent assessment years, the deduction from the profits from such undertakings will be allowed at the normal rate of 30 per cent. in the case of companies and 25 per cent. in the case of non-corporate assessees. The deduction, at the enhanced rate and the normal rate together, will be limited to twelve assessment years in the case of co-operative societies and ten assessment years in the case of other assessees, as in the existing provisions. 33.2 These amendments will take effect....
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....on will be subject to the existing conditions in section 80M. For the assessment year 1996-97 and subsequent years, dividend from the Unit Trust of India will not be eligible for deduction under section 80M. 35.3 This amendment will come into effect from 1st April, 1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. [Section 17] Relief in cases where income of a handicapped minor is clubbed with that of one of the parents 36. The Finance Act, 1992, had introduced a provision in section 64 of the Income-tax Act whereby all income of a minor child, except from wages or as a result of the child's own talent or skill, is to be taxed in the hands of that parent whose total income (excluding income to be included) is greater. Under the provision of section 80U, a deduction of twenty thousand rupees is allowed in the case of an individual who is suffering from a permanent physical disability (including blindness) or mental retardation. The existing provision, deduction under section 80U, being person-related and not income-related, may be interpreted as not allowable in the hands of the parent in whose hand the income of the minor, s....
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....on 115AD has been inserted in the Income-tax Act relating to tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer. 38.1 The income received in respect of securities (other than units referred to in section 115AB) listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, is to be taxed at the rate of twenty per cent. Income by way of long-term capital gains arising from the transfer of the said securities is to be taxed at the rate of ten per cent. Income by way of short-term capital gains arising from the transfer of the said securities is to be taxed at the rate of thirty per cent. However, these rates of tax will apply on the gross income of the nature specified above without allowing for any deduction under sections 28 to 44C, 57 and Chapter VI-A. The first and second provisos of section 48 relating to computation of capital gains will not apply in the case of transfer of the aforesaid securities by the Foreign Institutional Investors. 38.2 The expression "Foreign Institutional Investor" has been defined to mean such investor as the Central Government may, by n....
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....scheme has been enhanced from Rs. 35,000 to Rs. 37,000. 39.3 These amendments take effect from 1st April, 1993, and will, accordingly, apply in relation to assessment year 1993-94. Accordingly, small road transport operators can opt for the simplified procedure even in respect of the income earned during the previous year 1992-93. For such transport operators, time for filing the statement and for paying the tax has been extended up to 30th June, 1993. [Sections 22 and 23] Modification of the provisions relating to levy of additional income-tax 40. The provisions of section 143(1A) of the Income-tax Act provided for levy of twenty per cent. additional income-tax where the total income, as a result of the adjustments made under the first proviso to section 143(1)(a), exceeded the total income declared in the return. These provisions sought to cover cases of returned income as well as returned loss. Besides its deterrent effect, the purpose of the levy of the additional income-tax was to persuade all the assessees to file their returns of income carefully to avoid mistakes. 40.1 In two recent judicial pronouncements, it had been held that the provisions of section 143(....
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....vidends on bonds and shares referred to in section 115AC at the rate of ten per cent. Thus, the income by way of long-term capital gains arising on the transfer of units referred to in section 115AB and the income by way of capital gains arising on the transfer of bonds and shares referred to in section 115AC did not fall within the ambit of sections 196B and 196C respectively. In order that deduction of tax at source on such income is made at the rates of income-tax specified in sections 115AB and 115AC respectively, the Act amends sections 196B and 196C of the Income-tax Act to include the said income within the ambit of the aforesaid sections. 41.1 These amendments take effect from 1st June, 1993. [Sections 26 and 27] Extending the facility for receipt of dividends by companies without deduction of tax at source in certain cases 42. Section 197 of the Income-tax Act provides that the Assessing Officer can give a certificate to any person for deduction of income-tax at rates lower than the rates in force or for no deduction of income-tax at source, if he is satisfied that the total income of such person so warrants. The provisions of this section did not cover income ....
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....form and manner to be prescribed by rules along with the payment of a fee of Rs. 2,500. Such an application can be withdrawn within thirty days. The Authority on receipt of an application will send a copy to the Commissioner concerned and, wherever considered necessary, also call upon the Commissioner to furnish relevant records. Such records will be returned to the Commissioner as soon as possible. The Authority may either allow or reject an application. However, it has been provided specifically that the Authority shall not allow an application where the question of law or fact raised is already pending in the case of the applicant, either before any income-tax authority, the Appellate Tribunal or any court. Applications are also not to be allowed where the transaction, in relation to which the question is raised, is designed for the avoidance of income-tax or where the question raised relates to the determination of the fair market value of any property. The applicant can, on request, appear either in person or can be represented through a duly authorised representative. A time limit of six months has been provided for the pronouncement of advance ruling after the receipt of the....
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....judgment in the case of C.B. Gautam v. Union of India and others, delivered on 17th November, 1992 (see [1993] 199 ITR 530), has upheld the constitutional validity of Chapter XX-C. While passing the judgment the Supreme Court has, inter alia, held as under : (i) A reasonable opportunity of being heard is to be given to the affected parties. (ii) The reasons recorded by the appropriate authority for making the order of pre-emptive purchase are to be communicated to the affected parties. (iii) The expression "free from all encumbrances" as contained in sub-section (1) of section 269UE has been struck down. Bona fide lessees or encumbrance holders can continue to be in possession of the property if provided for in the terms of the agreement for sale. Appropriate legal provisions may be made to tackle cases of bogus encumbrance or lease holders, created for defeating the purpose of Chapter XX-C. 45.1 In order to give legislative shape to the above mentioned rulings of the Supreme Court, amendments in the provisions of Chapter XX-C have been made. For enabling a reasonable opportunity of being heard to the affected parties, the time limit for passing the order has been exten....
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....spect of which penalty is imposed or imposable under section 271(1)(c) exceeded five hundred thousand rupees and in other cases if the amount of penalty payable exceeded one hundred thousand rupees, no order reducing or waiving the amount of penalty or staying or compounding any proceeding for the recovery of such amount could be made without the previous approval of the Board. 46.1 Reference to both the Chief Commissioner and Commissioner as the authority empowered to reduce or waive penalty, in section 273A could create problems. Further, to streamline the functioning of the Income-tax Department, it was decided that the Board's power to grant approval to an order of waiver/reduction of penalty where the amount of income or penalty exceeded the monetary limits specified in section 273A should be vested in the concerned Chief Commissioner or Director-General, as the case may be. 46.2 The Act, therefore, omits reference to the Chief Commissioner as the authority empowered to reduce or waive the amount of penalty, etc. It also provides that where the amount of income or penalty exceeds the monetary limits specified in section 273A, no order reducing or waiving the amount of th....
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....will not be liable to wealth-tax for a period of three years from the date of its acquisition. It may be clarified that this exemption would be available only in such cases where the business activity of the person is such that he has to hold land as stock-in-trade. 48.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 38] Exemption for a house or part of a house 49. The Finance Act, 1992, had withdrawn exemptions in relation to certain assets which were earlier available under section 5 of the Wealth-tax Act. The Finance Act, 1993, has revived the exemption in respect of one house or part of a house belonging to an assessee. This exemption will be available only to individuals and Hindu undivided families. 49.1 This amendment will take effect from 1st April, 1994, and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 39] Gift-tax Raising of basic exemption limit 50. Under the existing provisions of section 5(2) of the Gift-tax Act, tax is not charged in respect of gifts made up to a maximum of rupees....
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....hares and debentures in companies. The deletion of these Rules has created difficulties under the Gift-tax Act as no mode has been specified for determining the value of these shares and debentures. The Act has revived Part C of Schedule III of the Wealth-tax Act in Schedule II of the Gift-tax Act to overcome this difficulty. 53.1 This amendment takes effect from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. &nb....