TaxTMI 
TaxTMI 
Explanatory Notes on the provisions relating to direct taxes
X X X X Extracts X X X X
X X X X Extracts X X X X
....nded sections 2 and 5 of the Gift-tax Act, 1958 ; amended section 3 of the Interest-tax Act, 1974 ; amended sections 4, 6 and 17 of the Expenditure-tax Act, 1987. Provisions in brief 3. The provisions in the Finance Act, 1994, in the sphere of direct taxes, relate to the following matters : (i) Prescribing the rates of income-tax on incomes liable to tax for the assessment year 1994-95 ; the rates at which tax will be deductible at source during the financial year 1994-95 from interest (including interest on securities), dividends, winnings from lotteries or crossword puzzles, winnings from horse races, commission and other categories of income liable to deduction of tax at source under the Income-tax Act ; rates for computation of "advance tax", deduction of income-tax from "Salaries" and charging of income-tax on current incomes in certain cases for the financial year 1994-95. (ii) Retaining the provisions for levy of surcharge at the rate of 15 per cent. in the case of domestic companies having total income exceeding seventy-five thousand rupees ; abolishing the levy of surcharge in the case of resident non-corporate assessees (it may be clarified that surcharge does not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... student for pursuing higher studies ; _ providing 100 per cent. deduction for donations to the Chief Minister's Earthquake Relief Fund, Maharashtra ; _ removing the minimum limit for claiming deduction under section 80G ; _ rationalising the provisions relating to incentive to tourism ; _ extending tax concession in respect of profits from export of computer software for one more year ; _ withdrawing restrictions in respect of new industrial undertakings set up in backward States ; _ extending the five-year tax holiday to new industrial undertakings set up in extremely backward districts ; _ liberalising provisions relating to tax rebate in respect of certain savings ; _ bringing contributions to pension funds of the UTI within the ambit of section 88 ; _ providing further relief to senior citizens ; _ reducing rates of income-tax on long-term capital gains in certain cases ; _ providing uniform tax rate on income by way of interest, dividends, etc., in the case of non-residents ; _ extending the simplified procedure for small businessmen beyond assessment year 1994-95 ; _ changing the due date for filing returns of income by com-panies ; _ providing direct appeal ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ividends, insurance commission, winnings from lotteries or crossword puzzles, winnings from horse races and income of non-residents (including non-resident Indians). These rates are basically the same as those specified in Part II of the First Schedule to the Finance Act, 1993, for the purposes of deduction of income-tax at source during the financial year 1993-94, except that, _ (i) the income by way of dividends, interest payable by the Government or an Indian concern on monies borrowed or debt incurred by the Government or the Indian concern in foreign currency and income payable in respect of units (except in the case of a non-resident individual), purchased in foreign currency, of the Unit Trust of India, shall be subject to deduction of income-tax at the rate of 20 per cent., in the case of non-resident non-corporate assessees and foreign companies ; (ii) income by way of long-term capital gains in the case of non-resident non-corporate assessees and foreign companies, shall be subject to deduction of income-tax at the rate of 20 per cent., and (iii) the income of foreign companies which was hitherto subject to deduction of income-tax at the rate of 65 per cent., shall now....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rates of income-tax applicable to the aforesaid categories of taxpayers (a) as specified in Part I of the First Schedule to the Finance Act, i.e., for the assessment year 1994-95 ; and (b) as specified in Part III of the First Schedule to the Finance Act, i.e., for the financial year 1994-95. Table Income slab Rates as specified in Part I of the First Schedule to the Act(i.e., for A.Y. 1994-95) Income slab Rates as speci- fied in Part III of the First Schedule to the Act(i.e., for F.Y. 1994-95) Up to Rs.. 30,000 Nil Up to Rs 35,000 Nil Rs. 30,001 - Rs 50,000 20% Rs. 35,001 - Rs. 60,000 20% Rs. 50,001 - Rs 1,00,000 30% Rs 60,001 - Rs. 1,20,000 30% Above Rs.. 1,00,000 40% Above Rs. 1,20,000 40% In the case of a Hindu undivided family which at any time during the previous year has at least one member whose total income of the previous year relevant to the assessment year commencing on the 1st day of April, 1995, exceeds Rs. 35,000, the rates of income-tax have been specified in sub-paragraph II of Paragraph A of Part III of the First Schedule to the Finance Act. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Sch....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....e., For a.y. 1994-95) Domestic companies : Domestic companies : (I) in which the public are substantially interested : 45 per cent (I) in which the public are substantially interested : 40 per cent (Ii) in which the public are not substantially interested : 50 per cent (Ii) in which the public are not substantially interested : 40 per cent Foreign companies : 65 per cent Foreign companies III. F. Surcharge 12. In the case of resident non-corporate assessees referred to in Paragraphs A, B, C and D of Part III of the First Schedule to the Finance Act, the levy of surcharge on the amount of income-tax has been abolished. However, in the case of domestic companies, surcharge will continue to be levied at the rate of 15 per cent. of the amount of income-tax where the total income exceeds seventy-five thousand rupees. III. G. Effect of changes in the rate structure 13. The impact of increase in the exemption limit, widening of the slabs of income and removal of surcharge in the case of individuals, etc., referred to in sub-paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, at different income levels, is as under : Table Total income T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ealth-tax Act, the Gift-tax Act, the Interest-tax Act and the Expenditure-tax Act. 15.3 These amendments take effect from 1st June, 1994. [Sections 3, 35, 51, 54, 56, 58 and 59] Period of holding in the case of securities and units of Mutual Funds 16. Long-term capital assets enjoy certain tax concessions vis-a-vis short-term capital assets. The Income-tax Act defines long-term capital assets as those assets which are not short-term. Short-term capital assets are those capital assets which are held for a period of up to 36 months. However, the Finance Act, 1987, through an amendment to the provisions of section 2(42A), reduced the maximum period of holding in respect of company shares from 36 months to 12 months for being treated as short-term capital assets. 16.2 There are many financial instruments, other than company shares, through which the investors are entering the capital market. The units of the Unit Trust of India and Mutual Funds specified under section 10(23D) of the Income-tax Act are the instruments through which the small investors are increasingly getting the benefit of investment in the capital market. In order to provide such units and all the securities trad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....date of offer made by the company to the date of renouncement. 17.3. These amendments will enable the taxpayers to compute the tax liability easily and prevent proliferation of litigation. 17.4. The aforesaid amendments take effect from 1st April, 1995, and will, accordingly, apply in relation to the assessment year 1995-96 and subsequent years. [Sections 3 and 18] Special provisions for persons governed by Portuguese Civil Law 18. A large number of persons residing in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu are governed by the Portuguese Civil Code of 1860. According to this law, when a person gets married, the property of the spouses gets blended and each spouse becomes a 50 per cent. shareholder in the combined property. Similarly, each spouse is legally entitled to 50 per cent. of the income of the other spouse. Such a system referred to as community of property (in Portuguese language "COMMUNIAO DOS BENS") had been posing problems in the assessment of income as there were doubts whether the income was to be assessed in the hands of the community of property or in the hands of the husband and wife separately. 18.2. The Income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sociation of persons consisting of the husband and wife governed by the system of community of property in force in Goa and other places in the provisions of the Income-tax Act have been deleted so that the husband and wife can claim deduction under the provisions of Chapter VI-A and rebate under Chapter VIII separately. 18.4. These amendments take effect, retrospectively, with effect from 1st April, 1963, and will, accordingly, apply in relation to assessment year 1963-64 and subsequent years. [ Sections 4 and 50 ] Extending the period of stay in India in the case of non-resident Indians without their losing the non-resident status 19. Under the provisions of clause (1) of section 6 of the Income-tax Act, an individual is said to be resident in India in any previous year, if he has been in India during that year, _ (i) for a period or periods amounting to one hundred and eighty-two days or more, or (ii) for a period or periods amounting to sixty days or more and has also been in India within the preceding four years for a period or periods amounting to three hundred and sixty-five days or more. However, the period of sixty days was increased to one hundred and fifty days in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10C) should be extended to employees of co-operative societies also. Suggestions had also been received that the employees of the Universities, Indian Institutes of Technology and Indian Institutes of Management, should also be covered under the provisions of section 10(10C). This would help them to rationalize their staff structure and reduce cost on salaries. 20.3. The Finance Act has, therefore, extended the scope of the income-tax exemption under section 10(10C) to the employees of co-operative societies, Universities, Indian Institutes of Technology and such institutes of management as may be specified by the Central Government for the purposes of that section. It has further been provided that the schemes of co-operative societies governing the payment of amounts on voluntary retirement, are to be approved by the concerned Chief Commissioner or Director-General in this behalf. 20.4. This amendment takes effect from 1st April, 1995, and will, accordingly, apply in relation to the assessment year 1995-96 and subsequent years. [Section 6] Provision for income-tax exemption on the income of specified news agencies 21. The Finance Act has inserted a new clause (22B) in sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....een defined so as to mean such classes of citizens, other than Scheduled Castes and Scheduled Tribes, as are notified by the Central Government or any State Government from time to time. 22.3. This amendment takes effect retrospectively from 1st April, 1993, and will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. [Section 6] Restricting five-year tax holiday under section 10B of the Income-tax Act to 100% EOUs exporting at least 75 per cent. of their turnover 23. Under section 10B of the Income-tax Act, a five-year tax holiday is allowed to a 100% export oriented undertaking (100% EOU) which manufactures or produces any article or thing and is approved by the prescribed Board. This tax holiday is in operation since the assessment year 1989-90. 23.2. 100% EOUs, as the name signifies, get special treatment by virtue of the fact that they export their entire produce. However, in order to provide economic flexibility to them and allow them to dispose of the export rejects and by-products, they are allowed to sell 25% of their product in the domestic market. In effect, such units get exemption for five years even in respect of profits from the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....computer programmes. 24.4. This amendment takes effect from 1-4-1994 and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. It will accordingly coincide with similar concession extended last year in section 10A to the Computer Hardware and Software Parks. [Section 7] Raising of the monetary limit for the purposes of compulsory audit in the case of trusts claiming exemption under sections 11 and 12 and of substantial contribution to the trusts by the interested persons 25. In order to claim exemption from income-tax in respect of income derived from property held under trust or by way of voluntary contributions by charitable or religious trusts or institutions, section 12A of the Income-tax Act specifies certain conditions. One such condition was that where the total income of the trust or institution, but for the exemption under sections 11 and 12, exceeded twenty-five thousand rupees in any previous year, the accounts of the trust or institution for that year should have been audited by a chartered accountant or any other accountant entitled to be appointed as an auditor of companies. 25.2. Section 13(1)(c) of the Income-tax Act provides....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e from which expenditure on treatment in hospitals approved by the Chief Commissioner has been made exempt. It will, accordingly, apply in relation to the assessment year 1993-94 and subsequent years. Accordingly, persons who were hospitalised during any previous year relevant to the assessment year 1993-94 and onwards can claim exemption of any amount reimbursed by the employer for such hospitalisation provided the certificate and the receipt are attached. [Section 10] Enhancement of the limit of deduction in case of self-occupied house property 27. Under the provisions of section 24(2) of the Income-tax Act, a deduction up to five thousand rupees was allowed in respect of interest payable on borrowed capital used for acquisition, construction, repair, renewal or reconstruction of a self-occupied house property. This limit of deduction was fixed by the Finance Act, 1986, with effect from 1-4-1987. Keeping in view the increase in the cost of construction since 1986, the Finance Act has raised the limit of deduction in respect of such interest from five thousand rupees to ten thousand rupees. The amount of interest payable on borrowed capital to the extent of ten thousand rupees,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research (DSIR). 29.3. The Finance Act has widened the ambit of the definition of "National Laboratory" to include scientific laboratories functioning at the national level under the aegis of the Department of Electronics, Defence Research and Development Organisation, Department of Bio-Technology and Department of Atomic Energy. This deduction shall now also be available to laboratories carrying on scientific research in Universities and the Indian Institutes of Technology. 29.4. This amendment takes effect from 1st April, 1995, and will, accordingly, apply in relation to the assessment year 1995-96 and subsequent years. [Section 13 ] Deduction in respect of provisions made for bad and doubtful debts relating to rural branches of banks 30. Under the provisions of section 36(1)(viia)(a) of the Income-tax Act, all scheduled banks [except banks incorporated by or under the laws of a country outside India and a bank approved by the Central Government for the purposes of clause (viiia)] and non-scheduled banks are entitled to a deduction in respect of a provision for bad and doubtful debts of an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....construction or repair of buildings, dams, bridges or other structures, or of roads or canals. It will also include the execution of any other works contract. It will, thus, include work related to electrical fittings, plumbing job, landscaping work, etc. 31.3. The rate of 8 per cent. is comprehensive. All deductions under sections 30 to 38 including depreciation, will be deemed to have been already allowed and no further deduction will be allowed under these sections. The written down value will be calculated, where necessary, as if depreciation as applicable has been allowed. In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed. 31.4. The assessees who file the return, estimating income at 8 per cent. of gross receipts, or a higher income, will neither be required to maintain books of account under the provisions of section 44AA, nor required to get accounts audited under the provisions of section 44AB, in respect of their income from the business of civil construction. However, even such an assessee has to comply with the requirements of both sections 44AA and 44AB in respect his businesses which are not covered by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her amount than that specified above. Illustration (1) : An assessee owns a light commercial vehicle for 9 months 15 days, a medium goods vehicle for 9 months and a medium goods vehicle for 12 months during the previous year. His profits and gains from the three trucks shall be deemed to be (Rs. 1,800 x 10) + (Rs. 1,800 x 9) + (Rs. 1,800 x 12), i.e., Rs. 55,800. Illustration (2) : An assessee owns a heavy goods vehicle for 9 months 7 days, a medium goods vehicle for 9 months and a light commercial vehicle for 12 months during the previous year. His profits and gains from the three trucks shall be deemed to be (Rs. 2,000 x 10) + (Rs. 1,800 x 9) + (Rs. 1,800 x 12), i.e., Rs. 57,800. 32.2. The estimated income is comprehensive. All deductions under sections 30 to 38 including depreciation, will be deemed to have been already allowed and no further deduction will be allowed under these sections. The written down value will be calculated, where necessary, as if depreciation as applicable has been allowed. In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed. 32.3. An assessee who files the return, estimating income on the b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ost something to the assessee in terms of money that the provisions relating to the levy of tax on any capital gains under section 45(1) read with section 48(ii) would apply. A transaction to which these provisions cannot be applied has been held to be one never intended by section 45(1) to be the subject of the charge. The courts have further interpreted that the intent of levying capital gains tax goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on expenditure of money to a person seeking to acquire it. The courts have held that none of the provisions pertaining to the head "Capital gains" suggests that "capital assets" include an asset in the acquisition of which no cost at all can be conceived. The leading case propounding this interpretation is CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC). 33.3. In order to overcome the judicial interpretation, the Finance Act, 1987, with effect from 1-4-1988, has provided in section 55(2)(a) that cost of acquisition in case of self-generated goodwill will be taken to be nil. For the purpose of bringing the capital gains arising from transfer of any of the follo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d forward loss of any year from house property in so far as it relates to interest on borrowed capital, is allowed set off only against "Income from house property" of subsequent years. These provisions apply to the assessment year 1993-94 and subsequent years. 35.2. It has been represented that these provisions have a dampening effect on housing activity. Consequently, the legal position prior to the amendments of 1992 has been restored. The Finance Act has made amendments to ensure that losses as have been carried forward under the head "Income from house property" for the assessment years 1993-94 and 1994-95, are allowed to be set off against any head of income in the assessment years 1995-96 and 1996-97, as a transitional measure. This is necessary because there may be cases where the combined carried forward loss under the head "Income from house property", for the assessment years 1993-94 and 1994-95, is more than the total income of the assessee for the assessment year 1995-96. A set-off of the balance of carried forward loss relating to the assessment years 1993-94 and 1994-95 is to be allowed against income for the assessment year 1996-97 also (i.e., one more assessment y....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Law. The first year in which the deduction will be available will be the year in which the person starts repaying the loan. The deduction will be allowed for a maximum period of eight years or till the principal amount of such loan together with interest are liquidated, whichever is earlier. 36.3. This amendment will take effect from 1-4-1995 and will, accordingly, apply to the assessment year 1995-96 and subsequent years. [Section 23] 100 per cent. deduction for donations made to the Chief Minister's Earthquake Relief Fund, Maharashtra 37. Section 80G of the Income-tax Act provides that the sums paid as donations, inter alia, to any fund or institution established in India for charitable purposes are entitled to deduction at the rate of 50 per cent., in computing the total income of the donors. In the case of certain funds and institutions specified in the said section, donations are allowed deduction at the rate of 100 per cent. 37.2. The recent earthquake in parts of Maharashtra required a gigantic relief effort and co-operation of all. In view of this, section 80G has been amended in order to allow 100 per cent. deduction for donations to the Chief Minister's Earthquake ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r operator/travel agent), thus, got the deduction in relation to the entire amount of foreign exchange received by him while the second recipient (another hotel/tour operator/travel agent) got the deduction in relation to that portion of it which the first recipient passed on to him for providing service to foreign tourists. 39.4. Logically, the deduction, in such cases, should be allowed only on sharing basis, proportionate to the value of service rendered by each segment. 39.5. With a view to removing the duplication of the incentive for the same amount of foreign exchange remittance, section 80HHD has been amended so as to provide that the first recipient of foreign exchange would be entitled to deduction under section 80HHD in respect of the amount retained by him and not in respect of amount which represents payments passed on to the other assessee. 39.6. Accordingly, in a case where a group of foreign tourists pays $10,000 to a tour operator A and the tour operator pays in converted rupee, the value of $2,500 to hotel B, $1,500 to hotel C and $700 to travel agent D, the concession to each will be computed on the basis of the following receipts :_ (a) to the tour operator....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anufacture any item listed in the Eleventh Schedule, will not operate for units set up in backward States. In effect, a new industrial unit, whether small scale or not, located in a backward State, will get the full tax holiday for five years beginning from the assessment year relevant to the year of commencement of production and, thereafter, will be allowed the normal deduction under section 80-IA at 25 per cent. (30 per cent. for companies) for the balance period of five years (seven years of co-operative societies), even if it produces an item listed in the Eleventh Schedule. 41.3.2. The aforesaid condition will continue to hold good in the case of industrial undertakings set up in States other than the backward States specified in the Eighth Schedule to the Income-tax Act. 41.4. This amendment takes effect from 1-4-1994 and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. [Section 27] Extension of the five-year tax holiday to new industrial undertakings set up in extremely backward districts 42. The Finance Act, 1993, introduced a five-year holiday under section 80-IA for new industrial undertakings which start production after 1-4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ual claiming the deduction or a minor child of whom he is the guardian. Under section 88, rebate on amount paid in the name of spouse is allowed only in the case of life insurance or deferred annuity on the life of such spouse. 43.2. Under the earlier provisions, i.e., under section 80C, there was no stipulation on whether deduction would be allowed if the provident fund account was in the name of the spouse. However, Board's D. O. No. 178/110/83-ITA-I dated 10-11-1983, clarified that deduction under section 80C would be available both in the case of the husband contributing to the wife's account and the wife contributing to the husband's account. The only condition was that the deduction would be given to that spouse from whose chargeable income the contribution to the provident fund had been made. 43.3. The tax rebate, in any case, is allowed only to the person from whose income the contribution has been made to the specified savings. Often accounts are kept in the spouse's name merely for the purpose of convenience in the case of an untimely death. The same applies to other social security instruments like unit-linked insurance plans. 43.4. In view of this, section 88 has bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ic companies has been reduced from fifty per cent. (applicable to closely held companies) and forty-five per cent. (applicable to widely held companies) to forty per cent., the Finance Act has amended section 112 to provide that the long-term capital gains in the case of domestic companies will be taxed at the reduced rate of thirty per cent. 46.2. Similarly, prior to this amendment, the foreign companies were taxed on long-term capital gains at the rate of forty per cent. and the non-resident partnerships, etc., were taxed at the rate of thirty per cent. thereof. In the case of the non-resident individuals and Hindu undivided families, the income-tax rate on long-term capital gains is twenty per cent. As taxation at the uniform tax rate of twenty per cent. has been provided on the income by way of interest, dividends, etc., in the case of the foreign companies and the non-resident non-corporate assessees, section 112 has further been amended to provide that in their case, the income-tax rate on long-term capital gains will be twenty per cent. 46.3. This amendment takes effect from 1st April, 1995, and will, accordingly, apply in relation to the assessment year 1995-96 and subseq....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on-resident non-corporate assessees and foreign companies. Further, where the gross total income of these assessees consists only of the incomes mentioned at (i) to (iii) in para 47.2, no deduction shall be allowed to them under Chapter VI-A of the Income-tax Act. However, where the gross total income includes the aforesaid incomes, the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by the said incomes. 47.5. It has further been provided that it shall not be necessary for the aforesaid assessees to furnish a return of their income under sub-section (1) of section 139 if, _ (a) the total income in respect of which they are assessable under the Act during the previous year consists only of the incomes referred to at (i) to (iii) in para 47.2, and (b) the tax deductible at source under the provisions of Chapter XVII-B of the Act has been deducted from such income. 47.6. Consequential amendments have been made to sections 44D, 57 and 196A of the Income-tax Act, in view of the amendments made to section 115A of the Income-tax Act. 47.7. These amendments, except amendment to section 196A, take effect from 1st April, 1995, and will, accordingly, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 44AE. 48.8. These amendments take effect from 1-4-1995 and will, accordingly, apply in relation to the assessment year 1995-96 and subsequent years. [Sections 33 and 34] Change in the due date for filing returns of income by companies 49. The Explanation to section 139(1) of the Income-tax Act, as it stood with effect from 1st April, 1989, provided that the due date for furnishing returns of income in the case of companies was to be the 31st day of December of the relevant assessment year. Prior to 1st April, 1989, the due dates by which the returns of income were required to be furnished by all the taxpayers, including the companies, were only two, i.e., 30th June and 31st July of the relevant assessment year. The staggering of the due date for furnishing returns in the case of companies to the end of the month of December of the relevant assessment year, had resulted in delay in the realisations by way of self-assessment tax. Further, the work of processing of returns of the companies could be taken up only towards the end of the assessment year. 49.2. The Finance Act has, therefore, amended the Explanation to section 139(1) of the Income-tax Act to provide that the due da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4, and will, accordingly, apply to all intimations under section 143(1) or 143(1B) received by the assessees on or after 1st June, 1994. [Sections 37, 38 and 46] Enlarging the scope of the provision regarding deduction of income-tax at source on payments by contractors to sub-contractors 51. Section 194C(2) of the Income-tax Act contains provisions relating to deduction of income-tax at source from payments made to a sub-contractor by a contractor. Prior to the amendment made by the Finance Act, these provisions were applicable only where the contractor was a resident person referred to in section 194C(1) of the Act, that is to say, he had taken a contract for carrying out any work, or for supply of labour for carrying out any work, from the Central Government or any State Government, a local authority, a statutory corporation or a company, etc. [i.e., the agencies specified in section 194C(1)]. In the recent past, certain instances had come to notice where the resident contractors entered into contracts with the Government of a foreign State, etc., and parcelled out the work of such contracts to sub-contractors who were also residents. In such cases, the payments made by the co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Sections 198 to 200 and 202 to 205 of the Income-tax Act, relating to provisions in respect of deduction of income-tax at source, have been amended in consequence to the insertion of new section 194-I in the Act. The certificate of tax deducted at source from rent has to be given in Form No. 16A. The annual return of tax deducted at source from rent, has to be furnished in Form No. 26J. 52.5. The aforesaid amendments take effect from 1st June, 1994. [Sections 40, 42 and 43] Change in the number of instalments of advance tax and the amount payable thereunder in the case of companies 53. Section 211 of the Income-tax Act, prior to its amendment by the Finance Act, provided that advance tax on the current income, calculated in the manner laid down in section 209 of the Act was payable by all the assessees who are liable to pay the same in three instalments during each financial year. The due date of, and the amount payable in, each such instalment, were as follows : Due date of instalment Amount payable On or before 15th September Not less than thirty per cent of such advance tax. On or before 15th December Not less than sixty per cent of such advance tax, as reduced by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the advance tax paid by the company on or before the 15th day of December. It has also been provided that where the advance tax paid by the companies on or before the 15th day of June is not less than twelve per cent. of the tax due on the returned income and the advance tax paid on or before the 15th day of September, is not less than thirty-six per cent. of the tax due on the returned income, then, the companies will not be liable to pay any interest on the amount of the shortfall on the aforesaid dates. 53.6. The aforesaid amendment takes effect from 1st April, 1995 and will, accordingly, apply to the assessment year 1995-96 and subsequent years. [Sections 44 and 45] Enlarging the scope of levy of interest for deferment of advance tax 54. The whole amount of the advance tax payable is required to be paid on or before 15th March during the financial year. The proviso to section 211(1), however, provides that any amount paid by way of advance tax on or before the 31st day of March, is also to be treated as advance tax paid during the financial year. This proviso was inserted as certain High Courts had held that payment made after the 15th March during the financial year wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ii) to (vii) define High Court in relation to Union Territories. As the Union Territories of Arunachal Pradesh, Mizoram and Goa have become States, the Finance Act has amended section 269 in order to omit clause (iii) and amend clause (vi) thereof. 55.2. This amendment takes effect from 1st April, 1995. [Section 47] Delegation of power to Chief Commissioners and Directors-General to approve reduction or waiver of penalty 56. For the assessment year 1988-89 and earlier years, the provisions of section 273A, as these stood prior to the amendment by the Finance Act, allowed the Commissioner or the Chief Commissioner to reduce or waive penalty under section 271(1)(i) or section 271(1)(iii) or section 273 or interest under section 139(8) or section 215 or section 217. Where the quantum of penalty exceeded certain monetary limits, the provisions of sub-section (2) and sub-section (4) of section 273A provided that the Commissioner or the Chief Commissioner could pass the order reducing or waiving the penalty on satisfaction of certain conditions specified in sub-section (1) and sub-section (4) of section 273A, only with the previous approval of the Board. 56.2. For the purpose of fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Authority for Advance Rulings shall also be laid before both the Houses of Parliament. 57.4. Corresponding amendment has been made to section 46 of the Wealth-tax Act. 57.5. This amendment takes effect from 1st June, 1994. [Sections 49 and 53] WEALTH-TAX Urban land held as stock-in-trade 58. Under the provisions of the Wealth-tax Act, prior to the amendment made by the Finance Act, urban land held by an assessee as stock-in-trade was not subject to wealth-tax for a period of three years from the date of acquisition of such land by him. It has been represented that the period of three years was not sufficient to acquire, develop and sell the land. The Finance Act has, therefore, raised this period of three years to five years. 58.2. This amendment takes effect from 1st April, 1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years. [Section 51] GIFT-TAX Raising of exemption limit for gifts made to dependent relatives 59. Under the provisions of the Gift-tax Act, prior to the amendment by the Finance Act, gifts made on the occasion of the marriage of a relative, dependent on the donor for support and maintenance, were exempt from g....