TaxTMI 
TaxTMI 
FINANCE (NO. 2) ACT, 1998
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.... Indi­ans). Finance (No. 2) Act, 1998 Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in spe­cial cases during the financial year 1998-99 4.3 The rates of deduction of income-tax at source from "Sal­aries" during the financial year 1998-99 and also the computation of "advance tax" payable during that year in the case of various categories of taxpayers, 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 1998-99 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 that financial year or assessment of persons who are likely to transfer property to avoid tax, etc. The salient fea­tures of the rates specified in the said Part III are indicated in the following paragraphs. 4.3-1 Individuals, Hindu undivided families, etc. - Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of individuals, Hindu undivided fam....
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....ct. This rate is 30% which is the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. 4.3-6 Companies - In the case of companies, the rates of income-tax have been specified in Paragraph E of Part III of the First Schedule of the Act. These rates are the same as those specified in the corresponding paragraph of Part I of the First Schedule to the Act. There is no change in the existing rates of 35% for domestic companies and 48% for foreign companies [Section 2 and First Schedule] Finance (No. 2) Act, 1998 Redesignation of Income-tax Authorities under the Income-tax Act 5.1 The Fifth Central Pay Commission had recommended a change in the designation of Assistant Commissioner of Income-tax (Senior Scale). Consequently, it was decided to redesignate Assistant Commissioner of Income-tax (Senior Scale) and Assistant Director of Income-tax (Senior Scale) as Deputy Commissioner of Income-tax and Deputy Director of Income-tax respectively. This necessitated redesignating the existing Deputy Commissioner of Income-tax and Deputy Director Income-tax as Joint Commissioner of Income-tax and Joint Director of Income-tax respectively. The abo....
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.... employer of a foreign national, proceeding to India during vacation. 6.2-2 Sub-clause (via) provides exemption in respect of remunera­tion to employees or consultants of a foreign philanthropic body. 6.2-3 Sub-clause (viia) provides exemption in respect of tax perquisites of foreign technicians. 6.2-4 Sub-clause (ix) provides exemption in respect of tax per­quisites of foreign teachers or professors. 6.2-5 Sub-clause (x) provides exemption in respect of amount received by a non-resident for conducting research during 24 months commencing from his arrival in India. 6.2-6 The Act omits these sub-clauses as a rationalisation meas­ure. 6.3 The ex gratia payments made by the Central Government conse­quent upon the abolition of privy purses are exempt under clause (18A) of section 10. This clause was inserted in 1972. As this exemption has outlived its utility, the Act omits clause (18A) of section 10. 6.4 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to assessment year 1999-2000 and subsequent years. [Section 5] Finance (No. 2) Act, 1998 Extension of exemption under section 10(15)(iv) to industrial undertakin....
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....be subject to their adherence of conditions similar to those specified for sub-clauses (iv) and (v) of section 10(23C) regarding maintenance of accounts, expenditure and accumulation of funds and investments of funds in specified assets. The accumulated income is required to be invested in the modes specified in section 11(5). These institutions are given time up to 30-03-2001 to transfer their investments to specified securities. The Rules and Forms in this regard have since been notified vide Notification No. S.O. 897(E) dated 12th October, 1998. By this notification the Central Board of Direct Taxes have been designated as the prescribed authority for the purpose of approval under sub-clauses (vi) and (via) of section 10(23C). 8.5 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to assessment year 1999-2000 and subsequent years. [Section 5] Finance (No. 2) Act, 1998 Liberalisation of exemption of income of a venture capital fund or a venture capital company. 9.1 Section 10(23F) exempted income by way of dividends or long term capital gains of a venture capital fund or a venture capital company from investments made by way of ....
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....usiness of developing, main­taining and operating an infrastructure facility; and (ii) which has been approved by the Central Government on an application made by it accordance with the rules made in this behalf and which satisfies the specific conditions. 10.3 The amended provisions would apply only in respect of in­vestment made on or after 1-6-1998. Doubts had been expressed in different quarters about the continuance of exemption available under section 10(23G) in respect of investments made prior to 1-6-1998 for assessment year 1999-2000 and onwards. The Central Board of Direct Taxes have clarified by way of a press release that the exemption available under the provisions of section 10(23G), prior to its amendment by the Act, will continue to govern the investments made prior to 1-6-1998. The Rules and Forms in this regard have since been notified vide Notification No. S.O. 897(E) dated 12th October, 1998. 10.4 The definition of "infrastructure facility" in this clause has also been amended so as to include a project for housing which fulfils the conditions specified in sub-section (4F) of section 80-IA. 10.5 The amendment will take effect from 1st April, 1999 an....
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....ami­ly, other than the treatment referred to in clauses (i) and (ii) of the proviso to clause (2) of section 17 of the Income-tax Act, to the extent of ten thousand rupees, is not included in the 'perquisite' of the employees. 13.2 In order to meet the rising cost of medical treatment and to mitigate the hardship faced by salaried taxpayers in such cases, the limit of ten thousand rupees has been enhanced to fifteen thousand rupees by an amendment in the provision contained in section 17(2)(v) of the Act. 13.3 The amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 7] Finance (No. 2) Act, 1998 Deductions from income from house property 14.1 While computing the income from house property, a deduction equal to one-fifth of the annual value of the property was being allowed in respect of repairs and collection of rent from the property under section 24(1)(i) of the Income-tax Act. With a view to promote investments in the housing sector, the Act has enhanced the percentage of this deduction to one-fourth of the annual value. 14.2 In order to provide an incentive for self-o....
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....e to income-tax when such an asset is sold, discarded, demolished or destroyed in the previous year. 16.2 Clause (iii) in section 32(1) of the Income-tax Act has been inserted to provide that in the case of any asset in respect of which depreciation is claimed and allowed under section 32(1) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year to which it is first brought to use), the depreciation allowance will be the amount by which the moneys payable in respect of such asset together with the amount of scrap value, if any, falls short of the written down value thereof. It has also been provided that in such a case depreciation will be allowed only if the deficiency is actually written off in the books of assessee. Sub-section (2) in section 41 of the Income-tax Act has been inserted to provide that where the moneys payable in respect of such assets together with the amount of sharp value, if any, exceeds the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business of the previous year in which the m....
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....ction 288 and the assessee furnishes along with his return of income the report of such audit. In cases where the accounts of the assessee are required to be audited under any other law, e.g., under the Companies Act, it would be sufficient if the accounts are audited under that law and the audit report as per that law is furnished with the return along with a further report in the prescribed form. 17.3 It is provided that where a deduction is allowed under this section to a firm, association of persons or body of individuals, no deduction shall be allowed to any partner of the firm or the member of the association or body in respect of the same deposit. It is also provided that where a deduction is allowed in respect of any amount deposited in the special account or in the Site Restoration Account in one previous year, no deduction shall be allowed in respect of the same amount in any other previous year. 17.4 The amount standing to the credit of such special account or Site Restoration Account can be withdrawn only for the purposes specified in the respective schemes. If the amount released by the State Bank of India or the amount withdrawn from the Site Restoration Account dur....
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...., such part of the cost of such asset as is relatable to the deduction already allowed shall be deemed to be the profits and gains of the business or profession of the previous year in which the asset is sold or otherwise transferred and shall, accordingly, be taxed as income of that previous year. The deduc­tion allowed earlier will, however, be not withdrawn in the cases where the asset is so sold or otherwise transferred to Govern­ment, a local authority, statutory corporation or a Government company or where the sale or transfer of assets is made in con­nection with the succession of the firm by a company fulfilling certain conditions. 17.9 These provisions are aimed to cater to the need of proper abandonment of oil wells after their economic life. 17.10 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 10] Finance (No. 2) Act, 1998 Omission of provision for weighted deduction 18.1 Sub-section (2AB) to section 35 was introduced by the Fi­nance Act, 1997. This sub-section allows weighted deduction of a sum equal to one and one-fourth times of the ....
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....xpenditure. It is well decided that unlawful expendi­ture is not an allowable deduction in computation of income. 20.2 This amendment will take effect retrospectively from 1st April, 1962 and will, accordingly, apply in relation to the as­sessment year 1962-63 and subsequent years. [Section 15] Finance (No. 2) Act, 1998 Tax treatment of assignment expenses 21.1 A situation unique to the petroleum and natural gas industry is the assignment or farm-out of participating interest held by an assessee in a production sharing contract to the third party. Section 42 of the Income-tax Act is amended so as to provide for the treatment of the unallowed expenditure in a case where the business of the assessee consisting of the prospecting for or extraction or production of petroleum and natural gas is trans­ferred wholly or partly or any interest in such business is transferred in accordance with the agreement referred to in sub-section (1) of section 42. 21.2 It is provided that if the proceeds of such transfer (so far as they consist of capital sums) are less than the expenditure incurred remaining unallowed, a deduction equal to the expenditure remaining unallowed as red....
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....ny if the latter had not transferred the business or interest in the business. 21.5 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 17] Finance (No. 2) Act, 1998 Certain receipts not to be included for computing the actual cost of an asset 22.1 In order to rationalise the definition of the term "actual cost", section 43 is amended by inserting Explanations 9 and 10 to sub-section (1) in this section. Explanation 9 provides that where an asset is or has been acquired on or after the 1st day of March, 1994 by an assessee, the actual cost of such asset shall be reduced by the amount of duty of excise or the additional duty leviable under section 3 of the Customs Tariff Act, 1975 in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944. 22.2 Explanation 10 provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indi­rectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or r....
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....he conditions for allowance of deduction in respect of both the above types of interest, the Act amends the first proviso to section 43B so as to provide that any sum pay­able by the assessees as interest on any term loan from a sched­uled bank referred to in clause (e) shall be allowed as deduction during the previous year if such sum is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139. 23.3 These amendments will take effect retrospectively from 1st April, 1997 and will, accordingly, apply in relation to the assessment year 1997-1998 and subsequent years. [Section 19] Finance (No. 2) Act, 1998 Enhancement of limit for maintenance of accounts by certain persons carrying on business or profession 24.1 Under the existing provisions of section 44AA, every person carrying on business or profession, not being a profession re­ferred to in sub-section (1) thereof, is required to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income, if his income from business or profession exceeds forty thousand rupe....
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....ferent from those appear­ing on shares which were earlier lent, the strict legal position of such exchange in terms of being a transfer under clause (47) of section 2 of the Income-tax Act attracting capital gains tax was far from clear. Since such transactions are not intended to be brought within the definition of transfer, the CBDT clari­fied in Circular No. 751 dated 10-2-1997 that such exchange would not result in transfer. To make the legal position free from doubt, the Act has amended section 47 of the Income-tax Act by inserting clause (xv) to provide that any transfer in a scheme for lending of any securities under an agreement or arrangement, subject to the guidelines issued by the Securities and Exchange Board of India in this regard, which the assessee has entered into with the borrower of such securities, shall not be regarded as transfer. 26.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 21] Finance (No. 2) Act, 1998 Exemption from levy of capital gains tax and allowance of carry forward of losses and unabsorbed depreciation in certain cases of....
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....filling the above mentioned conditions for the unexpired period available to the predecessor firm or the pro­prietory concern. However in the event of non-compliance of any of the conditions laid down in the hands of the successor company in any previous year, such loss and depreciation allowed to be set off shall be deemed to be the income of successor company chargeable to tax in that year. 27.6 Also Fourth proviso to sub-section (1) of section 32 has been amended to provide that the aggregate depreciation allowable to predecessor and successor entities shall not exceed in any previous year the deduction calculated at the prescribed rates as if the re-organisation had not taken place. 27.7 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Sections 21, 22, 27 & 9] Finance (No. 2) Act, 1998 Extension of time for investing amount of capital gains under section 54EA & 54EB of Income-tax Act in cases of compulsory acquisition under any law. 28.1 Section 54H of Income-tax Act caters to the situation where the transfer of the long-term asset is by way of compulsory acquisiti....
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....l be allowed to be carried forward and set off in the subsequent assessment years against the income from house property upto a maximum of 8 assessment years. 30.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 26] Finance (No. 2) Act, 1998 Rationalisation of benefits available to parents and guard­ians of handicapped dependent 31.1 Under the existing provisions of section 80DD of the Income-tax Act, an assessee who is resident in India being an individual or a Hindu undivided family was allowed a deduction of Rs. 15,000 for expenditure incurred in respect of handicapped dependants subject to certain conditions. 31.2 Section 80DDA allows a separate deduction, from the gross total income, of an amount not exceeding Rs. 20,000, deposited in a year in any scheme of LIC, UTI, etc., specifically framed for providing recurring or lump sum payment for the maintenance and upkeep of a handicapped dependent. 31.3 It has been felt that the parents or guardian of handicapped dependents may not have to incur expenditure or medical treatment of a handicapped dependent every....
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.... section 80GG 33.1 Section 80GG of the Income-tax Act provided for a deduction to all assessees [except the salaried persons who received house rent allowance covered under section 10(13A)] in respect of expenditure incurred towards payment of rent for residential accommodation, subject to certain limits. This relief was with­drawn by the Finance Act, 1997 by omitting the said section with effect from 01-04-1998. 33.2 The Act seeks to continue the above deduction and has, accordingly, reintroduced section 80GG of the Income-tax Act with effect from 01-04-1998. Subject to certain conditions, the deduction is now allowable to an assessee who incurs any expendi­ture in excess of 10% of his total income towards payment of rent in respect of any furnished or unfurnished accommodation occupied by him for the purpose of his own residence. The amount of allow­able deduction will be as under: (i) the excess of actual rent paid over 10% of the total income; (ii) Rs. 2000 per month; (iii) 25% of the total income; whichever is less. 33.3 The benefit of above deduction will not be available to an assessee in a case where he, his spouse or minor child or the HUF of which ....
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.... the same under­taking, when they were entitled to deductions under more than one section of Chapter VIA. With a view to providing suitable statu­tory safeguard in the Income-tax Act to prevent taxpayer from taking undue advantage of existing provisions of the Act by claiming repeated deductions in respect of the same amount of eligible income, even in cases where it exceeds such eligible profits of an undertaking or a hotel, in built restrictions in section 80HHD and 80-IA have been provided by amending the sec­tions, so that such unintended benefits are not passed on to the assessees. 35.3 These amendments will take effect from 1-4-1999 and will, accord-ingly, apply in relation to assessment year 1999-2000 and subsequent years. [Sections 32 & 34] Finance (No. 2) Act, 1998 Modification in the provisions relating to export of software under section 80HHE 36.1 Under the existing provisions of section 80HHE, 100% deduc­tion is allowed on profits derived from export of computer soft­ware provided the sale consideration is received in or brought into India inconvertible foreign exchange. Software exports have grown exponentially in recent years. With a view t....
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....company. For this purpose, the accountant shall be one as is defined in the Explanation below sub-section (2) of section 288; and (b) a certificate from the exporting company that in respect of the export turnover mentioned in the certificate, the exporting company has not claimed any deduction under this sec­tion. The certificate issued by the exporting company shall be certified by the auditor auditing the accounts of the exporting company under the provisions of this Act or under any other law. 36.5 These amendments will take effect from the 1st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 33] Finance (No. 2) Act, 1998 Tax holiday in respect of undertaking set up in industrially backward States and industrially backward districts extended up to 31-3-2000 37.1 Under the existing provisions of section 80-IA of the Income-tax Act, 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. 37.2 For encouraging industrialisation in industrially backward States, the Finance Act, 1993 had provided for a f....
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....ustrial research and development activities. 39.1 In order to promote research and development activities, a five-year holiday was provided under section 80-IA with effect from the assessment year 1997-98 to approved companies engaged in scientific and industrial research and development activities. The incentive was made available to any company that had as its main objective, activities in the areas of scientific and indus­trial research and development and which had been accorded ap­proval by the prescribed authority. The prescribed authority for this purpose is the Secretary, Department of Scientific and Industrial Research. The tax holiday available to any company, which is accorded approval by the prescribed authority at any time before 31st March, 1998 has been extended by one year, i.e., up to 31st March, 1999. 39.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 Tax holiday to radio-paging, domestic satellite service, network of trunking and electronic data inter-change services. 40.1 Under the existing provisions of 80....
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....before March 31, 2001. 42.2 Subject to the above conditions being satisfied, 100% of profits from such business shall be deductible. 42.3 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 Inland Port and Waterways regarded as infrastructure facility 43.1 Under the existing provisions of section 80-IA, roads, highways, bridge, airport, port and rail system are regarded as infrastructure facilities and the undertakings engaged in develop­ing, maintaining or operating such infrastructure facility are entitled to a tax holiday for 5 years and a deduction of 30% of profits for the next 5 years. These companies have the choice of availing such benefits in any 10 consecutive years out of initial 12 years from the year in which they commence production. 43.2 The Government has identified national waterways, the fourth mode of transport, for improving the transport infrastructure in the country. Inland waterways and inland ports play a vital role in improving a country's infrastructure. With the objective of improving the transport infrastruc....
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....new section, an amount of 30% of additional wages paid to the new workmen is to be allowed as a deduction for a period of three years beginning with the year in which the new workman is employed, provided other conditions as laid down in the provision are met. The conditions are :— (i) The new workman should be employed on regular basis. In other words, he should not be a casual workman, and he should not be employed under contract labour. The term 'workman' shall have the same meaning as in the Industrial Disputes Act. (ii) Such a workman shall be in employment for at least three hundred days during the year. (iii) In case of an existing undertaking, the increase in the number of regular workman should be at least 10% of the existing number of workmen and further that the number of workmen hitherto in employment was at least one hundred. (iv) In case of a new undertaking, the number of such workmen must be at least one hundred. The benefit of the aforesaid deduc­tion shall be available only in respect of wages paid to workmen over and above that number both in case of new as well as exist­ing undertakings. (v) The assessee should furnish along with the return of inc....
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....or capital gains arising from the transfer of such securities is given in section 115AD. The Act amends clause (a) of sub-section (1) so as to extend the tax concessions available on income of Foreign Institutional Investors on their investment in listed securities to unlisted securities also. 47.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 38] Finance (No. 2) Act, 1998 Addition of two more economic indicators for obligatory filing of returns 48.1 Under the existing provisions, it is obligatory for a person not furnishing return under sub-section (1) of section 139 but residing in a specified area and fulfilling any two of the four following conditions to file return of income : (i) occupation of an immovable property exceeding a speci­fied floor area by way of ownership, tenancy or otherwise, (ii) ownership/lease of a motor vehicle, (iii) subscription of a telephone, (iv) foreign travel. 48.2 The Act has amended sub-section (1) of section 139 to add two more economic criteria, namely :— (v) Holding of a credit card not being an add-on card. (vi) Me....
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....r applying for PAN. 49.2 The Act has amended clause (ii) of sub-section (1) of sec­tion 139A to enhance the limit of Rs. 50,000 to Rs. 5,00,000. 49.3 This amendment will take effect from 1st August, 1998 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 41] Finance (No. 2) Act, 1998 Compulsory quoting of PAN 50.1 The existing provisions of section 139A of the Income-tax Act provide for compulsory quoting of Permanent Account Number (PAN) in all documents pertaining to transactions as may be prescribed by Board and entered into by the concerned persons. This section has been amended to provide that a person shall quote his Permanent Account Number or his General Index Register (GIR) Number till such time PAN is allotted. The amendment also provides that Board may notify a class or classes of persons to whom the provision regarding compulsory quoting of PAN shall not apply and further delegates power to Board to prescribe the form and manner of declaration which shall be furnished by a person not having either General Index Register Number or Permanent Account Number and the time and manner in which transactions subje....
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....pies of their passports. [Section 41] Finance (No. 2) Act, 1998 Providing for issue of refund in assessment under sub-section (3) of section 143 51.1 Under the existing provisions, the Assessing Officer deter­mines the sum payable by the assessee on the basis of assessment in accordance with the provisions of sub-section (3) of section 143 of the Income-tax Act. There is no provision to issue refund under this sub-section. 51.2 The Act has amended sub-section (3) of section 143 of the Income-tax Act to provide for determination of sum payable by the assessee as well as the refund of any amount due to him by the Assessing Officer while making an order of assessment. 51.3 The amendment has taken effect from 1st October, 1998. [Section 42] Finance (No. 2) Act, 1998 Method of accounting in certain cases 52.1 The issue relating to whether the value of the closing stock of the inputs, work-in-progress and finished goods must neces­sarily include the element for which MODVAT credit is available, has been the matter of considerable litigation over the years. 52.2 Consistent with the other provisions of the Act, with a view to put an end to this point of litigation an....
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....t, commission, bonus or remuneration, by whatever name called, in Explanation (b) in sub-section (1) of section 158BB is in relation to any partner not being a working partner. This amendment is effective from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Sections 44, 45 & 46] Finance (No. 2) Act, 1998 Adjustment of loss from house property for the purpose of determining the tax deductible from salary 54.1 Under the existing provisions of sub-section (2B) of section 192, the person responsible for making payment of salary can take into account income from other heads (not being a loss) and taxes deducted thereon for the purpose of calculating and deducting tax at source from salary income. This results in small refunds in a large number of salary cases mostly because the drawing and disbursing officer cannot allow adjustment of loss from house property against salary income. It is such refunds that become subject matter of a large number of grievances of tax payers. 54.2 Since it is not desirable to collect taxes which are certain to be refunded, the Act amends sub-section (2B) of section 192 so as to allow a....
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....erted to pro­vide for filing of appeals before the Commissioner (Appeals) against all order where appeals earlier lay either with Deputy Commissioner (Appeals) or Commissioner (Appeals). It also pro­vides that every appeal which is pending before the Deputy Com­missioner (Appeals) would stand transferred to the Commissioner (Appeals) on the appointed date. Vide Notification SO 811(E) dated 14-9-1998, 1st day of October, 1998 has been notified as the appointed date for the purpose of the above section. 56.3 Similar amendments have also been made in the Wealth-tax Act and Gift-tax Act. 56.4 This amendment takes effect from the 1st day of October, 1998. [Sections 49, 69 & 76] Finance (No. 2) Act, 1998 Providing for appeal fee for filing appeals before Commis­sioner (Appeals) 57.1 Under the existing provisions of the Income-tax Act, no fees is required to file appeals before Commissioner (Appeals). Consequently, a large number of unnecessary appeals are filed on decided issues and also on issues having petty tax effect. These avoidable appeals take substantial time of the appellate authori­ties and slow down the disposal of appeals. In view of the above, th....
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....ling the appeal before ITAT Assessed total income - Rs. 1 lakh or less Rs. 500 Assessed total income is more than Rs. 1 lakh but not more than Rs. 2 lakhs Rs. 1,500 Assessed total income is more than Rs. 2 lakhs 1% of the assessed income subject to a maximum of Rs. 10,000. Miscellaneous applications under section 254(2) Rs. 50 Stay petitions Rs. 500 59.2 The fee for filing an appeal before the Appellate Tribunal under other direct tax enactments, namely Wealth-tax Act, Gift-tax Act, Interest-tax Act and Expenditure-tax Act, has been enhanced from Rs. 200 to Rs. 1000. 59.3 These amendments have taken effect from the 1st day of Octo­ber, 1998. [Sections 52, 53, 70, 76, 79 & 85] Finance (No. 2) Act, 1998 Increasing the monetary limit of appeals to be decided by single member bench of Appellate Tribunal 60.1 Under the existing provisions a member of the Appellate Tribunal may be empowered sitting singly to dispose of any case where total income does not exceed Rs. 1 lakh. 60.2 With a view to helping quicker disposal of appeals before the Appellate Tribunal, the Act has enhanced the above limit to Rs. 5 lakhs by amending section 255 of the Income-tax Act. 60.3 Th....
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.... disposal of appeal which has not been determined by the Appellate Tribunal. 61.3 Similar amendments for direct appeal to High Court have also been made in Wealth-tax Act and Gift-tax Act. 61.4 These amendments have taken effect from the 1st day of October, 1998. [Sections 55, 56, 57, 58, 59, 72, 73, 74 & 76] Finance (No. 2) Act, 1998 Providing limitation of time for revising orders by Commis­sioner of Income-tax under section 264 of the Income-tax Act 62.1 Under the existing provisions, the Commissioner of Income-tax is empowered to revise an order passed by the subordinate authority where no appeal has been filed. The order passed by the Commissioner of Income-tax cannot be prejudicial to the interest of assessee. There is limitation of one year for filing the application but there is no time limit for the Commissioner of Income-tax to dispose of the application. The absence of such a provision has contributed to the delay in the disposal of such application. 62.2 The Act has made it obligatory on the Commissioner to pass an order under section 264 within a period of one year from the end of the financial year in which the application is made for revision. However, in....
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.... Act 64.1 Under the existing provisions, penalty under sub-section (2) of section 272A of the Income-tax Act is impossible for failure to deliver in due time a copy of the declaration under section 197A or for failure by the person deducting tax to furnish a certificate of deduction, to the person to whom such payment is made or credit is given within the prescribed period. These de­faults are continuous in nature and attract penalty at the rate of Rs. 100-200 per day without any maximum limit. 64.2 The Act has amended section 272A of Income-tax Act to pro­vide that the maximum limit of penalty imposable in such cases shall not exceed the amount of tax deductible or collectible, as the case may be. 64.3 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 62] Finance (No. 2) Act, 1998 Increase in the limit for submission of statements by produc­ers of cinematograph films 65.1 Under the existing provisions of section 285B, producers of cinema-tographic films are obliged to furnish within 30 days from the date of completion of the film or within 30 days from t....
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....ng Deputy Commissioner of Income-tax and Deputy Director Income-tax as Joint Commissioner of Income-tax and Joint Director of Income-tax respectively. The above changes in designation made it necessary to amend the various sections of the Income-tax Act so that the statutory powers continue to be exercised by the substituted authorities as a result of redesig­nation. 5.2 The following substitution of income-tax authorities has been globally made in the Income-tax Act : Table From To Assistant Commissioner Assistant Commissioner or Deputy Commis­sioner Assistant Director Assistant Director or Deputy Director Deputy Commissioner Joint Commissioner Deputy Director Joint Director 5.3 Clause (7A) of section 2 of the Income-tax Act containing the definition of Assessing Officer has been amended to include the redesignated authorities as above. 5.4 Clause (9A) of section 2 of the Income-tax Act has been amended to include Deputy Commissioner in the definition of Assistant Commissioner. 5.5 Clauses (19A) and (19C) of section 2 of the Income-tax Act have been amended to exclude the authorities of Additional Com­missioner of Income-tax and Additional Director of I....
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.... year 1999-2000 and subsequent years. [Section 5] Finance (No. 2) Act, 1998 Extension of exemption under section 10(15)(iv) to industrial undertakings manufacturing computer software, etc. 7.1 Existing sub-clause (iv) of clause (15) of section 10 of the Income-tax Act provides for exemption from income-tax in respect of interest payable by, inter alia, an "industrial undertaking" in India on any moneys borrowed or debt incurred by it in a foreign country subject to certain conditions. An "industrial undertaking" for this purpose has been defined to mean any under­taking which is engaged in specified activities. 7.2 The Act amends the definition of industrial undertaking to so as to include within its ambit the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device. 7.3 The amendment will take effect from 1st April, 1990 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 5] Finance (No. 2) Act, 1998 Provisions relating to exempting the income of educational institutions, Universities, Hospitals and other medical institu­tions. 8.1 Under the ....
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....F) exempted income by way of dividends or long term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a ven­ture capital undertaking. This clause provided for a minimum lock-in period of three years before such equity shares could be transferred. This condition of a minimum lock-in period has been withdrawn by the Act. 9.2 The Act has also expanded the ambit of a venture capital undertaking to include domestic companies whose shares are not listed in a recognised stock exchange in India and which are engaged in the business of developing, maintaining and operating any infrastructure facility. For the purpose of this clause "infrastructure facility" has been defined to mean road, highway, bridge, airport, port, rail system, water supply project, irriga­tion project, sanitation and sewerage system or any other public facility of a similar nature as may be notified by the Borad in this behalf in the Official Gazette and which fulfils the condi­tions specified in sub-section (4A) of section 80-IA. 9.3 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to assessme....
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....oject for housing which fulfils the conditions specified in sub-section (4F) of section 80-IA. 10.5 The amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. Finance (No. 2) Act, 1998 Income-tax exemption for members of scheduled tribes residing in Ladakh region of Jammu and Kashmir 11.1 The income of residents of Ladakh was exempt from income-tax till the assessment year 1988-89 only under section 10(26A). There has been a demand for renewal of the exemption. 11.2 The Act extends the exemption available to members of the Sche-duled Tribes residing in the North-eastern States under clause (26) of section 10 to the members of the scheduled tribes resid­ing in Ladakh region of Jammu and Kashmir. 11.3 The amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to assessment year 1999-2000 and subsequent years. [Section 5] Finance (No. 2) Act, 1998 Amendment to the provisions of section 16 for modifying standard deduction for salaried tax payers 12.1 Under the existing provisions of section 16 of the Income-tax Act, standard deduction of a sum equa....
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.... housing sector, the Act has enhanced the percentage of this deduction to one-fourth of the annual value. 14.2 In order to provide an incentive for self-occupied housing, the allowance for interest paid on capital borrowed for construc­tion, repairs, renewals, etc., of house property has been increased from fifteen thousand rupees per annum to rupees thirty thousand. 14.3 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 8] Finance (No. 2) Act, 1998 Depreciation to be allowed on intangible assets 15.1 Under the existing provisions of section 32 of the Income-tax Act, depreciation is allowable only on tangible assets, being building, machinery, plant or furniture. The Act amends this section to widen its scope by providing that depreciation will also be allowable in respect of intangible assets, being know-how, patents, copyrights, trade mark, licences or franchises or any other business or commercial rights of similar nature, ac­quired on or after the 1st day of April, 1998. The Act also amends the definition of the term 'block of assets' so as to include th....
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....fference between the actual cost and the written down value shall be chargeable to income-tax as income of the business of the previous year in which the moneys payable became due. 16.3 The Act has also inserted section 50A in the Income-tax Act to provide for the working of the cost of acquisition for the purposes of computation of capital gains in respect of such assets. It has been provided that where the capital asset is an asset in respect of which a deduction on account of depreciation under clause (i) of sub-section (1) of section 32 has been ob­tained by the assessee in any previous year, the provisions of sections 48 and 49 shall apply subject to the modification that the written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acqui­sition of the asset. 16.4 These amendments will take effect retrospectively from 1st day of April, 1998 and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years. [Section 9, 16 & 23] Finance (No. 2) Act, 1998 Site Restoration Fund 17.1 A new section 33ABA has been inserted in the Income-tax Act to provide for tax incentives to the pe....
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....rposes specified in the respective schemes. If the amount released by the State Bank of India or the amount withdrawn from the Site Restoration Account during a previous year is not utilised in the same previous year for the purpose for which it is released, the amount not so utilised shall be deemed to be profits and gains of the business and , accordingly, chargeable to income-tax as the income of that previous year. 17.5 In case any amount standing to the credit of the assessee in the special account to in the Site Restoration Account is uti­lised by the assessee for the purposes of any expenditure in connection with such business in advance with the relevant schemes, such expenditure will not be allowed as deduction in computing the income chargeable under the head 'profits and gains of busi­ness or profession'. 17.6 The section also provides that where any amount standing to the credit of the assessee in the above accounts is withdrawn on closure of the account during any previous year by the assessee, the amount so withdrawn from the account, as reduced by the amount, if any, payable to the Central Government by way of profit or production share, as provided in the ....
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....) to section 35 was introduced by the Fi­nance Act, 1997. This sub-section allows weighted deduction of a sum equal to one and one-fourth times of the expenditure incurred on scientific research on in-house research and development facility as approved by the prescribed authority on fulfilment of certain conditions. Due to difficulties experienced by the pre­scribed authority in monitoring and auditing such expenses, the Act omits the said sub-section and, accordingly, it has been provided that no deduction shall be allowed in respect of the expenditure which is incurred after the 31st day of March, 2000. [Section 11] Finance (No. 2) Act, 1998 Amortisation of preliminary expenses 19.1 Under the existing provisions of section 35D, deduction for certain preliminary expenses is allowed at an amount equal to 1/10th of such expenditure for each of the 10 successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of industrial undertaking is completed or new industri­al unit commences production or operation. Further, the aggregate amount of such expenditure is also restrict....
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....s they consist of capital sums) are less than the expenditure incurred remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in respect of the previous year in which such business or interest, as the case may be, is trans­ferred. If the proceeds of transfer are in excess of the amount of expenditure remaining unallowed, so much of the excess as does not exceed the difference between the expenditure incurred in connection with the business or to obtain interest therein and the amount of such expenditure remaining unallowed, shall be chargeable to income-tax as profits and gains of the business in the previous year in which the business or interest therein, whether wholly or partly, had been transferred. In case the proceeds of transfer are not less than the amount of expenditure incurred remaining unallowed, no deduction for such expenditure shall be allowed in respect of the previous year in which the business or interest in such business is transferred or in re­spect of any subsequent year or years. 21.3 Assuming that the transfer of business takes place during the previous year relevant to t....
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....y by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsi­dy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. Cost incurred/payable by the assessee alone could be the basis for any tax allowance. This Explanation further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly re­latable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same propor­tion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. 22.3 The amendment made through Explanation 9 will take effect retrospectively from 1st April, 1994 and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years. The amendment made through Explanation 10 will take effect from 1st April, 1999 and wil....
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.... and other documents as may enable the Assessing Officer to compute his total income, if his income from business or profession exceeds forty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business of profession, exceed or exceeds five hundred thousand rupees in any one of the three years immediately preceding the previous year. In a case where the business or profession is newly set up in any previous year, then he is required to keep and maintain such books of account etc., if his income from busi­ness or profession is likely to exceed forty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in a business or profession are or is likely to exceed five hundred thousand rupees during such previous year. 24.2 The Act enhances the above limits of forty thousand rupees to one lakh twenty thousand rupees and of five hundred thousand rupees to ten lakhs rupees. Accordingly, under the amended provi­sions, the assessees carrying on business or profession are re­quired to keep and maintain the books of account and other docu­ments if his income from business or profession exceeds one lakh twenty thousa....
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....inance (No. 2) Act, 1998 Exemption from levy of capital gains tax and allowance of carry forward of losses and unabsorbed depreciation in certain cases of business re-organisation 27.1 Business reorganisations have definite tax implications under the existing provision of the Income-tax Act. Transfer of assets attracts levy of capital gains tax. Similarly, carry forward of losses and that of unabsorbed depreciation are not available to successor business entities. However, in cases of amalgamation, capital gains tax is not levied and losses and unabsorbed depreciation are allowed to be carried forward under certain conditions. The Expert Group, in the draft Income-tax Bill, has recognised the need to encour­age business reorganisation when they are in consonance with the whole objective of economic development and not merely devices to secure tax advantage. 27.2 The Act, following the recommendation of the Expert Group, has amended the relevant sections of the Income-tax Act to allow tax benefits in cases of business reorganisation where a firm or a proprietary concern is succeeded by a company in the business carried on by it. 27.3 Section 47 of the Income-tax Act has been....
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....tion under any law. 28.1 Section 54H of Income-tax Act caters to the situation where the transfer of the long-term asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of transfer. In such cases the period available to the assessee for investing the long-term capital gains for the purpose of exemp­tion is reckoned from the date of receipt of compensation and not from the date of transfer. The Act has inserted references to sections 54EA and 54EB in section 54H of Income-tax Act whereby extension of time shall be available for investing amount of capital gains under sections 54EA and 54EB in cases of compulsory acquisition. 28.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 24] Finance (No. 2) Act, 1998 Amendment of section 69C 29.1 Under the existing provisions, where an expenditure incurred by the taxpayer in respect of which he either offers no explana­tion regarding the source of such expenditure or where explana­tion offered is found unsatisfa....
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....as been felt that the parents or guardian of handicapped dependents may not have to incur expenditure or medical treatment of a handicapped dependent every year. However, the parent or the guardian would always feel the need to provide for the future maintenance of the disabled dependent. The existing provisions to do not take such situations into account. In order to allow a choice to the parent or the guardian to spend either on the medical treatment of or for the future needs of the handicapped dependent, as the case may be, the amendment seeks to provide a new section 80DD. With the new provision, the parent or the guardian could claim a deduction upto Rs. 40,000 for the medical treatment and for future needs of the handicapped dependent in the manner most suited to his needs. The existing sections 80DD and 80DDA get consequentially merged with increase in overall limit of deduction from Rs. 35,000 to Rs. 40,000. 31.4 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 28] Finance (No. 2) Act, 1998 100% deduction to donations made to National Sports Fund and the Nation....
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....r is less. 33.3 The benefit of above deduction will not be available to an assessee in a case where he, his spouse or minor child or the HUF of which he is a member, owns any residential accommodation at a place where the assessee ordinarily resides, performs the duties of his office or employment or carries on his business or profes­sion. The deduction will also be denied to an assessee who owns any residential accommodation at any other place and the conces­sion in respect of self-occupied property is claimed by him in respect of such accommodation. 33.4 This amendment will take effect retrospectively from 1st April, 1998 and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years. [Section 30] Finance (No. 2) Act, 1998 New provisions for deduction for World Bank aided housing projects in India 34.1 A new section 80 HHBA has been inserted in the Income-tax Act with a view to providing that an Indian company or a non-corporate assessee resident in India shall be entitled to a deduction of 50% of the profits and gains derived from the busi­ness of execution of housing projects aided by the World Bank and undertaken by the assesse....
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....ideration is received in or brought into India inconvertible foreign exchange. Software exports have grown exponentially in recent years. With a view to increasing India's market share in the international arena, the Explanation (b) below this section has been extended to include 'any custo­mised electronic data' within the meaning of "computer software". The benefits of deduction have also been extended to supporting software developers. With this in view, proviso to sub-section (1); and sub-sections (1A), (3A) and (4A) have been inserted by the Act so that the benefit of export can also be passed on to software developers by software exporting companies. 36.2 The said proviso provides that where an exporting company issues and certificate in the prescribed form that in respect of an amount of export turnover, deduction under sub-section (1) of section 80HHE is to be allowed to a supporting software develop­er, the amount of deduction available to the assessee shall be reduced by such amount which bears to the total profits of the assessee issuing the certificate, the same proportion as the amount of export turnover specified in the said certificate bears to the total exp....
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.... a ship or the business of a hotel. 37.2 For encouraging industrialisation in industrially backward States, the Finance Act, 1993 had provided for a five-year tax holiday for industrial undertakings set up in industrially back­ward States specified in the Eighth Schedule, which start manufac­ture or production during the period beginning of the 1st day of April, 1993 and ending on 31st day of March, 1998. After the first five years, deduction of 30% of the profits of such under­taking in the case of companies (25% in the case of other asses­sees) was allowed for the subsequent five years. The undertakings which started manufacture or production after 31st March, 1998 in backward States ceased to be entitled to the two-tier benefit. Similarly, a five-year tax holiday is available to undertakings set up in notified backward districts, which begin manufacture or production after 1-10-1994 but on or before 31-3-1999. 37.3 The Act has extended the tax holiday to undertakings set up in industrially backward States as specified in the Eighth Sched­ule which start manufacture or production even after 31-3-1998 upto 31-3-2000. It has also similarly extended the tax-hol....
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....y to radio-paging, domestic satellite service, network of trunking and electronic data inter-change services. 40.1 Under the existing provisions of 80-IA, a five-year tax holiday in respect of profits and gains of an assessee engaged in telecommunication services is allowed with a further deduction of 25% (30% in the case of companies) of profits from such busi­ness in the next 5 years. 40.2 The country needs to augment its telecommunication serv­ices. For this purpose, the Act has extended the benefit of deduction available to telecommunication services to radio-paging and domestic satellite services. In the case of domestic satel­lite service, this deduction will be allowable only to those Indian companies which own and operate the satellite for provid­ing telecommunication services. Under the amended provisions, a network of trunking and electronic data inter-change services shall also be entitled to the benefit. 40.3 This amendment will take effect from 1-4-1999 and will, accordingly, apply in relation to the assessment years 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 Tax holiday to Oil Refining Industries 41.1 Under the exis....
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....try. Inland waterways and inland ports play a vital role in improving a country's infrastructure. With the objective of improving the transport infrastructure, the Act has included inland waterways and inland ports in the definition of 'infra­structure facility' as given in section 80-IA. The undertakings engaged in the development of such infrastructure would be entitled to two-tier fiscal benefits as outlined above. 43.3 The amendment will take effect from 1-4-1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 34] Finance (No. 2) Act, 1998 80JJA Deduction in respect of profits and gains from busi­ness of collecting and processing of bio-degradable waste 44.1 Increasing population and urbanization pose challenges for planners. Waste management has been one area of serious concern, which so far has been primarily the responsibility of local bodies. Waste is now being thought not as a useless resource but a re-cyclable and reusable one given the proper framework. The waste can be utilized for generating energy and useful resources by way of composting, vermi-compost and anaerobic digestion. The potential for p....
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....to workmen over and above that number both in case of new as well as exist­ing undertakings. (v) The assessee should furnish along with the return of income the report of the accountant, as defined in the Explana­tion below sub-section (2) of section 288, giving such particu­lars as may be prescribed. 45.3 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 36] Finance (No. 2) Act, 1998 Increase in the limits of deductions allowed in respect of income of cooperative societies. 46.1 Under the Income-tax Act, co-operative societies enjoy certain tax concessions in respect of their income. The whole of the amounts of profits and gains of co-operative societies engaged in the business of banking or providing credit facilities to its members, marketing of agriculture produce of its members, supply of agricultural implements, seeds etc., to the members, processing without the aid of power of the agricultural produce of its members, cottage industries, fishing and allied activities and the primary co-operative societies engaged in the supply of milk, oil seeds, fr....
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.... The Act has amended sub-section (1) of section 139 to add two more economic criteria, namely :— (v) Holding of a credit card not being an add-on card. (vi) Membership of a club where entrance fee charged is Rs. 25,000 or more. The amendment also provides that the obligation to file a return will now arise on fulfilling any one of the above six indicators. 48.3 Further it is also provided that Central Government may exclude any class or classes of persons from the ambit of the first proviso to section 139(1) by notification in the Official Gazette. 48.4 A new explanation, namely, 'Explanation 4' has also been inserted clarifying that travel to any foreign country shall not include travel to the neighbouring countries and places of pil­grimages as may be notified by Board in the Official Gazette. 48.5 These amendments have taken effect from 1st August, 1998 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. 48.6 In exercise of powers conferred by amended sub-section (1) of section 139 of the Income-tax Act, a number of notifications have been issued. Vide Notification No. SO 710(E) dated 20-8-1998, it has been specified tha....
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.... which shall be furnished by a person not having either General Index Register Number or Permanent Account Number and the time and manner in which transactions subject to compulsory quoting of PAN/GIR No. shall be intimated to the prescribed authority. 50.2 These amendments have taken effect from 1st day of August, 1998. 50.3 Board has since amended Income-tax Rules, 1962 vide SO 889(E) dated 9-10-1998 specifying following transactions where it will be necessary to quote PAN or GIR from the 1st day of November, 1998 : (a) sale or purchase of any immovable property valued at five lakh rupees or more; (b) sale or purchase of a motor vehicle or vehicle, as defined in clause (28) of section 2 of the Motor Vehicle Act, 1988 (59 of 1988), which requires registration by a registering authority under Chapter IV of that Act. Two wheeled vehicles have been kept outside the ambit of the definition of motor vehicle vide Notification S.O. 939(E) dated 29-10-1998. (c) a time deposit, exceeding fifty thousand rupees, with a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); (d)....
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....as been the matter of considerable litigation over the years. 52.2 Consistent with the other provisions of the Act, with a view to put an end to this point of litigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new section 145A is inserted. This section provides that the valuation of purchase, sale and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called), actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. 52.3 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 43] Finance (No. 2) Act, 1998 Clarificatory amendments in procedure for block assessment 53.1 To set at rest the controversy as to whether block assess­ment subsumes the regular assessments or is independent of the latter, the Act has inserted an Explanation after sub-section (2) of section 158BA of the I....
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.... grievances of tax payers. 54.2 Since it is not desirable to collect taxes which are certain to be refunded, the Act amends sub-section (2B) of section 192 so as to allow adjustments of loss from house property against the income from salary for the purpose of determining the tax deduct­ible from salary. The person responsible for deducting tax at source can now make necessary adjustment and deduct appropriate amount of tax. It is hoped that this measure would go a long way to remove the hardship to a large number of salaried taxpayers. 54.3 This amendment will take effect from 1st August, 1998 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 47] Finance (No. 2) Act, 1998 Extending the scope of Authority for advance ruling to resi­dent applicants 55.1 Under the existing provisions, the scope of Authority for Advance Ruling is restricted to a determination of a question of law or fact in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant. 55.2 The act has amended clause (a) in section 245N whereby advance ruling will also mean a decision by the Author....
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....sues having petty tax effect. These avoidable appeals take substantial time of the appellate authori­ties and slow down the disposal of appeals. In view of the above, the Act has amended section 249 of the Income-tax Act to provide for a scale of fee as under for filing appeals before Commission­er (Appeals) based on total income. Assessed total income Fee for filing the appeal before CIT (Appeals) Rs. 1 lakh or less Rs. 250 More than Rs. 1 lakh but not more than Rs. 2 lakhs Rs. 500 More than Rs. 2 lakhs Rs. 1,000 57.2 A fee of Rs. 250 has been provided for filing an appeal before the Commissioner (Appeals) under the other direct tax enactments. 57.3 These amendments have taken effect from the 1st day of October, 1998. [Sections 50, 69, 76, 78 & 84] Finance (No. 2) Act, 1998 Changes in the eligibility criteria for appointment as Judi­cial Member and Accountant Member in Appellate Tribunal 58.1 Under the existing provisions, a member of the Central Legal Service holding a Grade-I post for 3 years is eligible to become a Judicial Member. Similarly, a member of Indian Income-tax Service Group-A holding the post of Commissioner for 3 years is eligible to be....
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....elping quicker disposal of appeals before the Appellate Tribunal, the Act has enhanced the above limit to Rs. 5 lakhs by amending section 255 of the Income-tax Act. 60.3 The amendment has taken effect from the 1st day of October, 1998. [Section 54] Finance (No. 2) Act, 1998 Direct appeal to High Courts 61.1 According to the existing provisions, appeals arising out of the order of the Appellate Tribunal lie to the High Court where a substantial question of law is involved therein. The assessee or the Commissioner can request the Appellate Tribunal for reference of question of law to the High Court. If the Appellate Tribunal decides against such reference, High Court can be moved to direct the Appellate Tribunal to make such reference and state the case. This process consumes a lot of time before the decision on merits of the case is finalised. The limited scope of section 256(2) does not allow rendering of a final decision on the issue even where the relevant facts are available to give such a decision. Hon'ble Kerala High Court in the case of CIT v. Wandoor Jupitar Chits (P.) Ltd. 213 ITR 75 has pointed out such provisions as being archaic and have opined that authorities sho....
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....the Commissioner to pass an order under section 264 within a period of one year from the end of the financial year in which the application is made for revision. However, in computing the period of limitation, the time taken in giving an opportunity to the assessee to be reheard and any period during which any proviceedings under this section is stayed by an order or injunction of any court shall be exclud­ed. Further, the above time shall also not apply in cases of revisionary orders to be passed in consequence of or to give effect to any finding or direction in an order of the Appellate Tribunal, High Court or the Supreme Court. 62.3 Corresponding amendments have also been made in other direct tax enactments namely, Wealth-tax Act, Gift-tax Act, Interest-tax Act and the Expenditure-tax Act. 62.4 These amendments have taken effect from the 1st day of October, 1998. [Sections 60, 71, 76, 80 & 83] Finance (No. 2) Act, 1998 Provision of penalty for non-filing of returns of income 63.1 Under the existing provisions, no penalty is provided for failure to file return of income under sub-section (1) of section 139 [section 271F provides for penalty of Rs. 500 only in case of ....
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....isting provisions of section 285B, producers of cinema-tographic films are obliged to furnish within 30 days from the date of completion of the film or within 30 days from the end of the financial year, whichever is earlier, statement containing particulars of all payments of over Rs. 5,000 in aggregate made by him or due from him to each person engaged by him. The Act en­hances the monetary limit from Rs. 5,000 to Rs. 25,000. 65.2 This amendment will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Section 63] Finance (No. 2) Act, 1998 Provisions relating to insurance business 66.1 The profits and gains of any insurance business other than life insurance are computed in accordance with the provisions of section 44 of the Income-tax Act and the rules contained in the First Schedule. As per rule 5 of the First Schedule, the profits and gains of such insurance business are taken to be the balance of profits disclosed by the annual accounts under the Insurance Act, 1938 and are subject to the adjustments of expenditure or allowance which are not admissible under sections 30 to 43B. 66.2 The Ac....
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....prising an area of 500 sq. meters or less. 68.5 These amendments will take effect from 1st April, 1999 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. [Sections 67 & 68] Finance (No. 2) Act, 1998 Gift-tax Gifts made after a certain date not liable to tax 69.1 Under the Gift-tax Act, which was enacted in the year 1958, gift-tax was chargeable at the prescribed rate on the value of taxable gifts made by a person during the relevant previous year. Over the years, the implementation of the provisions of Gift-tax Act has neither yielded any substantial revenue nor resulted in fulfilling the objectives of effectively combating the tax eva­sion. The provisions in the Income-tax Act are considered suffi­cient to take care of the attempts for tax evasion. Hence with a view to simplify and rationalise the direct tax provisions, section 3 of the Gift-tax Act is amended so as to provide that the provisions of this Act shall cease to apply and shall have no effect whatsoever in respect of any gift made on or after the 1st day of October, 1998. [Section 75] Finance (No. 2) Act, 1998 Expenditure-tax Increasing the limit of room c....
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....rrears under the Wealth-tax Act, the amount payable shall be 1% of disputed wealth where the tax arrears include wealth-tax or interest and penalty levied in addition to wealth-tax. Where tax arrear is only interest payable or penalty levied, 50% of such amount is to be paid. Where the tax arrears are determined on the basis of search and seizure proceedings under section 37A or 37B of the Wealth-tax Act, the tax payable shall be @ 2% of the disputed wealth. (vi) In respect of tax arrears payable under the Gift-tax Act, the amount payable shall be 30% of the disputed value of the gift where the tax arrears include gift-tax or interest payable and penalty levied in addition to gift-tax. Where tax arrear is only interest payable or penalty levied, 50% of such amount shall be paid. (vii) In respect of tax arrears payable under the Ex­penditure-tax Act, the amount payable shall be 10% of the disput­ed chargeable expenditure where the tax arrear comprises expend­iture-tax or includes interest payable and penalty in addition to expenditure-tax. Where the arrear is only in respect of interest or penalty, only 50% of the arrear shall be payable. (viii) In respect of tax a....