TaxTMI 
TaxTMI 
Finance Act, 2002—Explanatory Notes on provisions relating to direct taxes
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....Schedule of the Income-tax Act, 1961 ; Inserted new sections 50C, 80M, 92CA, 115BBB, 174A, 206CA, 269UP, 272B, 272BBB and 275B by the Income-tax Act, 1961 ; Substituted new sections for sections 43A, 70, 89, 92, 132B, 194K, 269T and 271F of the Income-tax Act, 1961 ; Omitted section 245HA of the Income-tax Act, 1961 ; Amended sections 18, 18C, 22D and 34 of the Wealth-tax Act, 1957 ; Omitted section 22HA of the Wealth-tax Act, 1957 ; Amended sections 3 and 5 of the Expenditure-tax Act, 1987 ; Omitted section 44 of the National Dairy Development Board Act, 1987 ; Omitted section 22 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 ; Omitted section 22A of the Oil India (Development) Act, 1974 ; Omitted section 43A of the Life Insurance Corporation Act, 1956 ; Omitted section 35A of the General Insurance Business (Nationalisation) Act, 1972. 3. Provisions in brief 3.1 The provisions of the Act in the sphere of direct taxes relate to the following matters : (i) Prescribing the rates of income-tax on income liable to tax for the assessment year 2002-2003, the rates at which the tax will be deductible at source in the financial....
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....y religious and charitable trusts in a local newspaper ; —amend section 14A to clarify that no reassessment under section 147 or rectification under section 154 shall be made for any assessment year beginning on or before 1st April, 2001 ; —make perquisites non-taxable in the case of low-paid salaried employees ; —modify provisions relating to income from house property ; —tax the receipts in the nature of non-compete fees and exclusivity rights ; —provide for additional depreciation on new machinery and plant ; —provide for fiscal incentives for modernisation and fleet expansion of the shipping business ; —tax amounts/donations received as income in cases of withdrawal of approval to associations/institutions or withdrawal of notification in respect of eligible projects or schemes ; —provide a sunset clause for expenditure by way of payment to associations and institutions for carrying out programmes of conservation of natural resources ; —provide that balance instalments of expenditure incurred under voluntary retirement scheme to be allowed to the resulting entity ; —enhance fiscal incentive for provisioning in respect of bad and....
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.... provisions of Chapter XIV-B relating to block assessments in cases of search and requisition ; —provide for special provision for early assessment of bodies formed for short duration ; —provide for credit for tax deduction at source ; —provide for tax not to be deducted at source from dividends and interest on securities in certain cases ; —provide for individuals and Hindu undivided families to deduct tax in cases where total turnover or gross receipts exceed the specified limit under section 44AB ; —reduce the rate of tax deduction at source on commission or broker-age ; —provide that provisions of section 197A will not apply in certain cases ; —insert provision for requirement to apply for tax collection account number ; —provide limitation of time for admission of application and passing of orders by the Settlement Commission ; —modify provision relating to appointment of President of Appellate Tribunal ; —abolish the scheme of pre-emptive purchase of immovable properties under Chapter XX-C ; —modify the provisions relating to mode of repayment of certain deposits ; —clarify provision relating to penalty for concealme....
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.... Schedule to the Finance Act, 2001, for the purposes of deduction of income-tax at source during the financial year 2001-2002. However, the rate of deduction of tax with respect to dividends paid to a person other than a company, where the person is resident in India and in the case of a domestic company, has been prescribed as ten per cent. The rate of deduction of tax in respect of income of a foreign company other than those, for which specific rates are prescribed in Part II, has been reduced to forty per cent. from the existing rate of forty-eight per cent. The tax deducted at source in each case (including a foreign company) shall be enhanced by a surcharge of five per cent. Surcharge is also applicable in the case of a foreign company. 4.3 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 2002-2003. The rates for deduction of income-tax at source from or payment of tax on "salaries" during the financial year 2002-2003 and also for computation of "advance tax" payable during that year in the case of all categories of tax payers have been specified in Part III of....
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....to Rs. 50,000 Nil Rs. 50,001 to Rs. 60,000 10% Rs. 50,001 to Rs. 60,000 10% Rs. 60,001 to Rs. 1,50,000 20% + Surcharge at 2% Rs. 60,001 to Rs. 1,50,000 20% + Surcharge at 5% Above Rs. 1,50,000 30% + Surcharge at 2% Above Rs. 1,50,000 30% + Surcharge at 5% 4.3.2 The effect of levy of surcharge in the case of individuals, Hindu undivided families, etc., at different income levels would be as under : Total income Existing tax liability New tax liability Additional tax liability Additional tax Rs. Rs. Rs. Rs. (%) 50,000 Nil Nil Nil &nbs....
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.... of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. These rates are the same as those specified in the corresponding Paragraph of Part I of the First Schedule to the Act. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of five per cent. of the tax payable. 4.3.4 Firms In the case of firms, the rate of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Act. This rate remains at 35 per cent. However, the tax payable by firms would be enhanced by a surcharge, for the purposes of the Union, at the rate of five per cent. of the tax payable. 4.3.5 Local authorities In the case of local authorities, the rate of income-tax has been specified in Paragraph D of Part III of the First Schedule to the Act. This rate is the same as that specified in the corresponding Paragraph of Part I of the First Schedule to the Act. However, the tax payable would be enhanced by a surcharge for the purposes of the Union at the rate of five per cent. of the tax payable. 4.3.6 Companies In the case of companies, the rate of income-tax has been specified in Pa....
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....ssion or receipts by way of addition to the remuneration of an employee or to the capital gains income. 6.2 Through the Finance Act, 2002, clause (3) of section 10 has been omitted so as to bring all the casual and non-recurring receipts including windfall gains from betting, horse racing, lotteries, etc., under the tax net. 6.3 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years. [Section 4(a)] 7. Sunset clause for exemption with respect to bonds, etc. 7.1 The existing sub-clause (i) of clause (4) of section 10 provides for exemption in respect of income by way of interest on notified securities or bonds, including income by way of premium on redemption of such bonds. Clause (4B) of section 10 provides for exemption with respect to income by way of interest on notified saving certificates subscribed by an individual in convertible foreign exchange. Sub-clause (iib) of clause (15) of section 10 provides for similar exemption in respect of interest on notified Capital Investment Bonds. Sub-clause (iid) of clause (5) of section 10 provides for exemptio....
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....after 1st June, 2002. 8.5 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years. [Section 4(d), 4(f) and 4(g)] 9. Withdrawal of exemption on certain remuneration received by an employee who is a foreign citizen 9.1 Under the existing provisions contained in sub-clause (i) of clause (6) of section 10, passage money or the value of any free or concessional passage, received by or due to an employee, who is not a citizen of India, for himself, his spouse and children, is exempt, subject to certain conditions. 9.2 Sub-clause (i) of clause (6) of section 10 has been omitted through the Finance Act, 2002, so as to withdraw this exemption. 9.3 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. [Section 4(e)] 10. Exemption of amount received under VRS extended to employees of institutions having importance throughout India or throughout a State 10.1 Under the existing provision contained in clause (10C) of se....
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.... period now and the tax exemptions have outlived their utility. However, any sum paid by a public financial institution by way of contribution to any such Exchange Risk Administration Fund shall continue to get deduction under section 36(1)(x). 11.3 In view of this, through the Finance Act, 2002, clauses (14A) and (23E) of section 10 have been deleted so as to withdraw exemption on income of Exchange Risk Administration Funds and also on income received as exchange risk premium by a public financial institution. 11.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years. [Section 4(j) and 4(u)] 12. Income of certain local authorities to become taxable 12.1 Under the existing provisions contained in clause (20) of section 10, the income of a local authority chargeable under the head "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service within its jurisdictional area or from the supply of water or electricity within or outs....
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....ith and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both, shall be deducted from the total income of such assessee. 13.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years. [Sections 4(m) and 30] 14. Power to withdraw approval or rescind notification issued in the cases of scientific research association, news agency, notified trust or institution, educational and medical institution, etc. 14.1 Through the Finance Act, 2002, clauses (21), (22B), (23A), (23B) and (23C) of section 10 have been amended, by inserting a proviso in respective clauses, so as to provide explicit powers to the Central Government and the prescribed authority to rescind the notification or withdraw the approval, if the Central Government or the prescribed authority is satisfied that all or any of the specified conditions have been contravened. A copy of such order, rescinding the notification or withdrawing the approval shall be sent to such association, institution, etc., and als....
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.... deducted from the total income of that corporate assessee. The guidelines in this regard will be prescribed by the Central Government. 15.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years. [Sections 4(p) and 30] 16. Modified conditions for accumulation of income of any fund, trust or institution, university or other educational institution and hospital or other medical institution and restriction on payment or credit out of such accumulation. 16.1 The existing provisions contained in sub-clauses (iv) or (v) or (vi) or (via) of clause (23C) of section 10, inter alia, permit accumulation of twenty-five per cent. of the income for an unlimited period, without any conditions. 16.2 Through the Finance Act, 2002, clause (23C) of section 10 has been amended to provide that where more than fifteen per cent. of the income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding fifteen per cent. of its income shall, in no case exceed five years. Thus, only fifteen per cent. of the income can now b....
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....w the exemption provided to these marketing authorities. The income of Central Warehousing Corporation and the State Warehousing Corporations which was hitherto exempt under clause (29), will therefore, become taxable. 18.3 This amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years. [Section 4(y)] 19. Amendment in the provisions relating to deduction under section 10A to units in Free Trade Zones, Special Economic Zones, etc. and under section 10B to 100% Export Oriented Units. 19.1 Under the existing provisions of section 10A, a deduction is given of 100% of profit and gains from export earnings of new undertakings established in Free Trade Zones, Software Technology Parks, Electronic Hardware Technology Parks or Special Economic Zones (SEZs), which are engaged in manufacture or production of articles or things or computer software. 19.2 Section 10B provides for a similar deduction in respect of export earnings of 100% Export Oriented Units engaged in manufacture or production of articles or things or computer software. 19.3 Such deduction is available ....
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....same persons who were the owners of the business before such reorganization. 19.8 Exceptions were made by the Finance Act, 2001, in the case of private limited companies becoming companies in which public are substantially interested as also disinvestment of equity shares by venture capital companies or funds. It was also clarified that cases of change in shareholding pattern in the case of public limited companies will also not affect the deduction. 19.9 The Finance Act, 2002, has introduced sub-section (9A) to provide that in case of genuine reorganization of business whereby a proprietary concern or a partnership is succeeded by a company, the prohibition of sub-section (9) will not apply if the beneficial ownership of not less than 51% continues to be held by the original promoters. Since undertakings can be owned by body corporate also, it is clarified that this will hold good even if the proprietor happens to be a body corporate. 19.10 This is however, subject to the condition that, the aggregate of the shareholding in the company of the partners of the firm, or of the sole proprietor in case of a proprietorship concern, is not less than fifty-one per cent. of the to....
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...., 2002, a new clause (d) has also been inserted in sub-section (3) of section 11 so as to provide that if any income referred to in sub-section (2) of the said section, is paid or credited to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or (v) or (vi) or (via) of clause (23C) of section 10, such payment or credit shall be deemed to be the income of the person making such payment or credit, of the previous year in which such payment or credit is made. 21.3 A proviso in sub-section (3A) has also been inserted so as to provide that the Assessing Officer shall not allow application of accumulated income by way of payment or credit made for the purposes referred to in clause (d) of sub-section (3) of section 11. This takes away the discretion of the Assessing Officer provided in sub-section (3A) to allow the trusts to apply the accumulated income for payment or credit to other charitable or religious trusts and institutions. 21.4 These amendments will take effect from 1st April, 2003 and will, accordingly, a....
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....n shall be allowed in respect of any expenditure incurred by an assessee in relation to income which does not form part of the total income under the Income-tax Act. The intention of inserting the new section retrospectively was to set the existing controversy on this issue at rest and not to unsettle the cases by raising the issue afresh. 23.2 Through the Finance Act, 2002, a proviso to section 14A has been inserted so as to clarify that the Assessing Officer shall not reassess the cases under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. 23.3 This amendment takes effect retrospectively from 11th May, 2001, that is, the date on which the Finance Bill, 2001, received the assent of the President of India. [Section 10] 24. Perquisites not to be taxed in the case of low-paid salaried employees 24.1 As per the existing provisions of section 17, perquisites (representing the value of any benefit or amenity granted or provided free of cost or at concessiona....
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.... 26. New provisions for taxing the receipts in the nature of non-compete fees and exclusivity rights 26.1 For the purpose of giving certainty to taxation of receipts in the nature of non-compete fees and fees for exclusivity rights, the Finance Act, 2002, has included within the scope of "profit and gains of business or profession", any sum received or receivable in cash or in kind under an agreement for not carrying out activity in relation to any business ; or not to share any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. However, the provisions clarify that receipts for transfer of right to manufacture, produce or process any article or thing or right to carry on any business, which are chargeable to tax under the head "Capital gains", would not be taxable as profits and gains of business or profession. 26.2 With a view to facilitate the implementation of the Montreal Protocol for the phasing out of the business of manufacture of Chloro-Fluoro Carbons (CFC) and Hydro Chloro-Fluoro Carbo....
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....has been defined to mean the capacity of production as existing on the 31st March, 2002. 27.4 The Income-tax Rules, 1962, have been, suitably amended. The substituted rule 5A provides that the report from the accountant as required under section 32(1)(iia) shall be in Form No. 3AA. The earlier Form No. 3AA relating to audit report under section 32AB has been renumbered as Form No. 3AAA. 27.5 The amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. [Section 14] 28. Fiscal incentives for modernisation and fleet expansion of the shipping business 28.1 Under the existing provisions of section 33AC of the Income-tax Act, a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships is allowed a deduction of an amount not exceeding hundred per cent. of the profits derived from the business of operation of ships and carried to a reserve account, subject to certain conditions. The first proviso to sub-section (1) of the said section, however, provides that where th....
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....l granted by it to an association or institution on the ground that the project or scheme is not being carried out in accordance with all or any of the conditions subject to which the approval was granted or the notification through which a project or scheme was notified is withdrawn, the entire amount of contribution or donation received by the company or authority or association or institution, as the case may be, or the deduction claimed by a company in respect of any expenditure incurred directly on the eligible project or scheme, the notification for which is withdrawn by the National Committee, shall be deemed to be the income of the company or authority or association or institution, as the case may be, of the year in which such approval or notification is withdrawn. Such income will be taxed at the maximum marginal rate as if such income was not exempt under any provision of the Income-tax Act. This will be notwithstanding the exemption, if any, otherwise available to such company or authority or association or institution under any provision of the Income-tax Act. 29.3 The amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the as....
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....curs any expenditure in any previous year by way of payment of any sum to an employee at the time of his voluntary retirement under any scheme of voluntary retirement, one-fifth of the amount so paid is deducted in computing the profits and gains of the business for that previous year and the balance amount is allowed to be deducted in equal instalments for each of the four immediately succeeding previous years. 31.2 The Act has amended the said section so as to provide that where the undertaking of an Indian company entitled to deduction for amortised voluntary retirement expenses is transferred before the expiry of the period specified to another Indian company in a scheme of amalgamation or demerger, the deduction shall continue to be available to the amalgamated company or the resulting company as if the amalgamation or demerger had not taken place. 31.3 Similarly, in case of re-organisation of certain forms of business, whereby a firm or a proprietary concern is succeeded by a company, the deduction shall continue to be available to the successor-company. 31.4 In the year of transfer, however, no deduction shall be available to the amalgamating company, the demerged c....
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....strial Investment Corporation. The optional deduction shall be available for a period of two consecutive assessment years commencing on or after 1st April, 2003 and ending before 1st April, 2005. 32.6 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. [Section 19] 33. Rationalization of interest paid to partner 33.1 Under the existing provisions of sub-clause (iv) of clause (b) of section 40, payment of interest by a firm to any partner which is authorised by, and is in accordance with the terms of the partnership deed, is allowed as a deduction subject to the maximum rate of eighteen per cent. simple interest per annum. 33.2 With a view to rationalise the provisions, the Act has amended the said sub-clause so as to reduce the above maximum rate of interest from eighteen per cent. to twelve per cent. 33.3 The amendment will take effect from 1st June, 2002. [Section 20] 34. Addition or deduction to the actual cost of a capital asset on account of change in the rate of exchange ....
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....g adopted by the assessee. 34.4 It has also been provided that if any adjustment to the actual cost or expenditure or cost of acquisition has been allowed in consequence of change in the rate of exchange in any assessment year before the 1st April, 2003, the adjustment to that extent shall not be made again at the time of actual payment. 34.5 The amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. [Section 21] 35. Presumptive income for truck owners revised for inflation-adjustment 35.1 Under the existing provisions of section 44AE of the Income-tax Act, 1961, a presumptive scheme of taxation is available to assessees engaged in business of plying, hiring or leasing goods carriages. The scheme applies to an assessee, who owns not more than ten goods carriages. Under this scheme, which is optional for the assessee, a fixed amount of income per vehicle is presumed to accrue to the owner of the vehicle and charged to tax at applicable tax rates for the year. Under the existing provisions, income under this section is presumed to be Rs. 2,....
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....h, is less than the value adopted or assessed by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration, and capital gains shall be computed accordingly under section 48 of the Income-tax Act. 37.3 It is further provided that where the assessee claims that the value adopted or assessed for stamp duty purposes exceeds the fair market value of the property as on the date of transfer, and he has not disputed the value so adopted or assessed in any appeal or revision or reference before any authority or court, the Assessing Officer may refer the valuation of the relevant asset to a Valuation Officer in accordance with section 55A of the Income-tax Act. If the fair market value determined by the Valuation Officer is less than the value adopted for stamp duty purposes, the Assessing Officer may take such fair market value to be the full value of consideration. However, if the fair market value determined by the Valuation Officer is more than the value adopted or assessed for stamp duty purposes, the Assessing Officer shall not adopt such fair ma....
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....ations of provisions relating to set off of long-term capital loss 40.1 The existing provision contained in section 70 of the Income-tax Act provides that where the net result for any assessment year in respect of any source falling under any head of income is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. Further, section 74 of the Income-tax Act provides that a loss under the head "Capital gains" can be carried forward and set off against capital gains in the following eight assessment years. 40.2 Since long-term capital gains are subject to lower incidence of tax, the Finance Act, 2002 has rectified the anomaly by amending the said sections to provide that while losses from transfer of short-term capital assets can be set off against any capital gains, whether short-term or long-term, losses arising from transfer of long-term capital assets, will be allowed to be set off only against long-term capital gains. It is further provided that a long-term capital loss shall be carried forward separately for eight years to be set off only against long-term capital gains. However, a short-t....
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....of the earthquake in Gujarat, donations to trusts, funds and institutions received up to 30th September, 2001, to be utilized for relief of victims of the earthquake were allowed 100% deduction, by the Taxation Laws (Amendment) Act, 2001. Such donations were to be utilized for relief of earthquake victims in Gujarat, by 31st March, 2002. The un-utilized amount was to be transferred to the Prime Minister's National Relief Fund by 31st March, 2002, failing which, the amount of donations to the extent unutilized or not transferred to the Prime Minister's National Relief Fund were to be taxed in the hands of such funds, institutions, or trusts, in terms of provisions of clause (23C) of section 10 or section 12 of the Income-tax Act, 1961. Further, such trusts, funds and institutions, had to maintain separate accounts in respect of such funds and had to render the same to the prescribed authority by 30th June, 2002. 42.3 With a view to allow adequate time for the completion of the relief work required due to wide-scale extent of the damage, the Finance Act, 2002, extends the time limit for utilization of eligible donations and transfer of un-utilized funds to the Prime Minister's Nat....
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....elation to the assessment year 2003-04 and subsequent years. [Section 32] 44. Separate audit for undertakings claiming deduction under sections 80-IA and 80-IB mandatory for companies and co-operative societies also 44.1 Section 80-IA of the Income-tax Act, 1961 provides for a ten-year period (out of initial fifteen years) hundred per cent. tax holiday to undertakings or enterprise engaged in the business of developing, or/and maintaining, or/and operating the infrastructure facilities specified in that section, or of providing telecommunication services, or of developing or/and operating/or maintaining and operating an industrial park or a Special Economic Zone or of generating power or generation and distribution of power. 44.2 Section 80-IB of the Income-tax Act, 1961, provides for a deduction at specified percentage from profits and gains of an undertaking/enterprise, carrying on an eligible business for such number of assessment years as may be specified. 44.3 For availing of the deduction under sections 80-IA and 80-IB of the Income-tax Act, 1961, a separate audit report in respect of the eligible undertaking is to be furnished by an eligible assessee, other th....
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....nbsp; [Section 34] 46. Tax holiday for new industrial undertakings set up in industrially backward States industrially backward district extended for two years 46.1 Under sub-section (4) of section 80-IB of the Income-tax Act, 1961, industrial undertakings which begin to manufacture or produce articles or things or to operate cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on 31st March, 2002, in an industrially backward State as specified in the Eighth Schedule, are eligible for deduction of the profits of such undertakings for ten years. For cooperative societies the deduction is available for a period of twelve assessment years. The deduction is equal to 100% of profits and gains of the undertaking for five years commencing from the initial assessment year and thereafter, twenty-five per cent. (or thirty per cent. for companies) for further five years. In respect of certain notified industries in North-Eastern Region, the amount of deduction is equivalent to hundred per cent. of profit and gains of the undertaking for ten assessment years. 46.2 Under sub-section (5) of section 80-IB of the Income-tax....
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....lders, it was eligible for deduction under section 80L. 47.3 The Finance Act, 2002, has reversed the taxability of dividend income, and accordingly the exemption provided by clause (33) of section 10 to the income from dividend, units of Unit Trust of India (UTI) and Mutual Funds specified under section 10(23D) was withdrawn with effect from 1st April, 2003. In view of the same, income from dividend, units of Unit Trust of India (UTI) and Mutual Funds specified under section 10(23D) are being made eligible for the purpose of the deduction under section 80L. The proposed benefit shall be available within the basic limit of Rs. 9,000. In addition, an additional deduction of Rs. 3,000 is allowable in respect of income from interest on Government securities. 47.4 These amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. [Section 35] 48. Rationalization of tax rebate under section 88 48.1 Section 88 of the Income-tax Act provides for a deduction from the amount of income-tax payable by individuals and Hindu undivided ....
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....s also being withdrawn for the sake of rationalization. 48.6 Also, the requirement of making investment out of income chargeable to tax of the previous year has also been withdrawn, if the amount of investment does not exceed the total income of the assessee. 48.7 Further, the general limit of eligible investment has been increased from Rs. 60,000 to Rs. 70,000 and in case of investment in infrastructural securities, etc., specified in clauses (xvi) and (xvii) has been increased from Rs. 80,000 to Rs. 1,00,000. 48.8 The amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years. [Section 37] 49. Relief under section 89 for recipients of family pension 49.1 Under the existing provisions of section 89 of the Income-tax Act, tax relief is provided to the assessee, if his tax liability is increased on account of receipt of salary, profits in lieu of salary, etc., being paid in arrears or in advance, in the year of such receipt. The tax relief is computed by working out the extent to which the tax liability would have been lower, had such incom....
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.... a price which differs from the arithmetical mean by an amount not exceeding five per cent. of such mean may be taken to be the arm's length price, at the option of the assessee. 50.5 Under the existing provisions contained in the second proviso to sub-section (4) of section 92C, where the total income of an enterprise is computed by the Assessing Officer on the basis of the arm's length price as computed by him, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm's length price in the case of the first mentioned enterprise, where the tax has been deducted under the provisions of Chapter XVII-B on the amount paid by the first enterprise to the other associate enterprise. 50.5.1 The Finance Act, 2002, has amended the said second proviso to clarify that the provisions contained therein apply not only in a case where tax has been deducted under Chapter XVII-B, but also in cases where such tax was deductible, even if not actually deducted. 50.6 A new section 92CA has been introduced by the Finance Act, 2002. It provides that where an assessee has entered into an international transaction in any previous year, the Assessi....
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....51.2 Through Finance Act, 2002, the said sub-clause (iii) has been amended so as to extend the concessional rate of tax on income by way of dividend and long-term capital gains arising from GDRs issued or re-issued in accordance with a scheme, as specified by the Central Government, against the existing shares of an Indian company, and purchased by the assessee in foreign currency through an approved intermediary. 51.3 In view of the above amendment, even the GDRs issued against the existing shares of an Indian company would be covered by the provisions of section 115AC. The condition that the Indian company issuing such GDRs should be listed on a recognised stock exchange, would no longer be a statu-tory requirement to avail of the benefit under this section, as long as the GDRs are issued in accordance with a scheme notified by the Central Government. Sub-clause (iv) would now, not be required and, therefore, has been omitted through the Finance Act, 2002. 51.4 These amendments take effect retrospectively from 1st April, 2002 and apply in relation to the assessment year 2002-2003 and subsequent assessment years. &nb....
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.... deduct from the amount of such dividend, income-tax at the rates in force. These rates are specified in Part II of the First Schedule to the Finance Act. With a view to avoid hardship to small investors and also to reduce the avoidable infructuous paperwork and issue of refund in non-taxable cases, a threshold limit of Rs. 1,000 has been provided below which no tax would be required to be deducted at source from payments by way of dividends. 52.5 As per the second proviso to sub-section (1) of section 195, no tax is required to be deducted at source in the case of a shareholder, who is a nonresident, or a foreign company, in respect of dividends referred to in section 115-O. Consequent upon the change in the scheme of taxation of dividend, this proviso has been omitted through the Finance Act, 2002. Thus, any person responsible for paying to a non-resident, not being a company, or a foreign company, at the time of credit of income by way of dividend, to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, would be required to deduct tax at the rates in force. These rates are specified in Part II of the Fir....
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...., to provide that in case the tax liability of a company is less than 7.5% of the book profits, such book profits shall be deemed to be the "total income", chargeable to tax at the rate of seven and one-half per cent. 53.5 Further, the Finance Act, 2002, provides that the amounts withdrawn from reserves, in the nature of revaluation reserve, if credited to the profit and loss account, shall not be reduced from the book profit. It also provides that any amount withdrawn from a reserve or a provision created on or after 1st day of April, 1997, and which is credited to the profit and loss account shall not be reduced from the book profit, unless the book profits in the year of creation of such reserves or provisions were increased by the amount transferred to such reserves or provisions at that time. 53.6 Another amendment introduced in section 115JB clarifies that where the value of the amount of either loss brought forward or unabsorbed depreciation is "nil", no amount on account of such loss brought forward or un-absorbed depreciation would be reduced from the book profit. 53.7 The same clarification as above, is also being provided in section 115JA of the Income-tax Act, ....
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....ip to small investors and also to reduce the avoidable infructuous paperwork and issue of refund in non-taxable cases, a threshold limit of Rs. 1,000 has been provided below which no tax would be required to be deducted at source from payments by way of income from units of UTI and mutual funds. 54.5 The provisions of section 196A has also been revived so as to provide that tax shall be deducted at source from any income paid to a non-resident, not being a company, or to a foreign company, in respect of units of UTI or Mutual Funds at the rate of twenty per cent. 54.6 Consequential amendment has also been made in clause (23D) of section 10. 54.7 These amendments will take effect from 1st April, 2003, and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent assessment years. However, the provisions relating to tax deduction at source under sections 194K and 196A will take effect from 1st June, 2002. [Sections 4(t), 4(y), 49, 54, 79 and 82] 55. Modification of provisions relating to search and seizure 55.1 Section 132 of the Income-tax Act relates to search and seizure. Under the existing provisions of sub-section (1) of the said sect....
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....r any search initiated on or after the 1st day of July, 1995. As the provisions of sub-section (5) have now become redundant, the Finance Act, 2002, has omitted the said sub-section and has also omitted sub-sections (6), (7), (11), (11A) and (12) of section 132, being specifically related to the estimate of undisclosed income made under sub-section (5). 55.3 Under the existing provisions of sub-section (8) of section 132, the books of account or documents seized during search cannot be retained by the authorised officer or the Assessing Officer beyond a period of 180 days from the date of the seizure, unless the approval of the Chief Commissioner, Commissioner, Director General or Director is, obtained for such retention, on the basis of reasons to be recorded in writing. 55.3.1 It has been noticed that this limit of 180 days is not practical, as the assessment proceedings relating to the seized records generally take up to two years to be finalised. It is only then that the Assessing Officer can come to a conclusion as to whether any of the seized books of account or documents are required to be retained further. 55.3.2 Therefore as a measure of rationalization, the Finan....
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....n application to the Board for the return of the books of account or other documents, the Board may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. 55.7 These amendments will take effect from 1st June, 2002, and will, accordingly, apply in relation to a search initiated or requisition made on or after that date. [Section 56] 56. Rationalisation of provisions relating to application of seized or requisitioned assets. 56.1 The existing provisions of section 132B of the Income-tax Act provide for the manner in which assets seized during search and retained under section 132(5) are to be dealt with in the discharge of any existing liability as well as the amount of the liability arising on assessments or reassessments made as a result of search. 56.2 Section 132B has been substituted by the Finance Act, 2002, to harmonise the provisions contained therein with the provisions for assessment in search cases as laid down under Chapter XIV-B. The following liabilities can be recovered out of the assets seized under section 132 or requisitioned under section 132A : (i) The existing liability under the Income-ta....
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....der in sub-section (3) of section 133A to empower the income-tax authority to impound and retain in his custody books of account or other documents inspected by him during survey, after recording his reasons for doing so. Such books of account or other documents shall not be retained for more than fifteen days without obtaining the approval of the Chief Commissioner or Director General or Commissioner or Director therefor : 57.3 This amendment will take effect from 1st June, 2002. [Section 58] 58. Bulk filing of returns in computer readable medium by certain salaried taxpayers. 58.1 Under the existing provisions contained in section 139 of the Income-tax Act, every company whether it has a profit or loss and every person other than a company, if the total income in respect of which he is assessable under this Act during the previous year exceeded the maximum amount not chargeable to income-tax, is required to file a return of such income on or before the due date in the prescribed form and manner. 58.2 In order to enable salaried taxpayers to fulfil their tax obligations and receive refunds, if any, within a short period without any interface with the Income-tax Depa....
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....om 1st June, 2002. [Section 60] 60. Consequential amendment of section 158A 60.1 The Finance (No. 2) Act, 1998, had inserted section 260A in the Income-tax Act to provide for direct appeal to High Court against the order of the Appellate Tribunal. By the same Act, sections 256 and 257 which required the Tribunal to refer a case to the High Court or the Supreme Court, became inoperative. The Finance Act, 2002, has made consequential changes in section 158A of the Income-tax Act relating to procedure for avoiding repetitive appeals by including therein references to appeals to High Court under section 260A, and omitted references to sections 256 and 257, wherever necessary. 60.2 Amendments on similar lines are made in section 18C of the Wealth-tax Act. 60.3 These amendments will take effect from 1st June, 2002. [Sections 63 and 111] 61. Rationalisation of the provisions of Chapter XIV-B relating to block assessments in cases of search and requisition 61.1 The existing provisions contained in Chapter XIV-B of the Income-tax Act provide for a single assessment of undisclosed income of a block period of six years, in cases of search under sectio....
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.... that any undisclosed income discovered as a result of search is to be included in the block assessment as long as such income has been detected as a result of evidence gathered during the search. 61.3.2 The Finance Act, 2002, has amended section 158BB to clarify that the block assessment of undisclosed income is to be based on the evidence found in the search and material or information gathered in post-search inquiries made on the basis of evidence found in the search. 61.4 As per clause (a) of sub-section (1) of section 158BB as it existed, the aggregate total income of the block period including the undisclosed income was to be adjusted by the income or loss already assessed in regular assessments. However, the clause does not specify the date by which such assessments should be completed. 61.4.1 The Finance Act, 2002, has amended clause (a) to clarify that the aggregate total income is to be adjusted by the income or loss assessed in assessments completed prior to the date of commencement of the search or the date of requisition. 61.5 Clause (b) of sub-section (1) of section 158BB states that the aggregate total income is to be reduced or adjusted by the income or ....
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....Chapter VI or unabsorbed depreciation under section 32(2). In many cases it is being claimed by the assessees that the deduction allowable under Chapter VI-A for any previous year should also be computed on the total income before giving effect to set off of brought forward losses and depreciation. In such cases the amount of deduction under Chapter VI-A admissible in computing aggregate total income comes out to be more than the deduction actually allowed in regular assessments resulting in underassessment of undisclosed income for the block period. It has also been noted that the computation of aggregate total income under section 158BB is required to be made in accordance with the provisions of Chapter IV of the Act. This has given rise to doubts as to whether deductions under Chapter VI-A are to be allowed in computing the aggregate total income. 61.7.1 The Finance Act, 2002, has carried out amendments to clarify that the aggregate total income is to be computed in accordance with the provisions of the Act including the provisions of Chapter VI-A, and that for the purpose of computing deductions under Chapter VI-A, effect shall be given to set off of brought forward losses o....
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.... 153 which lays down time limits for completion of regular assessments refers to several other time periods apart from the periods mentioned above which may be excluded in computing the time limit. 62.3.1 With a view to align the provisions of section 158BE relating to block assessment with the provisions of section 153 relating to regular assessments, the Finance Act, 2002, has amended Explanation 1 below section 158BE to further exclude from the period of limitation the time taken in giving an opportunity to be reheard under section 129 on change in incumbent and the time taken by the Settlement Commission for passing an order rejecting or not allowing an application to be proceeded with. It is further provided as in section 153 that the minimum time available with the Assessing Officer after excluding any of the periods specified in the Explanation shall be sixty days. 62.4 Surcharge in the case of block assessment of search cases—Section 113 of the Income-tax Act has been amended to provide that the tax chargeable on the undisclosed income determined under Chapter XIV-B shall be increased by the amount of surcharge applicable in the previous year in which the search com....
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....r on behalf of an employee, the same being in the nature of an obligation which, but for such payment, would have been payable by the employee, is considered a perquisite, and is chargeable to tax. 64.2 The Finance Act, 2002, provides for a new scheme of taxation of perquisites, wherein an employer has been given an option to pay tax on the whole or part-value of perquisite (not provided for by way of monetary payments), on behalf of an employee, without making any deduction from the income of the employee. 64.3 To bring into effect this new scheme, a new clause (10CC) has been inserted in section 10, to exempt the amount of tax actually paid by an employer, at his option, on the income in the nature of a perquisite, (not provided for by way of monetary payment) on behalf of an employee, from being included in perquisites. 64.4 Such tax paid by the employer shall not be treated as an allowable expenditure in the hands of the employer under section 40 of the Income-tax Act, 1961. 64.5 The amendments will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. 64.6 Necessary changes in various provi....
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....half of the person from whose income the deduction was made or the owner of the security or depositor or owner of property or of unitholder or of the shareholder, as the case may be, and credit is given to such person for the amount so deducted on the production of a certificate furnished under section 203 in the assessment made under this Act for the assessment year for which such income is assessable. 65.2 With a view to mitigate this hardship being faced by the assessee due to non-furnishing of TDS certificates, the Act has inserted a new sub-section (14) in section 155 to provide that where in the assessment for any previous year or in any intimation or deemed intimation under sub-section (1) of section 143 for any previous year, credit for tax deducted in accordance with the provisions of section 199 has not been given on the ground that the TDS certificate was not filed with the return and subsequently such certificate is produced before the Assessing Officer within two years from the end of the assessment year in which such income is assessable, credit for tax deducted at source shall be given to the assessee on production of such certificate. However, nothing contained i....
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....ce Corporation of India or to any of the four companies formed by virtue of the schemes framed under sub-section (1) of section 16 of the General Insurance Business (Nationalisation) Act, 1972, or any other insurer in respect of any securities or shares owned by them or in which they have full beneficial interest. 66.6 These amendments will take effect from 1st June, 2002. [Sections 72, 73, 157 and 158] 67. Individuals and Hindu undivided families to deduct tax in cases where total turnover or gross receipts exceed the specified limit under section 44AB 67.1 Individuals and Hindu undivided families are not required to deduct tax at source under the existing provisions of sections 194A, 194C, 194H, 194-I and 194J. 67.2 Individuals and Hindu undivided families whose sales turnover or gross receipts of the business or profession exceed rupees forty lakhs or rupees ten lakhs, as the case may be, are required to maintain books of account and other documents and get their accounts audited. 67.3 The Act has amended the provisions of the above sections to provide that individuals or Hindu undivided families, whose total sales, turnover or gross receipts from the business ....
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....ment to apply for tax collection account number 70.1 Under the existing provisions of section 206C, every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of the cheque or draft or by any other mode, collect from the buyer a sum equal to the percentage specified in the Table under sub-section (1) of the said section, of such amount. 70.2 The Act has inserted a new section 206CA to provide that every person collecting tax at source in accordance with the provisions of section 206C shall apply to the Assessing Officer for the allotment of a tax collection account number. It has also been provided that such tax collection account number shall be quoted in all challans for payment of any tax collected at source, in all certificates for tax collected and in all returns to be furnished under the provisions of section 206C. Such tax collection account number would also be required to be quoted in all other documents pertaining to such transactions as may be prescribed in the interests of revenue. 70.3 A new rule 114AA has been in....
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....-tax has been paid but subsequent instalments are not being paid as per the provisions of sections 208 to 210 of the Income-tax Act. 71.3 The amendment will take effect from 1st June, 2002. [Section 92] 72. Modification of provisions relating to interest payable to the assessee 72.1 Under the existing provisions of the Income-tax Act, interest is payable to the assessee at the rate of three-fourths per cent. for every month or part of a month or nine per cent. per annum. 72.2 The Act has reduced the aforesaid rate of interest from three-fourths per cent. to two-thirds per cent. for every month or part of a month and from 9% to 8% per annum, as the case may be. Accordingly, section 244A and sub-rule (3) of rule 68A of the Second Schedule to the Income-tax Act have been amended. 72.3 Similar amendment has been made in section 34A of the Wealth-tax Act. 72.4 The amendments will take effect from the 1st day of June, 2002. [Sections 93, 109 and 114] 73. Providing limitation of time for admission of application and passing of orders by the Settlement Commission 73.1 Under the existing provisions contained in secti....
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.... posts of Vice-Presidents and Senior Vice-President, and considering the functions performed by them, the Finance Act, 2002, has substituted the said sub-section to provide that the Central Government shall appoint the Senior Vice-President or one of the Vice-Presidents of the Tribunal to be the President thereof. 74.3 This amendment will take effect retrospectively from 1st April, 2002. [Section 94] 75. The scheme of pre-emptive purchase of immovable properties under Chapter XX-C abolished 75.1 Under the existing provision contained in Chapter XX-C of the Income-tax Act, any person intending to transfer immovable property in specified areas at values exceeding specified amounts is required to file a statement in Form 37-I before the Appropriate Authority within the prescribed time before the intended date of transfer. The transfer can be registered only if the Appropriate Authority does not pass an order of pre-emptive purchase of the property, and issues a no-objection certificate. 75.2 Since these provisions were causing procedural delays in registration of transfers, and with a view to remove source of hardship for the tax payers, the Finance Act, 2002 has,....
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....ain notices issued in the course of assessment proceedings and cases in which particulars of income have been concealed or inaccurate particulars furnished. 77.2 The Finance Act, 2002, has amended the section to include a reference to the Commissioner as being an authority who can initiate and levy penalty under sub-section (1) of the said section. Similar reference is made in Explanation 1 and Explanation 7 to the said sub-section. 77.3 Amendment on similar lines is made in section 18 of the Wealth-tax Act. 77.4 These amendments will take effect from 1st June, 2002. 77.5 The existing provisions of clauses (ii) and (iii) of sub-section (1) of the said section provide for levy of the penalty specified therein, in addition to any tax payable. Certain courts have held that unless some tax is payable, no penalty can be levied. 77.6 The Finance Act, 2002, has amended the said clauses to clarify that the penalty specified in them can be levied even if no tax is payable on the total income assessed. 77.7 The Finance Act, 2002, further amended Explanation 4 which defines the expression "the amount of tax sought to be evaded" in different circumstances, to clarify that in ....
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.... of ten thousand rupees is leviable for failure to comply with the provisions of section 139A of the Income-tax Act relating to permanent account number (PAN). 78.4 In view of the importance of complying with the provisions relating to PAN, the Finance Act, 2002, has omitted the said clause from section 272A and inserted a new section 272B in the said Act, to provide for penalty of ten thousand rupees for failure to comply with the provisions of section 139A or for quoting or intimating a PAN which is false. An opportunity of being heard shall be given to the assessee before imposing any such penalty. 78.5 A reference to section 272B has been inserted in section 273B of the Income-tax Act to provide that such penalty shall not be imposed if it is proved that there was reasonable cause for the failure. The proposed amendment is consequential in nature. 78.6 These amendments will take effect from 1st June, 2002. [Sections 102, 103,104 and 106] 79. National Dairy Development Board, Prasar Bharati and Oil Industry Development Board to pay income-tax 79.1 Certain statutory bodies have been exempted from payment of income-tax by having a provision for the same in the Ac....