TaxTMI 
TaxTMI 
Explanatory notes to the provisions of the Finance (No. 2) Act, 2009
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....on 10(23C), 9.1-9.3 10(23D) Amendment to section 10(23D) of the Income-tax Act, 1961-Incorporating "Other Public Sector Banks" under the expression "Public Sector Bank", 10.1-10.4 10A, 10B Extension of sunset clause for units in free trade zone under section 10A and for export oriented undertakings under section 10B, 11.1-11.3 10AA Clarification regarding computation of exempted profits in the case of units in Special Economic Zones (SEZs), 12.1-12.3 13B, 2(22AAA), 2(24) Special provisions relating to voluntary contributions received by electoral trust, 13.1-13.3 32 Aligning the definition of "block of asset", 14.1-14.2 35 Weighted deduction for in-house research and development, 15.1-15.3 35AD, 28, 43, 50B, 73A Investment-linked tax incentive for specified business, 16.1-16.6 36(1) Special deduction under section 36(1)(viii) to National Housing Bank (NHB), 17.1-17.4 40 Remuneration to partners in a firm, 18.1-18.3 40A Enhancement of limit for disallowance of expenditure made in the case of transporters, 19.1-19.4 43 Definition of written down value under section 43(6), 20.1-20.8 44AD, 44AA, 44AB, 44AE, 44AF Sp....
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....d on delayed compensation or on enhanced compensation, 46.1-46.4 147 Clarificatory amendment in respect of reassessment proceeding under section 147, 47.1-47.4 194A Interest other than "interest on securities", 48.1-48.2 194C, 194-I Rationalisation of provisions relating to Tax Deduction at Source (TDS), 49.1-49.4 200, 203A, 206A, 206C, 272A, 139A Filing of TDS and TCS statements, 49.5 200A Processing of statements of tax deducted at source, 49.6 201 Providing time-limits for passing of orders under section 201(1) holding a person to be an assessee in default, 50.1-50.4 206AA Improving compliance with provisions of quoting PAN through the TDS regime, 51.1-51.5 208 Enhancement of the limit for payment of advance tax, 52.1-52.2 271 Rationalization of provisions relating to penalty for concealment of income, 53.1-53.3 281B Rationalization of provision relating to provisional attachment of asset, 54.1-54.3 282 Service of notice, 55.1-55.4 282B Introduction of Document Identification Number, 56.1-56.3 293C Power to withdraw approvals, 57.1-57.3 1st Schedule Taxation of investment income/loss of Non-life ....
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....taking and Repeal) Act, 2002. 3. Rate structure 3.1 Rates of income-tax in respect of incomes liable to tax for the assessment year 2009-10. 3.1-1 In respect of income of all categories of taxpayers liable to tax for the assessment year 2009-10, the rates of income-tax have been specified in Part I of the First Schedule to the Act. These rates are the same as those laid down in Part III of the First Schedule to the Finance Act, 2008 for the purposes of computation of advance tax, deduction of tax at source from Salaries and charging of tax payable in certain cases during the financial year 2008-09. The major features of the rates specified in the said Part I are as follows : 3.1-2 INDIVIDUAL, HINDU UNDIVIDED FAMILY, ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS OR ARTIFICIAL JURIDICAL PERSON - Paragraph A of Part I of the First Schedule specifies the rates of income-tax in the case of every individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person (other than a co-operative society, firm, local authority and company) as under :- Income chargeable to tax Rate of income-tax Individual (other than individual wo....
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....ut to Rs. 2,200. In addition, the amount of tax computed and surcharge shall also be increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent of such income-tax and surcharge. No marginal relief shall be available in respect of Education Cess. 3.1-3 CO-OPERATIVE SOCIETIES - In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part I of the First Schedule to the Act. The rates are as follows :- Income chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% No surcharge shall be levied. Education Cess on income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.1-4 FIRMS - In the case of every firm, the rate of income-tax of thirty per cent has been specified in Paragraph C of Part I of the First Schedule to the Act. Surcharge at the rate of ten per cent shall be levied only in cases where the firm has total income ex....
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....mputed shall be enhanced by a surcharge of two and one-half per cent only where such company has total income exceeding one crore rupees. However, marginal relief shall be allowed in the case of every company to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over one crore rupees is limited to the amount by which the income is more than one crore rupees. Also, in the case of every company having total income chargeable to tax under section 115JB of the Income-tax Act and where such income exceeds one crore rupees, marginal relief shall be provided. In respect of fringe benefits, in the case of a domestic company, surcharge shall be levied at the rate of ten per cent of the amount of tax, irrespective of the amount of fringe benefits. In the case of a company other than a domestic company, in respect of fringe benefits, surcharge shall be levied at the rate of two and one-half per cent of the amount of tax, irrespective of the amount of fringe benefits. Education Cess on income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed, inclusive of surcharge in the case of every company. ....
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....uch tax is Rs. 1,00,000 and the surcharge is Rs. 10,000, then the education cess of two per cent is to be computed on Rs. 1,10,000 which works out to be Rs. 2,200. In addition, the amount of tax deducted and surcharge shall be further increased by an additional surcharge called Secondary and Higher Education Cess on income-tax at the rate of one per cent in all such cases. Thus in the earlier illustration, where the amount of tax deducted is Rs. 1,00,000, the surcharge is Rs. 10,000, the Education Cess of two per cent is Rs. 2,200, the said Secondary and Higher Education Cess will be computed on Rs. 1,10,000 which works out to be Rs. 1,100. The total cess in this case will amount to Rs. 3,300 (i.e., Rs. 2,200 + Rs. 1,100). 3.3 Rates for computation of advance tax, deduction of income-tax at source from Salaries and charging of income-tax in certain cases during the financial year 2009-10. 3.3-1 The rates for deducting income-tax at source from Salaries and computing advance tax during the financial year 2009-10 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 2009-10 on ....
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....of one per cent of such income-tax. No marginal relief shall be available in respect of Education Cess. 3.3-3 CO-OPERATIVE SOCIETIES - In the case of every co-operative society, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Act. The rates are as follows :- Income chargeable to tax Rate Up to Rs. 10,000 10% Rs. 10,001 - Rs. 20,000 20% Exceeding Rs. 20,000 30% No surcharge shall be levied. Education Cess on income-tax and Secondary and Higher Education Cess on income-tax shall be levied at the rate of two per cent and one per cent respectively of the amount of tax computed. No marginal relief shall be available in respect of Education Cess. 3.3-4 FIRMS - In the case of every firm, the rate of income-tax of thirty per cent has been specified in Paragraph C of Part III of the First Schedule to the Act. No Surcharge shall be levied. The Education Cess on Income-tax shall continue to be levied at the rate of two per cent on the amount of tax computed. In addition, such amount of tax shall be further increased by an additional cess called Secondary and Higher Education Cess on income-tax computed at the....
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....n the ambit of provisions relating to 'charitable purpose' in the Income-tax Act 4.1 For the purposes of the Income-tax Act, "charitable purpose" has been defined in section 2(15) of the Income-tax Act and it includes - (b) education, (c) medical relief and, (d) the advancement of any other object of general public utility. However, as per proviso to the section, the "advancement of any other object of general public utility" shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 4.2 Clause (15) of section 2 has been amended so as to provide that the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest would be excluded from the applicability of the aforesaid proviso which is applicable to the "advancement of any other object of general....
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....ble with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent assessment years. 6. Definition of the term "manufacture" 6.1 A number of tax concessions under the Income-tax Act are provided for encouraging manufacture of articles or things. However, the term "manufacture" was earlier not been defined in the statute. Therefore, it has been the subject-matter of dispute and resultant judicial review in a number of cases. In order to remove any kind of ambiguity which may still persist in this regard, a new clause (29BA) has been inserted in section 2 so as to provide that 'manufacture', with all its grammatical variations, shall mean a change in a non-living physical object or article or thing, - (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new object or article or thing with a different chemical composition or integral structure. 6.2 Applicability- This amendment has been made applicable with retrospective effect from 1st April, 2009 and will ....
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.... a proviso to section 89 has been inserted to provide that no relief shall be granted in respect of any amount received or receivable by an assessee on his voluntary retirement or termination of his service, in accordance with any scheme or schemes of voluntary retirement or in case of a public sector company referred to in sub-clause (i) of clause (10C) of section 10, a scheme of voluntary separation, if an exemption in respect of such voluntary retirement or termination of his service or voluntary separation has been claimed by the assessee under clause (10C) of section 10 in respect of such, or any other, assessment year. 8.4 Correspondingly, a third proviso has also been inserted to clause (10C) of section 10 to provide that where any relief has been allowed to any assessee under section 89 for any assessment year in respect of any amount received or receivable on his voluntary retirement or termination of service or voluntary separation, no exemption under clause (10C) of section 10 shall be allowed to him in relation to such, or any other, assessment year. 8.5 Applicability- These amendments have been made applicable with effect from 1st April, 2010 and will accordingly....
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....her public sector banks", has not been included in the expression "public sector banks" as defined in the Explanation to section 10(23D) they were not eligible for the exemption available under section. In view of the above, section 10(23D) has been amended to include "other public sector banks" as categorized by Reserve Bank of India in the expression "public sector banks". 10.4 Applicability - These amendments have been made applicable with effect from 1st April, 2010 and will accordingly, apply for assessment year 2010-11 and subsequent assessment years. 11. Extension of sunset clause for units in free trade zone under section 10A and for export oriented undertakings under section 10B 11.1 Under the existing provisions, the deductions under section 10A and section 10B of the Income-tax Act were available only up to the assessment year 2010-11. 11.2 Sections 10A and 10B have been amended to extend the tax benefit under both these sections by one year i.e., the deduction will be available up to assessment year 2011-12. 11.3 Applicability - These amendments have been made applicable with effect from 1st April, 2009 and will accordingly, apply....
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.... the Income-tax Act has been amended to provide that voluntary contributions received by an electoral trust shall be treated as income of the trusts. However, a new section 13B has been inserted to provide that voluntary contributions received by an electoral trust shall not be included in the total income of the previous year of such electoral trust, if:- (a) the electoral trust distributes to any political party, registered under section 29A of the Representation of the People Act, 1951, during previous year 95 per cent of the aggregate donations received by it during the said previous year along with the surplus, if any, brought forward from any earlier previous years; and (b) the electoral trust functions in accordance with the rules made in this regard by the Central Government. 13.2 Applicability - These amendments have taken effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent years. 14. Aligning the definition of "block of asset" 14.1 The term "block of assets" has been defined in clause (11) of section 2 and in Explanation 3 to sub-section (1) of section 32 of the Income-tax ....
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....ve has been provided by inserting a new section 35AD in the Income-tax Act for the following businesses:- (a) setting up and operating cold chain facilities for specified products; (b) setting up and operating warehousing facilities for storage of agricultural produce; (c) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network. 16.3 The salient features of the new regime of investment-linked tax incentives are the following:- (i) Hundred per cent deduction would be allowed in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of the specified business carried on during the previous year in which such expenditure is incurred. (ii) Capital expenditure incurred prior to the commencement of operations of the specified business and capitalised in the books of account of the assessee on the date of commencement of operations is also eligible for the deduction. (iii) The expenditure of capital nature shall not include any expenditure incurred on acquisiti....
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....instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD, shall be treated as taxable under section 28. Further, the actual cost of any capital asset on which deduction has been allowed or is allowable to the assessee under section 35AD, shall be treated as 'nil' under section 43 in the case of such assessee and in any other case if the capital asset is acquired or received - (i) by way of gift or will or an irrevocable trust; (ii) on any distribution on liquidation of the company; and (iii) by such mode of transfer as is referred to in clauses (i), (iv), (v), (vi), (vib), (xiii) and (xiv) of section 47. Also, while computing capital gains in case of slump sale under section 50B, the aggregate value of total assets for computing the net worth in the case of capital assets in respect of which the whole of the expenditure has been allowed or is allowable as a deduction under section 35AD shall be treated as nil. 16.6 A new section 73A has also been inserted to give effect to the consequential provisions introduced in section 35AD. Thus, any loss comp....
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....ffective from the 1st April, 2010 and will accordingly, apply in respect of assessment year 2010-11 and subsequent assessment years. 18. Remuneration to partners in a firm 18.1 Under the existing provisions of the Income-tax Act, the payment of salary, bonus, commission or remuneration (hereinafter referred to as "remuneration") to a working partner of a partnership firm is allowed as deduction if it is authorised by the partnership deed and subject to the overall ceiling of monetary limits prescribed under sub-clause (v) of clause (b) of section 40. The existing limits are as under : (1) in case of a firm carrying on a profession- (a) on the first Rs. 1,00,000 of the book-profit or in case of a loss Rs. 50,000 or at the rate of 90 per cent of the book-profit, whichever is more; (b) on the next Rs. 1,00,000 of the book-profit at the rate of 60 per cent; (c) on the balance of the book-profit at the rate of 40 per cent. (2) in the case of any other firm- (a) on the first Rs. 75,000 of the book-profit, or in case of a loss Rs. 50,000 or at the rate of 90 per cent of the book-profit, whichever is more; (b) on the next Rs. 75,000 of ....
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.... the actual cost to the assessee less all depreciation "actually allowed" to him under the Income-tax Act. 20.2 Rules 7A, 7B and 8 of the Income-tax Rules, 1962, deal with the computation of composite income where income is derived in part from agricultural operations and in part from business chargeable to tax under the Income-tax Act, 1961 under the head "Profits & Gains of Business". These rules prescribe the method of computation in the case of manufacture of rubber, coffee and tea. In such cases, the income which is brought to tax as "business income" is a prescribed fixed percentage of the composite income. 20.3 The Hon'ble Supreme Court in the case of CIT v. Doom Dooma India Ltd. ( 222 CTR 105) has held that in view of the language employed in sub-clause (b) of clause (6) of section 43 regarding depreciation "actually allowed", where any income is partially agricultural and partially chargeable to tax under the Income-tax Act, 1961 under the head "Profits & Gains of Business", the depreciation deducted in arriving at the taxable income alone can be taken into account for computing the WDV in the subsequent year. 20.4 For instance, rule 8 pres....
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...." to the assessee. 20.8 Applicability - These amendments has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent assessment years. 21. Special provision for computing profits and gains of business on presumptive basis 21.1 The existing provisions of the Income-tax Act provide for taxation of income on presumptive basis in the case of construction business, income from goods carriages and business of retail trade. Section 44AD prescribes a method of presumptive taxation for assessee engaged in the business of civil construction or supply of labour for civil construction in which a sum equal to eight per cent of the gross receipts is deemed to be the profits and gains from business. Section 44AE provides presumptive provisions for the assessee engaged in the business of plying, hiring or leasing up to ten goods carriages in which a prescribed sum per vehicle is deemed to be the presumptive income of the assessee. Section 44AF prescribes a method of presumptive taxation for retail trade, under which the presumptive income is computed at the rate of a sum equal to five per cent of the tota....
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....y, apply in relation to assessment year 2011-12 and subsequent assessment years. 22. Presumptive income for truck owners under section 44AE 22.1 Under the existing provisions of section 44AE, a presumptive scheme 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 10 goods carriages at any time during the previous year. 22.2 Under this scheme, which is optional to the assessee, a fixed amount of income per vehicle is taken at the rate of Rs. 3,500 per month per vehicle for owners of heavy goods vehicle, and Rs. 3,150 per month per vehicle for the owners of light goods vehicles. An assessee opting for this scheme is exempted from maintaining books of account to substantiate the income. 22.3 The Act has been amended to take care of inflationary trend, hence the limit has been enhanced to presume income per vehicle for the owners of :- (i) heavy goods vehicle to Rs. 5,000 per month; and (ii) other than heavy goods vehicles to Rs. 4,500 per month. 22.4 Further an anti-avoidance clause is provided to state that a prescribed fixed sum or a sum higher than the....
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....to income-tax in the hands of the recipient under the head 'Income from other sources'. However, receipts from relatives or on the occasion of marriage or under a will were outside the scope of the provisions of clause (vi) of sub-section (2) of section 56 of the Income-tax Act. Similarly, anything which is received in kind having 'money's worth' i.e., property were also remained outside the purview of these provisions. 24.2 The above section being an anti-abuse measure, in view of the above, section 56 of the Income-tax Act, 1961 has been amended by inserting a new clause (vii) in sub-section (2) to provide that the value of any property received without consideration or for an inadequate consideration will also be included in the computation of total income of the recipient as income from other source. Such properties will include immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art. 24.3 It has been provided that in a case where an immovable property is received without consideration and the stamp duty value of such property exceeds f....
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.... applicable with effect from 1st October, 2009 and will accordingly, apply for transactions undertaken on or after such date. 25. Amendment in Chapter VI-A to prevent abuse of tax incentives 25.1 The profit linked deductions in Chapter VI-A are prone to considerable misuse. Further, since the scope of the deductions under various provisions of Chapter VI-A overlap, the taxpayers, at times, claim multiple deductions for the same profits. 25.2 With a view to preventing such misuse, the provisions of section 80A of the Income-tax Act have been amended to provide the following, namely- (i) deduction in respect of profits and gains shall not be allowed under any provisions of section 10A or section 10AA or section 10B or section 10BA or under any provisions of Chapter VI-A under the heading "C.-Deductions in respect of certain incomes" in any assessment year, if a deduction in respect of same amount under any of the aforesaid has been allowed in the same assessment year; (ii) the aggregate of the deductions under the various provisions referred to in (i) above, shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business....
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....e 1st January, 2004 and is mandatory for all new recruits to the Central Government service from 1st January, 2004. Since then it has been opened up for employees of State Government, private sector and self-employed (both organised and unorganised). NPS Trust has been set-up on 27th February, 2008 as per the provisions of the Indian Trust Act, 1882 to manage the assets and funds under the NPS in the interest of the beneficiaries. 26.2 With a view to ensure that tax treatment of savings under this system is in synchronised with the "Exempt-Exempt-Taxed" (EET) method and that there is no incidence of taxation at the accumulation stage, it is proposed to make the NPS Trust a complete pass-through insofar as taxation is concerned. Therefore, the following modifications have been made in the Income-tax Act- (i) A new clause (44) has been inserted in section 10 of the Income-tax Act so as to provide that any income received by any person on behalf of the New Pension System Trust established on 27th day of February, 2008 under the provisions of the Indian Trust Act of 1882 shall be exempt from income-tax; (ii) Section 115-O has been amended to provide that any divide....
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....April, 2010 and will accordingly, apply in respect of assessment year 2010-11 and subsequent years. 28. Deduction in respect of interest on loan taken for higher education 28.1 Section 80E of the Income-tax Act provides for a deduction to an assessee, being an individual, on account of any amount paid by him in the previous year by way of interest on loan taken from any financial institution or any approved charitable institution for the purpose of pursuing higher education in specified fields of study. 28.2 Under the existing provisions, the deduction was available only for pursuing full time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics. 28.3 With the objective of fostering human capital formation in the country, the provisions of section 80E of the Income-tax Act have been amended by substituting clause (c) of sub-section (3) so as to extend its scope to cover all fields of studies (including vocational studies) pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recogni....
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....itutions or funds to which the donations are made have to be approved by the Commissioner of Income-tax in accordance with the rules prescribed in rule 11AA of the Income-tax Rules, 1962. The proviso to this clause provides that any approval granted under this clause shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval. Due to this limitation imposed on the validity of such approvals, the approved institutions or funds have to bear the hardship of getting their approvals renewed from time to time. This is unduly burdensome for the bona fideinstitutions or funds and also leads to wastage of time and resources of the tax administration in renewing such approvals in a routine manner. 29.5 Therefore, the proviso to clause (vi) of sub-section (5) of section 80G has been omitted to provide that the approval once granted shall continue to be valid in perpetuity. 29.6 Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the ins....
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....ntains and operates an industrial park notified by the Central Government in accordance with the scheme framed and notified by that Government for the period beginning on 1st April, 1997 and ending on 31st March, 2006, was eligible for hundred per cent deduction from profits and gains for 10 assessment years. This terminal date was extended up to 31st March, 2009 by the Finance Act, 2007. 31.2 Clause (iii) of sub-section (4) of section 80-IA has now been amended to extend the terminal date for a further period of two years up to 31st March, 2011. 31.3 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2009-10 and subsequent assessment years. 31.4 Further, the existing provisions of clause (iv) of sub-section (4) of section 80-IA provide for a deduction of profits and gains of an undertaking,- (a) which is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1-4-1993 and ending on 31-3-2010; (b) which starts transmission or distribution by laying a network of new transmi....
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....r (ii) in which the refining of mineral oil has begun. 32.2 However, no deduction under this sub-section is available to an undertaking which begins refining of mineral oil on or after 1st April, 2009 unless such undertaking fulfils all the following conditions as provided in the third proviso to this sub-section, namely :- (i) It is wholly owned by a public sector company or any other company in which a public sector company or companies hold at least forty-nine per cent of the voting rights; (ii) It is notified by the Central Government in this behalf on or before 31st May, 2008; and (iii) It begins refining not later than 31st March, 2012. 32.3 Under the existing provisions, it was incumbent on refineries in the private sector to commence refining of mineral oil on or before 31st March, 2009. The notice given to private sector entrepreneurs to complete the execution of their refinery project was extremely short. As a result, entrepreneurs who had undertaken substantial investment in anticipation of the tax holiday suffered serious financial setback. 32.4 Therefore, the provisions of sub-section (9) have been amended so as to allow the....
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.... natural gas. 32.8 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2000 and will accordingly, apply in relation to assessment year 2000-01 and subsequent years. 33. Rationalising the provisions of deduction under section 80-IB(10) 33.1 Sub-section (10) of section 80-IB of the Income-tax Act, 1961 provides for hundred per cent deduction of the profits derived by an undertaking from developing and building housing projects. This benefit is available subject to the following conditions :- (a) The project is approved by a local authority before 31st March, 2007. (b) The project is constructed on a plot of land having a minimum area of one acre. (c) The built-up area of each residential unit should not exceed 1,000 sq.ft. in the cities of Delhi and Mumbai (including areas falling within 25 kms. of municipal limits of these cities) and 1,500 sq.ft. in other places. (d) The built-up area of the shops and other commercial establishments included in the housing project should not exceed 5 per cent of the total built-up area of the housing project or 2,000 sq.ft., whichever is less. (....
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....ability - These amendments have been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent years. The amendments relate to restrictions on specific transactions (i.e., allotment of residential units). Therefore, they would apply to transactions after a specified date during the year. Since the Finance (No. 2) Act, 2009 became law on 19th August, 2009, the restrictions regarding allotment of residential units shall not apply in respect of allotments made before 19-8-2009. 34. Deduction in case of an undertaking deriving profit from the business of processing, preservation and packaging of meat and meat products or poultry or marine or dairy products 34.1 The existing provisions of sub-section (11A) of section 80-IB of the Act provide for hundred per cent tax holiday for five assessment years in respect of profits derived from the business of processing, preservation and packaging of fruits or vegetables and thereafter, a deduction of twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from the operation of such business in a manner that ....
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....a'. Need was felt to expand the scope of this co-operation by entering into a DTAA or TIEA (Tax Information Exchange Agreement) with non-sovereign jurisdictions as well. 36.3 In order to enable the Government to enter into agreements with non-sovereign territories as well, section 90 of the Income-tax Act, 1961 has been amended. The corresponding provisions under section 44A of the Wealth Tax Act have also been amended so as to enable the Government to notify such specified territories outside India. 36.4 Applicability - These amendments have been made applicable with effect from 1st October, 2009 and will accordingly, apply for transactions undertaken on or after such date. 37. Determination of arm's length price in cases of international transactions 37.1 Section 92C of the Income-tax Act provides for adjustment in the transfer price of an international transaction with an associated enterprise if the transfer price is not equal to the arm's length price. As a result, a large number of such transactions are being subjected to adjustment giving rise to considerable dispute. 37.2 The proviso to sub-section (2) of section 92C provides that where more ....
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....tities had also been exempted from the taxation of anonymous donations, except where the anonymous donation is made to an educational or medical institution run by such entity in which case such donations were taxed at the rate of 30 per cent. In the case of wholly charitable entities, all anonymous donations are taxed at the rate of 30 per cent. 39.2 It was observed that in the case of some such institutions, there are practical difficulties to maintain complete records of donation received. In order to mitigate the compliance burden, the above section was amended and some relief was provided to such organizations by exempting a part of the anonymous donations from being taxed. The amendment has resulted in the following scheme :- 1. Anonymous donations received by wholly religious institutions shall remain exempt from tax. 2. In the case of partly religious and partly charitable institutions, anonymous donations directed towards a medical or educational institutions run by such entities shall be taxable only to the extent such donations exceed 5 per cent of total donations received by such trust or institution or a sum of Rs. 1 lakh, whichever is more. Other ....
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....lternate Tax (MAT) is designed to achieve this objective. 41.2 Under the existing provisions of section 115JB of the Income-tax Act, a company was required to pay a minimum tax on its book profits, if the income-tax payable on the total income, as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after 1st April, 2007, was less than such minimum. The rate of the minimum tax was ten per cent of the book profit. Sub-section (1) of section 115JB was amended to increase the MAT rate to fifteen per cent from the existing level of ten per cent. 41.3 However, with a view to provide relief to the assessees, being companies, who pay Minimum Alternate Tax under section 115JB for any assessment year beginning on or after 1st April, 2006, the provisions of sub-section (3A) of section 115JAA were also amended so as to provide that the amount of tax credit determined under sub-section (2A) of section 115JAA shall be allowed to be carried forward and set-off up to the tenth assessment year immediately succeeding the assessment year in which the tax credit becomes allowable under sub-section (1A) of the said section. 41.4 Applicability....
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....rket value which has been taken into account for the purposes of the said sub-clause. 42.5 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply to assessment year 2010-11 and subsequent assessment years. 43. Clarificatory amendment in section 132 43.1 Under clause (B) of the sub-section (1) of section 132 such Joint Director or Joint Commissioner may authorize any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer to conduct search and seizure operation. 43.2 As per clauses (28C) and (28D) of section 2 the Joint Director or Joint Commissioner are understood to include Additional Director and Additional Commissioner. Based on this understanding in the Department, Additional Directors and Additional Commissioners have issued warrant of authorization. However, the courts have held that the Joint Directors and Joint Commissioners referred to in section 132 of the Income-tax Act do not include "Additional Director or Additional Commissioner". 43.3 Therefore, to provide explicitly that Additional Director or Additional Commissioner always had the pow....
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....h, 2009. 44.2 The work of establishing the facility for centralized processing of returns was underway; therefore, sub-section (1B) has been amended to empower the Board to issue notification up to 31st March, 2010. 44.3 Applicability - This amendment has been made applicable with effect from 1st April, 2009, and will accordingly, apply in relation to assessment year 2009-10 and subsequent assessment years. 45. Provision for constitution of alternate dispute resolution mechanism 45.1 The dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained after long drawn litigation till Supreme Court. In order to address the concern of the multi-national companies and to provide mechanism for speedy disposal of their cases so as to attain finality, a new section 144C is inserted in the Income-tax Act to facilitate expeditious resolution of disputes. 45.2 The salient features of the alternate dispute resolution mechanism are as under :- (1) The Assessing Officer shall, forward a draft of the proposed order of assessment (hereinafter referred to as 'the draft order') to the eligible assessee if he proposes to ....
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.... further enquiry and passing of the assessment order. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to their interest. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete the assessment without giving any further opportunity of being heard, within one month from the end of the month in which the direction is received notwithstanding anything to the contrary contained in section 153. (14) The Board may make rules for the efficient functioning of the Dispute Resolution Panel with a view to expeditiously dispose of the ....
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....y, apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E), dated 20th November, 2009. 46. Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation 46.1 The existing provisions of Income-tax Act provide that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon'ble Supreme Court in the case of Rama Bai v.CIT (181 ITR 400) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee. 46.3 Further, clause (viii) is ins....
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....g nationalized banks to issue zero coupon bonds to source their long-term funds, the section 194A of the Income-tax Act has been amended. This will enable the scheduled banks as an eligible person to enjoy the benefit under TDS provisions. 48.2 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 2009 and will accordingly, apply in relation to the assessment year 2009-10 and subsequent assessment years. 49. Rationalization of provisions relating to Tax Deduction at Source (TDS) 49.1 Tax deduction at source is a method of collecting taxes on behalf of the Government at the time of payment or credit. The Income-tax Act casts a legal responsibility on the deductor to deduct tax on the correct amount, at the correct rate and deposit it to the Government account. The TDS rates are specified partly in the Finance Act and partly in the provisions of the Income-tax Act. Deductors are also required to compute surcharge and cess over and above some of the prescribed rates of TDS. If the deductor fails to deduct the tax or fails to deposit the tax after deduction, interest, penalty and prosecution provisions may get attracted. Further....
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....ovide the same rate of TDS in the case of payment for advertising contracts. To avoid hardship to small contractors/sub-contractors most of whom are organized as individuals/HUFs, the following rates of TDS are prescribed :- (a) 1 per cent where payment for a contract are to individuals/HUF (b) 2 per cent where payment for a contract are to any other entity. Nature of Payment (194C) Existing rate New rate** (w.e.f. 1-10-2009) Payment to- (a) Individual/HUF contractor 2% 1% (b) Other than individual/HUF contractor 2% 2% (c) Individual/HUF sub-contractor 1% 1% (d) Other than individual/HUF sub-contractor 1% 2% (e) Individual/HUF contractor/sub-contractor for advertising 1% 1% (f) Other than individual/HUF contractor/sub-contractor for advertising 1% 2% (g) Sub-contractor in transport business 1% nil* (h) Contractor in transport business 2% nil* *The nil rate will be applicable if the transporter quotes his PAN. If PAN is not quoted the rate will be 1 per cent for an individual/HUF transporter and 2 per cent for other transporters up to 31-3-2010. **The r....
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.... customer by using material purchased from such customer is also included, within the definition of 'work'. It is further provided that in such a case TDS shall be deducted on the invoice value excluding the value of material purchased from such customer if such value is mentioned separately in the invoice. Where the material component has not been separately mentioned in the invoice, TDS shall be deducted on the whole of the invoice value. (B) Applicability - This amendment has been made applicable with effect from 1st October, 2009 and will accordingly, apply in relation to assessment year 2010-11 and subsequent assessment years. 49.5 Filing of TDS and TCS statements (A) Sub-section (3) of section 200 of Income-tax Act provides that any person deducting tax in accordance with the provisions of Chapter XVII-B has to furnish, within the prescribed time, quarterly statements for the period ending on the 30th June, 30th September, 31st December and 31st March in each financial year. Similarly, filing of quarterly returns for Tax Collection at Source (TCS) have been provided in sub-section (3) of section 206C of the Act. Further section 206A provides furnishing o....
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....not provide for any limitation of time for passing an order under section 201(1) holding a person to be an assessee-in-default. In the absence of such a time-limit, disputes arise when these proceedings are taken up or completed after substantial time has elapsed. In order to bring certainty on this issue, specific time-limits is provided in the Act within which order under section 201(1) will be passed. 50.2 It has been provided that an order under section 201(1) for failure to deduct the whole or any part of the tax as required under this Act, if the deductee is a resident taxpayer, shall be passed within two years from the end of the financial year in which the statement of tax deduction at source is filed by the deductor. Where no such statement is filed, such order can be passed up till four years from the end of the financial year in which the payment is made or credit is given. To provide sufficient time for pending cases, it is provided that such proceedings for a financial year beginning from 1st April, 2007 and earlier years can be completed by the 31st March, 2011. 50.3 However, no time-limits have been prescribed for order under sub-section (1) of section 201 wher....
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.... is deductible on payments or credits made to them. To ensure that the deductor knows about the correct PAN of the deductee, it is provided that both the deductor and deductee will mandatorily quote PAN of the deductee in all correspondence, bills and vouchers exchanged between them. 51.5 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2011-12 and subsequent assessment years. 52. Enhancement of the limit for payment of advance tax 52.1 Under the existing provisions of section 208 of the Income-tax Act, liability for payment of advance tax during a financial year arises when the amount of such tax payable during that year is five thousand rupees or more. This limit was fixed in 1996. With a view to providing for inflation adjustment, the Income-tax Act has been amended to raise the threshold limit for payment of advance tax from the present five thousand rupees to ten thousand rupees. 52.2 Applicability - This amendment has been made applicable with effect from 1st April, 2009 and will accordingly, apply in relation to assessment year 2010-11 and subsequent asses....
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....iod of validity of provisional attachment order can be further extended by two years. The second proviso to sub-section (2) further provides that where an application for settlement under section 245C is made, the period commencing from the date on which such application is made and ending with the date on which order under sub-section (1) of section 245D is made shall be excluded from the period specified in this sub-section. 54.2 In many cases, the assessees have filed writ petition in High Court or Supreme Court and have obtained stay of the assessment proceedings. Often such stay remains in force for many years during which the validity of provisional attachment order expires. In order to rationalize the provisions, a third proviso has be inserted in sub-section (2) of section 281B to provide that the period during which the proceeding for assessment or reassessment are stayed by an order or injunction of any Court shall be excluded from the period specified in first proviso. 54.3 Applicability - This amendment has been made applicable with retrospective effect from 1st April, 1988 and will accordingly, apply in relation to assessment year 1988-89 and subsequent asse....
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....nd shall be deemed never to have been issued. 56.2 It is also provided that every document, letter or any correspondence, received by an income-tax authority or on behalf of such authority, shall be accepted only after allotting and quoting of a computer generated Document Identification Number. Where the document, letter or any correspondence received by any income-tax authority or on behalf of such authority does not bear Document Identification Number, such document, letter or any correspondence shall be treated as invalid and shall be deemed never to have been received. 56.3 Applicability - This amendment has been made applicable with effect from 1st October, 2010, and will accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 57. Power to withdraw approvals 57.1 Under the existing provisions of Income-tax Act, an approval is required to be granted by income-tax authority for availing of various incentives by the assessees. While some provisions of Income-tax Act specifically contain provisions for withdrawal of approval but in many cases there is no such specific provisions containing power of withdrawal. 57.2 In order to provi....
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....ons prescribed by IRDA. 58.4 Applicability - This amendment has been made applicable with effect from 1st April, 2011, and will accordingly, apply in relation to assessment year 2011-12 and subsequent assessment years. 59. Recognition to Provident funds - Extension of time-limit for obtaining exemption from EPFO 59.1 Rule 4 of Part A of the Fourth Schedule to the Income-tax Act provides for conditions which are required to be satisfied by a Provident Fund for receiving or retaining recognition under the Income-tax Act. Rule 3 of Part A of the Fourth Schedule provides that the Chief Commissioner or the Commissioner of Income-tax may accord recognition to any provident fund which satisfies the conditions prescribed in rule 4 and the rules made by the Board in this behalf. 59.2 The proviso to sub-rule (1) of the said rule 3, inter alia, specifies that in a case where recognition has been accorded to any provident fund on or before 31st March, 2006, and such provident fund does not satisfy the conditions set out in clause (ea) of rule 4 on or before 31st March, 2009, the recognition to such fund shall be withdrawn. One of the requirements of this clause (ea) ....
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....With a view to providing for inflation-adjustment, the Wealth-tax Act has been amended to raise the threshold limit for the payment of wealth-tax from fifteen lakh rupees to thirty lakh rupees. 61.2 Applicability - This amendment has been made applicable with effect from 1st April, 2010 and will accordingly, apply in relation to assessment year 2010-11 and subsequent years. 62. Abolition of Commodity Transaction Tax 62.1 The provisions for levy of Commodity Transaction Tax were introduced by Chapter VII of Finance Act, 2008. The commodity transaction tax to be levied on 'taxable commodities transactions' entered in a recognized association. The 'taxable commodities transactions' has been defined to mean a transaction of purchase or sale of option of goods or option in commodity derivative or any other commodity derivative. Section 104 of Finance Act, 2008 provides the rate at which commodity transaction tax shall be levied on taxable commodities transaction undertaken by seller or purchaser as the case may be. 62.2 It has been decided to do away with the power to levy Commodity Transaction Tax. Therefore, a new section 121A is inserted in Chapter VI....