TaxTMI 
TaxTMI 
Finance Act, 2022 - Explanatory Notes to the Provisions of the Finance Act, 2022
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sources 68 Cash credits 79 Carry forward and set off of losses in case of certain companies 79A No set off of losses consequent to search, requisition and survey 80CCD Deduction in respect of contribution to pension scheme of Central Government 80DD Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability 80-IAC Special provision in respect of specified business 80LA Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre 92CA Reference to Transfer Pricing Officer 94 Avoidance of tax by certain transactions in securities 115BAB Tax on income of new manufacturing domestic companies 115BBD Tax on certain dividends received from foreign companies 115BBH Tax on Income from virtual digital asset 115BBI Specified income of certain institutions 115JC Special provisions for payment of tax by certain persons other than a company 115JF Interpretation in this Chapter (Chapter XII-BA) 115TD Tax on accreted income 115TE Interest payable for non-payment of tax by trust or institution ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n cases 253 Appeals to the Appellate Tribunal 255 Procedure of Appellate Tribunal 263 Revision of orders prejudicial to revenue 271AAB Penalty where search has been initiated 271AAC Penalty in respect of certain income 271AAD Penalty for false entry, etc., in books of account 271AAE Benefits to related persons. 271C Penalty for failure to deduct tax at source 272A Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. 276AB Failure to comply with the provisions of sections 269UC, 269UE and 269UL 276B Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B 276CC Failure to furnish returns of income 278A Punishment for second and subsequent offences 278AA Punishment not to be imposed in certain cases 285B Submission of statements by producers of cinematograph films or persons engaged in specified activity 1. Introduction 1.1 The Finance Act, 2022 (hereafter referred to as 'FA 2022') as passed by the Parliament, received the assent of the President on 30th March, 2022 and has been ena....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 5,00,000 5 From 5,00,001 to 7,50,000 10 From 7,50,001 to 10,00,000 15 From 10,00,001 to 12,50,000 20 From 12,50,001 to 15,00,000 25 Above 15,00,000 30 The amount of income-tax so computed, including in the case of an individual or an HUF exercising option under section 115BAC, or as computed under the provisions of section 111 A or section 112 or section 112A of the Act but not having any income under section 115AD of the Act, shall be increased by a surcharge,- (i) having a total income (including the income by way of dividend or income under the provisions of section 111 A and 112A of the Act) exceeding fifty lakh rupees but not exceeding one crore rupees, at the rate of ten per cent. of such income-tax; and (ii) having a total income (including the income by way of dividend or income under the provisions of section 111 A and 112A of the Act) exceeding one crore rupees but not exceeding two crore rupees, at the rate of fifteen per cent. of such income-tax; (iii) having a total income (excluding the income by way of dividend or income under the provisions of section 111A and 112A of the Act) exceeding two crore rupees....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilable so the total amount payable as income-tax and surcharge on total income exceeding- (i) fifty lakh rupees but not exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of fifty lakh rupees by more than the amount of income that exceeds fifty lakh rupees. (ii) one crore rupees but not exceeding two crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. (iii) two crore rupees but not exceeding five crore rupees shall not exceed the total amount payable as income-tax on a total income of two crore rupees by more than the amount of income that exceeds two crore rupees. (iv) five crore rupees shall not exceed the total amount payable as income-tax on a total income of five crore rupees by more than the amount of income that exceeds five crore rupees. The Health and Education Cess on income-tax shall be levied at the rate of four per cent. on the amount of tax computed inclusive of surcharge. No marginal relief shall be available in respect of Health and Education Cess. 3.1.3 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chedule to the FA 2022 specifies the rate of income-tax as thirty per cent. in the case of every local authority. The amount of income-tax so computed or as computed under the provisions of section 11 1 A or section 112 or section 112A of the Act shall be increased by a surcharge at the rate of twelve per cent. of such income-tax in case of a local authority having a total income exceeding one crore rupees. However, marginal relief shall be available so that the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. The Health and Education Cess on income-tax shall be levied at the rate of four per cent. on the amount of tax computed inclusive of surcharge. No marginal relief shall be available in respect of Health and Education Cess. 3.1.6 Companies. Paragraph E of Part I of the First Schedule to the Act specifies the rates of income-tax in the case of a company. (i) In case of a domestic company, the rate of income-tax is - a) twenty-five per cent. of the total incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ery company. No marginal relief shall be available in respect of Health and Education Cess. 3.2 Rates for deduction of income-tax at source from certain incomes during the financial year 2022-23. 3.2.1 Part II of the First Schedule to the FA 2022 specifies the rates for deduction of income-tax at source during the FY 2022-23 under the provisions of sections 193, 194A, 194B, 194BB, 194D, 194LBA, 194LBB, 194LBC and 195 of the Act. The rates will remain the same as those specified in Part II of the First Schedule to the Finance Act, 2021, for the purposes of deduction of income-tax at source during the FY 2021 -22. For sections specifying the rate of deduction of tax at source, the tax shall continue to be deducted as per the provisions of these sections. 3.2.2 Surcharge. The tax deducted at source in the following cases shall be increased by a surcharge, as specified under, for purposes of the Union: The amount of tax so deducted shall be increased by a surcharge,- (a) in the case of every individual or HUF or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be paid and subject to the deduction exceeds one crore rupees; (d) in the case of every company, other than a domestic company, calculated,- (i) at the rate of two per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be pa id and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees; (ii) at the rate of five per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees. (e) No surcharge on tax deducted at source shall be levied in the case of an individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person, co-operative SOCiety, local authority, firm, being a resident or a domestic company. 3.2.3 Health and Education Cess. Health and Education Cess on income-tax shall continue to be levied for the purposes of the Union at the rate of four per cent of income-tax including tax deducted and surcharge, if any. For instance. if the amount of income of a foreign company is Rs. 1,20,00,0001- and tax to be deducted from such foreign company ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....il Nil Rs. 2,50,001 - Rs. 3,00,000 5% Rs. 3,00,001 - Rs. 5,00,000 5% Rs. 5,00,001 - Rs. 10,00,000 20% 20% 20% Exceeding Rs. 10,00,000 30% 30% 30% On satisfaction of certain conditions as per the provisions of section 115BAC, an individual or HUF has the option to pay tax in respect of the total income at following rates: Total Income (Rs) Rate of income- tax Up to 2,50,000 Nil From 2,50,001 to 5,00,000 5 per cent. From 5,00,001 to 7,50,000 10 per cent. From 7,50,001 to 10,00,000 15 per cent. From 10,00,001 to 12,50,000 20 per cent. From 12,50,001 to 15,00,000 25 per cent. Above 15,00,000 30 per cent. The amount of income-tax so computed (including an individual or an HUF exercising option under section 115BAC) or as computed under the provisions of section 111A or section 112 or section 112A of the Act shall be increased by a surcharge,- (a) at the rate of ten per cent. Of such income-tax, in case of a person having a total income (including any income by way of dividend or income under section 111 A, 112 and 112A) exceeding fifty lakh rupees but not exceeding one crore rupees; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Education Cess. 3.3.3 Co-operative Societies. Paragraph B of Part III of the First Schedule to the Act specifies the rates of income-tax in the case of every co-operative society. 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% The amount of income-tax or as computed under the provisions of section 111 A or section 112 or section 112A of the Act shall be increased by a surcharge at the rate of seven per cent. of such income-tax in case the total income of a co-operative society exceeds one crore rupees but does not exceed ten crore rupees. Surcharge at the rate of twelve per cent. of such income-tax shall continue to be levied in case of a co-operative society having a total income exceeding ten crore rupees. On satisfaction of certain conditions, a co-operative society resident in India has the option to pay tax at 22 per cent. as per the provisions of section 115BAD. Surcharge would be at 10 per cent. on such tax. Marginal relief shall be allowed in the case of co-operative society to ensure that: (i) the total amount payable as income-tax and surcharge on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees. Health and Education Cess on income-tax shall be levied at the rate of four per cent. of the amount of income-tax and surcharge. No marginal relief shall be available in respect of Health and Education Cess. 3.3.6 Companies. Paragraph E of Part III of the First Schedule to the FA 2022 specifies the rate of income-tax in the case of a company. (i) In case of a domestic company, the rate of income-tax is,- a) twenty-five per cent. of the total income, if the total turnover or gross receipts of the company in the previous year 2020-21 does not exceed four hundred crore rupees; b) twenty-five per cent. of the total income, at the option of the company, if it opts for taxation under section 115BA of the Act; c) twenty-two per cent. of the total income, at the option of the company, if it opts for taxation under section 115BAA of the Act; d) fifteen per cent. of the total income, at the option of the company, if it opts for taxation under section 115BAB of the Act; e) thirty per cent. of the total income, in all other c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rate of four per cent. of the amount of income-tax computed including surcharge. 3.5 Surcharge in case of newly introduced sections For two newly inserted provisions 115BBH and 115BBI, the applicable tax rate is provided in the respective sections and surcharge shall be levied based on status of the taxpayer as is otherwise applicable to such taxpayer. Health and Education Cess on Income-tax shall be levied at the rate of four per cent. of the amount of income-tax computed including surcharge. 4. Definition of "books of account" 4.1 Section 2 of the Act defines various terms used in the Act. Clause (12A) of section 2 defines "books or books of account" to include ledgers, day-books, cash books, account books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device. 4.2 With the advancement of technology and its widespread utility in daily conduct of business, books of account are maintained in electronic form by a significant section of the asses sees in the current age. 4.3 Therefore, to align the definitions under the Act with the current practices, cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act while computing income from transfer of such asset. 6.2.2 Further, no set off of any loss arising from transfer of virtual digital asset shall be al lowed against any income computed under any provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years. Therefore, the loss from transfer of virtual digital asset cannot be set off against any income (including income from the transfer of another virtual digital asset). 6.2.3 The word "transfer" as defined in clause (47) of section 2 shall apply to any virtual digital asset, whether capital asset or not. 6.2.4 Applicability: This amendment takes effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. 6.3 Further, in order to widen the tax base from the transactions so carried out in relation to these virtual digital assets, section 194S has been inserted in the Act. Any person responsible for paying to any resident any sum by way of considerati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... other than the head 'Profits and gains of business or profession'. 6.3.5 The Board has been empowered to issue guidelines, with the prior approval of the Central Government, to remove any difficulty arising in giving effect to the provisions of the said section and every such guideline issued by the Board has to be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person responsible for paying the consideration on transfer of such virtual digital assets. 6.3.6 Vide circular no. 13/2022 dated 22.06.2022, the Board has issued guidelines, with prior approval of the Central Government, for removal of difficulties. Order under section 119 in relation to section 194S has also been issued in Circular no. 14/2022 dated 28.06.2022 which covers all other transactions which are not covered by Circular no. 13/2022. Circular no 13/2022 dated 22.6.2022 was laid before the Rajya Sabha on 26th July, 2022 and the Lok Sabha on 1st August, 2022. 6.3.7 Vide Notification No. 67/2022 (GSR 463E) dated 21.06.2022, rule 30 and rule 31 of the Income-tax Rules have been amended to provide conditions regarding sum deducted under section 194S ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fy such assets which shall not be considered as virtual digital assets. 6.5.2 Further, vide Notification no. 74/2022 (SO 2958E) dated 30.6.2022, the Central Government has notified that gift card or vouchers, mileage points, reward pOints or loyalty cards; and subscription to websites or platforms or application shall be excluded from the definition of virtual digital asset. 6.5.3 Subsequently, vide Notification no. 75/2022 (SO 2959E) dated 30.06 .2022, Central Government has specified a non-fungible token to be a token which qualifies to be a virtual digital asset within the meaning of sub-clause (a) of clause (47A) of section 2 of the Act but shall not include a non-fungible token whose transfer results in transfer of ownership of underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable. 6.5.4 Applicability: These amendments are effective from 1st April, 2022. 7. Tax Incentives to International Financial Services Centre (IFSC) 7.1 Over the past few years several tax concessions have been provided to units located in International Financial Services Centre (IFSC) under the Act to make it a global hub of financi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which he becomes a resident; b) the specified fund shall be required to maintain necessary documentation in respect of the residency status of the unit holders including the total number of units held, the total value of units held etc. and that the relevant information in respect of the residency status of the unit holders is furnished in Form 10-IG; (ii) Clause (4E) of section 10 of the Act has been amended so as to extend the exemption under the said clause to the income accrued or arisen to, or received by. a non-resident as a result of transfer of offshore derivative instruments or over the counter derivatives entered into with an Offshore Banking Unit of an International Financial Services Centre, referred to in sub-section (1A) of section 80LA. (ii) Clause (4F) of section 10 has been amended to extend the exemption under the said clause to the income of a non-resident by way of royalty or interest, on account of lease of a ship in a previous year, paid by a unit of an International Financial Services Centre, as referred to in sub-section (1A) of section BOLA, if the unit has commenced its operations on or before the 31st March, 2024. Further, "ship" has been defined....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ogrammes and projects were required to be in accordance with an agreement entered by the Central Government and the Government of a foreign state (the terms thereof provide for the exemption given by this clause). 8.2 Exemption was provided to both (i) the remuneration received by the individual from the foreign state for such duties and (ii) any other income accruing or arising outside India (which is not deemed to accrue or arise in India), in respect of which the individual was required to pay any income or social security tax to the Government of the foreign state. 8.3 Clause (8A) of the said section provided for exemption on the remuneration or fee received by a consultant, directly or indirectly out of the funds made available to an international organisation (agency) under a technical assistance grant agreement between the agency and the Government of a foreign state. The said clause also provided exemption to such consultant in respect of any income accruing or arising outside India (which is not deemed to accrue or arise in India), in respect of which the consultant was required to pay income or social security tax to the Government of the country of his or its origi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Government of that foreign state or country of origin of such member. 8.10 The exemptions as provided under the above-mentioned clauses have outlived their utility in the era of Simplification of tax laws and where exemptions and tax incentives are being phased out as a matter of stated policy of the Government. Further, if under a tax treaty, India gets a right to tax a particular income and the other country is expected to then relieve double taxation by exemption or credit method, providing exemption by India amounts to surrender of right of taxation by India in favour of the other country. 8.11 Accordingly, FA 2022 has amended clauses (8), (8A), (8B) and (9) of section 10 of the Act to provide that the provisions of the said clauses shall not apply to remuneration, fee or income of the previous year relevant to the assessment year beginning on the 1st day of April, 2023 and subsequent assessment years. 8.12 Applicability: These amendments will be effective from the 1st April, 2023 and accordingly, apply in relation to the assessment year 2023-24 and subsequent assessment years. 9. Rationalisation of the provision of Charitable Trust and Institutions 9.1 Income ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proviso to clause (23C) of section 10 of the Act to provide that where the total income of the trust or institution under both regimes. without giving effect to the provisions of clause (23C) of section 10 or section 11 and 12, exceeds the maximum amount which is not chargeable to tax, such trust or institution shall keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed. Accordingly, the books of accounts and other documents required to be maintained by such trust or institution under the first and second regime and the place where they are required to be maintained have been prescribed in rule 17AA of the Income-tax Rules, 1962 which has been notified vide Notification No. 94/2022 (GSR 622E) dated 10.08.2022 published in the Official Gazette. c) These amendments will be effective from 1st April, 2023 and accordingly apply to the assessment year 2023-24 and subsequent assessment years. 9.3.2 Penalty for passing on unreasonable benefits to trustee or specified persons a) Under section 13 of the Act, trusts or institution under the second regime are required not to pass on any unreasonable benefit to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....approval system: First and second provisos to clause (23C) of section 10 of the Act were substituted by new provisos by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 w.e.f. 01.04.2021. These provisos provided that the application for the approval of any trust or institution under the first regime. shall be made to the jurisdictional Principal Commissioner or Commissioner and such Principal Commissioner or Commissioner shall grant approval after examination of the application. Earlier such applications were required to be filed before the prescribed authority. Similarly, provisions of clause (ac) of sub-section (1) of section 12A provide that application for the trusts or institution under the second regime shall be made to the Principal Commissioner or Commissioner. The provisional registrations or provisional approval or re-registrations or approvals in certain cases, under these clauses, are granted in an automated manner and the respective rules have been amended accordingly. In such a scenario, it was essential to ensure that non-genuine trusts or institutions do not get exemption provided by these provisions. ii) Differences in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation; (ii) pass an order in writing cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violation have taken place; (iii) Pass an order in writing refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violation; (iv) Forward a copy of the order under clause (ii) or (iii), as the case may be, to the Assessing Officer and such trust or institution. (II) The term "specified violation" has been defined by inserting an Explanation to subsection (4) of section 12AB of the Act to mean the following violation: (a) Where any income of the trust or institution under the second regime has been applied other than for the objects for which it is established; or (b) the trust of institution under the second regime has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or (c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall- (i) call for such documents or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence of any specified violation; (ii) pass an order in writing cancelling the approval of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, on or before the specified date, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years if he is satisfied that one or more specified violation has taken place; (iii) pass an order in writing refusing to cancel the approval of such fund or trust or institution or any university or other educational....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10 of the Act to provide that where a reference, under the first proviso to sub-section (3) of section 143, has been made on or before the 31st March, 2022 by the Assessing Officer for the contravention of certain provisions of clause (23C) of section 10 of the Act, such references shall be dealt with in the manner provided under the said Explanation. (VII) FA 2022 has inserted another proviso in sub-section (3) of section 143 of the Act to provide that where the Assessing Officer is satisfied that any trust or institution under first or second regime has committed any specified violation, as defined in the Explanation 2 to fifteenth proviso to clause (23C) of section 10 or Explanation to sub-section (4) of section 12AB, as the case may be, he shall, (a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and (b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the Principal Commissioner or Commi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lia, provided that if the accumulated income is not applied within 5 years, it shall be taxed in the 6th year. While, on the other hand, there were no such specific provisions under clause (23C) of section 10 of the Act and therefore, if the accumulated income was not applied within 5 years, the same was taxed in the 5th year itself. iv) In order to bring consistency in the two regimes, FA 2022 has: A) amended the provisions of sub-section (3) of section 11 of the Act to provide that any income referred to in sub-section (2) which is not utilised for the purpose for which it is so accumulated or set apart shall be deemed to be the income of such person of the previous year being the last previous year of the period, for which the income is accumulated or set apart under clause (a) of sub-section (2) of section 11, but not utilised for the purpose for which it is so accumulated or set apart. B) inserted Explanation 3 to the third proviso to clause (23C) of section 10 of the Act to provide that for the purposes of determining the amount of application under this proviso, where eighty-five per cent of the income referred to in clause (a) of the third proviso, is not applied, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r modes specified in sub-section (5) of section 11, or (c) the income is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of the proposed Explanation 3, (d) the income is credited or paid to any trust or institution under the first or second regime. For the circumstances referred to in clause (c), it has been provided that the income shall be deemed to be the income of previous year which is the last previous year of the period, for which the income is accumulated or set apart under sub-clause (a) of clause (iii) of the proposed Explanation 3, but not utilised for the purpose for which it is so accumulated or set apart. E) inserted an Explanation (Explanation 5) to third proviso to clause (23C) of section 10 of the Act to enable the Assessing Officer to allow trusts or institutions under the first regime in circumstances beyond their control to apply such accumulated income for such other purpose in India as is specified in the application by such person subsequent to fulfilment of specified conditions. These other purposes are required to be in conformity with the objects for which the trust or institutio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tivity may voluntarily wind up its activities and dissolve or may also merge with any other charitable or non-charitable institution, or it may convert into a non-charitable organization. In order to ensure that the intended purpose of exemption availed by trust or institution is achieved, a specific provision in the Act was brought about for imposing a levy in the nature of an exit tax which is attracted when the organisation is converted into a non-charitable organisation or gets merged with a non-charitable organisation or a charitable organisation with dissimilar objects or does not transfer the assets to another charitable organisation. Accordingly, a new Chapter XII-EB consisting of Sections 115TD, 115TE and 115TF was inserted in the Act. ii) The provisions of the Chapter XII-EB have been made applicable to only the trusts or institutions under the second regime. However, the provisions are not applicable to any trust or institution under the first regime. iii) Hence, FA 2022 has amended the provisions of section 115TD, 115TE and 115TF of the Act to make them applicable to any trust or institution under the first regime as well. Applicability: These amendments will b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....irst proviso, may apply to get its registration again operative under Section 12AB. ii) However, such provisions did not exist for the trusts or institutions under the first regime. In view of this, FA 2022 has inserted an Explanation to 19th proviso to clause (23C) of section 10 to provide that where, on or after the first day of April, 2022, any trust or institution under the first regime is also notified under clause (46) of section 10 of the Act, the approval or provisional approval granted to such trust or institution shall become inoperative from the date of notification of such trust or institution, under clause (46) of section 10. Applicability: This amendment is effective from the 1st April, 2022. 9.5 Providing clarity on taxation in certain circumstances There are various conditions prescribed for availing exemption under the two regimes. There was a need for clear provisions in the Act listing out how income is to be computed in case of non-compliance. Hence, FA 2022 has made certain amendments to provide for the same so that there is no dispute in such cases and the law is applied consistently. 9.5.1 Allowing certain expenditure in case of denial of exemp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head "Profits and gains of business or profession". (c) inserted sub-section (11) to section 13 of the Act to provide that for the purposes of computing income chargeable to tax, under sub-section (10), no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of the Act. (d) inserted twenty second proviso to clause (23C) of section 10 of the Act to provide that where any trust or institution under the first regime violates the provisions of the eighteenth proviso or violates the conditions prescribed under tenth or twentieth proviso, its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of such trust or institution, subject to fulfilment of the following conditions: (i) such expenditure is not from the corpus standing to the credit of such trust or institution as on the last day of the financial year immediately preceding the previous year relevant to the assessment year for which....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in these specified modes. For the trusts or institutions under the second regime, clause (d) of sub-section (1) of section 13 of the Act provides that the exemption shall be denied to the trust irrespective of the amount of investment in non-specified modes. (c) Further, the trusts or institutions under both the regimes are required to apply at least 85% of their income during the year. Where the trust is not able to apply 85% of the income, it may accumulate such income for maximum 5 years. Sub-section (3) of sect ion 11 of the Act specifically provides for the trusts or institutions under the second regime that such accumulated income, which could not be applied within the period of accumulation (maximum 5 years), shall be deemed to be the income of the trust. Similarly, for the trusts or institutions under the second regime, there is a specific provision under clause (2) of Explanation 1 to sub-section (1) of section 11 of the Act providing for the accumulation of income for a period of one year. Sub-section (18) of section 11 of the Act provides that if the income accumulated under clause (2) of Explanation 1 to sub-section (1) of section 11 of the Act could not be applied ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome. (d) inserted Explanation 4 in third proviso to clause (23C) of section 10 of the Act to specifically provide that income accumulated which is not utilised for the purpose for which it is so accumulated or set apart shall be deemed to be the income of such person of the previous year being the last previous year of the period, for which the income is accumulated or set apart. (e) inserted new section 115BBI in the Act to provide that notwithstanding anything contained in this Act where the total income of any assessee being a trust under the first or second regime, includes any income by way of any specified income, the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated at the rate of thirty per cent on the aggregate of specified income; and (ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of specified income referred to in clause (i). (f) The sub-section (2) of this new section seeks to provide that no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trust or the institution, subject to the condition that the trust or the institution, (a) applies such corpus only for the purpose for which the voluntary contribution was made; (b) does not apply such corpus for making contribution or donation to any person; and (c) maintains such corpus as separately identifiable; (d) invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11. iii) FA 2022 has also inserted Explanation 3B in sub-section (1) of section 11 of the Act to provide that for the purposes of Explanation 3A, where any trust or institution has treated any sum received by it as forming part of the corpus and subsequently any of the conditions specified in clause (a), (b), (c) or clause (d) thereof are violated, such sum shall be deemed to be the income of such trust or institution of the previous year during which the violation takes place. iv) FA 2022 has also inserted Explanation 1A in the third proviso to clause (23C) of section 10 of the Act to provide that where the property held under a trust or institution referred to in sub-clause (v), includes any temple, mosque, gurdwara, church or other place notified un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....23C) of section 10 and Explanation to section 11] to provide that where during any previous year, any sum has been claimed to have been applied by such trust, such sum shall not be allowed as application in any subsequent previous year. Applicability: These amendments are effective from 1st April, 2022. 9.5.5 Clarification with respect to taxability of unreasonable benefit provided by the trust or institution to the specified persons in the hands of specified person (i) Prior to amendments made vide FA 2022, clause (x) of sub-section (2) of section 56 of the Act provided that if any sum of money is received by any person or any property is received without consideration or at a value less than the fair market value or stamp duty value, as the case may be, the difference shall be treated as income of the recipient. However, clause (VI) and (VII) of the first proviso to clause (x) of sub-section (2) of section 56 carve out an exception providing that where any sum of money is received by any person or any property is received without consideration or at a value less than the fair market value or stamp duty value, as the case may be, from any trust or institution under the fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lause (23C) of section 10 of the Act were substituted by new provisos by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from the 1st April, 2021. These provisos provided that the application for the approval of any trust under the first regime, shall be filed before the jurisdictional Principal Commissioner or Commissioner and such Principal Commissioner or Commissioner shall grant approval after examination of the application. Earlier such applications were required to be filed before the prescribed authority. Accordingly necessary amendments were carried out. However, the reference to prescribed authority continued to be at certain places in the clause (23C) of section 10 of the Act. ii) FA 2022 has therefore substituted the reference to prescribed authority with Principal Commissioner or Commissioner in sub-clause (iv), (v), (vi) and (via) and nineteenth proviso to clause (23C) of section 10 of the Act Applicability: This amendment is effective from 1st April, 2022. 9.6.2 Amendment to sub-section (1A) of section 35 i) Sub-section (1A) to section 35 of the Act was inserted by the Taxation and Other Laws (Relaxation a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pt income has accrued, arisen or received by the assessee during an assessment year. 10.3 CBDT issued Circular No. 5/2014. dated 11/02/2014, clarifying that Rule 80 read with section 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income. However, still some courts have taken a view that if there is no exempt income during a year, no disallowance under section 14A of the Act can be made for that year. Such an interpretation is not in line with the intention of the legislature. To illustrate, if during a previous year, an assessee incurs an expense of Rs. 1 lakh to earn non-exempt income of Rs. 1.5 lakh and also incurs an expense of Rs. 20,000/- to earn exempt income which may or may not have accrued/received during the year. By holding that provisions of section 14A of the Act does not apply in this year as the exempt income was not accrued/received during the year, it amounts to holding that Rs. 20,000/- would be allowed as deduction against non-exempt income of Rs. 1.5 Lakh even though this expense was not incurred wholly and exclusively for the purpose of earning non-exempt income. Such an in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... death of such person on account of COVID-19 during FY 2019-20 and subsequent years. Also. it was stated that the exemption shall be allowed without any limit for the amount received from the employer and the exemption shall be limited to Rs. 10 lakh in aggregate for the amount received from any other person. 11.4 In order to provide the relief as stated in the press statement, clause (2) of section 17 has been amended and a new sub-clause has been inserted in clause (ii) of the proviso to state that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19 subject to such conditions, as may be notified by the Central Government, shall not be forming part of "perquisite". The conditions in regard to this have been notified vide CBDT's Notification No. 90/2022 (SO 3703E) dated 05.08.2022. Through the said Notification, the Central Government notified that the employee shall submit the following documents to the employer, - (i) the COVID-19 positive report of the employee or family member, or medical report if clinical....
X X X X Extracts X X X X
X X X X Extracts X X X X
....22, the Central Government notified that the individual shall keep a record of the following documents, namely: (i) the COVID-19 positive report of the individual or his family member, or medical report if clinically determined to be COVID-19 positive through investigations in a hospital or an inpatient facility by a treating physician for a person so admitted; and (ii) all necessary documents of medical diagnosis or treatment of the individual or family member due to COVID-19 or illness related to COVID-19 suffered within six months from the date of being determined as a COVID-19 positive. It has also been notified that statement of any amount received for any expenditure actually incurred by an individual for his medical treatment or treatment of any member of his family, for any illness related to COVID-19 for the purposes of clause (XII) of the first proviso to clause (X) of sub-section (2) of section 56 of the Act shall be verified and furnished in Form No. 1. Further, the details of the amount received in any financial year shall be furnished in Form No.1 to the Income Tax Department within nine months from the end of such financial year or 31.12.2022. whichever is l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re incurred in offering certain benefits or perquisite to a person which are not intended to be allowed under this section. These expenditures are like meeting expenditure related to travel, hospitality, conference etc. In these cases, acceptance of such benefit or perquisite by such person is in violation of a law or rule or regulation or guidelines, as the case may be, governing the conduct of such person. 12.3 CBDT, vide circular No. 5/2012 dated 1.8.2012, noted that the Indian Medical Council in exercise of its statutory powers amended the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 (the regulations) on 10.12.2009 imposing a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. Accordingly, CBDT clarified that the claim of any expense incurred in providing above mentioned or similar benefits in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section subsection (1) of sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... arrived at its recommendations based, inter-alia. on the following: i. Hon'ble Supreme Court, in the case of Keshavji Ravji & Co vs CIT [(1990) 183 ITR 1 (SC)] has held that the burden that the Income-tax Act itself through a correct interpretation of law envisages is equal to or higher than the burden envisaged by the CBDT circular, that burden of law cannot be negated because the circular also so states. Hence, the circular no 5 of 2012 is to be held as valid. ii. Once a judicial forum higher than this Tribunal, (i.e Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry) holds that the interpretation to the scope of Explanation to sub-section (1) of section 37, as given in the circular, is a correct legal interpretation, it cannot be open to us to discard the interpretation so approved to be correct legal interpretation. iii. In the case Kap Scan and Diagnostic Centre (P) Ltd. ((2012) 344 ITR 476 (P&H)], the Hon'ble High Court of Punjab & Haryana held that payments which are opposed to public policy being in the nature of unlawful consideration cannot equally be recognized. It cannot be held that businessmen ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich Ethics Committee of the Medical Council of India, upon a complaint alleging death of a patient due to medical negligence, passed an order punishing the erring doctors but this order also had certain adverse remarks against the Max Hospital as well. Aggrieved by these observations, Max Hospital filed a writ petition contending that since the Medical Council of India (Professional Conduct, Etiquette and Ethics) Regulations, have been framed in exercise of the power conferred under Section 20-A read with Section 33 (m) of the Indian Medical Council Act, 1956, these regulations do not govern or have any concern with the facilities, infrastructure or running of the Hospitals and secondly, that the Ethics Committee of the MCI acting under the Regulations had no jurisdiction to pass any direction or judgment on the infrastructure of any hospital which power rests solely with the concerned State Govt. It was also contended that the Petitioner was not provided an opportunity of being heard and thus the principles of natural justice were violated. While dealing with these grievances, Hon'ble Delhi High Court has held, in its operative portion of the judgment- which was reproduced....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om), that a judicial precedent is only "an authority for what it actually decides and not what may come to follow from some observations which find place therein". vii. On the coordinate bench judgment in the case of DCIT vs PHL Pharma Pvt Ltd (2017), ITAT noted the following: "The more we ponder about the rationale of PHL Pharma decision (supra), the more convinced we are that this decision calls for reconsideration by a larger bench. In our humble understanding, conclusions arrived in the said decision do not reflect the correct legal position, and the same is the position with respect to a large number of other coordinate bench decisions following the said decision or following the line of reasoning in the said decision- as discussed above, However, in all fairness, while we may or may not agree with a coordinate bench decision, it cannot be open to us to disregard the same, lest such judicial inconsistency should shake public confidence in the administration of justice and lest one of the fundamental legitimate expectations of the stakeholders, i.e. those exercising judicial functions will follow the reason or ground of the judicial decision in the earlier cases on identi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso against the intention of the legislation as the legislation does not say that the Explanation 1 applies only to the violation of domestic law. 12.8 In order to make the intention of the legislation clear and to make it free from any misinterpretation, another Explanation has been inserted to sub-section (1) of section 37 of the Act to further clarify that the expression "expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law", under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee.- i. for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or ii. to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guidelines, as the case may be, for the time being in force, governing the conduct of such person; or iii. to compound an offence under any (aw for the time being in force, in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... heads "profits and gains of business or profession". Based on these decisions ITAT in various judgments followed the same reasoning and allowed deduction on account of payment of "Cess". 13.4 However, one of the latesl judgments of ITAT Kolkata has discussed the two High Court judgments as well as other judgments vide order dated 26-10-2021 in the case of M/s. Kanoria Chemicals & Industries Ltd ITA No. 2184/Kol/2018 (TS-1129- ITAT2021 Kol) and held that the "Cess" is not to be allowed as deduction. The relevant portion of the judgment is produced below: "19. However, with due respect to the decisions of the Hon'ble Bombay High Court and Hon'ble Rajasthan High Court and of co-ordinate Benches of this Tribunal, we find that the issue is squarely covered by the decision of the Hon'ble Apex Court of the country in the case of 'CIT vs K. Srinivasan" (1972) 83 ITR 346, wherein the following questions came for adjudication before the Hon'ble Apex Court:- " Whether the words "Income tax" in the Finance Act of 1964 in subs (2) and sub-s.(2)(b) of s. 2 would include surcharge and additional surcharge." 20. The Hon'ble Supreme Court answered t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance Act 2011 would show that it has been specifically provided that 'education cess' is an additional surcharge levied on the income-tax. Therefore, in the light of the decision of the Hon'ble Supreme Court in the case of "CIT vs K. Srinivasan" (supra) the additional surcharge is part of the income-tax. The aforesaid decision of the Hon'ble Apex Court and the provisions of Finance Act, 2004 and the relevant provisions of section 2(11) & (12) of the subsequent Finance Acts have not been brought into the knowledge of the Hon'ble High Courts in the cases of "Sesa Goa Ltd" & "Chambal Fertilisers" (supra). Since the decision of the Hon'ble Supreme Court prevails over that of the Hon'ble High Courts, therefore, respectfully following the decision of the Hon'ble Supreme Court in the case of "CIT vs K. Srinivasan" (supra), this issue is decided against the assessee. The additional ground of assessee's appeal is accordingly dismissed." 13.5 The circular dated 18.05.1967 issued by CBDT and relied upon by Rajasthan High Court is being reproduced as under: "interpretation of provision of s.40(a)(ii) of IT Act, 1961-Clarification regarding 18/05/1967 B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Central Government and it is named as "Cess", then its allowability needs to be examined whether an additional surcharge is allowed to be a deduction or not. Hon'ble Supreme Court in the case of K Srinivasan has held that "surcharge" and "additional surcharge" are tax. Hence, the additional surcharge named as "Cess" and imposed by the Central Government through the Finance Act is nothing but a tax and hence, needs to be disallowed under sub-clause (ii) of clause (a) of section 40 of the Act. The relevant part of Hon'ble Supreme Court judgment is as under: 7. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term "Income tax" as employed in Section 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of Article 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income tax and supertax were to be increased by a surcharge for the purpose of the Central Government In the Finance Act of 1958 the language used showed that income tax which was to be charged was to be increase....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 154 is to be reckoned from the end of the previous year commencing on 1s' April 2021. it has also been provided that if assessees apply For re-computation of their total income of previous years without allowing the claim of deduction of surcharge or cess within the prescribed form and prescribed time and pay the amount due within the specified time, such claim shall not be deemed to be under-reported income attracting penalty provisions under section 270A. 13.11 Vide Notification no. 111/2022 (G.S.R. 733E) dated 28.09.2022. rule 132 of Income-tax Rules has been inserted and Form no. 69 & Form no. 70 have been notified by the Central Government. The notification came into force from 1st October 2022. Rule 132 prescribes that an application requesting for recomputation of total income of the previous year without allowing the claim for deduction of surcharge or cess, which has been claimed and allowed as deduction under section 40 in the said previous year, shall be made by the assessee in Form No. 69 on or before 31st March, 2023. It also provides that the assessee shall, after making the payment of the tax determined by the Assessing Officer, furnish the details....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rsion of interest payable under clause (d), clause (da), and clause (e) of section 43B of the Act, into debenture or any other instrument by which liability to pay is deferred to a future date, shall also not be deemed to have been actually paid. 14.5 Applicability: This amendment takes effect from 1st April, 2023 and will, accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. 15. Reduction of Goodwill from block of assets to be considered as 'transfer' 15.1 From the assessment year 2021-2022, goodwill of a business or profession is not considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation. In case where goodwill is purchased by an assessee, the purchase price of the goodwill will continue to be considered as cost of acquisition for the purpose of computation of capital gains under section 48 of the Act subject to the condition that in case depreciation was obtained by the assessee in relation to such goodwill prior to the assessment year 2021-22, then the depreciation so obtained by the assessee shall be reduced from the amount of the purchase price....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orrowing, courts have held that only identity and credilworthiness of creditor and genuineness of transactions for explaining the credit in the books of account is sufficient, and the onus does not extend to explaining the source of funds in the hands of the creditor. This has led to the provision becoming ineffective in handling evasion when routed through a layered credit claim. 16.5 Therefore, the provisions of section 68 of the Act have been amended so as to provide that the nature and source of any sum, whether in the form of loan or borrowing, or any other liability credited in the books of an assessee shall be treated as explained only if the source of funds is also explained in the hands of the creditor. However, this additional onus of proof of satisfactorily explaining the source in the hands of the creditor, would not apply if the creditor is a Venture Capital Fund, Venture Capital Company registered with SEBI. 16.6 Applicability: This amendment is effective from the 1st April, 2023 and, accordingly applies in relation to the assessment year 2023-24 and subsequent assessment years. 17. Facilitating strategic disinvestment of public sector companies 17.1 Secti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd and set off of losses while computing the income under various heads and with respect to different classes of persons. 18.2 It is noticed thai in some cases, assessees claim set off of losses or unabsorbed depreciation, against undisclosed income corresponding to difference in stock, under valuation of stock, unaccounted cash payment etc. which is detected during the course of search or survey proceedings. Prior to FA 2022, there was no provision in the Act to disallow such set-off and no distinction is made between undisclosed income which was detected owing to search & seizure or survey or requisition proceedings and income assessed in scrutiny assessment in the regular course of assessment, though for incomes falling under section 68, section 69, section 69B etc., such restriction is there. 18.3 Allowing the adjustment of undisclosed income detected as a result of search or requisition or survey against the loss or unabsorbed depreciation was resulting in the searched assessee reducing his tax liability to a substantial extent. This provision of non- adjustment of loss or unabsorbed depreciation against undisclosed income detected as a result of search or requisition or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....19.1 Under the existing provisions of the Act, any contribution by the Central Government or any other employer to the account referred to in section 80CCD of the Act {NPS account), shall be allowed as a deduction to the assesses in the computation of his total income, if it does not exceed 14% of his salary where such contribution is made by the Central Government. This limit is presently 10% of his salary where such contribution is made by any other employer. The State Governments were given an option to raise the contribution to 14% w.e.f 01.04.2019 on their own volition, based on their own internal approvals and notifications, without seeking the approval of the Pension Fund Regulatory and Development Authority. The provisions of section 80CCD however resulted in the amount contributed in excess of 10% being taxed in the hands of the employee. 19.2 In order to ensure that the State Government employees also get full deduction of the enhanced contribution by the State Government, the limit of deduction has been increased under section 80CCD of the Act from the existing ten per cent to fourteen per cent in respect of contribution made by the State Government to the account of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amended such that they do not apply to the amount received by the dependant, before the death of the subscriber referred to above, by way of annuity or lump sum amount by application of the condition referred to in the amendment. 20.6 Applicability: This amendment is effective from the 1st April, 2023 and accordingly, applies in relation to assessment year 2023-24 and subsequent assessment years. 21. Extension of date of incorporation for eligible start up for exemption 21.1 The existing provisions of the section 80-IAC of the Act, inter alia, provide for a deduction of an amount equal to one hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assesses subject to the condition that,- (i) the total turnover of its business does not exceed one hundred crore rupees. (ii) it is holding a certificate of eligible business from the Inter-Ministerial Board of Certification, and (iii) it is incorporated on or after 1st day of April, 2016 but before 1st day of April 2022. 21.2 Due to COVID pan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or notification of scheme under section 255, the Appellate Tribunal is deemed to be a civil court for all the purposes of section 195 of the Act and Chapter XXXV of the Code of Criminal Procedure, 1898. Therefore, a scheme governing the procedures to be followed by such a body needs to be formulated after due consultations with Ministry of Law & Justice. Similarly, the scheme under section 253 have to follow the scheme under section 255. 22.5 In light of the above limitations, the date for issuing directions for the purposes of sections 92CA, 144C, 253 and 255 has been extended till 31st March, 2024. 22.6 Applicability: These amendments are effective from the 1st April, 2022. 23. Provisions to check bonus stripping and dividend stripping to be made applicable to securities and units 23.1 Section 94 of the Act contains anti avoidance provisions to deal with transactions in securities and units of mutual fund which, inter alia, include dividend stripping and bonus stripping. 23.2 Prior to the amendments made by FA 2022, provisions of sub-section (8) of section 94 of the Act did not apply to bonus stripping undertaken in case of securities. It was also not applicab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f manufacturing or production of an article or thing, from 31st March, 2023 to 31st March, 2024. 24.5 Applicability: This amendment is effective from the 1st April, 2022. 25. Withdrawal of concessional rate of taxation on dividend income under section 115BBD 25.1 Prior to amendments made vide FA 2022, section 115BBD of the Act provided for a concessional rate of tax of 15% on the dividend income received by an Indian company from a foreign company in which the said Indian company holds 26% or more in nominal value of equity shares (specified foreign company). This rate was aligned to the rate of tax provided under section 115-O of the Act. 25.2 Finance Act, 2020 abolished the dividend distribution tax provided in section 115-O to, inter-alia, provide that dividend shall be taxed in the hands of the shareholder at applicable rates plus surcharge and cess. 25.3 In order to provide parity in the tax treatment in case of dividends received by Indian companies from specified foreign companies vis-a-vis dividend received from domestic companies, FA 2022 has amended section 115BBD of the Act to provide that the provisions of this section shall not apply to any ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce of levying fee on persons who face genuine difficulties in filing return of income within the specified time, like members of the armed forces stationed in remote regions with no access to the requisite infrastructure. 27.4 Therefore, considering the genuine hardships faced by certain classes of persons in filing return of income and not to impose a fee for a default which is beyond their control, section 119 has been amended to include section 234F to the list of sections mentioned in clause (a) of sub-section (2), so as to enable the Board to issue such orders or instructions, as deemed fit. 27.5 Applicability: This amendment is effective from 1st April, 2022. 28. Provisions for filing of updated return 28.1 Section 139 of the Act is related to the provisions for filing of Income Tax Return by taxpayers. Sub-section (1) of section 139 casts responsibility on the taxpayer to furnish a return within a definite time period or up to a particular date, that is, the due date which as per this section: (a) for an assessee who is a company or a person (other than a company) whose accounts are required to be audited under the Act or under any other law for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d return. A payment of additional tax by persons opting to furnish their returns in the newly provided timelines is also required. An amount equal to twenty five percent or fifty percent as additional tax on the tax and interest due on the additional income furnished would be required to be paid. The following amendments to the Act are introduced for incorporating the above provisions: A. A new sub-section (8A) in section 139 has been introduced to provide for furnishing of updated return under the new provisions. I. in section 139,- (a) insertion of sub-section (8A) in section 139 of the Act to provide that: (i) any person, whether or not he has furnished a return under sub-section (1), sub-section (4) or sub-section (5), for an assessment year (herein referred to as the relevant assessment year), may furnish an updated return of his income or the income of any other person in respect of which he is assessable under the Act, for the previous year relevant to such assessment year, within twenty-four months from the end of the assessment year. Such return shall be furnished in the prescribed form and manner and shall contain prescribed particulars. Accordingly, vide N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 or the Prohibition of Benami Property Transactions Act, 1988 or the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 and the same has been communicated to him, prior to the date of his filing of return under the proposed subsection (8A) of section 139 of the Act, or (d) information for the relevant assessment has been received under an agreement referred to in sections 90 or 90A of the Act in respect of such person and the same has been communicated to him, prior to the date of his filing of return under sub-section (8A) of section 139 of the Act, or (e) any prosecution proceedings under Chapter XXII of the Act have been initiated for the relevant assessment year in respect of such person, prior to the date of his filing of return under sub-section(8A) of section 139 of the Act, or (f) he is a person or belongs to a class of persons, as maybe notified by the Board in this regard. (v) if any person has sustained a loss in any previous year and has furnished a return of loss under sub-section (1) of section 139 of the Act and verified it in the prescribed manner, he shall b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on (8A) of section 139, be liable to pay the tax due together with interest and fee payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, along with the payment of additional tax, as reduced by the amount of interest paid under the provisions of the Act in the earlier return. The tax payable shall be computed after taking into account the following:- (i) the amount of relief or tax, referred to in sub-section (1) of section 140A, the credit for which has been taken in the earlier return; (ii) tax deducted or collected at source, in accordance with the provisions of Chapter XVII- B. on any income which is subject to such deduction or collection and which is taken into account in computing total income and which has not been claimed in the earlier return; (iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India on such income which has not been claimed in the earlier return; (iv) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section on suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n any income which is subject to such deduction or collection and which is taken into account in computing such total income, and which has not been claimed in the earlier return; (iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India on such income which has not been claimed in the earlier return; (iv) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section on such income which has not been claimed in the earlier return; (v) any tax credit claimed, to be set off in accordance with the provisions of section 115JAA or section 115JD, which has not been claimed in the earlier return. The aforesaid tax shall be increased by the amount of refund, if any, issued in respect of such earlier return. V. Where no earlier return has been furnished, the interest payable under section 234A shall be computed on the amount of the tax on the total income as declared in the return under sub-section (8A) of section 139. Further, interest payable under section 234C, where an earlier return has not been furnished, shall be computed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting person to person interface between the taxpayer and the Department to the extent technologically feasible, and provide for optimal utilisation of resources and a team-based assessment with dynamic jurisdiction. As part of this policy, vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, section 144B was inserted in the Act to provide for the procedure for faceless assessment with effect from 01.04.2021 and the Faceless Assessment Scheme, 2019 ceased to operate from that date. 30.2 However, various difficulties are being faced by the administration and the taxpayers in the operation of the faceless assessment procedure. In view of the above, the existing provisions of the section 144B of the Act are amended to streamline the process of faceless assessment in order to address the various legal and procedural problems being faced in the implementation of the said section. 30.3 (1) Therefore, section 144B of the Act was substituted to provide that- (a) the provisions of the section shall apply for faceless assessment, reassessment or recomputation under sub-section (3) of section 143 or under section 144 or under section 147 of the Act,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he show-cause notice under section 144 of the Act, within the time specified in such notice, to the NaFAC which shall forward the same to the AU. If the assessee fails to respond, the NaFAC shall intimate the same to the AU. (g) The AU shall, after taking into account all the relevant material available on the record, prepare in writing, an income or loss determination proposal where no variation prejudicial to assessee is proposed and send the same to the NaFAC. If a variation is being proposed then a show cause notice is served on the assessee stating the variations proposed to be made to the income of the assessee and calling upon him to submit as to why the proposed variation should not be made, through the NaFAC. (h) The assessee shall file his reply to the show cause notice to the NaFAC, on date and time as specified, which shall forward the reply to the AU. If the assessee fails to respond within the specified time, the NaFAC shall intimate the same to the AU. After considering the response of the assessee or the intimation of failure of the assessee to file a response received from NaFAC and all relevant material available on the record, the AU shall prepare an income....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in sub-section (2) of section 144C, the NaFAC shall intimate the AU of the same, which shall complete the assessment, on the basis of the draft order, within the time allowed under sub-section (4) of section 144C and initiate penalty proceedings, if any, and send the order to the NaFAC. (n) Where the eligible assessee files objections with the Dispute Resolution Panel, against the variations proposed in the draft order in his case, the NaFAC shall send such intimation along with a copy of such objections to the AU. Upon receipt of the directions issued by the Dispute Resolution Panel in the case of an eligible assessee under section 144C, the NaFAC shall forward such directions to the AU. The AU shall complete the assessment within the time allowed in sub-section (13) of section 144C and initiate penalty proceedings, if any, in conformity with the directions issued by the Dispute Resolution Panel under sub-section (5) of section 144C, and send a copy of such order to the NaFAC. (o) The NaFAC shall, upon receipt of final assessment order, in the case of an eligible assessee under section 144C or in other cases, serve a copy of such order and notice for initiating penalty proc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....igned through the National Faceless Assessment Centre to such VU; (iv) technical units (referred to as TU), as it may deem necessary to facilitate the conduct of faceless assessment, to perform the function of providing technical assistance which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter under the Act or an agreement entered into under sections 90 or 90A of the Act, which may be required in a particular case or a class of cases and the term "technical unit", wherever used in this section, shall refer to an Assessing Officer having powers so assigned by the Board; (v) review units (referred to as RU), as it may deem necessary to facilitate the conduct of faceless assessment, to perform the function of review of the income determination proposal assigned under sub-clause (b) of clause (xix) of sub-section (1), which includes checking whether the relevant and material evidence has been brought on record, relevant points of fact and law have been duly incorporated, the issues on which addition or disallowance should be made have been incorporated a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....once an acknowledgement is sent by the NaFAC containing the hash result generated upon successful submission of response, the response shall be deemed to be authenticated. The time and place of dispatch and receipt of electronic record shall be determined in accordance with the provisions of section 13 of the Information Technology Act, 2000. (v) A person shall not be required to appear either personally or through authorised representative in connection with any proceedings before any unit set up under the section. (w) Further, in a case where a variation is proposed in the income or loss determination proposal or the draft order, and an opportunity is provided to the assessee by serving a notice calling upon him to show cause as to why the assessment should not be completed as per such income or loss determination proposal, the assessee or his authorised representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the income-tax authority of the relevant unit. Where the request for personal hearing has been received, the income-tax authority of relevant unit shall allow such hearing, through NaFAC, which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... laid down by the Board in this regard, if he considers appropriate that the provisions of sub-section (2A) of section 142 may be invoked in the case, forward the reference received from the AU to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such case, and inform the AU accordingly. Such case shall also be taken up for transfer to the jurisdictional Assessing Officer with the approval of the Board. Where a reference has been received, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, having jurisdiction over such case, shall direct the Assessing Officer having jurisdiction over such case to invoke the provisions of sub-section (2A) of section 142. However, where a reference has not been forwarded to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, having jurisdiction over such case, the AU shall proceed to complete the assessment in accordance with the procedure laid down in the section. (z) It is also provided that the Principal Chief Commissioner or the Principal Director General, as the case may be, in ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to omit the requirement of approval of specified authority in clause (b) of section 148A. Applicability: These amendments are effective from 1st April, 2022. 31.3 To correct the inadvertent drafting errors and align the provisions with the intent of the section, amendments have been made, (i) in section 148 to omit the word "nagged" from clause (i) of Explanation 1, (ii) in clause (ii) of Explanation 2 to section 148 to omit the reference of sub-section (5) of section 133A made therein. Applicability: These amendments are effective from 1st April, 2022. (iii) in Explanation 2 of section 148 to omit the reference to three assessment years preceding the assessment year relevant to the year of search; (iv) in section 153B by inserting sub-section (4) to provide that nothing contained in the said section shall apply to any search initiated under section 132 or requisition made under section 132A on or after the 1st day of April, 2021. (v) in the first proviso to sub-section (1) of section 149 to provide that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elongs to or to whom any books of account or documents seized or requisitioned, pertains or pertain to, or any information contained therein, relates to; (v) amend section 153B, by inserting a new clause to provide for exclusion of the period (not exceeding one hundred eighty days) commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A and ending on the date on which the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A, as the case may be, are handed over to the Assessing Officer having jurisdiction over the assessee, in whose case such search is initiated under section 132 or such requisition is made under section 132A. Applicability: These amendments are effective retrospectively from 1st April, 2021. (vi) consequential changes have also been made in section 271AAB of the Act. Applicability: This amendment is effective from the 1st April, 2022. 31.5 In order to bring clarification in the existing provisions and to align them with the intent of the Act, am....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings under sections 143 and 144 of the Act. As per the provisions of the said section the time-limit for completion for assessment for A.Y. 2020-21 is 12 months from the end of the relevant A.Y., that is 31st March, 2022. The assessment is now being conducted in a faceless manner as per the provisions of section 144B of the Act. The proceedings are carried out on the ITBA and the shift to faceless assessment has mandated new functionalities in the ITBA. The development as well as implementation of these functionalities has been delayed which has resulted in loss of time for completion of assessment proceedings. 32.2 Representations were received requesting extension of the date of time barring for the A.Y. 2020-21 citing technical glitches which have severely hampered the conduct of assessment proceedings. Completion of assessment in undue haste due to the approaching limitation date would have caused discomfort to the taxpayers as they would have been unable to present their case to their satisfaction and this would have led to increase in taxpayer discontent as well as litigation. 32.3 Therefore, second proviso of sub-section (1) of section 153 of the Act has been amended t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that any question of law arising in the case of an assessee (relevant case) is identical with a question of law arising in his case for another assessment year (other case) which is pending in appeal before the Supreme Court against an order of High Court which was in favour of assessee, he may direct the Assessing Officer to make an application to the Appellate Tribunal stating that an appeal on the question of law in the relevant case may be flied when the decision on the question of law becomes final in the other case, subject to the acceptance of the same by the assessee. 34.2 If such a principle could be applied to cases where a question of law is common and where a decision of the jurisdictional High Court, on the same question of law is available, the filing of appeal in such cases can be avoided to reduce the amount of litigation. 34.3 Therefore, to provide a procedure when an appeal by revenue is pending on an identical question of law, a new section 158AB has been inserted in the Act. to provide that where the collegium is of the opinion that any question of law arising in the case of an assessee for any assessment year ("relevant case") is identical with a question....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Principal Commissioner may direct the Assessing Officer to appeal within Sixty days to the Appellate Tribunal or within one hundred and twenty days to the jurisdictional High Court or the Supreme Court, as the case may be, against such order. 34.7 For the purposes of the proposed section, "collegium" shall comprise of two or more Chief Commissioners or Principal Commissioners or Commissioners of Income-tax, as specified by the Board in this regard. Consequently, an order dated 28.09.2022 was issued by CBDT specifying that such collegium shall be constituted by Pr.CCIT (IT&TP) for IT&TP jurisdiction, Pro CCIT (Exemption) for exemption charges, CCIT (Central) or DGIT (Inv) for Central charges and Pr.CCIT (CCA) in all other cases. The Collegium shall comprise of 3 members of PCIT/CIT rank, including jurisdictional PCIT/CIT. 34.8 In order to illustrate the point, it may be supposed that a question of law (Q1 )A1 has arisen in case of an assessee (A1) and A1 has received a favourable decision on Q1A1 from the Commissioner (Appeals). Further, in case of another assessee (A2), where Department's appeal on identical question of law (Q1)A2 is pending before the jurisdict....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... clarify that such proceedings under the Act are valid, a new sub-section (2A) is inserted in section 170, to provide that the assessment or other proceedings pending or completed on the predecessor in the event of a succession, shall be deemed to have been made on the successor. 35.4 Further, it is seen that post such reorganisation, the affairs of the successor entity go through a complete change with effect from the date from which such reorganisation takes place. However, due to the indefinite timeline involved in issuing such orders, there is a gap between the effectivity of such order and the date on which such order is issued by the competent authority. This also affects the final accounts of such entities as they are unable to modify their already filed return s in accordance with the reorganisation. Hence, in order to remove this anomaly, a new section 170A has been inserted in the Act, to enable for the entities going through such business reorganisation, for filing of modified returns for the period between the date of effectivity of the reorganisation and the date of issuance of final order of the competent authority, in the form and manner as may be prescribed. Acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to 'Liability of directors of private company". 36.3 Further, Explanation to the section clarifies that the expression "tax due" in the section includes penalty, interest or any other sum payable under the Act. In order to avoid unnecessary litigation and to provide further clarity, the word "fees" is inserted in the scope of the expression "tax due" under Explanation to the section. 36.4 Applicability: These amendments are effective from 1st April, 2022. 37. Consequence for failure to deduct/collect or payment of tax 37.1 Computation of interest under section 201 of the Act deals with the consequences of persons who fail to deduct tax or after deducting, fail to deposit the same to the credit of the Central Government. Sub-section (1A) of the said section provided that if any person who is liable to deduct tax at source does not deduct it or after so deducting fails to pay the same to the credit of the Central Government, then he shall be liable to pay simple interest at the rates specified therein. Similarly, sub-section (7) of section 206C of the Act provided that if any person who is liable to collect tax at source does not collect it or after s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions on which tax is to be deducted under sections 192, 192A, 194B, 194BB, 194LBC or 194N of the Act. 38.4 In order to ensure that all the persons in whose case significant amount of tax has been deducted do furnish their return of income, the two years requirement has been reduced to one year by amending sections 206AB and 206CCA of the Act. It has been provided that "specified person" means a person who has not filed its return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is to be deducted or collected, as the case may be, and the amount of tax collected and deducted at source is Rs. 50,000 or more in the said previous year. 38.5 However, in order to reduce the additional burden on individual and Hindu undivided family (HUF) taxpayers covered under section 194-IA, 194-IB and 194M of the Act for whom simplified tax deduction system has been provided without requirement of TAN, it has been provided that the provisions of section 206AB will not apply in relation to transactions on which tax is to be deducted under the said sections of the Act. 38.6 In addition to above. a drafting error in sections 206....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amp duty value of such property, whichever is higher. In case the consideration paid for the transfer of immovable property and the stamp duty value of such property are both less than fifty lakh rupees, then no tax is to be deducted under section 194-IA. 39.4 Stamp duty value shall have the meaning assigned to it in clause (I) of the Explanation to clause (vii) of sub-section (2) of section 56 of the Act. 39.5 Form 26QB (challan-cum-statement) of deduction of tax under section 194-IA has been updated vide Notification no. 67/2022 (GSR 463E) dated 21.06.2022. 39.6 Applicability: This amendment is effective from 1st April, 2022. 40. TDS on benefit or perquisite of a business or profession 40.1 As per clause (iv) of section 28 of the Act, the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession is to be charged as business income in the hands of the recipient of such benefit or perquisite. However, in many cases, such recipient does not report the receipt of benefits in their return of income, leading to furnishing of incorrect particulars of income. Similarly, there ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shall be binding on the income-tax authorities and on the person providing any such benefit or perquisite. 40.3 Vide circular no 12 of 2022 of CBDT dated 16.06.2022 and circular no.18 of 2022 dated 13.09.2022, the Central Government has issued guidelines for removal of difficulties for operation of section 194R of the Act. Circular no 12 of 2022 dated 16.6.2022 was laid before the Rajya Sabha on 26th July, 2022 and the Lok Sabha on 1st August, 2022. 40.4 Form 26Q and rule 31A of Income-Tax Rules 1962 have been amended vide G.S.R. 463(E) Notification no. 67/2022 dated 21.06.2022 to also capture details of TDS under section 194R of the Act on benefits and perquisites given in kind. 40.5 Applicability: This amendment is effective from 1st July, 2022. 41. Amendment in section 245MA of the Act related to Dispute Resolution Committee 41 .1 Finance Act, 2021 introduced a new Chapter XIX-AA in the Act consisting of section 245MA for constituting Dispute Resolution Committee ("ORC") for specified persons who may opt for dispute resolution under the said section and who fulfil specified conditions mentioned in the said section.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fficer or examined by him. 42.3 In view of the above. a new section 239A has been inserted in the Act to, inter alia, provide that such a person, who has made the deduction of tax under an agreement or arrangement in writing and borne the tax liability, when no tax deduction was required, may file an application for refund of such tax deducted before the Assessing Officer, in such form and such manner as may be prescribed. Accordingly, vide Notification no. 98/2022 (GSR 634E) dated 17.08.2022, Rule 40G has been inserted in the Income-tax Rules prescribing Form 29D in which such application shall be made. 42.4 Such person can, if he is not satisfied with the order of the Assessing Officer, go into appeal against such order before the Commissioner (Appeals), under section 246A of the Act. Accordingly, the provisions of section 248 of the Act will not apply in cases where the date of tax payment to the credit of Central Government is on or after 01.04.2022. 42.5 Applicability: These amendments are effective from 1st April, 2022. 43 Amendment in the provisions of section 263 43.1 Section 263 of the Act contains the provision for revision of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and 271AAD of the Act under Chapter XXI of the Act contain provisions which give powers to the Assessing Officer to levy penalty in cases involving undisclosed income in cases where search has been initiated u/s 132 or otherwise, or for false entry etc. in books of account. 44.2 Under Chapter XXI of the Act which deals with penalties, Commissioner (Appeals) has concomitant powers with Assessing Officer to levy penalty in eligible cases under section 270A, section 271, section 271A, section 271AA, section 271G, section 271J which deal with deliberate concealment, non-disclosure and omission by an assessee to evade tax. 44.3 Similarly, sections 271AAB, 271AAC, 271AAD penalise actions pertaining to undisclosed income, unexplained credits or expenditures, or deliberate falsification or omission in books of accounts. Therefore, in order to make deterrence more effective against non-compliance among tax payers, sections 271AAB, 271AAC and 271AAD are amended by enabling the Commissioner (Appeals), in addition to the Assessing Officer, to levy penalty under these sections. 44.4 Applicability: These amendments are effective from 1st April, 2022. 45. Amendment in the provisions ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re not relevant, as launching prosecution against offences committed more than twenty years ago, that is prior to 2002 would be beyond reasonable time. 47.2 Since such cases involve transfer of immovable property, it is not improbable that prosecution cases launched previously while the relevant provisions were still in effect might be ongoing. Therefore, in order to take those cases to logical conclusion without any interpretational issue arising on applicability of the section or otherwise, section 276AB is amended to align it with the provisions of the Act that have been made inapplicable, by providing a sunset clause. Consequently, no fresh prosecution proceeding shall be initiated under this section on or after 1st April, 2022. 47.3 Section 276B provides for prosecution for a term ranging from three months to seven years with fine for failure to pay tax to the credit of Central Government under Chapter XII- D or XVII-B. Under this section, a person shall be punishable for failure to a) deduct the tax as required under the provisions of Chapter XVII-B which deals with deduction of tax at source, or b) to pay the tax, as required by or under (i) ....