TaxTMI 
TaxTMI 
TaxTMI 
Finance Act, 2022 - Explanatory Notes to the Provisions of the Finance Act, 2022
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....f 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 115TF When trust or institution is deemed to be assessee in default 119 Instructions to subordinate authorities 132 Search and seizure 132B Application of seized or requisitioned....
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....enalty 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 enacted as Act No.6 of 2022. 1.2 This circular explains the substance of the provisions of the FA 2022 relating to direct taxes. 2. Changes made by FA 2022 2.1 The FA 2022 has,- (i) specified the existing rates of income-tax for the assessment year 2022-23 and the rates of income-tax on the basis of which tax has to be deducted at source and advance tax has to be paid during financial year 2022-....
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....ge,- (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 but not exceeding five crore rupees, at the rate of twenty-five per cent. of such income-tax; (iv) 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 five crore rupees, at the rate of thirty-seven per cent. of such income-tax; (v) having a total income (including the income by way of dividend or income under the provisions of section 111A and 112A of the Act) exceeding two crore rupees, but is not covered under clause (ii....
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.... 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 Co-operative Societies. Paragraph B of Part I of the First Schedule to the FA 2022 specifies the rates of incometax in the case of every co-operative society as under: - 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 so computed 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 twelve per cent. of such income-tax in case of a co-operative society having a total income exceeding one crore rupees. On satisfaction of cert....
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....es 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 income, if the total turnover or gross receipts of the company in the previous year 2019-20 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 cases. The tax so computed or as computed under the provisions of section 111 A or s....
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....e 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 clause (31) of section 2 of the Act, being a nonresident, calculated,- (i) at the rate of ten per cent. of such tax, where the income or aggregate of income (including the income by way of dividend or income under the provisions of sections 111 A, 112 and 112A of the Act) paid or likely to be paid and subject to the deduction exceeds fifty lakh rupees but does not exceed one crore rupees; (ii) at the rate of fifteen per cent. of such tax. where the income or aggregate of income (including the income by way of dividend or income under the provisions of sections 111 A, 112 and 11 2A of the Act) paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed two c....
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....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 is Rs. 12,00,000/- at the rate of 10 per cent, then the surcharge at the rate of two per cent on such tax deducted shall be Rs. 24,0001-. Health and Education cess on such amount of tax deducted and surcharge (i .e. Rs. 12,00,000/- + Rs. 24,000/-; Rs. 12,24,000/-) shall be Rs. 48,960/-. 3.3 Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 2022-23. 3.3.1 Part III of the First Schedule to the FA 2022 specifies the rates for deduction of income-tax at source from "Salaries" or under section 194P of the Act during the FY 2022- 23 and also for computation of "advance tax" payable during the said year in the case of all categories of asses sees have been specified in the said Part of the....
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....2A 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; (b) at the rate of fifteen 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 111A, 112 and 11 2A) exceeding one crore rupees but not exceeding two crore rupees; (c) at the rate of twenty-five per cent. of such income-tax, in case of a person having a total income (excluding any income by way of dividend or income under section 111A, 112 and 112A) exceeding two crore rupees but not exceeding five crore rupees; (d) at the rate of thirty-seven per cent. of such income-tax, in case of a person having a total income (excluding any income by way of dividend or income under section 111 A, 112 and 112A) exceeding five crore rupees; (e) at the rate of fifteen 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 111A, 112 an....
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....ction 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 total income exceeding one crore rupees but not exceeding ten 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, (ii) the total amount payable as income-tax and surcharge on total income exceeding ten crore rupees shall not exceed the total amount payable as income-tax and surcharge on a total income of ten crore rupees, by more than the amount of income that exceeds ten crore rupees. Heatth and Education Cess on income-tax shall be levied at the rate of four per cent. of the amount of income-tax computed inclusive of surcharge. No marginal relief shall be available in respect of Health and Education Cess. 3.3.4 Firms. Paragraph C of Part III of the First Schedule to the FA 2022 specifies the rate of incometax as thirty per cent. in the case of every firm. The amount of income-tax so computed or as computed under the provisions of section 111 A or sect....
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..... 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 cases. The tax so computed or as computed under the provisions of section 11 1 A or section 112 or section 112A of the Act shall continue to be enhanced by a surcharge of seven per cent. where such domestic company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of twelve per cent. shall continue to be levied if the total income of the company exceeds ten crore rupees. However, where the domestic company exercises the option under section 115BAA or section 115BAB, the tax computed shall be enhanced by a surcharge of ten per cent. (ii) In the case of a company other than a domestic company, the tax rate is forty per cent. The tax so computed, shall continue to be enhanced by a surcharge of two per cent. where such company has total income exceeding one crore rupees but not exceeding ten crore rupees. Surcharge at the rate of five per cent. shall continue to be levied if the total income of such company exceeds ten crore rupees. However, marginal relief shall be al....
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....ction of the asses sees in the current age. 4.3 Therefore, to align the definitions under the Act with the current practices, clause (12A) of section 2 of the Act has been amended so as to provide that the definition of books or books of account would include books or books of account kept in electronic or in digital form or as print outs of data stored in such electronic or in digital form. 4.4 Applicability: This amendment is effective from 1st April, 2022. 5. Definition of the term "slump sale" 5.1 Slump sale is defined in clause (42C) of section 2 of the Act, as the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to individual assets and liabilities in such sales. Vide Finance Act. 2021, the definition of "slump sale" was amended to expand its scope to cover all forms of transfer under slump sale. However, inadvertently, in the last sentence, there is reference to the word "sales" instead of "transfer", 5.2 Therefore, consequential amendment was carried out vide FA 2022 by amending the provision of clause (42C) of section 2 of the Act, to substitute the word "sales" with the word "transfer" . 5.3 Applicability:....
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....n the Act. Any person responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset, shall, at the time of credit of such sum to the account of the resident or at the time of payment of such sum by any mode, whichever is earlier, deduct an amount equal to one per cent. of such sum as income-tax thereon. In cases where the consideration for transfer of virtual digital asset is- (a) wholly in kind or in exchange of another virtual digital asset, where there is no part in cash; or (b) partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer, the person responsible for paying such consideration shall, before releasing the consideration, ensure that tax required to be deducted has been paid in respect of such consideration for the transfer of virtual digital asset. 6.3.1 In case of specified person, the provisions of sections 203A and 206AB are not applicable. Further, no tax is to be deducted in case the payer is the specified person and the value or the aggregate of such value of consideration to a resident is equal to or less than Rs. 50,....
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....de conditions regarding sum deducted under section 194S by a specified person and requisite Form No. 26QE and Form NO.16E to be furnished. Necessary amendments have also been made in Form 26Q to include details of TDS deducted u/s 194S in other cases. 6.3.8 Further, vide Notification no. 73/2022 (GSR 482E) dated 30.06.2022, it has been notified that where an Exchange in accordance with the guidelines issued under subsection (6) of section 194S, agreed to pay tax in relation to a transaction of transfer of a virtual digital asset owned by it (as an altemative to tax required to be deducted by the buyer of such asset under section 194S), the Exchange shall deliver or cause to be delivered, a quarterly statement of such transactions in Form No. 26QF. 6.3.9 Applicability: This amendment is effective from 1st July, 2022. 6.4 Further, in order to provide for taxing the gifting of virtual digital assets, Explanation to clause (x) of sub-section (2) of section 56 of the Act has been amended to inter alia, provide that for the purpose of the said clause, the expression "property" shall have the meaning assigned to it in Explanation to clause (vii ) and shall include virtual digital asset....
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....to make it a global hub of financial services sector. In order to further incentivise operations from IFSC, the following additional incentives have been provided vide FA 2022: (i) For the purposes of clause (40) of section 10 of the Act, the definition of specified fund, inter alia, means a Category III Alternative Investment Fund (AIF) regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 of which all the units other than unit held by a sponsor or manager are held by non-residents. Finance Act, 2020 inserted clause (1 A) to section 6 of the Act to provide that an individual who is a citizen of India having income other than income from foreign sources, exceeding Rupees 15 lakh and who is not liable to tax in any other country shall be deemed to be a resident in India. It was brought to the notice that some of the unit holders, after the issue of units may become residents or deemed residents in India. It will result in the denial of the entire exemption of the specified fund. Fund has no control over such a situation. In view of the above, FA 2022 has inserted a proviso to item (III) to provide that the conditions specified in....
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....ship" has been defined to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof. (iii) Clause (4G) in section 10 has been amended to provide exemption to any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any International Financial Services Centre, referred to in sub-section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India. Further, it has also been provided that "portfolio manager" shall have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019; (iv) The Explanation to clause (viib) of section 56 of the Act has been amended to provide that specified fund shall also include Category I or a Category II Alternative Investment Fund which is regulated under the Internationa....
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.... origin. 8.4 For the purposes of this clause, if the consultant was an individual, he was required to be a foreign citizen or in case he was an Indian citizen he should be not ordinarily resident in India. In case the consultant was not an individual, such person was required to be nonresident. 8.5 Consultant was required to be engaged by the agency for rendering technical services in India in connection with any technical assistance programme or project. Such technical assistance programme or projects were required to be in accordance with an agreement entered into by the Central Government and the agency and the agreement relating to the engagement of the consultant is required to be approved by the prescribed authority. 8.6 Clause (8B) of the said section provided for exemption to an individual who is an employee of the consultant as referred to in clause (8A) of section 10. Such individuals were those who were assigned duties in India in connection with any technical assistance programme and project. These technical assistance programmes and projects were required to be in accordance with an agreement entered into by the Central Government and the agency. 8.7 The exemption ....
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....nstitution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 or any trust or institution registered u/s 12AA or 12AB of the Act is exempt subject to the fulfilment of the conditions provided under various sections. The exemption to these trusts or institutions is available under the two regimes: (i) Regime for any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 (hereinafter referred to as trust or institution under first regime); and (ii) Regime for the trusts registered under section 12AA112AB (hereinafter referred to as trust or institution under the second regime). 9.2 FA 2022 has rationalised the provisions of both the exemption regimes by- (I) ensuring their effective monitoring and implementation; (II) bringing consistency in the provisions of the two exemption regimes; and (III) providing clarity on taxation....
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....n order to discourage such misuse of the funds of the trust or institution by specified persons, FA 2022 has inserted a new section 271AAE in the Act to provide for penalty on trusts or institution under both the regimes which is equal to amount of income applied by such trust or institution for the benefit of specified person where the violation is noticed for the first time during any previous year and twice the amount of such income where the violation is noticed again in any subsequent year. It has also been provided that section 271AAE shall operate without prejudice to any other provision of Chapter XXI. Thus, if any penalty is leviable under any of the other provisions of Chapter XXI, in addition to the penalty under section 271AAE, that penalty would also be applicable. b) Section 271AAE provides that, if during any proceeding under the Act, it is found that a person, being any trust or institution under the first or the second regime, has violated the provisions of twenty-first proviso to clause (23C) of section 10 (inserted by the FA 2022 and discussed in subsequent paragraphs) or clause (c) of sub-section (1) of section 13, as the case may be, the Assessing Officer may ....
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....ts under both the regimes: Provisions of sub-section (3) of section 143 provides that no order under this sub-section shall be made, denying the benefits of clause (23C) of section 10, unless the Assessing Officer has intimated the Central Government or prescribed authority the contravention of the provisions of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 and approval granted to such trust or institution has been rescinded. There was no such provision in cases of trusts or institutions under second regime. iii) No time limit prescribed for the PCIT/CIT to decide on references for the withdrawal of approval: For the trusts or institutions under the first regime, the provisions for making reference by the Assessing Officer to the Principal Commissioner or Commissioner are contained in the first proviso to sub-section (3) of section 143 and the time limitation for the completion of assessment is extended as per the provisions of clause (iii) of Explanation 1 to section 153. However, there was no time limit for such Principal Commissioner or Commissioner to decide on such reference. b) In order to address the above issues, ....
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....inment of its objectives; or (c) the trust or the institution under the second regime has applied any part of its income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; or (d) the trust or institution under the second regime established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; (e) Any activity being carried out by the trust or the institution under the second regime, (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) the trust or the institution under the second regime has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1) of section 12AB, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. (III) Sub-section (5) of section 12AB of the Act has been substituted with a new sub-section (5) to p....
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....he occurrence of one or more specified violations; (iv) forward a copy of the order under clause (il) or (iii), as the case may be, to the Assessing Officer and such fund or trust or institution or any university or other educational institution or any hospital or other medical institution; (V) FA 2022 has inserted an Explanation 1 to the fifteenth proviso to clause (23C) of section 10 of the Act to provide that for the purposes of this proviso, "specified date" shall mean the day on which the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) expires. (VI) The term "specified violation" has been defined by inserting an Explanation (Explanation 2) to the fifteenth proviso to clause (23C) of section 10 of the Act to mean the following: - (a) where any income of trust or institution under the first regime has been applied other than for the objects for which it is established; or (b) the trust or institution under the first regime has income from profits and gains ....
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.... Consequentially, FA 2022 has also amended the provisions of clause (iii) of Explanation to section 153 by deleting the reference to trusts or institution under the first regime and inserting a new clause (xiii) to provide that the period commencing from the date on which the Assessing Officer makes a reference to the Principal Commissioner or Commissioner under the second proviso to sub-section (3) of section 143 or is deemed to have been made under Explanation 3 to the fifteenth proviso to clause (23C) of section 10, and ending with the date on which the copy of the order under clause (ii) or (iii) of fifteenth proviso to clause (23C) of section 10 or clause (ii) or (iii) of sub-section (4) of section 12AB, as the case may be, is received by the Assessing Officer shall be excluded in computing the period of limitation. Applicability: These amendments are effective from 1st April, 2022. 9.4 Bringing consistency in the provisions of two exemption regimes As mentioned earlier, there was a requirement for alignment of certain provisions of the two regimes as they both intend to grant similar benefit. 9.4.1 Accumulation provisions i) Under the provisions of the Act, a trust or i....
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.... in whole or in part, for application to such objects, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and (c) the statement referred to in clause (a) of Explanation 3 is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; Accordingly, vide Notification No. 96/2022 (GSR 632(E)) dated 17.08.2022, Rule 17 and Form No. 10 of Income tax Rules, 1962 have been substituted to provide for the statement to be furnished to the Assessing Officer /Prescribed Authority under clause (a) of the Explanation 3 to ....
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....pplication under this Explanation were a purpose specified in the notice given to the Assessing Officer under clause (a) of the proposed Explanation 3 of the third proviso to clause (23C) of section 10. F) inserted a proviso to proposed Explanation 5 to third proviso to clause (23C) of section 10 of the Act to provide that the Assessing Officer shall not allow the application of any accumulated income, as referred to in the proposed Explanation 3, to be credited or paid to any trust or institution under the first or second regime, as referred to in clause (d) of proposed Explanation 4 to the third proviso to clause (23C) of section 10. Applicability: These amendments will be effective from 1st April, 2023 and accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. 9.4.2 Bringing consistency in the provisions relating to payment to specified person i) Under section 13 of the Act, trusts or institutions under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. FA 2022 has inserted twenty first proviso in clause (23C) of section 10 of the Act to provide that where the income or p....
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....or institution" with specified person wherever it occurs and to provide that specified person shall have the same meaning as provided in clause (iia) of the Explanation to section 115TD of the Act. 9.4.4 Filing of return by person claiming exemption under clause (23C) of section 10 of the Act i) According to clause (ba) of sub-section (1) of section 12A of the Act, if a trust or institution under the second regime does not furnish return of income in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section, then provisions of sections 11 and 12 are not applicable. However, there was no similar provision in the first regime. ii) Hence, FA 2022 has inserted twentieth proviso to clause (23C) of section 10 of the Act to provide that for the purpose of exemption under this clause, any trust or institution under the first regime is required to furnish the return of income for the previous year in accordance with the provisions of sub-section (4C) of section 139 of the Act, within the time allowed under that section. Applicability: This amendment will be effective from the 1st April, 2023, and accordingly, applies in relation to the....
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....llows: (a) In case of commercial receipts in excess of 20% of the annual receipts in violation of the provisions of proviso to clause (15) of section 2; (b) Not getting the books of account audited; (c) Not filing the return of income presently specifically provided under the second regime only; ii) There was lack of clarity on computation of taxable income in case of non-availability of exemption in these cases. For example, if the exemption was denied to the trust or institution for the late submission of the audit report, its entire receipts could be subject to tax and no deduction for any application would have been allowed. iii) In order to bring clarity in the computation of the income chargeable to tax in such cases, FA 2022 has: (a) inserted sub-section (10) in section 13 of the Act to provide that where the provisions of sub-section (8) are applicable to any trust or institution under the second regime or such trust or institution violates the conditions prescribed under clause (b) or clause (ba) of subsection (1) of section 12A. its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in In....
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....diture is not in the form of any contribution or donation to any person. (e) inserted an Explanation in the twenty second proviso to clause (23C) of section 10 of the Act to provide that for the purposes of determining the amount of expenditure under this proviso, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (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". (f) inserted twenty third proviso in clause (23C) of section 10 of the Act to provide that for the purposes of computing income chargeable to tax under twenty second proviso, 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. Applicability: These amendments will be effective from 1st April, 2023 and accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. 9.5.2 Taxation of certain income of the trusts or institutions under both the regimes at special rate Following incomes of the trusts or institutions are chargeable to tax, under di....
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....late such income, entire income of such trust shall be subjected to tax where the trust is approved under the second proviso to clause (23C) of section 10 of the Act since third proviso to clause (23C) of section 10 of the Act mandates minimum 85% application of income unless such income is accumulated. Denying exemption to the trust, for small amount of income applied in violation to the provisions referred in clause (a) and (b) above creates difficulties to the trusts or institutions under both the regimes as there is ambiguity about the manner of taxation of such income. Further, there was need for special provision to ensure that the income applied in violation is taxed at special rate without deduction. Accordingly, in order to rationalise the provisions, the FA 2022 has: (a) amended clause (c) of sub-section (1) of section 13 of the Act to provide that only that part of income which has been applied in violation to the provisions of the said clause shall be liable to be included in total income. (b) inserted twenty first proviso in clause (23C) of section 10 to specifically provide that where the income of any fund or institution or trust or any university or other educati....
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....xplanation 4 to third proviso to clause (23C) of section 10 or sub-section (3) of section 11 or sub-section (1 B) of section 11; or (iii) any income which is not exempt under clause (23C) of section 10 on account of violation of the provisions of clause (b) of third proviso of clause (23C) of section 10 or not to be excluded from total income under the provisions of clause (d) of sub-section (1) of section 13; or (iv) any income which is deemed to be income under the twenty first proviso to clause (23C) of section 10 or which is not excluded from total income under clause (c) of subsection (1) of section 13; or (v) any income applied outside India and which is not excluded from total income under clause (c) of sub-section (1) of section 11. Applicability: These amendments will be effective from 1st April, 2023 and accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. 9.5.3 Voluntary Contributions for the renovation and rep air of temples, mosques, gurudwaras, churches etc notified under clause (b) of sub-section (2) of section 80G i) Donations for the renovation and repair of temples, mosques, gurudwaras, churches etc notified under cla....
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.... subject to the condition that the trust or institution, (a) applies such corpus only for the specific purpose for which the voluntary donation was made; (b) does not apply such corpus for making contribution or donation to any person; (c) maintains such corpus as separately identifiable; and (d) Invests or deposits such corpus in the forms and modes specified under sub-section (5) of section 11. v) FA 2022 has also inserted Explanation 1 B in the third proviso to clause (23C) of section 10 of the Act to provide that for the purposes of Explanation 1A, where any trust or institution referred to in sub-clause (v) 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. Applicability: These amendments are effective retrospectively from 1st April, 2021 and accordingly apply in relation to the assessment year 2021-22 and subsequent assessment years. 9.5.4 Clarifying that application will be allowed only when its actually paid (i) Tru....
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....benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall be deemed to be the income of such trust or institution under the first regime of the previous year in which it is so applied. Further, the said Act has also amended clause (c) of sub-section (1) of section 13 of the Act to provide that where the trusts or institutions provide any unreasonable benefit to any person referred to in sub-section (3) of section 13, the amount of such benefit shall be liable to be included in total income of such trust or institution. (iii) In view of the above amendments made vide FA 2022, clause (x) of sub-section (2) of section 56 of the Act could be interpreted in a manner that where any unreasonable benefit is passed on by any trust or institution under the first or second regime to any person referred to in sub-section (3) of section 13, the provisions of clause (x) of subsection (2) of section 56 may not be applicable. However, that is not the intention of the law. (iv) In view of the above, FA 2022 has inserted a proviso to clause (x) of sub-section (2) of section 56 to provide that the exemption provided in item (VI) and item (V....
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....nt drafting error has crept in the sub-section. Prior to amendment made vide FA 2022, the language read that no deduct ion shall be allowed to the research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause (iia) of sub-section (1) of section 35, if such statement of donations is not filed. However, that was not the intention of the law. The deduction claimed by the donor was required to be dis-allowed in such cases. In section 80G of the Act similar provisions were introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from the 1st April, 2021, whereby the deduction claimed by the donor under this section was disallowed in case the donee fails to furnish the statement of donations. ii) Hence, FA 2022 has amended sub-section (1A) of section 35 of the Act to provide that the deduction claimed by the donor with respect to the donation given to any research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause (iia) of sub-section (1) of section 35 of the Act shall b....
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.... deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. Applicability: This amendment is effective from the 1st day of April, 2022. 10.5 Further, FA 2022 also amended sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Act and provide that and provide that no deduct ion shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in any other provisions of this Act. Applicability: This amendment is effective from the 1st day of April, 2022. 11. Exemption of amount received for medical treatment and on account of death due to Covid-19 11.1 Clause (x) of sub-section (2) of section 56 of the Act, inter alia, provides that where any person receives, in any previous year, from any person or persons any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum shall be the income of the perso....
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.... expenditure incurred on the treatment of COVID-19 or illness related to COVID-19 of the employee or of any member of his family. 11.5 Further the first proviso to clause (x) of sub-section (2) of section 56 has been amended and two new clauses (XII) and (XIII) in the proviso have been inserted so as to provide that- (i) any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person; (ii) any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from the date of death of such person, and subject to such other conditions, as may be notified by the Central Government, shall not b....
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....OVID-19 positive report of the individual, or medical report if clinically determined to be COVID-19 positive through investigations in a hospital or an inpatient facility by a treating physician; and (b) a medical report or death certificate issued by a medical practitioner or a Government civil registration office, in which it is stated that death of the person is related to corona virus disease (COVID-19). 11.9 It has also been notified that the statement of any sum of money received by a member of the family of a deceased person from the employer of the deceased person or from any other person or persons, on account of death due to COVID-19 for the purposes of clause (XIII) of the first proviso to clause (x) of sub-section (2) of section 56 of the Act shall be verified and furnished in Form A. Further, the details of the amount received in any financial year shall be furnished in Form A to the Assessing Officer within nine months from the end of such financial year or 31.12.2022, whichever is later. 11.10 Applicability: This amendment is effective retrospectively from the 1st April, 2020 and accordingly, applies in relation to the assessment year 2020-21 and subsequent asses....
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.... ITR 388 (HP)], in which the Hon'ble High Court rejected the petition and held that - "The regulation of the Medical Council prohibiting medical practitioners from availing of freebies is a very salutary regulation which is in the interest of the patients and the public. This Court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, s. 37(1) comes into play. The Petitioner's contention that the circular goes beyond the section is not acceptable. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assesses to file an appeal but the circular which is totally in line with s. 3 7(1) cannot be said to be illegal. If the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the....
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....ouraged. The payment of commission by the assessee for referring patients to it cannot by any stretch of imagination be accepted to be legal or as per public policy. Undoubtedly, it is not fair practice and has to be termed as against the public policy. iv. ITAT noted earlier coordinate bench judgment in the case of DCIT vs PHL Pharma Pvt Ltd (2017) 163 ITD 10 (Mum) where it was held that the disallowance could not be sustained as the MCI guidelines bind only the medical professionals and not the pharmaceutical companies. ITAT noted that this judgment was not in line with earlie- co-ordinate bench judgment In the case of Liva Healthcare Ltd, (2016) 161 ITD 63 (Mum) where the Hon'bte Mumbai ITAT has held that the CBDT circular dated 01.08.2012 is merely a clarification in nature and creates a bar on such illegal payments being against public policy, the said bar always existed in the statute by virtue of the existence of Explanation of Section 37 of the Income-tax Act which was inserted by Finance Act, 1998 w.e.f. 01-04-1962. it was also noted that in Hon'ble AP High Court's full bench decision in the case of CIT vs B R Constructions (1993) 202 ITR 222 (AP- FC)&nbs....
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....s of natural justice had been followed or not while passing the impugned order. Suffice it to say that the observations dated 27.10.2012 made by the Ethics Committee do reflect upon the infrastructure facilities available in (he Petitioner hospital and since it had no jurisdiction to go into the same, the observations were uncalled for and cannot be sustained. 9. Since the MCI had no jurisdiction to go into the infrastructure facilities, I need not also go into the aspect that in the year 2011, the facilities available in the hospital were inspected and were found to be in order 10. The petition therefore has to succeed. I hereby issue a writ of certiorari quashing the adverse observations passed by the MCI against the Petitioner hospital highlighted in Para 1 above." ITAT thus held that in their humble understanding, the judgment of Delhi High Court does not negate, dilute, or even deal with, ratio decidendi of, or even casual observations In, Hon'ble HP High Court's judgment in the case of Confederation of Indian Pharmaceutical Industry (discussed earlier). These judgments are in altogether in different field. vi. ITAT thus noted that while Hon'ble HP High Court d....
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.... case" and that "in such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger bench". Taking a cue from the path so guided by Hon'ble Supreme Court in the case of Paras Laminates (supra), we recommend constitution of a bench of three or more Members to consider the question as to whether or not an item of expenditure on account of freebies to medical professionals, which is hit by rule 6.8.1 of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002- as amended from time to time, read with section 20A of the Indian Medical Council Act 1956, can be allowed as a deduction under section 37(1) of the Income Tax Act, 1961 read with Explanation thereto, in the hands of the pharmaceutical companies. 12.6 Thus, the legal position is clear that the claim of any expense incurred in providing various benefits in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section sub-section (1) of section 37 of the Act being an expense prohibited by the law. Delhi High Court decision which was relied upon by ITAT in som....
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....f the Act. The Supreme Court held that doing so would "wholly undermine public policy." (Para 33). The amendment carried out is in consonance with the judgement of Supreme Court. 13. Clarification regarding treatment of cess and surcharge 13.1 Section 40 of the Act specifies the amounts which shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". Sub- clause (ii) of clause (a) of section 40 of the Act provides that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of. or otherwise on the basis of, any such profits or gains shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession". 13.2 However, It was seen that certain taxpayers were claiming deduction on account of 'cess' or 'surcharge' under section 40 of the Act claiming that 'cess' has not been specifically mentioned in the aforesaid provisions of section 40(a)(ii) of the Act and, therefore, cess is an allowable expenditure. This view was upheld by Courts in a few judgments. Further, Courts were als....
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....at meaning is applied to s. 2 of the Finance Act 1963 it would lead to the result that income tax and super tax were to be charged in four different ways or at four different rates which may be described as (i) the basic charge or rate (In part I of the First Schedule); (ii) Surcharge; (iii) special surcharge and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way the additional charges form a part of the income tax and super tax". 21. The Hon'ble Supreme Court, therefore, has decided the issue in favour of the revenue and held that surcharge and additional surcharge are part of the income tax. At this stage, it is pertinent to mention here that 'education cess' was brought in for the first time by the Finance Act, 2004, wherein it was mentioned ss under:- " An additional surcharge, to be called the Education Cess to finance the Government's commitment to universalise qualify basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge." 22. The provisions of the Finance Ad 2011 relevant to the Assessment Year under consideration i.e. 2012-1....
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....oportion of, or otherwise on the basis of, any such profits or gains". When the matter cams up before the Select Committee, it was decided to omit the word 'cess' from the clause. The effect of the omission of the word 'cess' is that only taxes paid are to be disallowed in the assessments for the year 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the ITOs so that further litigation on this account may be avoided." 13.6 In the above referred Circular issued by CBDT, 'Cess' is to be allowed under sub- clause (ii) of clause (a) of section 40 of the Act. However, it is to be noted that 'Cess' is imposed not only by the Central Government through the Finance Act for a financial year, but also by various State Governments. It is pertinent to mention that in the above referred Circular of CBDT, there is no reference to the 'Cess' imposed by the Central Government through the Finance Act for a particular year. This CBDT circular needs to be seen from the perspective that "Education Cess" imposed by Finance Act 2004 and subsequent Acts and then designated as "Education and Health Cess" ....
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....578 at page 297 of Halsbury's Laws of England, Fourth Edition, the rule of per incuriam is stated as follows: "A decision is given per incuriam when the court has acted in ignorance of a previous decision of its own or of a court of co-ordinate jurisdiction which covered the case before it. in which case It must be decided which case to follow; or when it has acted in ignorance of a House of Lords decision, in which case it must follow that decision; or when the decision is given in ignorance of the terms of a statute or rule having statutory force." 13.9 From the above discussion it may be seen that the interpretations of two High courts and various ITATs are against the intention of legislature and not in line with the judgment of Hon'ble Supreme Court. Hence, in order to make the intention of the legislation clear and to make it free from any misinterpretation. Explanation 3 has been inserted retrospectively in sub-clause (ii) of clause (a) of section 40 of the Act to clarify that for the purposes of this sub-clause, the term "tax" includes and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Amendment has been made r....
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....ification regarding deduction on payment of interest only on actual payment 14.1 Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Explanation 3C, 3CA and 3D of this section provides that a deduction of any sum, being interest payable on loan or borrowing from specified financial institution/NBFC/scheduled bank or a co-operative bank under clause (d), clause (da), and clause (e) of this section respectively, shall be allowed if such interest has been actually paid and any interest referred to in these clauses which has been converted into a loan or borrowing or advance shall not be deemed to have been actually paid. 14.2 However, certain taxpayers were claiming deduction under section 43B on account of conversion of interest payable on an existing loan into a debenture on the ground that such conversion was a constructive discharge of interest liability and, therefore, amounted to actual payment which has been upheld by several Courts. 14.3 Such interpretation is against the intent of legislation. The section was introduced to curb the mischief of claiming deduction by the assessee, without paying interest to financial institutions/NBFC....
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....ce the amendment to the effect that goodwill of a business or profession is not a depreciable asset has been made applicable from assessment year 2021-2022, the above amendment takes effect retrospectively from 15t April 2021 and applies in relation to the assessment year 2021-22 and subsequent assessment years. 16. Cash credits under section 68 16.1 Section 68 of the Act provides that where any sum is found to be credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 16.2 The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where (he sum which is credit....
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.... by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred. Sub-section (2) of the said section provides certain circumstances in which the provisions of sub-section (1) shall not apply. 17.2 II order to facilitate the strategic disinvestment of public sector companies, section 79 of the Act has been amended to provide that (he provisions of sub-section (1) of section 79 shall not apply to an erstwhile public sector company subject to the condition that the ultimate holding company of such erstwhile public sector company, immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least fifty one per cent of the voting power of the erstwhile public sector company in aggregate. 17.2.1 It has also been provided that if the above condition is not complied with in any previous year after the completion of strategic disinvestment, the provisions of sub-section (1) shall apply for such previous year and subsequent previous years. 17.2.2 The terms "erstwhile public sector company" and "s....
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....ward or otherwise, or unabsorbed depreciation under sub-section (2) of section 32 shall be allowed to the assessee under any provision of this Act in computing his total income for such previous year. 18.5 Further, the term "undisclosed income" has been defined for the above purpose as- (i) any income of the previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132 or a requisition made under section 132A or a survey conducted under section 133A. other than that conducted under sub-section (2A) of section 133A, which has- (a) not been recorded on or before the date of search or requisition or survey, in the books of account or other documents maintained in the normal course relating to such previous year; or (b) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search or requisition or survey, or (ii) any income of the previous year represented, either wholly or partly, by any entry in respect of an ....
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.... a scheme for the maintenance of a disabled dependant. 20.2 Sub-section (2) of the aforesaid section provides that the deduction shall be allowed only if the payment of annuity or lump sum amount is made to the benefit of the dependant, in the event of the death of the individual or the member of the HUF in whose name subscription to the scheme has been made. 20.3 Sub-section (3) of the aforesaid section provides that if the dependant with disability predeceases the individual or the member of the HUF, the amount deposited in such scheme shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year. 20.4 In the Writ Petition No. 1107 of 2017 Ravi Agrawal vs Union of India and Another , Hon'ble Supreme Court observed that there could be cases where handicapped dependants may need payment of annuity or lump sum amount even during lifetime of their parents/guardians. It was further observed that the Centre may take into consideration all the aspects, including those where a disabled dependant might need payment on annuity or lump sum ....
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....d assessment with dynamic jurisdiction. A series of futuristic reforms have been introduced in the domain of Direct Tax administration for the benefit of taxpayers and economy. This started with faceless assessment in electronic mode involving no human interface between taxpayers and tax officials. The faceless procedures are being introduced in a phased manner in the Act. 22.2 As part of this process of making the tax administration transparent and efficient, provisions for notifying faceless schemes under sections 92CA, 144C, 253 and 264A were introduced in the Act through Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from 01.11.2020 and under section 255, was inserted through Finance Act, 2021 with effect from 01.04.2021: S.No. Section Scheme Date of Limitation 1. 92CA Faceless determination of arm's length price 31st day of March, 2022 2. 144C Faceless Dispute Resolution Panel 31st day of March, 2022 3. 253 Faceless appeal to Appellate Tribunal 31st day of March, 2022 4. 255 Faceless procedure of Appellate Tribunal 31st day of March, 2023 22.3 Section 92CA and section 144C are principally related to the ....
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....mend the definition of unit, so as to include units of business trusts such as InvIT, REIT and AIF, within the definition of units. 23.5 Applicability: These amendments are effective from 1st April, 2023 and accordingly apply to the assessment year 2023-24 and subsequent assessment years. 24. Extension of the last date for commencement of manufacturing or production, under section 115BAB, from 31.03.2023 to 31.03.2024 24.1 Section 115BAB of the Act provides for an option of concessional rate of taxation at 15 per cent, for new domestic manufacturing companies provided that they do not avail of any specified Incentives or deductions and fulfil certain other conditions. 24.2 Sub-section (2) of section 115BAB of the Act contains the conditions required to be fulfilled by such companies. Prior to amendments made vide FA 2022, clause (a) of said sub-section (2) provided that the new domestic manufacturing company is required to be set up and registered on or after 01.10.2019, and is required to commence manufacturing or production of an article or thing on or before 31st March, 2023. 24.3 The intent of the introduction of section 115BAB was to attract investment, create jobs ....
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....e AMT rate at which co-operative societies are liable to pay income-tax to 15%. Consequential amendment was also done in clause (b) of section 115JF in relation to the definition of "alternate minimum tax". 26.2 Applicability: This amendment is effective from 1st April, 2023 and, accordingly applies in relation to the assessment year 2023-24 and subsequent assessment years. 27. Amendment in the provisions of section 119 of the Act 27.1 Section 119 of the Act empowers the Board to issue orders, instructions and directions to other income-tax authorities for proper administration of the Act. Clause (a) of sub-section (2) of the said section gives powers to the Board to provide relaxation of provisions of certain sections of the Act such as 115P, 115S, 115WD, 139, 211, 234A, 234B, 234C, 234E etc. by way of general or special orders, in respect of any class of incomes or class of cases, for the purpose of proper administration of the work of assessment or collection of revenue or initiation of proceedings for the imposition of penalties and such other issues, in public interest. 27.2 Section 234F of the Act which falls under Chapter XVII-F provides that in case a person f....
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....f the assessment year or before the completion of assessment, whichever is earlier. Hence, the object of section 139 is to give reasonable time to the taxpayer to file a correct statement of his income within the duration specified under the Act. 28.3 This provision provides an additional time of approximately 5 months to an individual assessee, 2 months to a company/auditable case and 1 month to an assessee who enters into an international transaction or specified domestic transaction respectively, in a financial year to file belated or revised return. This additional timeline for filing a revised/belated return may not be adequate when we factor in utilization of huge information and data available coupled with the "nudge approach" that motivates the taxpayer towards the desired objective of voluntary tax compliance, starting with filing of correct tax returns. 28.4 Hence, a new provision is introduced in section 139 for filing an updated return of income by any person, whether he has filed a return previously for the relevant assessment year, or not. This provision for updated return over a period longer than that is provided in the existing provisions of the Act would on the ....
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.... or books of account, other documents or any assets are requisitioned under section 132A in the case of such person, or (b) a survey has been conducted under section 133A, other than sub-section (2A) of that section, in the case such person, or (c) a notice has been issued to the effect that any money, bullion, jewellery or valuable article or thing, seized or requisitioned under section 132 or section 132A in the case of any other person belongs to such person, or (d) a notice has been issued to the effect that any books of account or documents, seized or requisitioned under section 132 or section 132A in the case of any other person, pertain or pertains to, or any other information contained therein, relate to, such person, for the assessment year relevant to the previous year in which such search is initiated or survey is conducted or requisition is made and 1[any assessment year preceding such assessment year]. (iv) also, no updated return shall be furnished by any person for the relevant assessment year, where, (a) an updated return has been furnished by him under sub-section (8A) of section 139 of the Act for that relevant assessment year, or (b) any proceeding for asse....
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....isions i.e. sub-section (8A) of section 139 of the Act. I. Where no return furnished earlier: where no return of income under sub-section (1) or sub-section (4) of section 139 has been furnished by an assessee, he shall before furnishing the return under sub-section (8A) of section 139, be liable to pay the tax due together with interest and fee payable under any provision of the 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. The tax payable shall be computed after taking into account the following:- (i) the amount of tax, if any, already paid as advance tax; (ii) any tax deducted or collected at source; (iii) any relief of tax claimed under section 89; (iv) 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; (v) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and (vi) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD. Such updated return shall also be accompanied ....
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....onths from the end of the relevant assessment year. However, if such return is furnished after the expiry of twelve months from the end of the relevant assessment year but before completion of the period of twenty four months from the end of the relevant assessment year, the additional tax payable shall be fifty percent of aggregate of tax and interest payable, as determined in sub- paragraphs I or II above. It is clarified that all other subsequent non-compliances under the Act, if any, shall be dealt with as per the relevant provisions of the Act. It is also clarified that for the purposes of computation of "additional income-tax", tax shall include surcharge and cess, by whatever name called, on such tax. IV. It is further provided that notwithstanding anything contained in the Explanation 1 to section 234B, in the cases where an earlier return has been furnished, interest payable under section 234B shall be computed an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax, where, "assessed tax" means the tax on the total income as declared in the return to be furnished under sub-section (8A) of se....
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.... an income-tax authority to enter any place of business or profession or any other place where charitable activity is carried on within his jurisdiction to verify the books of account or other documents, cash, stock or other valuable article or thing, which may be useful for or relevant to any proceeding under this Act. Explanation to section 133A provides the definition of an income tax authority for the purposes of this section. 29.2 Through Taxation and Other Laws (Amendment and Relaxation of Certain Provisions) Act, 2020, the Explanation was amended to provide that any income-tax authority who is subordinate to the Principal Director General of Income-tax (Investigation) or the Director General of Income-tax (Investigation) or the Principal Chief Commissioner of Income-tax (TDS) or the Chief Commissioner of Income-tax (TDS), as the case may be, shall only be considered as income-tax authorities for the purposes of section 133A. 29.3 Explanation to section 133A of the Act is amended to provide that income tax authority shall be sub-ordinate to Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner, as the case may be, specified by ....
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....sition on the assessee or any other person for obtaining such information, documents or evidence. The AU may also make a request, through the NaFAC, for conducting enquiry or verification by Verification Unit (VU) and the request shall be assigned by the NaFAC to a VU through an automated allocation system. The AU may also similarly make a request in respect of determination of arm's length price, valuation of property, withdrawal of registration, approval, exemption or any other technical matter by referring to the Technical Unit (TU) and the request shall be assigned by the NaFAC to a TU through an automated allocation system. (e) The assessee or any other person, as the case may be, shall file his response in compliance to the said notice served by NaFAC, at the request of AU, to the NaFAC which shall forward the reply to the AU. If the assessee fails to comply with the said notice seeking information served by NaFAC, or the earlier notice under sub-section (2) of section 143 or under sub-section (1) of section 142, the NaFAC shall intimate the same to the AU. The AU shall serve upon the assessee, through NaFAC, a show cause notice under section 144 giving him the opportuni....
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....reasons in writing if it is rejecting the modifications proposed by the RU. (k) The NaFAC shall, upon receiving draft order in a case of an eligible assessee, where there is a proposal to make any variation which is prejudicial to the interest of such assessee under sub-section (1) of section 144C for reference to Dispute Resolution Panel, serve such draft order on the assessee. In any case, other than that of eligible assessee under section 144C, the NaFAC shall convey to the AU to complete the assessment in accordance with such draft order, which shall thereafter pass the final assessment order and initiate penalty proceedings, if any, and send it to the NaFAC. The NaFAC shall serve a copy of such final assessment order, notice for initiating penalty proceedings, if any and the demand notice, specifying the sum payable by, or refund of any amount due to the assessee on the basis of such assessment, to the assessee. (l) An eligible assessee, as referred to in section 144C, shall, upon receiving the draft order served on him as above, shall file his acceptance of the variations proposed in such draft order or file objections, if any, to such variations, with the Dispute Resolutio....
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.... it may deem necessary to conduct the faceless assessment, to perform the function of making assessment, which includes identification of points or issues material for the determination of any liability (including refund) under the Act, seeking information or clarification on points or issues so identified, analysis of the material furnished by the assessee or any other person, and such other functions as may be required for the purposes of making faceless assessment and the term "assessment unit", wherever used in section 144B, shall refer to an Assessing Officer having powers to the extent so assigned by the Board; (iii) verification units (referred to as VU), as it may deem necessary to facilitate the conduct of faceless assessment, to perform the function of verification, which includes enquiry, cross verification, examination of books of account, examination of witnesses and recording of statements, and such other functions as may be required for the purposes of verification and the term "verification unit", wherever used in section 144B, shall refer to an Assessing Officer having powers so assigned by the Board; Further, the function of VU under this section may also be per....
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....his authorised representative, or any other person and all internal communications between the NaFAC and various units shall be exchanged exclusively by electronic mode. However, this provision shall not apply to the enquiry or verification conducted by the verification unit in the circumstances as may be specified by the Board in this regard. (t) It is further provided that for the purposes of faceless assessment, an electronic record shall be authenticated by the NaFAC by way of an electronic communication, by the AU or VU or TU or RU, as the case may be, by affixing digital signature and by the assessee or any other person, by affixing his digital signature or under electronic verification code, or by logging into his registered account in the designated portal. Every notice or order or any other electronic communication shall be delivered to the addressee, being the assessee, by way of placing an authenticated copy thereof in the registered account of the assessee or by sending an authenticated copy thereof to the registered email address of the assessee or his authorised representative or by uploading an authenticated copy on the assessee's Mobile App, and followed by a r....
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....y be necessary, so as to ensure that the assessee, or his authorised representative, or any other person is not denied the benefit of faceless assessment merely on the consideration that such assessee or his authorised representative, or any other person does not have access to video conferencing or video telephony at his end. The Principal Chief Commissioner or the Principal Director General, as the case may be, in charge of the NaFAC shall, with the prior approval of the Board, lay down the standards, procedures and processes in the specified manner for effective functioning of the NaFAC and the units set up, in an automated and mechanised environment. (y) The section also seeks to provide that if at any stage of the proceedings before it, the AU having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary to do so, it may, upon recording its reasons in writing, refer the case to the NaFAC stating that the provisions of sub-section (2A) of ....
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....are effective,- (i) from 1st April, 2022, in case of proposal in sub-paragraph (I); (ii) retrospectively from 1st April, 2021, in case of proposal in sub-paragraph (II). 31. Rationalization of provisions relating to assessment and reassessment 31.1 The Finance Act, 2021 amended the procedure for assessment or reassessment of income in the Act with effect from the 1st April, 2021. The said amendment modified, inter alia, sections 147, section 148, section 149 and also introduced a new section 148A in the Act. In cases where search is initiated under section 132 of the Act or books of account, other documents or any assets are requisitioned under section 132A of the Act, on or after 1st April, 2021, assessment or reassessment is now made under sections 143 or 144 or 147 of the Act after the amendment of the Act by Finance Act, 2021. 31.2 As a part of the government's policy related to simplification of procedures under the Act, amendments have now been brought in through FA 2022 to-- (i) insert a new proviso in section 148 of the Act to the effect that approval to issue notice under that section shall not be required to be taken by the Assessing Officer if he has passed ....
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.... that no order of assessment or reassessment or recomputation under the Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, in respect of assessments consequent to search, survey and requisition to reduce avoidable inaccuracies. Applicability: This amendment is effective from 1st April, 2022. (iv) amend section 153, by inserting a new clause to provide for exclusion of the period of limitation for the purpose of assessment, reassessment or recomputation, (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 or such requisition is made or to whom any money, bullion, jewellery or othe....
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....ble to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of sub-section (1) of the said section, has escaped assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant to the assessment years within the period referred to in clause (b) of subsection (1) of the said section, notice under section 148 shall be issued for every such assessment year for assessment, reassessment or recomputation, as the case may be. (iv) to provide that the provisions of the section 148A shall not apply in cases where the Assessing Officer has received any information under the scheme notified under section 135A, pertaining to income chargeable to tax escaping assessment for any assessment year in the case of the assessee. Applicability: These amendments are effective from 1st April, 2022. 32. Amendment of section 153 to extend time barring date in assessment 32.1 Sub-section (1) of the section 153 of the Act provides the time-line for completion of assessment proceedings under sections 143 and 144 of the Act. ....
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....ial year 2020-21. This led to situations where Assessing Officers have less than 15 days to conclude assessment in cases of taxpayers who choose to file the return on 15th March, 2022. 33.3 Therefore, a sixth proviso to sub-section (1) is introduced in section 153B of the Act to provide that in cases where the last of the authorisations for search or for requisition was executed during FY 2020-21 or in case of other person referred to in section 153C, the books of account or document or assets seized or requisitioned are handed over u/s 153C to the Assessing Officer having jurisdiction over such other person during the financial year 2020-21, the assessment in such cases shall be made on or before 30th September, 2022 as opposed to 31st March, 2022. 33.4 Applicability: This amendment is proposed to be effective retrospectively from 1st April 2021. 34. Litigation management when in an appeal by revenue an identical question of law is pending before jurisdictional High Court or Supreme Court. 34.1 Section 158AA of the Act provides that where the Commissioner or Principal Commissioner is of the opinion that any question of law arising in the case of an assessee (rel....
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....eal on the question of law arising in the relevant case may be filed when the decision on the question of law becomes final in the other case. The Commissioner or Principal Commissioner shall direct the Assessing Officer to make such an application only if an acceptance is received from the assessee to the effect that the question of law in the other case is identical to that arising in the relevant case, and in case no such acceptance is received, the Commissioner or Principal Commissioner shall proceed in accordance with the provisions contained in sub-section (2) of section 253 or in sub-section (2) of section 260A. 34.5 Accordingly, vide Notification no. 83/2022 (GSR 537E) dated 12.07.2022, rule 16 has been inserted in the Income-tax Rules to prescribe Form no. 8A for making an application under this provision. 34.6 Furthermore, where the order of the Commissioner (Appeals) or the order of the Appellate Tribunal, as the case may be, in the relevant case is not in conformity with the final decision on the question of law in the other case as and when such order is received, the Commissioner or Principal Commissioner may direct the Assessing Officer to appeal within S....
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....is discussed in the following paragraphs. 35.2 Though section 170 provides for assessment in cases of succession otherwise than by death, in practice once an entity starts the process of reorganisation by filing an application with the adjudicating authority or tribunal or any High Court, the period of time involved in coming to a conclusion with respect to such reorganisation is found to be a long-drawn process and is not time-bound. The effective date of reorganisation often is from an earlier date. During the pendency of the court proceedings, the income tax proceedings and assessments are carried on and are often completed on the predecessor entities only. Courts have held such proceedings and consequent assessments illegal as the predecessor assessee ceases to exist in the midst of a perfectly valid and legal proceeding. 35.3 Hence, till the decision of the court is received, the proceedings of the Act have to be continued in the case of the predecessor only and such proceedings once completed, cannot become illegal as a result of subsequent order of any court. Therefore, with a view to clarify that such proceedings under the Act are valid, a new sub-section (2A) is inserted....
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....ve this anomaly, a new section 156A is inserted in the Act to give effect to the orders of the competent authority and to modify such demands in accordance with such directions. 35.7 Applicability: These amendments are effective from 1st April, 2022. 36. Amendment in the provisions of section 179 36.1 Section 179 of the Act contains provisions which enables income-tax authorities to recover tax due from a private company from its directors, under certain circumstances where such tax cannot be recovered from the company itself. The section makes each director of the private company jointly and severally liable for the payment of such tax with certain conditions. However, the title of the section inadvertently refers to the liability of directors of private company in liquidation. 36.2 The liability of directors of a private company under this section is not conditional upon the company being in liquidation and the section makes no reference to liquidation. Therefore, to make the title of the section uniform with its provisions, the title of the section is amended to 'Liability of directors of private company". 36.3 Further, Explanation to the section clarifie....
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....widen and deepen the tax-base and to nudge taxpayers to furnish their return of income, Finance Act, 2021 inserted sections 206AB and 206CCA in the Act. The said sections provide for special provision for deduction and collection of tax at source respectively, in case of specified persons at higher rates specified therein. 38.2 "Specified person" was defined to mean a person who has not filed the returns of income for both the two assessment years relevant to the two previous years immediately preceding the financial year in which tax is required to be deducted or collected, for which the time limit for filing return of income under sub-section (1) of section 139 of the Act has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years. Government has provided online utility to taxpayers to check whether the person is specified person or not. 38.3 Further, the provisions of section 206AB of the Act were not applicable in relation to transactions 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 ....
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....tax thereon. Sub-section (2) provided that no deduction of tax shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees. 39.2 As per the provisions of the said section, TDS is to be deducted on the amount of consideration paid by the transferee to the transferor. This section did not take into account the stamp duty value of the immovable property, whereas, as the provisions of section per 43CA and 50C of the Act, for the computation of income under the head "Profits and gains of business or profession" and "capital gains" respectively, the stamp duty value is also to be considered. Thus, there was inconsistency in the provisions of section 194-IA and sections 43CA and 50C of the Act. 39.3 In order to remove inconsistency, section 194-IA of the Act has been amended to provide that in case of transfer of an immovable property (other than agricultural land), tax is to be deducted at source at the rate of one per cent. of such sum paid or credited to the resident or the stamp 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 pro....
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....sing the benefit or perquisite, ensure that tax required to be deducted has been paid in respect of the benefit or perquisite. 40.2.2 No tax is to be deducted if the value or aggregate value of the benefit or perquisite paid or likely to be paid to a resident does not exceed twenty thousand rupees during the financial year. 40.2.3 Further, the provisions of the said section shall not apply to an individual or a Hindu undivided family, whose total sales, gross receipts or turnover does not exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such benefit or perquisite, as the case may be, is provided. 40.2.4 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 section 194R of the Act and every such guideline issued by the Board shall be laid before each House of Parliament, and 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&....
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....est under section 195 of the Act, he may appeal to the Commissioner (Appeals) for a declaration that no tax was deductible on such income, if he claims that such tax is to be borne by him since no tax was required to be deducted on such income. Such appeal can be filed after making payment of tax so deducted to the credit of the Government account. Further, section 249 of the Act lays down that an appeal under section 248 of the Act should be filed within 30 days of making payment of such tax to the Government account. 42.2 To obtain a refund of the tax deducted and paid by a person, where it was not deductible, as per the provisions of section 248 of the Act, a taxpayer has no recourse to approach the Assessing Officer with such request. He has to necessarily enter the appellate process by filing an appeal before the Commissioner (Appeals). At the same time, the agreement or arrangement, under which the tax has been deducted and paid, is not brought on the record of the Assessing Officer 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 agreeme....
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.... be erroneous in so far as it is prejudicial to the interests of revenue, he may pass an order directing revision of the order of TPO. 43.4 Further, section 153 of the Act is amended by inserting sub-section (5A) to provide that where the Transfer Pricing Officer gives effect to an order or direction under section 263 by means of an order under section 92CA and forwards such order to the Assessing Officer, the Assessing Officer shall proceed to modify the order of assessment or reassessment or recomputation, in conformity with such order of the Transfer Pricing Officer, within two months from the end of the month in which such order of the Transfer Pricing Officer is received by him. Further, consequential amendments to sub-sections (3), (5) and (6) have also been carried out. 43.5 Applicability: This amendment is effective from 1st April, 2022. 44.Rationalization of the provisions of sections 271 AAB, 271AAC and 271AAD 44.1 Sections 271AAB, 271AAC 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 othe....
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.... too low. The penalty had not been increased since the section was introduced in 1999 and does not have an adequate deterrence value. 46.4 Therefore, the amount of penalty for failures listed under sub-section (2) of section 272A has been increased to five hundred rupees from the existing sum of one hundred rupees, through an amendment made in the section. 46.5 Applicability: This amendment is effective from 1st April, 2022. 47. Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act 47.1 Sections 269UC/UE/UL of the Act along with other provisions of Chapter XX-C have been made inapplicable with effect from 01.07.2002. Vide Finance Act, 2002, section 269UP was introduced providing that the provisions of the Chapter shall not apply to, or in relation to, the transfer of any immovable property effected on or after 01 .07.2002. Consequently, prosecution provisions u/s 276AB are 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 cas....