Amendments to Income-tax Act
Finance Act, 1990
Streamlining of tax structure
13. With the reduction in the
rates of taxes in the case of domestic companies, registered
firms and co-operative societies and on a review of some of the incentives and
concessions available to taxpayers, the following incentives and concessions have been
withdrawn or modified :-
(
a) Under the existing
provisions of section 32A of the Income-tax Act, a
deduction of an amount equal to twenty per cent of the cost of new ship or aircraft or
plant and machinery installed or put to use, is allowed in computing the profits and gains
from business or profession.
This
concession has been withdrawn in relation to new ship or aircraft
acquired or new plant or machinery installed after the 31st day of March, 1990. Copy of
the notification issued in this regard is at Annexure.
(
b) Under the existing
provisions of section 32AB of the Income-tax Act,
deduction is allowed in respect of deposit with the IDBI/NABARD or amount utilized for
the purchase of any new ship, new aircraft or new machinery or plant. This deduction is
allowed in computing the taxable profits or gains of business or profession and is equal to
the amount deposited/utilised for the purchase of the new ship or aircraft or machinery or
plant or 20 per cent of the profits of business or profession, whichever is less.
No
deduction will be allowed under this section in relation to any
assessment year commencing on or after the 1st day of April, 1991.
[Section
8 of the Finance Act]
(
c) Under the
provisions of section 33A of the Income-tax Act, an assessee
carrying on the business of growing and manufacturing tea in India is entitled to a
deduction, in the computation of profits from that business, of a "development
allowance" with reference to the actual cost of planting tea bushes. The amount to be so
deducted is calculated at the rate of 50 per cent of such cost. This deduction is available
for planting tea bushes on land which had been previously abandoned or which is newly
brought under plantation.
The
deduction under this provision will now be allowed only if the
planting of tea bushes has been completed before the 1st day of April, 1990.
[Section
9 of the Finance Act]
(
d) Under the existing
provisions of section 80HH of the Income-tax Act, all
categories of assessees are entitled to a deduction equal to 20 per cent of the profits
derived by them from new industrial undertakings (other than those engaged in mining)
and approved hotels set up after 31st December, 1970, in notified backward areas. The
deduction is allowed in respect of each of the ten assessment years beginning with the
assessment year relevant to the previous year in which the industrial undertaking begins
to manufacture or produce articles or things or the business of the hotel starts functioning.
Industrial
undertakings which begin to manufacture or produce articles or
things and approved hotels which start functioning, after the 31st day of March, 1990,
will not be entitled for this deduction.
[Section
20 of the Finance Act]
(
e) Under the
existing provisions of section 80HHA of the Income-tax Act, all
categories of assessees are entitled to a deduction equal to 20 per cent of the profits
derived by them from new small-scale industrial undertakings (other than those engaged
in mining) set up in any rural area. The deduction is allowed in respect of each of the ten
assessment years beginning with the assessment year relevant to the previous year in
which the industrial undertaking begins to manufacture or produce articles or things.
The
small-scale industrial undertakings which begin to manufacture or
produce articles or things after the 31st day of March, 1990 will not be eligible for this
deduction.
[Section
21 of the Finance Act]
(
f) Under the
existing provisions of section 115J of the Income-tax Act, in the
case of a company whose total income as computed under the Income-tax Act, is less
than 30 per cent of the book profit, as computed under that section, the total income
chargeable to tax will be 30 per cent of the book profit. The provision was enacted to
restrict the erosion of the base of taxable income on account of a large number of tax
concessions.
In view of the package of measures for rationalising the tax structure
including
discontinuance of certain investment incentives, having the effect of increasing the
taxable income base, there is no necessity of retaining the provisions of section 115J on
the statute book. Accordingly, section 115J has been amended so as to provide that its
provisions shall not apply to assessment year 1991-92 and subsequent years.
[Section 32 of the Finance Act]
Finance Act, 1990
Clarificatory amendment of the definition of "residence in India"
14. Under the existing provisions
of sub-clause (c) of
clause (1) of section 6 of the
Income-tax Act, an individual is said to be a resident in India in any previous year, if in
the four preceding years he has been in India for a total period of 365 days or more and
has stayed in India for 60 days or more in that previous year. Clause (a)
of the
Explanation to clause
(1) makes an exception
in the case of a citizen of India who leaves
India in any previous year for the purposes of employment. Such a person is treated as a
resident in India only if he stays in India during the previous year for 182 days or more.
The aforesaid Explanation
does not clarify whether a seaman working on board an Indian
ship is also a person leaving India for the purposes of employment.
Finance Act, 1990
14.1 In order to remove any
doubt in this regard, clause (a)
of the Explanation to
clause
(1) of section 6 has
been amended to include therein reference to a member of the crew of
an Indian ship. This would ensure that Indian seaman working on board an Indian ship
would be treated as resident in India for any year only if the stay in India is for 182 days
or more in that year.
Finance Act, 1990
14.2 This amendment takes effect
from the 1st April, 1990.
[Section 4 of the Finance Act]
Finance Act, 1990
Extension of the retirement benefit scheme to employees of public sector
companies
15. Under the existing provisions
of item (i) of sub-clause
(iv) of clause (
15) of section 10
of the Income-tax Act, exemption from income-tax is available in respect of interest
received from Government on deposits made by an employee of a Central Government or
a State Government, in accordance with such scheme as the Central Government may, by
notification in the Official Gazette, frame in this behalf, out of the moneys due to him on
account of his retirement, whether on superannuation or otherwise. The deposits under
the aforesaid scheme are also exempt from wealth-tax under section 5(1)(xxviic)
of the
Wealth-tax Act.
Finance Act, 1990
15.1 The aforesaid exemptions
have now been extended in respect of deposits made
under the aforesaid scheme also by an employee of a statutory corporation or a
Government company on retirement, whether on superannuation or otherwise.
Finance Act, 1990
15.2 This amendment will take
effect from 1st April, 1991 and will, accordingly, apply in
relation to the assessment year 1991-92 and subsequent years.
[Sections 5 and 52 of the Finance Act]
Finance Act, 1990
Exemption in respect of interest on securities held by the Registrar,
Supreme Court,
in Reserve Bank’s SGL Account No. SL/DH 048
16. The amount of US $470 million
paid by the Union Carbide Corporation and the
Union Carbide India Limited on the directions of the Supreme Court as compensation for
the victims of the Bhopal gas leak disaster stands deposited in the Reserve Bank of India
to the credit of the Registrar, Supreme Court, in the form of certain Government
securities. Under the provisions of the Income-tax Act, the interest payable on the
aforesaid securities is taxable. However, it was not intended to levy tax on the interest
accruing on the amount of the said compensation for the victims of the Bhopal gas leak
disaster. Accordingly, a new sub-clause (v)
in clause (15) of section
10 of the Income-tax
Act has been inserted to provide for exemption from income-tax in respect of interest on
securities held by the Registrar, Supreme Court, in Reserve Bank’s Account No. SL/DH
048.
Finance Act, 1990
16.1 This amendment will take
effect from the 1st April, 1989 and will, accordingly,
apply in relation to the assessment year 1989-90 and subsequent years.
[Section 5 of the Finance Act]
Finance Act, 1990
New provisions relating to Tea Development Account
17. Section 33AB inserted by
the Finance Act, 1985 provided for deduction in respect of
the amount deposited by a tea company with the National Bank for Agriculture and Rural
Development. By the Finance Act, 1986 a new section 32AB relating to Investment
Deposit Account was inserted in the Income-tax Act. Under this provision an assessee
was allowed deduction in respect of amounts deposited with the IDBI/NABARD or the
amount utilized during the previous year for the purchase of any new ship, aircraft,
machinery or plant. Since the scheme of Investment Deposit Account applied also to
taxpayers carrying on the business or profession of growing and manufacturing tea in
India, the benefit under the then existing provision in section 33AB relating to Tea
Development Account was withdrawn by the Finance Act, 1987.
Finance Act, 1990
17.1 The existing provisions
of section 32AB have been discontinued by the Finance Act,
1990. However, in view of the continuing need to encourage tea companies to mobilise
resources internally for specified purposes, a new section 33AB has been substituted in
place of the old section 33AB.
Finance Act, 1990
17.2 Under the new provisions,
an assessee carrying on the business of growing and
manufacturing tea in India is allowed a deduction in respect of the amount deposited by
him in a special account with the National Bank for Agricultural and Rural Development
within a period of six months from the end of the previous year or before furnishing the
return of his income, whichever is earlier. The deduction is limited to 20 per cent of the
profits of such business as computed before making deduction under the provision and
will be allowed before the loss, if any, brought forward from earlier years is set off.
Finance Act, 1990
17.3 The other salient features
of the new scheme of Tea Development Account are :
(
i) The special
account with the National Bank for Agriculture & Rural
Development is the account maintained in accordance with and for the purposes specified
in the scheme approved in this behalf by the Tea Board.
(
ii) The amount standing
to the credit of such special account may be
withdrawn only for this purpose specified in such scheme. Except in the circumstances
mentioned below at (iii),
if the amount released by NABARD in a year is not utilized for
the purpose for which it is released, the amount not so utilized, will be treated as taxable
profits of that year and taxed accordingly.
(
iii) Apart from the purposes
specified in the scheme, the amount standing in
the credit of the special account may be allowed to be withdrawn in any other following
circumstances :
(
a) closure of business
;
(
b) death of the
taxpayer;
(
c) partition
of Hindu undivided family ;
(
d) dissolution of
firm ;
(
e) liquidation
of company.
Where
the amounts are withdrawn because of closure of business or
because of dissolution of firm, the amount withdrawn will be treated as taxable profit and
taxed accordingly on the basis as if the business was continuing or the firm had not been
dissolved. In all other cases, viz.,
death of the taxpayer, partition of the Hindu undivided
family and liquidation of the company, the amounts withdrawn on closure of account
because of the occurrence of any of these events will not be included in the taxable
income even though the amounts have not been utilized for any of the purposes specified
in the scheme.
(
iv) There is an overriding
condition that the deduction under this provision
cannot be claimed in relation to amounts utilized for the purchase of any machinery or
plant to be installed in any office premises or residential accommodation including guest
houses; any office appliance, other than computers; any other plant or machinery which
either is installed in an undertaking producing low priority items specified in the
Eleventh Schedule in the Income-tax Act or is an item of plant or machinery entitled to
100 per cent write off by way of depreciation or for any other reason in any one year.
(
v) For claiming
the deduction, it is necessary that the accounts of the
taxpayer are audited by a Chartered Accountant and the report of the auditor in the
prescribed form duly signed and verified is filed along with the return of the relevant
assessment year. In cases where the accounts of the taxpayer are required to be audited
under any other law, e.g.,
under the Companies Act, it would be sufficient if the accounts
are audited under that law and the audit report as per that law is furnished with the return
along with a further report in the form prescribed for the purposes of this provision.
The
audit report form is being notified separately.
(
vi) The deduction
allowed under this provision will be withdrawn if the asset
acquired in accordance with the scheme is sold or otherwise transferred within 8 years of
the end of the previous year in which it is acquired. For this purpose the cost of the asset
relatable to the deduction allowed will be treated as taxable business profits of the year in
which the asset is sold or otherwise transferred.
The
deduction allowed earlier will, however, not be withdrawn in cases
where the asset is transferred within the 8-year period to Government, local authority,
statutory corporation or Government company.
It
will also not be withdrawn where the transfer takes place in connection
with succession of a firm by a company. For this purpose it is necessary that :
(
a) the scheme continues
to apply to the company in the manner applicable to
the firm;
(
b) the successor
company takes over all the properties and liabilities of the
firm; and
(
c) all the
shareholders of the company were partners of the firm before the
succession.
Finance Act, 1990
17.4 This provision will take
effect from 1st April, 1991 and will accordingly apply to the
assessment year 1991-92 and subsequent year.
[Section 10 of the Finance Act]
Finance Act, 1990
Modification of conditions for grant of development rebate and investment
allowance
18. The provisions of section
33 read with section 34 of the Income-tax Act, relating to
development rebate, provide for deduction of a percentage of the actual cost of a ship
acquired or machinery or plant installed. One of the conditions for the deduction is that
an amount equal to seventy-five per cent of the amount of development rebate to be
actually allowed is debited to the profit and loss account of the relevant previous year and
credited to a reserve account.
Finance Act, 1990
18.1 In the context that appropriation
to a reserve presupposes existence of sufficient
profits and it should suffice if the required amount is so appropriated before the
deduction by way of development rebate came to be allowed, the Central Board of Direct
Taxes through a circular clarified that the requirement of creation of reserve will be
considered to have been satisfied if the accumulated reserves in respect of the said
machinery or plant up to the year or years of actual deduction is equal to seventy-five per
cent of the amount of development rebate to be actually allowed. This means that in a
year when profits are insufficient or there are no profits, the creation of reserve was not
mandatory.
Finance Act, 1990
18.2 The Supreme Court in the
case of Shri Shubhlaxmi Mills Ltd.
[1989] 177 ITR 193
has held that in order to claim the deduction on account of development rebate, it is
obligatory that the reserve should be created in the year of acquisition/installation of
machinery or plant, etc., even in a case where there are no profits. If the decision of the
Supreme Court is to be followed, then taxpayers who have been following the Board’s
circulars for many years would be placed in a very difficult situation as their assessments
already completed could be reopened. Apart from this, it may run contrary to accounting
principles and the assurance given by the Central Board of Direct Taxes through its
circular.
Finance Act, 1990
18.3 Though the decision of
the Supreme Court has been pronounced only with regard to
the provisions relating to development rebate, the underlying principle may apply equally
to the grant of investment allowance. Accordingly, sections 32A and 34 have been
amended to secure that the condition of creation of reserve even in a year of loss or of
insufficiency of profit as laid down by the Supreme Court will not be mandatory in
respect of both development rebate and investment allowance. It is now provided that in
considering whether the condition regarding creation of reserve is fulfilled or not, the
reserve(s) created in the year in which the deduction is to be allowed and in any earlier
year will be taken into account. Of course, the ‘earlier year’ will not be a year earlier
than
the year in which the plant or machinery is installed or put to use or the ship is acquired.
Finance Act, 1990
18.4 These amendments will take
effect retrospectively from 1st April, 1962 in relation to
the development rebate and 1st April, 1976 in relation to the investment allowance and
will, accordingly, apply from assessment years 1962-63 and 1976-77 respectively and
subsequent years.
[Sections 7 and 11 of the Finance Act]
Finance Act, 1990
Tax concessions in respect of contribution to a fund or programme of
afforestation
19. Under the existing provisions
of section 35CCB, in the case of an assessee having
income from business or profession, any expenditure incurred by way of payment of any
sum to an approved association or institution is allowed as deduction where the object of
such association or institution is undertaking of any approved programme of conservation
of natural resources. Deduction for similar payments made by other assessee’s who are
not having income from business or profession is allowed under section 80GGA of the
Income-tax Act. With a view to promoting afforestation, the scope of deduction under
sections 35CCB and 80GGA has been enlarged so as to cover the payments made to an
association or institution which has as its object the undertaking of any programme of
afforestation. For this purpose, both the association/institution and the programme of
afforestation will have to be approved by the prescribed authority. Moreover, any
payment made to a Fund for afforestation to be set up and notified in this behalf will also
qualify for deductions under sections 35CCB and 80GGA of the Income-tax Act.
Finance Act, 1990
19.1 These amendments will take
effect from 1st April, 1991, and will, accordingly,
apply in relation to the assessment year 1991-92 and subsequent years.
[Sections 12 and 19 of the Finance Act]
Finance Act, 1990
Modification of the provisions relating to deduction in respect of certain
liabilities
20. Under the existing provisions
of section 43B of the Income-tax Act, apart from
certain other sums, a deduction in respect of any interest payable on any loan or
borrowing from any public financial institution is allowed only if the same has been
actually paid by the assessee before the due date of filing of the return. For this purpose,
the term ‘public financial institution’ has been assigned the same meaning as in section
4A of the Companies Act which at present does not cover State financial corporations
and State industrial investment corporations.
Finance Act, 1990
20.1 The scope of section 43B
has been enlarged to provide that any sum payable as
interest or any loan or borrowings from any State Financial Corporation or State
Industrial Investment Corporation shall also not be allowed as deduction if the same is
not actually paid before the due date of filing of return.
Finance Act, 1990
20.2 This amendment will take
effect from the 1st April, 1991 and will, accordingly,
apply in relation to the assessment year 1991-92 and subsequent years.
[Section 13 of the Finance Act]
Finance Act, 1990
Modification of special provisions for computing profits and gains from
the business
of trading in certain goods
21. Under the existing provisions
of section 44AC of the Income-tax Act, in the case of a
trader in alcoholic liquor for human consumption (other than Indian made foreign liquor),
forty per cent of the purchase price paid or payable is deemed to be his income. As a
result of different systems prevailing in different States, the term ‘purchase price’ is
being understood in different ways. Therefore, an Explanation
has been inserted in clause
(a) of sub-section (1)
of section 44AC to provide that purchase price shall mean all
amounts paid or payable to obtain country liquor, excluding the amount paid or payable
towards the bid money in an auction or the highest accepted offer in a tender or any other
mode.
Finance Act, 1990
21.1 At present, the provisions
of section 44AC apply where the goods of the specified
nature are sold by the Central Government, a State Government, any local authority, a
statutory corporation or authority, a company or a firm. The Explanation below
section
44AC has been amended to include co-operative societies within the meaning of the term
"seller" in section 44AC.
Finance Act, 1990
21.2 These amendments will take
effect from 1st April, 1991 and will, accordingly, apply
in relation to the assessment year 1991-92 and subsequent years.
[Section 14 of the Finance Act]
Finance Act, 1990
Modification of tax reliefs in respect of savings
22. Under the existing provisions
of section 80C of the Income-tax Act, tax incentive to
promote savings takes the form of deduction in respect of the whole or part of the funds
invested or deposited in life insurance policies, deferred annuity policies, provident
funds, superannuation funds, etc. The deduction is allowed at the rate of 100 per cent on
the savings of the first Rs. 6,000, at the rate of 50 per cent of the next Rs. 6,000 and at the
rate of 40 per cent on the balance. The maximum amount eligible for deduction is Rs.
40,000. In the case of authors, playwrights, artists, musicians, actors and sportsmen
(including athletes), the maximum amount eligible for the deduction is Rs. 60,000.
Finance Act, 1990
22.1 Under the existing scheme
of section 80C, a person gets tax relief at the highest
marginal rate of tax applicable to him. Accordingly, it confers higher amount of tax
benefits to a person with higher income vis-a-vis
a person with a lower income. The
scheme is, therefore, regressive and inequitable.
Finance Act, 1990
22.2 With a view to removing
this imbalance, section 80C of the Income-tax Act has
been replaced by a new provision in section 88. Under the new provision, an assessee
will be entitled to a deduction of twenty per cent of the amount invested or deposited in
the life insurance policies, provident funds, superannuation funds, etc., from the income-tax payable
by him on his total income. The maximum tax rebate allowable will be Rs.
10,000. In the case of authors, playwrights, artists, musicians, actors or sportsmen
(including athletes) the maximum tax rebate allowable will be Rs.14,000.
Finance Act, 1990
22.3 The payments eligible for
tax rebate under the new section 88 will be the same as
are at present eligible for deduction under section 80C of the Income-tax Act.
Finance Act, 1990
22.4 The surcharge, if any,
payable by an assessee shall be levied on the income-tax
payable by him after allowing the tax rebate under the aforesaid provisions.
Finance Act, 1990
22.5 The effect of the new provision
is illustrated as under :
|
|
Existing
|
New
|
|
|
Rs.
|
Rs.
|
|
Gross Total Income
|
70,000
|
70,000
|
|
Deduction under
section 80C (assuming savings of Rs. 14,500)
|
10,000
|
Nil
|
|
Total Income
|
60,000
|
70,000
|
|
Tax on total income
|
12,900*
|
15,600**
|
|
Tax rebate on savings
of Rs. 14,500
|
Nil
|
2,900
|
|
*As per the existing
rates.
|
|
|
|
**As per the new
rates.
|
|
|
| Tax
payable :
Rs.
|
|
|
|
Tax
|
12,900
|
|
|
|
Surcharge
|
1,032
|
|
|
|
|
13,932
|
13,932
|
12,700
|
Finance Act, 1990
22.6 These amendments will take
effect from 1st April, 1991 and will, accordingly, apply
in relation to the assessment year 1991-92 and subsequent years.
[Sections 2, 30 and 50 of the Finance Act]
Finance Act, 1990
Modification of the provisions of tax concession in respect of investments
in certain
shares, etc.
23. Under the existing provisions
of section 80CC of the Income-tax Act, a deduction of
an amount equal to fifty per cent is allowed in respect of investment in shares forming
part of an eligible issue of equity capital or units issued under any scheme of a Mutual
Fund or the Unit Trust of India, if the amount mobilised under the scheme is invested
only in the eligible issue of capital. The total amount of investment qualifying for
deduction under this section is restricted to Rs. 20,000 per year. The maximum amount of
deduction is, therefore, Rs. 10,000. In order to take the benefit of this deduction, a person
has to continue to hold the shares for a minimum period of three years.
Finance Act, 1990
23.1 The tax concession under
this provision is available only in respect of eligible public
issues made before 1st April, 1990.
Finance Act, 1990
23.2 The existing scheme of
section 80CC of the Income-tax Act is regressive and
inequitable as it gives higher tax concession to persons with higher income and a lower
tax concession to persons with lower income. With a view to rectifying this position,
section 80CC has been replaced by a new section 88A in the Income-tax Act to provide
for a tax rebate calculated at the rate of 20 per cent of the investment in the eligible issue
of capital or units. The maximum amount of investment eligible for tax rebate is Rs.
25,000.
The new provision also provides—
(
i) that the
funds so mobilised under the schemes of the Mutual Fund of the
Unit Trust of India must be invested in the eligible issue of capital within six months
from the close of subscription of the schemes. Further, pending investment under the
eligible issue of capital, the Mutual Fund or the Unit Trust of India will be allowed to
invest in such Government securities as may be approved by the Board, in this behalf;
(
ii) that the tax
concession under the new section 88A will not be available to
any scheme floated by any Mutual Fund or the Unit Trust of India, the subscription to
which closes after 30th September, 1990.
Finance Act, 1990
23.3 A new section 271BB has
been introduced to provide that if any Mutual Fund or the
Unit Trust of India referred to in sub-section (1) of section 88A, fails to invest any
amount of subscription to the units issued under any scheme referred to in the said sub-section in the
eligible issue of capital within a period of six months specified in that sub-section, the Deputy Commissioner
may levy a penalty of a sum equal to twenty per cent
of the amount not subscribed by the Mutual Fund or the Unit Trust of India in the eligible
issue of capital.
Finance Act, 1990
23.4 This scheme will lapse
after 31st March, 1991.
Finance Act, 1990
23.5 The newly inserted sections
88A and 271BB will come into force from the 1st day
of April, 1991 and will, accordingly, apply in relation to the assessment year 1991-92 and
subsequent years.
[Sections 30 and 43 of the Finance Act]
Finance Act, 1990
Modification of the provisions in respect of deposits under National
Savings Scheme
24. Under the existing provisions
of section 80CCA of the Income-tax Act, deduction is
allowed to an individual, a Hindu undivided family and certain categories of associations
of persons or bodies of individuals, in respect of deposits made under the National
Savings Scheme and payments made towards notified annuity plans of the Life Insurance
Corporation. The deduction is provided on the whole of amount so deposited or paid as
does not exceed Rs. 30,000 in a year (Rs. 20,000 for assessment year 1988-89).
Finance Act, 1990
24.1 With a view to provide
further incentives for savings, this section has been amended
to increase the maximum amount, which would qualify for deduction, to Rs. 40,000.
Finance Act, 1990
24.2 Further, under the existing
provisions of section 80CCA of the Income-tax Act,
where any amount standing to the credit of an assessee under the National Savings
Scheme in respect of which a deduction has been allowed together with the interest
accrued thereon is withdrawn, it is deemed to be income of the assessee in the year of the
withdrawal. Similarly, amount received on account of the surrender of a policy or as
annuity or bonus in accordance with the notified annuity plans of the Life Insurance
Corporation is also deemed to be income of the assessee in the year of the receipt. These
provisions do not take into account a situation where a Hindu undivided family effects a
partition or an association of persons is dissolved, after a deduction has been allowed to it
under this section.
Finance Act, 1990
24.3 With a view to ensuring
that such amount when withdrawn or received, is brought to
tax, a new sub-section (3) has been inserted in section 80CCA to provide that where a
Hindu undivided family has effected a partition or an association of persons is dissolved,
after a deduction has been allowed to it under this section, the amount withdrawn or
received, as the case may be, shall be deemed to be the income of the recipient and taxed
accordingly.
Finance Act, 1990
24.4 These amendments will take
effect from 1st April, 1991 and will, accordingly, apply
in relation to the assessment year 1991-92 and subsequent years.
[Section 16 of the Finance Act]
Finance Act, 1990
New provisions relating to Equity Linked Savings Scheme to encourage
investment
of savings in equities
25. A new section 80CCB has
been inserted in the Income-tax Act in respect of
deduction relating to investment made in accordance with the Equity Linked Savings
Scheme which will be notified by the Central Government.
Finance Act, 1990
25.1 Under the new provisions,
a deduction shall be allowed in the case of an assessee,
being an individual, a Hindu undivided family and certain categories of associations of
persons or bodies of individuals in relation to the investment made under any plan framed
in accordance with the Equity Linked Savings Scheme. The investment will be in the
units of Mutual Funds specified under clause (23D)
of section 10 or Unit Trust of India.
The deduction shall be allowed on so much of the amount invested as does not exceed ten
thousand rupees.
Finance Act, 1990
25.2 The new provision also
provides that when any amount in respect of which
deduction has been allowed, is returned to the assessee either by way of repurchase of the
units by the Fund or the Trust or on the termination of the plan, it shall be deemed to be
his income for the previous year in which the amount is returned. Further, where the
amount is so returned to a member of a Hindu undivided family or of an association of
persons after partition of the Hindu undivided family or the dissolution of association of
persons, the amount so received shall be deemed to be the income of the recipient.
Finance Act, 1990
25.3 A new sub-section (6) and
Explanation thereto has been inserted in section 45 to
provide that the difference between the repurchase price of the units and the amount
invested therein by the assessee shall be deemed to be the capital gains of the year in
which the units are repurchased or the scheme is terminated and taxed accordingly.
Finance Act, 1990
25.4 Further, a new section
194F has been inserted to provide for deduction of tax at
source at the time of payment of any amount on account of repurchase of units or
termination of the scheme. The tax will be deducted at the rate of 20 per cent.
Finance Act, 1990
25.5 These amendments will take
effect from 1st April, 1991 and will, accordingly, apply
in relation to the assessment year 1991-92.
[Sections 15, 17 and 40 of the Finance Act]
Finance Act, 1990
New provisions relating to deduction of expenditure incurred on handicapped
dependent relatives
26. A new section 80DD relating
to deduction in respect of expenditure incurred on
handicapped dependent relatives has been inserted in the Income-tax Act.
Finance Act, 1990
26.1 Under the new provision,
deduction of Rs. 6,000 shall be allowed in the case of
individuals and Hindu undivided families resident in India who incur expenditure on the
medical treatment (including nursing), training and rehabilitation of a person suffering
from a permanent physical disability (including blindness) or mental retardation. The
deduction will be available only to those assessees whose total income before this
deduction does not exceed rupees one lakh in a year. The deduction will be allowed if the
person suffering from permanent physical disability or mental retardation is a relative of
the individual or, in the case of a Hindu undivided family, he is a member of the joint
family and is in either case exclusively dependent on the assessee. Further, the permanent
physical disability or mental retardation of the dependent relative has to be clarified by a
physician, a surgeon, an oculist or a psychiatrist, as the case may be working in a
Government hospital. A Government hospital shall include a dispensary run by a
Department of the Government, or a hospital which has made arrangements with the
Government for treatment of Government servants.
Finance Act, 1990
26.2 The amendment will take
effect from 1st April, 1991 and will, accordingly, apply in
relation to the assessment year 1991-92 and subsequent years.
[Section 18 of the Finance Act]
Finance Act, 1990
Modification of provisions relating to exemption of income from exports
27. At present exporters are
given incentives by way of cash compensatory support
(CCS), drawback of duty and import entitlement licences. The taxation of CCS has been
a subject-matter of litigation. The Calcutta High Court in the case of Jeevanlal
(1929)
Ltd. v. CIT
[1983] 142 ITR 448 held that the CCS received by an exporter was a revenue
receipt and was subject to income-tax. The Special Bench of the Income-tax Appellate
Tribunal has however in a case, distinguished the aforesaid decision and came to the
conclusion that CCS was a capital receipt and hence not subject to tax. The Department’s
view all along has been that CCS or any other subsidy received by an exporter as an
export incentive is a revenue receipt and hence taxable.
Finance Act, 1990
27.1 Similarly, the Department’s
view as regards drawback of duty and profit on sale of
import entitlement licences has been that these are revenue receipts and hence liable to
tax. There are many Court decisions supporting this view.
Finance Act, 1990
27.2 To put an end to litigation
which may arise regarding the taxability of these
incentives received by exporters, new clauses (iiia),
(iiib) and (iiic
) have been inserted in
section 28 of the Income-tax Act to provide that profit on sale of import entitlement
licences, CCS and drawback of duty respectively shall be chargeable to income-tax under
the head "Profits and gains of business or profession". These have, further, been included
in the definition of term ‘income’ in clause (24)
of section 2.
Finance Act, 1990
27.3 These amendments will take
effect retrospectively from the dates from which these
incentives were introduced. Thus, amendment with regard to profit on sale of import
entitlement licences will apply from 1st April, 1962; cash assistance from 1st April, 1967
and drawback of duty from 1st April, 1972 and will, accordingly, apply in relation to the
assessment years 1962-63, 1967-68 and 1972-73, respectively, and subsequent years.
Finance Act, 1990
28. Under the existing provisions
of section 80HHC of the Income-tax Act, exporters are
allowed 100 per cent deduction in respect of the profits derived from export of goods or
merchandise. One of the conditions for allowing the deduction is that the sale proceeds
should be receivable in convertible foreign exchange. As a result, the deduction may be
allowed even if the foreign exchange is not brought into India. In the absence of such a
condition, one of the main purposes of allowing such concessions, namely, to augment
the foreign exchange earnings of the country, is being defeated. Therefore, section
80HHC has been amended to provide that for obtaining the deduction under this section,
the taxpayer will be required to bring into India, the sale proceeds of goods or
merchandise, in convertible foreign exchange, within a period of six months from the end
of the previous year or within such extended period as the Chief Commissioner or
Commissioner of Income-tax may allow on being satisfied that the taxpayer was
prevented from complying with this requirement for reasons beyond his control.
Finance Act, 1990
28.1 Likewise, under the existing
provisions of section 80HHD of the Income-tax Act,
persons engaged in the business of hotel or as a tour operator or travel agent is allowed a
deduction of 50 per cent of the profits derived from services provided to foreign tourists
and so much of the balance profits as is credited to a reserve account to be utilised for
specified purposes. This section applies only to services provided to foreign tourists the
receipts of which are received in convertible foreign exchange. In order to make the
condition in this regard identical to that in section 80HHC, section 80HHD has been
amended to provide that the deduction will be allowed to the extent the receipts in
relation to services provided to foreign tourists, are received in or brought into India in
convertible foreign exchange within a period of six months from the end of the previous
year or within such extended period as the Chief Commissioner or Commissioner of
Income-tax may allow on being satisfied that the assessee was prevented from complying
with this requirement for reasons beyond his control.
Finance Act, 1990
28.2 In view of the fact that
the exporters/hotels, etc., are being allowed a period of six
months from the end of the previous year for bringing foreign exchange into the country,
and the taxpayers under the existing provisions are required to file, along with the return,
a report from a Chartered Accountant in the prescribed form certifying, inter
alia, that the
deduction under this provision has been correctly claimed, section 139 has also been
amended to allow such taxpayers who were required to furnish their returns of income by
the 31st day of August to file their returns by the 31st day of October of the assessment
year.
Finance Act, 1990
28.3 Under the existing provisions
of section 80HHC, the benefit of deduction is also
allowed to supporting manufacturers who export goods or merchandise through
recognised Export Houses or Trading Houses. A person who processes goods or
merchandise and exports the same directly is eligible to claim the deduction under section
80HHC. However, if the processor of goods or merchandise sells his goods or
merchandise to an Export House or Trading House for the purposes of export, he is
presently denied the benefit of deduction. The benefit of deduction under section 80HHC
has now been extended to processors who sell their goods or merchandise to Export
Houses or Trading Houses for export purposes. The condition for obtaining the benefit is
the same as already applicable to supporting manufacturers, namely, that of obtaining a
disclaimer certificate from the Export House or Trading House.
Finance Act, 1990
28.4 By an amendment in clause
(a) of sub-section (2)
of section 80HHC, it has been
clarified that the requirement of receipt of sale proceeds in convertible foreign exchange
will not apply in the cases of supporting manufacturers who sell their goods or
merchandise to Export Houses or Trading Houses for exports.
Finance Act, 1990
28.5 The amendment mentioned
in paragraph 28.4 above will take effect retrospectively
from 1st April, 1989 will, accordingly, apply in relation to the assessment year 1989-90,
and subsequent years. For and from the assessment year 1991-92, it will apply in relation
to supporting processors as well.
Finance Act, 1990
28.6 The deduction under section
80HHC in the case of an exporter who makes domestic
sales also is computed in the following manner:
Export turnover
Profits of the
business × _____________________
Total turnvover
Finance Act, 1990
28.7 In view of the clarificatory
amendment in section 28, profits of the business shall
include the three export incentives, viz.,
CCS, duty drawback and sale of import
entitlement licences.
Finance Act, 1990
28.8 Whereas the term "export
turnover" is defined in section 80HHC, the term "total
turnover" had not been defined earlier. This has given rise to various interpretations
about the inclusion of the items like cash compensatory support, drawback of duty,
profits on sale of import entitlement licences, in the total turnover of the business carried
on by the exporter. Therefore, a new clause (bb)
has been inserted in the Explanation
to
section 80HHC in order to clarify that these items will not be included in the term "total
turnover". Further, the meaning of the term "export turnover" has been restricted to
mean
the FOB sale proceeds actually received by the assessee in convertible foreign exchange
within six months of the end of the previous year or within such further time as the Chief
Commissioner/Commissioner may allow in this regard.
Finance Act, 1990
28.9 These amendments [other
than the amendment in section 80HHC (2) (a)]
relating to
exclusion of supporting manufacturer from the requirement of bringing in convertible
foreign exchange, will take effect from 1st April, 1991 and will, accordingly, apply in
relation to the assessment year 1991-92 and subsequent years.
Finance Act, 1990
28.10 The application of section
80HHC read with section 28, as amended by the Finance
Act, can be illustrated by the following examples :—
|
|
Case I
|
Case II
|
Case III
|
Case IV
|
|
|
Exclusively
export business
|
2/3 export 1/3
domestic
sales
|
1/2 export 1/2
domestic
sales
|
1/3 export 2/3
domestic
sales
|
|
(i) Turnover
|
(Rs. in lakhs)
|
|
|
|
|
(a) FOB export
|
100
|
100
|
100
|
100
|
|
(b) Domestic sales
|
Nil
|
50
|
100
|
200
|
|
(c) Total turnover
[(ia) +
(ib)]
|
100
|
150
|
200
|
300
|
|
(ii) Business profits
before incentives
(assumed figure)
|
10
|
15
|
20
|
30
|
|
(iii) CCS, DBK,
I/L
|
10
|
10
|
10
|
10
|
|
(iv) Total profits
of the
business [(ii) + (iii)]
|
20
|
25
|
30
|
40
|
|
(v) Deduction u/s
80HHC
if entire export proceeds,
i.e., Rs. 100 lakhs are
brought into India within
the stipulated period [(iv)
× (ia)/(ic)]
|
20.00
|
25
X 100/150
= 16.67
|
30
X 100/200
=15.00
|
40
X 100/300
=13.33
|
|
(vi) Deduction
u/s.
80HHC if only 50 per
cent of the export
proceeds i.e., Rs. 50 lakhs
are brought into India
[(iv) × 50% (ia)/(ic)]
|
20
X 50/100
=10
|
25
X 50/150
=8.33
|
30
X 50/200
=7.50
|
40
X 50/300
=6.67
|
[Sections 3,6,22 and 23 of the Finance Act]
Finance Act, 1990
Extension of concession to new industrial undertakings with enhanced
rate of
deduction
29. Under the existing provisions
of section 80-I of the Income-tax Act, a deduction is
allowed in respect of profits and gains derived from new industrial undertakings
manufacturing or producing any article or thing other than the non-priority items listed in
the Eleventh Schedule or operating cold storages. Similar deduction is also allowed in
respect of the profits and gains derived from operation of a new ship by an Indian
company or the business of a hotel carried on by an Indian company.
Finance Act, 1990
29.1 The deduction is allowed
at the rate of twenty-five per cent in the case of a company
and twenty per cent in other cases.
Finance Act, 1990
29.2 The period for which such
deduction is allowed in 10 assessment years, in the case
of a co-operative society and 8 assessment years in other cases beginning with the
assessment year relevant to the year in which the industrial undertaking begins to
manufacture or produce articles or things or to operate cold storage plant or plants or the
ship is first brought into use or the business of hotel starts functioning. It is also provided
that the event enabling the grant of this tax concession, viz, commencement
of
manufacture or production or bringing the ship into use, etc., should have occurred before
April 1, 1990.
Finance Act, 1990
29.3 In view of the need to
promote industrial growth by encouraging setting up of new
industrial undertakings, etc., the tax concession under section 80-I has been extended for
a further period of five years. Accordingly, an industrial undertaking which begins to
manufacture or produces articles or things or brings into use a ship or carry on the
business of a hotel which starts functioning, after 31st March, 1990 but before 1st April,
1995 will also be eligible for tax concession under section 80-I. The rate of deduction in
such cases has also been enhanced to thirty per cent in the case of companies and twenty-five per cent
in other cases.
Finance Act, 1990
29.4 The period for which the
tax concession under section 80-I will be available in these
cases has also been increased as under:—
(
a) in the case of
a co-operative society, twelve assessment years;
(
b) in any other
case, ten assessment years.
Finance Act, 1990
29.5 This amendment will take
effect from the 1st April, 1990.
[Section 24 of the Finance Act]
Finance Act, 1990
Deletion of the definition of the term "security"
30. Under the existing provisions
of section 2(42C) of
the IT Act, "security" means a
Government security as defined in clause (2)
of section 2 of the Public Debt Act, 1944.
Finance Act, 1990
30.1 The insertion of the definition
of the term "security" in section 2 dealing with
definitions having general application for the purposes of the Act had created anomalies
resulting in problems of implementation. Therefore, clause (42C)
of section 2 of the IT
Act has now been omitted.
Finance Act, 1990
30.2 Further, section 80L of
the IT Act has also been amended to provide that the term
"security" appearing therein shall mean a Government security as defined in clause (2
) of
section 2 of the Public Debt Act, 1944. The same definition of the term "security" has
been incorporated in the new section 88 of the Income-tax Act inserted through this
Finance Act. This will clarify the nature of the securities referred to in the aforesaid two
sections and ensure that the interest on National Savings Certificates VIII Issue does not
qualify for benefit under section 80L as specified in the scheme framed for this issue.
Finance Act, 1990
30.3 These amendments will take
effect from the 1st April, 1990 and will, accordingly,
apply in relation to the assessment year 1990-91 and subsequent years.
[Sections 3, 25 and 30 of the Finance Act]
Finance Act, 1990
Modification of the provisions relating to intercorporate dividends
31. Under the existing provisions
of section 80M of the Income-tax Act, a domestic
company is allowed deduction of an amount equal to sixty per cent of the dividend
received from another domestic company. There is no statutory obligation on the
recipient domestic company to declare dividends out of the dividends received.
Finance Act, 1990
31.1 In order to ensure that
dividend income is taxed only where it finally rests, a new
section 80M has been substituted for the existing section. Henceforth, the existing
deduction of sixty per cent without any further condition as regards distribution as
dividend would be applicable only to a scheduled bank, a public financial institution, a
State financial corporation, a State industrial investment corporation or a company
registered u/s 25 of the Companies Act, 1956 (a company set up for charitable and other
useful purposes, which does not pay dividend to its members). In respect of any other
domestic company, the deduction shall be limited to the amount of dividend received as
does not exceed the amount of dividend distributed. Accordingly, if a domestic company
receives any dividend income, but fails to declare any dividend, the domestic company
will now be liable to pay tax on the whole of the dividend income received. If, on the
other hand, the whole amount of dividend received is distributed as dividend, no tax will
be payable on the dividend income by the receiving company.
Finance Act, 1990
31.2 This amendment will take
effect from the 1st April, 1991 and will accordingly apply
in relation to the assessment year 1991-92 and subsequent years.
[Section 26 of the Finance Act]
Finance Act, 1990
Modification of the provisions relating to deductions in respect of
foreign incomes of
professors, teachers, artists, technicians, etc.
32. Under the existing provisions
of section 80R, a deduction equal to fifty per cent of the
remuneration received is allowed in computing the total income in the cases of Indian
professors, teachers or research workers who work in a foreign university or other
educational institutions abroad. Similarly, a deduction under section 80RR equal to
twenty-five per cent of the income received in, or brought into India in foreign exchange
is allowed to a resident individual being an author, playwright, artist, musician, actor or
sportsman (including an athlete) who derives income in exercise of his profession from
foreign sources. In order to provide a further incentive for bringing foreign exchange into
India by these categories of taxpayers, the benefit of deduction in sections 80R and 80RR
has now been enhanced. The new deduction will be:—
(
i) Fifty per
cent of such income received by the taxpayers; or
(
ii) Seventy-five
per cent of such income as is brought into India, by or on
behalf of the taxpayer in accordance with the Foreign Exchange Regulations Act, 1973
and any rules made thereunder :
whichever
is higher.
Finance Act, 1990
32.1 Under the existing provisions
of sections 80R and 80RRA (relating to deduction in
respect of remuneration received for services rendered outside India under approved
agreements), the deduction is allowed for a maximum continuous period of thirty-six
months. With the deletion of the test for determining residential status on the basis of
maintenance of dwelling house in India, a person leaving India for employment abroad
and serving there continuously for more than thirty-six months becomes a non-resident
and hence is not subject to Indian income-tax in respect of the foreign income. The
limitation of thirty-six months in sections 80R and 80RRA has, therefore, lost its
significance and has, therefore, been deleted.
Finance Act, 1990
32.2 These amendments will take
effect from 1st April, 1991 and will, accordingly, apply
in relation to the assessment year 1991-92 and subsequent years.
[Sections 27, 28 and 29 of the Finance Act]
Finance Act, 1990
Modification of special provisions relating to certain incomes of non-resident
Indians.
33. In the case of non-resident
Indians, investment income from "specified assets" and
long-term capital gains is charged to tax at a flat rate of 20 per cent under Chapter XIIA
of the Income-tax Act (sections 115C to 115-I). The existing provisions of section 115-I
provide that a non-resident Indian may opt not to be governed by the provisions of
Chapter XII-A for any assessment year by furnishing his return of income together with a
declaration in writing to the effect that the provisions of that Chapter shall not apply to
him for the assessment year. However, many times, due to ignorance, the NRIs fail to file
the aforesaid declaration along with their return filed on the basis that provisions of
Chapter XIIA were not to apply.
Finance Act, 1990
33.1 Since the return form contains
a column seeking information from NRIs whether
any part of his income is to be taxed in accordance with the provisions of Chapter XIIA
of the Income-tax Act, the requirement of filing a separate declaration in writing by NRIs
does not serve any useful purpose. The requirement of filing a declaration in writing
along with the return has, therefore, been deleted.
Finance Act, 1990
33.2 This amendment will take
effect from 1st April, 1990 and will, accordingly, apply in
relation to the assessment year 1990-91 and subsequent years.
[Section 31 of the Finance Act]
Finance Act, 1990
Amendment of the provisions which empower the Board to relax the effect
of
provisions of certain sections
34. Under the existing provisions
of clause (a) of sub-section
(2) of section 119 of the
Income-tax Act, the Board is empowered to relax, by issue of general or special orders,
the provisions of certain sections of the Act, relating to assessment and collection of
revenue in respect of any class of incomes or class of cases. The provisions of section
139 relating to filing of return of income, section 234A relating to the charging of
mandatory interest for defaults in furnishing return of income and section 234B relating
to charge of mandatory interest for defaults in payment of advance tax, may sometimes
need relaxation. At present it is not possible for the Board to relax these provisions.
Finance Act, 1990
34.1 Therefore, a reference
to sections 139, 234A and 234B has been incorporated in
clause (a) of sub-section
(2) of section 119 so that the Board is empowered to relax the
provisions of these sections applicable to any class of income or class of cases.
Finance Act, 1990
34.2 Similar amendments have
been made in the corresponding provisions in section
10(2) (a) of the Wealth-tax
Act and section 9(2)(a)
of the Gift-tax Act.
Finance Act, 1990
34.3 These amendments will take
effect from 1st April, 1990.
[Sections 33, 53 and 59 of the Finance Act]
Finance Act, 1990
Allowing the firms to file their returns even if their income is below
the taxable limit
35. Under the existing provisions
of sub-section (10) of section 139 of the Income-tax
Act, a return of income which shows the total income below the taxable limit is deemed
never to have been furnished. A proviso to this section contains certain exceptions to this
rule. One of the exceptions mentioned in clause (b)
of the proviso is in respect of a
partner of a firm. Thus, return of a partner of a firm can be filed even if the income
shown is below the taxable limit. A similar exception is also necessary in the case of a
firm, because the share declared by the partner in a firm which has income below the
taxable limit, will remain undetermined unless such a firm is also allowed to file its return
of income.
Finance Act, 1990
35.1 Clause (b
) of the proviso to sub-section (10) of section 139 has, therefore, been
amended to make an exception, not only in the case of a partner of a firm, but also in the
case of a firm, so that a firm as well as the partner can file their returns of income even if
their income is below the taxable limit.
Finance Act, 1990
35.2 This amendment will take
effect from 1st April, 1990.
[Section 34 of the Finance Act]
Finance Act, 1990
Religious and charitable trusts and others, who are required to furnish
return of
income under section 139(4A), also to apply for allotment of permanent account
number
36. Under the existing provisions
of section 139A of the Income-tax Act, a person is
required to apply for the allotment of a permanent account number only if his income
exceeds the maximum amount not chargeable to tax or he is carrying on a business whose
sales or gross receipts exceed Rs. 50,000. This leaves out certain categories of persons,
like religious and charitable trusts and others who are required to file their return of
income under the provisions of sub-section (5A) of section 139 even when their income
is not taxable by virtue of exemption provided in section 11. Such persons, although
under an obligation to file the return, are neither under an obligation to apply for the
allotment of a permanent account number, nor can the Assessing Officer himself allot a
permanent account number to them because no tax is payable by them.
Finance Act, 1990
36.1 Sub-section (2) of section
139A has, therefore, been amended to make it obligatory
for all persons who are required to furnish their returns of income under the provisions of
section 139(4A), to apply for the allotment of a permanent account number.
Finance Act, 1990
36.2 This amendment will take
effect from 1st April, 1990.
[Section 35 of the Finance Act]
Finance Act, 1990
Conferring power on Assessing Officers to call for return before the
end of an
assessment year
37. Under the existing provisions
of clause (i) of sub-section
(1) of section 142, the
Assessing Officer can require any person to furnish a return of his income only after the
end of the relevant assessment year. This has given rise to problems because, if the
taxpayers do not file their returns of income in time, the Department has no power to
enforce compliance till the relevant assessment year is over.
Finance Act, 1990
37.1 To solve this practical
difficulty, clause (i)
of sub-section (1) of section 142 has
been amended so that if a person fails to furnish return of income by the due date
mentioned in section 139 (1), a notice calling for the return can be sent to him within the
relevant assessment year itself.
Finance Act, 1990
37.2 Similar amendments have
been made in the corresponding provisions of section
16(4) of the Wealth-tax Act and section 15(4) of the Gift-tax Act.
Finance Act, 1990
37.3 These amendments will take
effect from the 1st April, 1990.
[Sections 36, 54 and 60 of the Finance Act]
Finance Act, 1990
Processing of revised returns under the new procedure for assessment
38. Under the provisions of
sub-section (1) of section 143 of the Income-tax Act, a return
of income is processed for recovery of any tax or interest due from the assessee or for the
issue of any refund due to him on the basis of the return, without making an assessment.
If a revised return under section 139(5) is filed by the assessee after action under sub-section (1)
of section 143 has been completed on the basis of the earlier return, there is no
provision in section 143 for the revision of the intimation already sent to the assessee.
Finance Act, 1990
38.1 A situation may arise where
income declared in the earlier return has been increased
as a result of prima facie
adjustments made under the first proviso to clause (a)
of sub-section (1) and additional income-tax has been charged under sub-section (1A), but the
assessee revises his return declaring therein the increased income (after making the
adjustment already intimated to him on the basis of the earlier return) and claims that no
additional income-tax is chargeable from him on the basis of the revised return.
Finance Act, 1990
38.2 To cover the situation
as pointed out above, a new sub-section (1B) has been
inserted in section 143 to provide that the intimation already sent can be amended on the
basis of the revised return and the amount of income-tax, additional income-tax or the
interest can be enhanced or reduced as a result of such amendment. Similarly the amount
of refund already granted can also be enhanced or reduced on the basis of the said revised
return. It has, however, been provided that an assessee, who has furnished a revised
return after the service upon him of the intimation under sub-section (1) on the basis of
the earlier return, shall still be liable to pay additional income-tax in relation to the
adjustments specified in the said intimation, irrespective of the fact that he has himself
made the said adjustment while declaring his income or loss in the revised return.
Finance Act, 1990
38.3 Similar amendments have
been made in the corresponding provisions of section 16
of the Wealth-tax Act and section 15 of the Gift-tax Act.
Finance Act, 1990
38.4 These amendments will take
effect retrospectively from 1st April, 1989 and will,
accordingly, apply in relation to the assessment year 1989-90 and subsequent years.
[Sections 37, 54 and 60 of the Finance Act]
Finance Act, 1990
Clarificatory amendment of the definition of "regular assessment"
39. The existing provision in
clause (40) of section
2 of the Income-tax Act defines the
expression "regular assessment" to mean the assessment made under section 143 or
section 144. Prior to 1-4-1989, an assessment could be made under sub-section (1) as
well as sub-section (3) of section 143. However, the new section substituted by the Direct
Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989, provides for making of an
assessment only under sub-section (3), while under sub-section (1) the return is processed
for recovery of any tax or interest due from the assessee or for the issue of any refund due
to him without making an assessment. Since the definition of regular assessment in
section 2(40) refers
to the whole of section 143, without referring to the relevant sub-section it may raise a controversy
whether even the processing of a return under sub-section (1) of the new section 143, is included in
"regular assessment."
Finance Act, 1990
39.1 Therefore, clause (
40) of section 2 has been amended to clarify that regular
assessment would mean only an assessment made under sub-section (3) of section 143 or
section 144.
Finance Act, 1990
39.2 Similar amendment has been
made in the corresponding provisions of section 2(cb)
of the Wealth-tax Act.
Finance Act, 1990
39.3 These amendments will take
effect retrospectively from 1-4-1989.
[Sections 3 and 51 of the Finance Act]
Finance Act, 1990
Removal of anomaly in taxing interest on securities
40. Before deletion of the head
"Interest on securities" by the Finance Act, 1988 with
effect from 1st April, 1989, the interest chargeable under this head used to be taxed on
due basis. With the deletion of the provisions relating to this head of income, such
income is now taxed either under the head "Profits and gains of business or profession"
or under the head "Income from other sources", and is to be computed in accordance with
the method of accounting regularly employed by the assessee. However, in a case where
the assessee follows the mercantile method of accounting, a situation has arisen where
the interest on securities which had accrued but had not become due during the
assessment year 1988-89, could not be charged to tax in assessment year 1989-90, either
on due basis of taxation or on the basis of accrual method of accounting. Therefore, in
order to remove such an anomalous situation, a new proviso has been inserted after the
second proviso in sub-section (1) of section 145 to provide that no assessee shall be
precluded from being charged to income-tax in respect of any interest on securities
received by him in a previous year, if such interest had not been charged to income-tax
for any earlier previous year.
Finance Act, 1990
40.1 This amendment will take
effect retrospectively from 1st April, 1989 and will,
accordingly, apply in relation to the assessment year 1989-90 and subsequent years.
[Section 38 of the Finance Act]
Finance Act, 1990
Conferring power to an Income-tax Officer to reopen a completed assessment
with
the approval of the Deputy Commissioner
41. Under the existing provisions
of sub-section (1) of section 151 of the Income-tax Act,
only an Assistant Commissioner or a Deputy Commissioner can issue a notice under
section 148 to reopen an assessment, which has already been completed under section
143(3) or section 147, if he finds that any income has escaped assessment. An Income-tax
Officer cannot reopen a completed assessment. Whenever an assessment has to be
reopened by an Income-tax Officer, the case has to be assigned and transferred either to
an Assistant Commissioner or a Deputy Commissioner.
Finance Act, 1990
41.1 With a view to removing
this practical difficulty, sub-section (1) of section 151 has
been amended to provide that an Income-tax Officer can reopen a case, with the approval
of the Deputy Commissioner, where an assessment has been completed under section
143(3) or section 147, if he finds that any income has escaped assessment.
Finance Act, 1990
41.2 Similar amendments have
been made in the corresponding provisions of section 17
of the Wealth-tax Act and section 16 of the Gift-tax Act.
Finance Act, 1990
41.3 These amendments will take
effect from the 1st April, 1990.
[Sections 39, 55 and 61 of the Finance Act]
Finance Act, 1990
Removal of anomaly in section 268 of the Income-tax Act
42. Under the existing provisions
of section 268, if an assessee is not furnished with a
copy of the order, then, in computing the period of limitation for filing an appeal, the
time required for obtaining a copy of such order is to be excluded. This provision needs
to be applied also in deciding the limitation period for making a reference application
under section 256 of the Act. Therefore, an amendment has been made in section 268 to
provide that the time required for obtaining copy of the order complained would be
excluded in computing the period of limitation for filing reference application under
section 256 as well,.
Finance Act, 1990
42.1 This amendment will take
effect from the 1st April, 1990.
[Section 42 of the Finance Act]
Finance Act, 1990
Penalties for certain defaults to be levied by a Deputy Commissioner
43. Sections 271C, 271D and
271E, which were inserted in the Income-tax Act, with
effect from 1-4-1989 by the Direct Tax Laws (Amendment) Act, 1987 provide for the
levy of penalties for certain defaults. Penalty under section 271C is levied for failure to
deduct tax at source. Penalty under section 271D may be levied for failure to comply
with the provisions of section 269SS, i.e.,
for taking or accepting any loan or deposit in
excess of Rs. 20,000 otherwise than by an account payee cheque or bank draft. Penalty
under section 271E may be levied for failure to comply with the provisions of section
269T relating to repayment by a company, including a banking company, a co-operative
society or a firm, of deposits, including interest, exceeding Rs. 10,000 in the aggregate
otherwise than by an account payee cheque or bank draft.
Finance Act, 1990
43.1 The income-tax authority,
which can levy these penalties, is not mentioned in any of
these sections. In order to ensure that these penalties are imposed by senior officers only,
a new sub-section (2) has been inserted in each of the said sections 271C, 271D and 271E
to provide that penalty under each of these sections shall be imposed by the Deputy
Commissioner.
Finance Act, 1990
43.2 A consequential amendment
has been made in section 246 of the Income-tax Act
relating to filing of appeals before the Deputy Commissioner (Appeals) or Commissioner
(Appeals), so that appeals against orders imposing penalties under the said sections 271C,
271D and 271E shall now be filed before the Commissioner (Appeals) only.
Finance Act, 1990
43.3 These amendments will take
effect from the 1st April, 1990.
[Sections 41, 44, 45 and 46 of the Finance Act]
Finance Act, 1990
Punishment for contravention of prohibitory order served for effecting
seizure
44. Under the existing provision
of section 132(3) of the Income-tax Act, the authorised
officer may, where it is not practicable to seize any documents, money, bullion,
jewellery, etc., make an order prohibiting the persons in immediate possession or control
of such documents, money, bullion, jewellery, etc. from removing or parting with or
otherwise dealing with such documents, money, bullion, jewellery, etc. Any infringement
of such prohibitory order is punishable under section 275A with rigorous imprisonment
up to two years and fine.
Finance Act, 1990
44.1 The Finance Act, 1988 inserted
a second proviso to sub-section (1) of section 132,
which empowers the authorised officer to make a constructive seizure, by a similar
prohibitory order, in circumstances where, on account of the physical characteristics,
volume or weight of the articles to be seized, it is not possible to take physical possession
and remove them to a safe place. The contravention of such a prohibitory order has not
been made punishable.
Finance Act, 1990
44.2 Accordingly, section 275A
has been amended to provide for punishment also for
contravention of an order made by the authorised officer under the second proviso to sub-section (1)
of section 132.
Finance Act, 1990
44.3 Further, section 37A of
the Wealth-tax Act contains provision for issue of
prohibitory orders similar to those mentioned above. However, there are no provisions in
the Wealth-tax Act corresponding to section 275A of the Income-tax Act. To remedy this
situation and ensure effective compliance, a new section 35EEE has been inserted in the
Wealth-tax Act, which contained provisions similar to those of section 275A of the
Income-tax Act discussed earlier.
Finance Act, 1990
44.4 These amendments will take
effect from the 1st April, 1990.
[Sections 47 and 56 of the Finance Act]
Finance Act, 1990
Omission of Chapter XXII-B of the Income-tax Act relating to tax credit
certificates.
45. Chapter XXII-B of the Income-tax
Act contains provisions relating to tax credit
certificates. This was introduced with effect from 1st April, 1965 with various objects,
viz., providing an incentive
to individuals and Hindu undivided families for investing in
newly-floated equity shares of certain companies (section 280Z), facilitating the shifting
of industrial undertakings of public companies from urban areas to new areas with a view
to relieving congestion in urban areas (section 280ZA), providing resources for purposes
relevant to the expansion of industry to companies engaged in important industries and
earning profits higher than in a "base year" (section 280ZB), stimulating export (section
280ZC) and encouraging the production of certain goods liable to Central excise duty
(section 280ZD). The provisions dealing with tax credit certificates for shifting of
industrial undertakings from urban areas to new areas have already been omitted with
effect from 1-4-1988. Sections 280ZB and 280ZD read with the schemes made
thereunder prescribed a time limit till 31-3-1973 for utilisation of the tax credit
certificates. Thus, the provisions contained in Chapter XXII-B have become virtually
redundant. Therefore, as a measure of rationalisation, the Chapter containing these
provisions has been omitted with effect from the 1st day of April, 1990.
Finance Act, 1990
45.1 The tax credit certificates
granted under section 280Z or section 280ZC and not
presented so far for payment or adjustment of tax liability can, however, be presented
before the Assessing Officer up to 31st day of March, 1991 for the said purposes.
[Section 48 of the Finance Act]
Finance Act, 1990
Amendment of section 288 of the Income-tax Act
46. Prior to the amendments
carried out by Direct Tax Laws (Amendment) Acts, 1987
and 1989 a person was disqualified from representing an assessee before the tax
authorities in case a penalty for concealment had been levied on him. This provision has
lost its effect with the various amendments made in section 271 by the Direct Tax Laws
(Amendment) Acts, 1987 and 1989. To remove this anomaly, section 288 has been
amended to provide that a person will be disqualified to represent an assessee as an
authorised representative in case a penalty for concealment has been imposed on him.
Finance Act, 1990
46.1 This amendment will take
effect from the 1st April, 1990.
[Section 49 of the Finance Act]