INCOME-TAX ACT
FINANCE ACT, 1994
Creation of a new class of income-tax authorities
15. At present, the classes of income-tax authorities specified in Chapter XIII of the Income-tax Act include the class of Deputy Directors of Income-tax, Deputy Commissioners of Income-tax and Deputy Commissioners of Income-tax (Appeals). The income-tax authorities referred to in this class, perform different kinds of functions, such as,—
(i) supervising the work of Assistant Commissioners/Income-tax Officers,
(ii) doing assessment functions,
(iii) handling internal audit of the completed assessments,
(iv) disposal of appeals,
(v) representing departmental cases in the Appellate Tribunal,
(vi) handling search and seizure matters, etc.
The above shows that some of the Deputy Commissioners and Deputy Directors have been assigned duties of higher responsibility. Therefore, there is need to recognise the aforesaid distinction in responsibility by making an appropriate change in the designation of such authorities.
FINANCE ACT, 1994
15.2 The Finance Act has, therefore, amended the relevant provisions of the Income-tax Act in order to create a new class of income-tax authorities, namely, Additional Directors of Income-tax, Additional Commissioners of Income-tax and Additional Commissioners of Income-tax (Appeals). Similar changes have been made to the Wealth-tax Act, the Gift-tax Act, the Interest-tax Act and the Expenditure-tax Act.
FINANCE ACT, 1994
15.3 These amendments take effect from 1st June, 1994.
[Sections 3, 35, 51, 54, 56, 58 and 59]
FINANCE ACT, 1994
Period of holding in the case of securities and units of Mutual Funds
16. Long-term capital assets enjoy certain tax concessions vis-a-vis short-term capital assets. The Income-tax Act defines long-term capital assets as those assets which are not short-term. Short-term capital assets are those capital assets which are held for a period of up to 36 months. However, the Finance Act, 1987, through an amendment to the provisions of section 2(42A), reduced the maximum period of holding in respect of company shares from 36 months to 12 months for being treated as short-term capital assets.
FINANCE ACT, 1994
16.2 There are many financial instruments, other than company shares, through which the investors are entering the capital market. The units of the Unit Trust of India and Mutual Funds specified under section 10(23D) of the Income-tax Act are the instruments through which the small investors are increasingly getting the benefit of investment in the capital market. In order to provide such units and all the securities traded in the recognised stock exchanges a level playing field with company shares, the Finance Act has amended the provisions of section 2(42A) so that the maximum holding period for which such instruments are to be considered as short-term will be 12 months in place of 36 months. In other words, such assets are to be considered long-term capital assets if they are held for more than 12 months. The expression "securities" will have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956.
FINANCE ACT, 1994
16.3 This amendment takes effect from 1st April, 1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 3]
FINANCE ACT, 1994
Rationalisation of capital gain arising from transfer of rights shares and rights renouncements
17. The Income-tax Act prescribes broad provisions on computation of income under the head "Capital gains". Specific methods of computing the cost of the asset have been provided only in respect of certain types of assets. However, there is no specific provision dealing with determination of the cost of financial instruments such as rights shares, rights entitlement, etc. In the absence of any such provisions, courts have laid down certain methods for determining the cost which are not strictly in accordance with commercial principles.
FINANCE ACT, 1994
17.2 For the purpose of avoiding complicated calculations, the Finance Act has introduced a simple and unambiguous set of provisions for computation of the cost of acquisition of financial assets including shares, where there is an entitlement to subscribe to additional financial assets on rights basis. It has been provided that the cost of rights entitlement in the hands of the original shareholder is to be deemed as nil. Of course, the cost of the rights share acquired by the original shareholder is the price actually paid by him to the company for acquiring the rights share. But where the rights renouncee acquires the rights share, the cost of the rights share is equal to the cost incurred by him for purchasing the rights entitlement plus the price paid by him to the company for acquiring the rights share. The amount realised by the original shareholder by selling his rights entitlement will be short-term capital gains in his hands (as the cost is taken as nil ). The period of holding of the rights entitlement is to be reckoned from the date of offer made by the company to the date of renouncement.
FINANCE ACT, 1994
17.3 These amendments will enable the taxpayers to compute the tax liability easily and prevent proliferation of litigation.
FINANCE ACT, 1994
17.4 The aforesaid amendments take effect from 1st April, 1995, and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Sections 3 & 18]
FINANCE ACT, 1994
Special provisions for persons governed by Portuguese Civil Law
18. A large number of persons residing in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu are governed by the Portuguese Civil Code of 1860. According to this Law, when a person gets married, the property of the spouses gets blended and each spouse becomes a 50 per cent shareholder in the combined property. Similarly, each spouse is legally entitled to 50 per cent of income of the other spouse. Such a system referred to as community of property (in Portuguese language "COMMUNIAO DOS BENS") had been posing problems in the assessment of income as there were doubts whether the income was to be assessed in the hands of the community of property or in the hands of husband and wife separately.
FINANCE ACT, 1994
18.2 The Income-tax Department was following the decision of the Bombay High Court rendered in the case of Additional Commissioner of Income-tax v. Mr. and Mrs. Velentino F. Pinto [1984] 150 ITR 408, in which it had been held that income under the heads "Income from house property", "Profits and gains of business or profession" and "Income from other sources" should be allocated in the ratio of 50 : 50 and taxed separately in the hands of each spouse and no separate assessments should be made in the hands of the community of property. In a recent decision in the case of Commissioner of Income-tax v. Modu Timblo, decided on 23-4-1993, the Bombay High Court has held that income under the head "Profits and gains of business or profession" earned by the husband and wife should be combined and the combined income should be assessed in the hands of the single entity of community of property, in the status of association of persons or body of individuals. The decision not only poses considerable administrative problems for the Income-tax Department but also is very harsh to the assessees inasmuch as the combined assessment deprives them of two separate exemption limits as also of other incentives and deductions which otherwise would have been allowable to each spouse, if they were to be assessed separately as individuals.
FINANCE ACT, 1994
18.3 The Finance Act, therefore, has incorporated in the Income-tax Act the principle which has all along been accepted for the determination of the income of persons residing in the State of Goa and the Union Territories of Dadra and Nagar Haveli and Daman and Diu and governed by the Portuguese Civil Code of 1860. A new section 5A has been inserted in the Income-tax Act so as to set at rest the controversy. Section 5A provides that income from all sources, except from salary, should be apportioned equally between the husband and wife and such income shall not be assessed as income of the community of property (whether treated as an association of persons or as a body of individuals). Even the income from profession will be apportioned equally between the husband and the wife. The income so apportioned will be included separately in the total income of the husband and of the wife and the remaining provisions of the Income-tax Act shall apply accordingly. Salary income will, however, continue to be assessed in the hands of the spouse who has actually earned it. References to the association of persons consisting of the husband and the wife governed by the system of community of property in force in Goa and other places in the provisions of the Income-tax Act have been deleted so that the husband and the wife can claim deduction under the provisions of Chapter VI-A and rebate under Chapter VIII separately.
FINANCE ACT, 1994
18.4 These amendments take effect, retrospectively, with effect from 1-4-1963 and will, accordingly, apply in relation to assessment year 1963-64 and subsequent years.
[Sections 4 and 50]
FINANCE ACT, 1994
Extending the period of stay in India in the case of non-resident Indians without their losing the non-resident status
19. Under the provisions of clause (1) of section 6 of the Income-tax Act, an individual is said to be resident in India in any previous year, if he has been in India during that year,—
(i) for a period or periods amounting to one hundred and eighty-two days or more, or
(ii) for a period or periods amounting to sixty days or more and has also been in India within the preceding four years for a period or periods amounting to three hundred and sixty-five days or more.
However, the period of sixty days was increased to one hundred and fifty days in the case of a non-resident Indian, i.e., a citizen of India or a person of Indian origin within the meaning of the Explanation to clause (e) of section 115C of the Act, who, being outside India, comes on a visit to India. The said Explanation provides that a person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand parents, was born in undivided India.
FINANCE ACT, 1994
19.2 Suggestions had been received to the effect that the aforesaid period of one hundred and fifty days should be increased to one hundred and eighty-two days. This is because the non-resident Indians who have made investments in India, find it necessary to visit India frequently and stay here for the proper supervision and control of their investments. The Finance Act, therefore, has amended clause (b) of the Explanation to section 6(1)(c) of the Income-tax Act, in order to extend the period of stay in India in the case of the aforesaid individuals from one hundred and fifty days to one hundred and eighty-two days, for being treated as resident in India, in the previous year in which they visit India. Thus, such non-resident Indians would not lose their ‘non-resident’ status if their stay in India, during their visits, is up to one hundred and eighty-one days in a previous year.
FINANCE ACT, 1994
19.3 This amendment takes effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years, i.e., each previous year commencing on or after 1-4-1994.
[Section 5]
FINANCE ACT, 1994
Extending the tax exemption on payments under voluntary retirement schemes to employees of co-operative societies, universities, etc.
20. Under the existing provisions of section 10(10C) of the Income-tax Act, any amount received by an employee of a company or a statutory authority or a local authority at the time of his voluntary retirement, in accordance with the scheme of voluntary retirement, is exempt from income-tax up to five lakh rupees. Such a scheme has to be in accordance with the guidelines prescribed by the Central Board of Direct Taxes in this behalf. In the case of the schemes of companies other than public sector companies, it is also necessary that these are approved by the concerned Chief Commissioner or Director-General in this behalf.
FINANCE ACT, 1994
20.2 Representations had been received to the effect that the benefit of income-tax exemption under section 10(10C) should be extended to employees of co-operative societies also. Suggestions had also been received that the employees of Universities, Indian Institutes of Technology and Indian Institutes of Management, should also be covered under the provisions of section 10(10C). This would help them to rationalize their staff structure and reduce costs on salaries.
FINANCE ACT, 1994
20.3 The Finance Act has, therefore, extended the scope of the income-tax exemption under section 10(10C) to the employees of co-operative societies, Universities, Indian Institutes of Technology and such institutes of management as may be specified by the Central Government for the purposes of that section. It has further been provided that the schemes of cooperative societies governing the payment of amounts on voluntary retirement, are to be approved by the concerned Chief Commissioner or Director-General in this behalf.
FINANCE ACT, 1994
20.4 This amendment takes effect from 1-4-1995, and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 6]
FINANCE ACT, 1994
Provision for income-tax exemption on the income of specified news agencies
21. The Finance Act has inserted a new clause (22B) in section 10 of the Income-tax Act. This clause provides that any income of such news agency, set up in India solely for collection and distribution of news, as the Central Government may specify in this behalf by notification in the Official Gazette, will be exempt from income-tax. This will be subject to the condition that the news agency applies its income or accumulates it for application solely for collection and distribution of news and it does not distribute its income in any manner to its members. The notification granting exemption under this clause shall, at any one time, have effect for not more than three assessment years (including an assessment year or years commencing before the date of issue of such notification), as may be specified in the notification.
FINANCE ACT, 1994
21.2 This amendment takes effect from 1-4-1994, and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years.
[Section 6]
FINANCE ACT, 1994
Provision of income-tax exemption on the income of bodies established for promoting the interests of members of backward classes
22.1 Section 10(26B ) of the Income-tax Act provides income-tax exemption on any income of a statutory corporation or of any other body, institution or association, wholly financed by the Government, where such corporation or body, etc., has been established for promoting the interests of the members of Scheduled Castes and/or Scheduled Tribes. Similar bodies, established for promoting the interests of the members of backward classes, have been functioning for some time now. The National Backward Classes Finance and Development Corporation, a wholly-owned Government company set up for the benefit of backward classes, has been functioning at the national level and there are State level corporations performing similar functions. There is a need to exempt the income of such bodies also from income-tax.
FINANCE ACT, 1994
22.2 The Finance Act, therefore, has amended clause (26B) of section 10 in order to extend the benefit of exemption to income of a corporation established by a Central, State or Provincial Act or of any other body, institution or association (being a body, institution or association wholly financed by Government) where such corporation or other body or institution or association has been established or formed for promoting the interests of the members of the backward classes. The expression ‘backward classes’ has been defined so as to mean such classes of citizens, other than Scheduled Castes and Scheduled Tribes, as are notified by the Central Government or any State Government from time to time.
FINANCE ACT, 1994
22.3 This amendment takes effect retrospectively from 1-4-1993, and will, accordingly, apply in relation to assessment year 1993-94 and subsequent years.
[Section 6]
FINANCE ACT, 1994
Restricting five-year tax holiday under section 10B of the Income-tax Act to 100% EOUs exporting at least 75 per cent of their turnover
23.1 Under section 10B of the Income-tax Act, a five-year tax holiday is allowed to a 100% export-oriented undertaking (100% EOU) which manufactures or produces any article or thing and is approved by the prescribed Board. This tax holiday is in operation since assessment year 1989-90.
FINANCE ACT, 1994
23.2 100% EOUs, as the name signifies, get special treatment by virtue of the fact that they export their entire produce. However, in order to provide economic flexibility to them and allow them to dispose of the export rejects and by-products, they are allowed to sell 25% of their product in the domestic market. In effect, such units get exemption for 5 years even in respect of profits from the 25% domestic sales allowed to them.
FINANCE ACT, 1994
23.3 As long as domestic sales of 100% EOUs are within reasonable limits, such sales getting exemption can be justified as a concession incidental to export. Recently, however, it has come to notice that several units approved as 100% EOUs export less than 75 per cent of their turnover and sell the balance amount in the domestic market. Such units are, thus, getting the five-year tax holiday even on the profit generated from domestic sales forming more than 25 per cent of the total sales.
FINANCE ACT, 1994
23.4 With a view to ensuring that 100% EOUs avail of the tax exemption only if the exports are substantial, section 10B has been amended restricting the five-year tax holiday to 100% EOUs which export at least 75% of their turnover. Units which, in any previous year, export less than 75% of their turnover will not be allowed the exemption under section 10B in respect of that previous year. They can, in such a case, avail of the normal 100 per cent deduction under section 80HHC on the export profits. The restriction will apply prospectively to 100% EOUs which commence production on or after 1-4-1994.
FINANCE ACT, 1994
23.5 This amendment takes effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 7]
FINANCE ACT, 1994
Tax holiday for 100% EOUs producing computer software
24. Section 10A of the Income-tax Act provides for a five-year tax holiday to an industrial undertaking which manufactures or produces any article or thing and is set up in notified Free Trade Zones (FTZs). Through the Finance Act, 1993, the tax holiday under section 10A was extended to industrial units set up in approved Electronic Hardware Technology Parks (EHTP) or Software Technology Parks (STP). Simultaneously, the scope of the term "produce" was enlarged to include production of computer programmes.
FINANCE ACT, 1994
24.2 Under the provisions of section 10B of the Income-tax Act, a five-year tax holiday is allowed to approved 100 per cent export-oriented undertakings (EOUs) which manufacture or produce any article or thing.
FINANCE ACT, 1994
24.3 With a view to enlarging the scope of the tax holiday to approved 100 per cent EOUs established under the EHTP/STP Schemes for export of computer hardware and software and approved by the prescribed Board, an Explanation for the term "produce" has been inserted in section 10B to include production of computer programmes.
FINANCE ACT, 1994
24.4 This amendment takes effect from 1-4-1994 and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. It will, accordingly, coincide with similar concession extended last year in section 10A to Computer Hardware and Software Parks.
[Section 7]
FINANCE ACT, 1994
Raising of the monetary limit for the purposes of compulsory audit in the case of trusts claiming exemption under sections 11 and 12 and of substantial contribution to the trusts by the interested persons
25.1 In order to claim exemption from income-tax in respect of income derived from property held under trust or by way of voluntary contributions by charitable or religious trusts or institutions, section 12A of the Income-tax Act specifies certain conditions. One such condition was that where the total income of the trust or institution, but for the exemption under sections 11 and 12, exceeded twenty-five thousand rupees in any previous year, the accounts of the trust or institution for that year should have been audited by a Chartered Accountant or any other accountant entitled to be appointed as an auditor of companies.
FINANCE ACT, 1994
25.2 Section 13(1)(c ) of the Income-tax Act provides that where any income of a charitable trust, etc., enures for the benefit of an interested person, the exemption from income-tax under section 11 or 12 of the Income-tax Act will be forfeited, with a few exceptions. Section 13(3) of the Act specifies the interested person to mean, inter alia, any person who has made a substantial contribution to the trust or institution. The expression ‘substantial contribution’ had been explained as meaning total contribution exceeding twenty-five thousand rupees up to the end of the relevant previous year.
FINANCE ACT, 1994
25.3 As a measure of rationalisation, the Finance Act has amended section 12A(b) and section 13(3)(b) of the Income-tax Act to raise the aforesaid limit of twenty-five thousand rupees to fifty thousand rupees.
FINANCE ACT, 1994
25.4 These amendments take effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Sections 8 and 9]
FINANCE ACT, 1994
Exemption from tax in respect of perquisite in the form of medical facilities provided by the employers
26.1 Under the proviso to clause (2) of section 17 of the Income-tax Act, the perquisite value of medical benefit provided by the employer to an employee or any member of his family is exempt from tax subject to certain conditions. Exemption from tax is available, inter alia, in respect of reimbursement, by the employer, of expenditure incurred by the employee in hospitals, dispensaries, etc., maintained by the Government or by a local authority or in a hospital approved by the Government for the purposes of medical treatment of its employees. However, in respect of treatment of prescribed diseases in private hospitals approved by the Chief Commissioner, this concession is allowed only where the payment is made directly by the employer to the hospital.
FINANCE ACT, 1994
26.2 In order to further liberalise the provision and reduce hardship, it has been provided that expenditure incurred for treatment in any hospital approved by the Chief Commissioner will be exempt even where the payment is in the form of reimbursement of expenditure. This will, however, be subject to the condition that the employee attaches with the return of income a certificate from the approved hospital specifying the prescribed disease or ailment for which hospitalisation was required as well as receipt for the amount paid.
FINANCE ACT, 1994
26.3 This amendment takes effect from 1-4-1993, i.e., the date from which expenditure on treatment in hospitals approved by the Chief Commissioner has been made exempt. It will, accordingly, apply in relation to assessment year 1993-94 and subsequent years. Accordingly, persons who were hospitalised during any previous year relevant to assessment years 1993-94 and onwards can claim exemption of any amount reimbursed by the employer for such hospitalisation provided the certificate and the receipt are attached.
[Section 10]
FINANCE ACT, 1994
Enhancement of the limit of deduction in case of self-occupied house property
27.1 Under the provisions of section 24(2) of the Income-tax Act, a deduction up to five thousand rupees was allowed in respect of interest payable on borrowed capital used for acquisition, construction, repair, renewal or reconstruction of a self-occupied house property. This limit of deduction was fixed by the Finance Act, 1986 with effect from 1-4-1987. Keeping in view the increase in the cost of construction since 1986, the Finance Act has raised the limit of deduction in respect of such interest from five thousand rupees to ten thousand rupees. The amount of interest payable on borrowed capital to the extent of ten thousand rupees, will be allowable from the annual value of the property. As the annual value of the self-occupied property is taken at nil, the deduction up to ten thousand rupees will result in a loss. Such loss will be allowed to be set off against income under any other head in terms of the provisions of sub-section (1) and sub-section (2) of section 71.
FINANCE ACT, 1994
27.2 This amendment takes effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 11]
FINANCE ACT, 1994
Additional scheme for deposit by tea growers and manufacturers
28.1 Section 33AB of the Income-tax Act provides that where a person who carries on the business of growing and manufacturing tea in India has, during the previous year, deposited with National Bank for Agriculture and Rural Development (NABARD) any amount in a Tea Deposit Account maintained by such person with that Bank in accordance with the scheme approved in this behalf by the Tea Board, such person shall be allowed a deduction of the amount so deposited during the previous year or twenty per cent of the profits from the business of growing or manufacturing tea in India, whichever is less.
FINANCE ACT, 1994
28.2 The benefit of section 33AB has been extended to such tea growers and manufacturers also who make deposits in the Tea Deposit Account in accordance with, and for the purposes specified in, any other scheme framed by the Tea Board, and approved by the Central Government.
FINANCE ACT, 1994
28.3 This amendment takes effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 12]
FINANCE ACT, 1994
Ambit of tax concessions for scientific research widened
29.1 Under section 35(2AA) of the Income-tax Act, any sum paid by an assessee carrying on business or profession to a "National Laboratory" for carrying out programmes of scientific research, as are approved by the prescribed authority, are eligible for weighted deduction of one and one-fourth time of the sum so paid.
FINANCE ACT, 1994
29.2 "National Laboratory" had been defined to mean a scientific laboratory functioning at the national level under the aegis of the Indian Council of Agricultural Research, the Indian Council of Medical Research or the Council of Scientific and Industrial Research and which was approved by the prescribed authority for this purpose. The prescribed authority is Director General (Income-tax Exemptions) in concurrence with the Secretary, Department of Scientific and Industrial Research (DSIR).
FINANCE ACT, 1994
29.3 The Finance Act has widened the ambit of the definition of "National Laboratory" to include scientific laboratories functioning at the national level under the aegis of the Department of Electronics, Defence Research & Development Organisation, Department of Bio-Technology and Department of Atomic Energy. This deduction shall now also be available to laboratories carrying on scientific research in Universities and the Indian Institutes of Technology.
FINANCE ACT, 1994
29.4 This amendment takes effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 13]
FINANCE ACT, 1994
Deduction in respect of provisions made for bad and doubtful debts relating to rural branches of banks
30. Under the provisions of section 36(1)(viia)( a) of the Income-tax Act, all scheduled banks [except banks incorporated by or under the laws of a country outside India and a bank approved by the Central Government for the purposes of clause (viiia)] and non-scheduled banks are entitled to a deduction in respect of a provision for bad and doubtful debts of an amount not exceeding five per cent of the total income computed before making any deduction under section 36(1)(viia) and Chapter VI-A, and also of an amount not exceeding four per cent of the aggregate average advances made by their rural branches. Having regard to the need for stepping up provisioning by these banks, the Finance Act has raised the limit of four per cent to ten per cent. The reference to a bank approved by the Central Government for the purposes of clause (viiia) has also been omitted so as to entitle such banks to avail of deduction under section 36(1)(viia )(a).
FINANCE ACT, 1994
30.2 Under clause ( viiia) of section 36(1), a scheduled bank (other than a bank incorporated by or under the laws of a country outside india) which is engaged in banking operations outside India, and is approved by the Central Government, is entitled to a deduction in respect of any special reserve created of an amount not exceeding forty per cent of the total income (computed before making any deduction under the said clause and Chapter VI-A). The Finance Act has omitted this clause in view of the amendment to section 36(1)(viia).
FINANCE ACT, 1994
30.3 These amendments take effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 14]
FINANCE ACT, 1994
Estimated Income Method for taxpayers engaged in the business of civil construction
31.1 The Estimated Income Method of assessment for certain categories of businesses is prevalent in several countries. The Tax Reforms Committee has also recommended gradual introduction of the Estimated Income Method in certain areas to facilitate better tax compliance. Accordingly, a new section 44AD has been inserted in the Income-tax Act with a view to providing for a method of estimating income from the business of civil construction or supply of labour for civil construction work. The new section is applicable to all assessees whose gross receipts from the abovementioned business do not exceed Rs. 40 lakhs. Gross receipts are the amount received from the clients for the contract and will not include the value of material supplied by the client. The income from the above-mentioned business will be estimated at 8 per cent of the gross receipts paid or payable to an assessee. A taxpayer can voluntarily declare a higher income in his return.
FINANCE ACT, 1994
31.2 The expression "civil construction" will include the construction or repair of buildings, dams, bridges or other structures, or of roads or canals. It will also include the execution of any other works contract. It will, thus, include work related to electrical fittings, plumbing job, landscaping work, etc.
FINANCE ACT, 1994
31.3 The rate of 8 per cent is comprehensive. All deductions under sections 30 to 38 including depreciation, will be deemed to have been already allowed and no further deduction will be allowed under these sections. The written down value will be calculated, where necessary, as if depreciation as applicable has been allowed. In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed.
FINANCE ACT, 1994
31.4 The assessees who file the return, estimating income at 8 per cent of gross receipts, or a higher income, will neither be required to maintain books of account under the provisions of section 44AA, nor required to get accounts audited under the provisions of section 44AB, in respect of their income from the business of civil construction. However, even such an assessee has to comply with the requirements of both sections 44AA and 44AB in respect of his businesses which are not covered by this scheme. For instance, a person may have gross receipts of Rs. 30 lakhs from civil construction business and of Rs. 25 lakhs from trading in scrap and Rs. 10 lakhs from garment manufacture. Although his total gross receipts are Rs. 65 lakhs, he will not be required to have his accounts audited, since his gross receipts after excluding those from the business of civil construction are still less than Rs. 40 lakhs, the limit provided in section 44AB.
FINANCE ACT, 1994
31.5 The income from the business of civil construction, estimated in accordance with this provision, will be aggregated with other incomes of the assessee, from any other business or under other heads of income, in accordance with the normal provisions of the Income-tax Act. Accordingly, all deductions under Chapter VI-A and rebate under Chapter VIII will be available to the assessee, if the conditions therein are fulfilled.
FINANCE ACT, 1994
31.6 The scheme is optional. A system of rebuttal has been provided. A person can claim that his income in respect of the abovementioned business is lower than the specified estimate of income. In such a case, he must produce necessary evidence to prove his case. Such a case will be scrutinised for regular assessment under section 143(3).
FINANCE ACT, 1994
31.7 This amendment takes effect from 1-4-1994 and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. Accordingly, a person can file his return based on the estimated income method for the current assessment year also.
[Section 16]
CLARIFICATION ONE
1. Sections 44AD and 44AE were inserted in the Income-tax Act, 1961, by the Finance Act, 1994 with effect from April 1, 1994. Section 44AD provides for a method of estimating income from the business of civil construction or supply of labour for civil construction work, where the gross receipts from the business do not exceed Rs. 40 lakhs. Section 44AE provides for a method of estimating income from the business of plying, hiring or leasing trucks owned by a taxpayer owning not more than 10 trucks. Both the schemes are optional.
2. Sub-section (1) of sections 44AD and 44AE clearly provide that the income shall be estimated at the prescribed percentage/basis without regard to the provisions contained in sections 28 to 43C of the Act. In other words, the income estimated in accordance with sections 44AD and 44AE takes care of various deductions, etc., admissible under the aforesaid sections.
3. A doubt has been raised as to whether deduction (s) on account of salary/interest to the partners of a firm shall be admissible from the income estimated in accordance with sections 44AD and 44AE of the Act. The law is clear on this issue and no separate deduction is to be allowed under section 40(b) in such cases. The doubt has primarily arisen because of the erroneous clarification given in paras 31.3 and 32.2 of the Explanatory Notes on provisions of the Finance Act, 1994 (Circular No. 684, dated 10th June, 1994). The relevant portion of the Explanatory Note reads as under :—
"In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed."
4. Clause (b) of section 40 lays down restriction on the deduction allowable on account of salary and interest to the partners and is not an enabling section for claiming deduction. The admissible deductions are specifically mentioned under sections 30 to 38 of the Income-tax Act. Hence, sections 44AD(2) and 44AE(3) only state this obvious position by way of clarification. However, in view of the non obstante clause in sub-section (1) of sections 44AD and 44AE, there is no ambiguity about the intention of the legislation in this matter and the provisions of the Act are quite clear.
As already said above, the doubt has primarily arisen because of the error in the Explanatory Notes to the Finance Act, 1994. Therefore, for the sake of clarity and removal of doubts in this regard, the following lines are deleted from paras 31.3 and 32.2 of Circular No. 684, dated 10th June, 1994 :—
"In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed."
Circular No. 737, dated 23-2-1996.
JUDICIAL ANALYSIS
u EXPLAINED IN - In Goswami & Bros v. Union of India [1998] 96 Taxman 219 (Raj.), the Court reproduced paras 31.3, 31.6 and 32.2, and observed :
"A subsequent impugned Circular No. 737, dated 23-2-1996 was issued by the CBDT. It has been mentioned in the Circular that a doubt has been raised as to whether deduction on account of salary/interest to the partners of a firm shall be admissible from the income estimated in accordance with section 44AD and section 44AE of the Act. The doubt has primarily arisen because of the erroneous clarification given in paras 31.3 and 32.2 of Circular No. 684, dated 10-6-1994. The following lines appearing in paras 31.3 and 32.2 of Circular No. 684, dated 10-6-1994 were deleted by the subsequent Circular No. 737, dated 23-2-1996 :
"In the case of the firms, normal deduction to the extent allowed under clause (b) of section 40 will be allowed."
Taking recourse to the Circular dated 23-2-1996, the income-tax authorities have reopened the assessments against the petitioner and in some of the matters, have issued fresh assessment orders.
2. By the Finance Act, 1997, a proviso to sub-section (2) of section 44AD has been added giving retrospective operation with effect from 1-4-1994, i.e., assessment year 1994-95 providing that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40. In view of insertion of the proviso in the Finance Act to sub-section (2) of section 44AD and giving it retrospective operation from 1-4-1994, the Circular No. 737, dated 23-2-1996 deleting the words "In the case of the firms, normal deduction to the extent allowed under clause (b) of section 40 will be allowed" is clearly erroneous and cannot be permitted to stand.
3. Accordingly, the petition is allowed, Circular No. 737 dated 23-2-1996 as above is quashed. . . . ." (pp. 220-221)
FINANCE ACT, 1994
Estimated Income Method for taxpayers engaged in the business of plying, leasing or hiring trucks owned by them
32.1 A new section 44AE has been inserted in the Income-tax Act with a view to providing for a method of estimating income from the business of plying, hiring or leasing trucks owned by a taxpayer. The scheme applies to persons owning not more than ten trucks. It is not applicable to the persons who do not own any truck but operate trucks taken on hire. The income from each truck, being a heavy goods vehicle, will be estimated at Rs. 2000 for every month or part of a month during which the truck is owned by the assessee. The income from each truck, other than a heavy goods vehicle, will be estimated at Rs. 1800 for every month or part of a month during which the truck is owned by the assessee. In either case, the taxpayer can declare his income from trucks at a higher amount than that specified above.
Illustration (1 ): An assessee owns a light commercial vehicle for 9 months 15 days, a medium goods vehicle for 9 months and a medium goods vehicle for 12 months during the previous year. His profits and gains from the three trucks shall be deemed to be (Rs. 1800 × 10) + (Rs. 1800 × 9) + (Rs. 1800 × 12), i.e., Rs. 55,800.
Illustration (2 ): An assessee owns a heavy goods vehicle for 9 months 7 days, a medium goods vehicle for 9 months and a light commercial vehicle for 12 months during the previous year. His profits and gains from the three trucks shall be deemed to be (Rs. 2000 × 10) + (Rs. 1800 × 9) + (Rs. 1800 × 12), i.e., Rs. 57,800.
FINANCE ACT, 1994
32.2 The estimated income is comprehensive. All deductions under sections 30 to 38 including depreciation, will be deemed to have been already allowed and no further deduction will be allowed under these sections. The written down value will be calculated, where necessary, as if depreciation as applicable has been allowed. In the case of firms, the normal deductions to the extent allowed under clause (b) of section 40 will be allowed.
FINANCE ACT, 1994
32.3 An assessee who files the return, estimating income on the basis of the specified amount per truck or estimating a higher income, will neither be required to maintain books of account under the provisions of section 44AA, nor required to get accounts audited under the provisions of section 44AB, in respect of his income from the business of plying, hiring or leasing trucks. However, even such an assessee has to comply with the requirements of both sections 44AA and 44AB in respect of his businesses which are not covered by this scheme.
FINANCE ACT, 1994
32.4 The income from the truck business, estimated in accordance with this provision, will be aggregated with the other incomes of the assessee, from any other business or under other heads of income, in accordance with the normal provisions of the Income-tax Act. Accordingly, all deductions under Chapter VI-A and rebate under Chapter VIII will be available to the assessee, if the conditions therein are fulfilled.
FINANCE ACT, 1994
32.5 The scheme is optional. A system of rebuttal has been provided. A person can claim that his income in respect of the abovementioned business is lower than the specified estimate of income. In such a case, he must produce necessary evidence to prove his case. Such a case will be scrutinised for regular assessment under section 143(3).
FINANCE ACT, 1994
32.6 This amendment takes effect from 1-4-1994 and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years. Accordingly, a person can file his return based on the estimated income method for the current assessment year also.
[Section 16]
FINANCE ACT, 1994
Capital gain on transfer of assets where there is no cost of acquisition
33.1 By virtue of the provisions of section 45 of the Income-tax Act, capital gains arising on transfer of a capital asset is subjected to income-tax. Section 48 lays down the method of computing capital gains. The cost of acquisition and expenditure relating to the transfer are deducted from the full value of consideration to arrive at capital gains. Section 2(14) defines "capital asset" to include all kinds of property except a few specified ones.
FINANCE ACT, 1994
33.2 In a number of cases, the courts have decided that in case of self-generated assets like goodwill or where the cost of assets to an assessee (not covered by situations mentioned in section 49) is nil, no tax on capital gains consequent to transfer of such assets could be charged. They have interpreted that only if an asset did cost something to the assessee in terms of money that the provisions relating to the levy of tax on any capital gains under section 45(1) read with section 48(ii) would apply. A transaction to which these provisions cannot be applied has been held to be one never intended by section 45(1) to be the subject of the charge. The courts have further interpreted that the intent of levying capital gains tax goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on expenditure of money to a person seeking to acquire it. The courts have held that none of the provisions pertaining to the head "Capital gains" suggests that "capital assets" include an asset in the acquisition of which no cost at all can be conceived. The leading case propounding this interpretation is CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC).
FINANCE ACT, 1994
33.3 In order to overcome the judicial interpretation, the Finance Act, 1987, with effect from 1-4-1988, has provided in section 55(2)(a) that cost of acquisition in case of self-generated goodwill will be taken to be nil. For the purpose of bringing the capital gains arising from transfer of any of the following assets, in the acquisition of which the assessee has not incurred any expenditure, the Finance Act has amended the provisions relating to capital gains and provides that the cost of acquisition of the following assets is to be taken at nil :
(1) Tenancy rights
(2) Route permits
(3) Loom hours.
FINANCE ACT, 1994
33.4 This amendment takes effect from 1st April, 1995, and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 18]
FINANCE ACT, 1994
Exclusion of handicapped minor from the clubbing provisions
34.1 Under the provisions of section 64(1A) of the Income-tax Act, in computing the total income of an individual, all income of his minor child (barring a few exceptions) is to be clubbed with his income. The provisions for clubbing of a minor’s income with that of the parent were introduced through the Finance Act, 1992, on the ground that the minor children cannot administer their property nor can they take decisions on the disposal of income arising from their property as also on the ground that exclusion of minor children’s income from that of the parent was resulting in tax avoidance.
FINANCE ACT, 1994
34.2 It has been felt that a handicapped minor is in a special category. With a view to providing appropriate relief to handicapped minors, the Finance Act has provided that the entire income of a handicapped minor child shall be kept out of the purview of the clubbing provisions contained under section 64(1A). Consequently, section 80V of the Income-tax Act which provides for deduction of a sum to the extent to which the minor child would have been entitled to the deduction under section 80U had the total income of such minor child been computed separately, has been omitted. Hereafter, the handicapped minor child will be entitled to the deduction under section 80U in his own assessment.
FINANCE ACT, 1994
34.3 Corresponding amendments have been made to section 4 of the Wealth-tax Act.
FINANCE ACT, 1994
34.4 These amendments take effect from 1st April, 1995, and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Sections 20, 28 & 52]
FINANCE ACT, 1994
Modifications relating to house property income
35.1 The Finance Act, 1992 had inserted section 71A as well as sub-section (4) in section 71 in the Income-tax Act. The effect of these amendments is that loss from let-out house property cannot be set off against any other head of income. Further, the carried forward loss of any year from house property in so far as it relates to interest on borrowed capital, is allowed set off only against "Income from house property" of subsequent years. These provisions apply to assessment year 1993-94 and subsequent years.
FINANCE ACT, 1994
35.2 It had been represented that these provisions have a dampening effect on housing activity. Consequently, the legal position prior to the amendments of 1992 has been restored. The Finance Act has made amendments to ensure that losses as have been carried forward under the head "Income from house property" for assessment years 1993-94 and 1994-95, are allowed to be set off against any head of income in assessment years 1995-96 and 1996-97, as a transitional measure. This is necessary because there may be cases where the combined carried forward loss under the head "Income from house property" for assessment years 1993-94 and 1994-95 is more than the total income of the assessee for the assessment year 1995-96. A set-off of the balance of carried forward loss relating to assessment years 1993-94 and 1994-95 is to be allowed against income for the assessment year 1996-97 also (i.e., one more assessment year). No further carry forward, for set-off against income for assessment year 1997-98, will be allowed. The priority for set-off of losses under the head "Income from house property" for these transitional years will be as follows :
For both the assessment years 1995-96 and 1996-97, the current year’s loss under the head "Income from house property" will, in the first instance, be set off against the income under other heads as provided in section 71(1) and section 71(2). Only thereafter, the brought forward loss under the head "Income from house property" (to the extent it consists of interest on borrowed capital) computed for assessment years 1993-94 and 1994-95 will be set off.
FINANCE ACT, 1994
35.3 These amendments take effect from 1st April, 1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Sections 21 & 22]
FINANCE ACT, 1994
Deduction in respect of repayment of loan taken as a student for pursuing higher studies
36.1 Deserving, yet poor and needy, students often require loans from banks or other financial institutions or from charitable organisations for pursuing higher education. The repayment of such loans becomes a heavy charge on the person’s resources.
FINANCE ACT, 1994
36.2 With a view to sustaining high quality human resources in the country and to encourage talented young men and women to take up higher studies despite the constraints of resources, a new section 80E has been inserted in the Income-tax Act to provide for relief to students taking loan for such studies. The relief is not allowed to the parent or guardian but to the student himself when he starts repaying the amount. Any repayment of the principal amount of loan taken for higher studies and interest thereon will be allowed as a deduction from the gross total income up to a maximum amount of Rs. 25,000 in a year. The repayment can be in respect of loan taken from a financial institution or a charitable organisation which is approved for the purposes of section 10(23C) or 80G(2) (a). This relief will be available for those who have undertaken graduate or post-graduate courses in any branch of Engineering (including Technology), Medicine or Management or post-graduate courses in any university in pure sciences or applied sciences including Mathematics or Statistics. It will not be available, for instance, for courses in Humanities, Social Sciences, Commerce, Accountancy or Law. The first year in which the deduction will be available will be the year in which the person starts repaying the loan. The deduction will be allowed for a maximum period of 8 years or till the principal amount of such loan together with interest are liquidated, whichever is earlier.
FINANCE ACT, 1994
36.3 This amendment will take effect from 1st April, 1995 and will, accordingly, apply to assessment year 1995-96 and subsequent years.
[Section 23]
FINANCE ACT, 1994
100 per cent deduction for donations made to the Chief Minister’s Earthquake Relief Fund, Maharashtra
37.1 Section 80G of the Income-tax Act provides that the sums paid as donations, inter alia, to any fund or institution established in India for charitable purposes are entitled to deduction at the rate of 50 per cent, in computing the total income of the donors. In the case of certain funds and institutions specified in the said section, donations are allowed deduction at the rate of 100 per cent.
FINANCE ACT, 1994
37.2 The recent earthquake in parts of Maharashtra required a gigantic relief effort and cooperation of all. In view of this, section 80G has been amended in order to allow 100 per cent deduction for donations to the Chief Minister’s Earthquake Relief Fund, Maharashtra. The same concession has been extended to all donations made to the existing Maharashtra Chief Minister’s Relief Fund, after the earthquake in Maharashtra but before the setting up of the Chief Minister’s Earthquake Relief Fund, Maharashtra, i.e., between 1-10-1993 and 6-10-1993.
FINANCE ACT, 1994
37.3 This amendment takes effect from 1st April, 1994 and will, accordingly, apply in relation to donations made in the previous year relevant to assessment year 1994-95 and subsequent years.
[Section 24]
FINANCE ACT, 1994
Removal of the minimum limit of donation for deduction under section 80G
38.1 The deduction under section 80G is allowed only if the aggregate of the donations in a year is Rs. 250 or more. This restriction deprives many small, yet generous, taxpayers of the deduction. Therefore, the minimum limit of Rs. 250 for qualifying for deduction under section 80G has been removed.
FINANCE ACT, 1994
38.2 This amendment takes effect from 1st April, 1994 and will, accordingly, apply in relation to donations made in the previous year relevant to assessment year 1994-95 and subsequent years.
[Section 24]
FINANCE ACT, 1994
Rationalisation of provisions relating to incentive to tourism
39.1 Under the existing provisions of section 80HHD, a resident taxpayer engaged in the business of a hotel or of a tour operator or of a travel agent is allowed a deduction, in computing its total income, of an amount equal to—
(i) 50 per cent of the profits derived from services provided to foreign tourists; and
(ii) so much of the remaining profits as are credited to a reserve fund to be utilised in the manner prescribed.
FINANCE ACT, 1994
39.2 Earlier, the tax concession was available only to the first recipient of convertible foreign exchange. It was then pointed out in representations that foreign groups often make payments in foreign exchange, in one lump sum, to the first recipient for subsequent payment to other hotels, tour operators or travel agents, as the case may be. Accordingly, through the Finance Act, 1991, a provision was made in section 80HHD, with a view to securing that the hotel/tour operator/travel agent receiving payments for services to the foreign tourists from the first recipient, would also be eligible for deduction under section 80HHD, subject to the condition that the payment in Indian currency was made out of conversion of foreign exchange brought into India by the foreign tourists.
FINANCE ACT, 1994
39.3 The first recipient (hotel/tour operator/travel agent), thus, got the deduction in relation to the entire amount of foreign exchange received by him while the second recipient (another hotel/tour operator/travel agent) got the deduction in relation to that portion of it which the first recipient passed on to him for providing service to foreign tourists.
FINANCE ACT, 1994
39.4 Logically, the deduction, in such cases, should be allowed only on sharing basis, proportionate to the value of service rendered by each segment.
FINANCE ACT, 1994
39.5 With a view to removing the duplication of the incentive for the same amount of foreign exchange remittance, section 80HHD has been amended so as to provide that the first recipient of foreign exchange would be entitled to deduction under section 80HHD in respect of the amount retained by him and not in respect of amount which represents payments passed on to the other assessee.
FINANCE ACT, 1994
39.6 Accordingly, in a case where a group of foreign tourists pays $10,000 to a tour operator A and the tour operator pays in converted rupee, the value of $2,500 to hotel B, $1,500 to hotel C and $700 to travel agent D, the concession to each will be computed on the basis of the following receipts:
(a) to the tour operator A, in respect of $5,300, i.e., [10,000 - (2,500 + 1,500 + 700)];
(b) to hotel B, in respect of $ 2,500;
(c) to hotel C, in respect of $ 1,500 ;
(d) to travel agent D, in respect of $ 700.
FINANCE ACT, 1994
39.7 The same method will be applied where the first recipient is a hotel or a travel agent.
FINANCE ACT, 1994
39.8 This amendment takes effect from 1st April, 1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 25]
FINANCE ACT, 1994
Tax concession in respect of profits from export of computer software
40.1 According to the provisions of section 80HHE, 100 per cent deduction is allowed to Indian companies and resident non-corporate taxpayers on the profits derived from export of computer software.
FINANCE ACT, 1994
40.2 The provisions of section 80HHE were introduced by the Finance (No. 2) Act, 1991 for assessment years 1991-92, 1992-93 and 1993-94. The Finance Act, 1993 extended the period for one more year, i.e., for the assessment year 1994-95. Software export has considerably increased in the last four years and the sector deserves fiscal incentive for another year to maintain the momentum gained.
FINANCE ACT, 1994
40.3 Accordingly, the deduction under section 80HHE has been made available for one more year, i.e., assessment year 1995-96.
FINANCE ACT, 1994
40.4 This amendment takes effect from 13-5-1994, i.e., the date on which the Finance Act received the assent of the President.
[Section 26]
FINANCE ACT, 1994
Withdrawal of restrictions in respect of new industrial undertakings set up in backward States
41.1 In the Budget of 1993, a special five-year tax holiday was introduced under section 80-IA, for new industrial undertakings located in backward States. One of the conditions for availing of the tax concession u/s 80-IA is that the new industrial undertaking does not manufacture or produce certain articles of low priority specified in the Eleventh Schedule. This condition, however, does not apply to small scale industrial undertakings.
FINANCE ACT, 1994
41.2 The Eleventh Schedule was introduced in 1977 and contains a list of low priority articles, manufacture of which is reserved for the small scale sector. This restriction in section 80-IA is inconsistent with the urgent need to promote the growth of industry and employment in the backward States.
FINANCE ACT, 1994
41.3 Accordingly, section 80-IA has been amended to provide that the condition that the concession will be allowed only if the industrial unit did not manufacture any item listed in the Eleventh Schedule, will not operate for units set up in backward States. In effect, a new industrial unit, whether small scale or not, located in a backward State, will get the full tax holiday for five years beginning from the assessment year relevant to the year of commencement of production and, thereafter, will be allowed the normal deduction under section 80-IA at 25 per cent (30 per cent for companies), for the balance period of five years (seven years for co-operative societies), even if it produces an item listed in the Eleventh Schedule.
FINANCE ACT, 1994
41.3-2 The aforesaid condition will continue to hold good in the case of industrial undertakings set up in States other than the backward States specified in the Eighth Schedule to the Income-tax Act.
FINANCE ACT, 1994
41.4 This amendment takes effect from 1-4-1994 and will, accordingly, apply in relation to assessment year 1994-95 and subsequent years.
[Section 27]
FINANCE ACT, 1994
Extension of the five-year tax holiday to new industrial undertakings set up in extremely backward districts
42.1 The Finance Act, 1993 introduced a five-year tax holiday under section 80-IA for new industrial undertakings which start production after 1-4-1993 but before 31-3-1998 in any of the backward States specified in the Eighth Schedule to the Income-tax Act. These backward States are those in which all the districts have been classified as industrially backward in Notification SO No. 165, dated 19-12-1986.
FINANCE ACT, 1994
42.2 With a view to providing fiscal support for industrialisation of the industrially backward districts in States not mentioned in the Eighth Schedule, the five-year tax holiday under section 80-IA has been extended to new industrial undertakings located in backward districts notified by the Central Government on the basis of guidelines prescribed. A Group has been set up in the Finance Ministry to prescribe the guidelines and identify the backward districts.
FINANCE ACT, 1994
42.3 The five-year tax holiday will be available to undertakings set up in notified backward districts and beginning production after 1-10-1994 but before 31-3-1999. The deduction under section 80-IA will be available at the rate of 100 per cent of profits in respect of the first five assessment years starting from the assessment year relevant to the previous year in which the industrial undertaking starts manufacture or production. After the initial five assessment years, deduction from the profits will be allowed at the normal rate of 30 per cent in the case of companies and 25 per cent in the case of non-corporate assessees. The deduction, at the enhanced rate and the normal rate together, will be limited to twelve assessment years in the case of co-operative societies and ten assessment years in the case of other assessees, as in the existing provisions. The incentive already available to industrial units set up in the States or Union Territories specified in the Eighth Schedule will continue.
FINANCE ACT, 1994
42.4 This amendment takes effect from 1st April, 1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 27]
FINANCE ACT, 1994
Liberalisation of provisions relating to tax rebate in respect of certain savings
43.1 The Finance Act, 1990 omitted section 80C and introduced a new section 88 allowing tax rebate on specified savings, including savings through life insurance provident funds, etc. Sub-section (4) of section 88 stipulates that for availing of the rebate, the contribution to the notified provident fund should be made to an account standing in the name of either the individual claiming the deduction or a minor child of whom he is the guardian. Under section 88, rebate on amount paid in the name of spouse is allowed only in the case of life insurance or deferred annuity on the life of such spouse.
FINANCE ACT, 1994
43.2 Under the earlier provisions, i.e., under section 80C, there was no stipulation on whether deduction would be allowed if the provident fund account was in the name of the spouse. However, Board’s D.O. No. 178/110/83-ITA-I, dated 10-11-1983 clarified that deduction under section 80C would be available both in the case of the husband contributing to the wife’s account and the wife contributing to the husband’s account. The only condition was that the deduction would be given to that spouse from whose chargeable income the contribution to the provident fund had been made.
FINANCE ACT, 1994
43.3 In tax rebate, in any case, is allowed only to the person from whose income the contribution has been made to the specified savings. Often accounts are kept in the spouse’s name merely for the purpose of convenience in the case of an untimely death. The same applies to other social security instruments like unit-linked insurance plans.
FINANCE ACT, 1994
43.4 In view of this, section 88 has been amended in order to remove the hardship and to make it possible to claim rebate even when contribution is made, in the name of the spouse of the taxpayer, in a notified provident fund. Similar provision is being made in respect of amount paid, in the name of spouse, in unit-linked insurance plans of the Unit Trust of India or of the LIC Mutual Fund.
FINANCE ACT, 1994
43.5 This amendment takes effect retrospectively from 1-4-1991, i.e., the date from which section 88 took effect. It will, accordingly, apply in relation to assessment year 1991-92 and subsequent year. Thus, persons who were getting deduction under section 80C in respect of amounts paid to any notified provident fund, in their spouse’s name, will, with effect from assessment year 1991-92, get rebate under section 88 in respect of that amount.
[Section 29]
FINANCE ACT, 1994
Extending the rebate under the provisions of section 88 to pension funds of UTI
44.1 Under clause (xiiic ) of section 88, rebate is allowed in respect of any amount paid by an individual to any pension fund set up by any Mutual Fund notified under clause (23D ) of section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf.
FINANCE ACT, 1994
44.2 This benefit has been extended to a pension fund to be set up by the Unit Trust of India. The rebate in respect of contributions to this fund will be allowed from assessment year 1995-96 and onwards.
[Section 29]
FINANCE ACT, 1994
Relief for senior citizens
45.1 Under the provisions of section 88B, any person aged 65 years or above, having gross total income not exceeding Rs. 75,000, is allowed a special rebate of 20 per cent of the tax chargeable on his total income.
FINANCE ACT, 1994
45.2 The Finance Act has increased the tax rebate for senior citizens under section 88B from 20 per cent to 40 per cent and enhanced the qualifying limit of total income from Rs. 75,000 to Rs. 1 lakh.
FINANCE ACT, 1994
45.3 This amendment takes effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 30]
FINANCE ACT, 1994
Reduction in the rates of income-tax on long-term capital gains in certain cases
46.1 Under the provisions of section 112 of the Income-tax Act, prior to their amendment by the Finance Act, income-tax was leviable on the long-term capital gains in the case of the domestic companies at the rate of forty per cent. As the general rate of income-tax in the case of domestic companies has been reduced from fifty per cent (applicable to closely-held companies) and forty-five per cent (applicable to widely-held companies) to forty per cent, the Finance Act has amended section 112 to provide that the long-term capital gains in the case of domestic companies will be taxed at the reduced rate of thirty per cent.
FINANCE ACT, 1994
46.2 Similarly, prior to this amendment, the foreign companies were taxed on long-term capital gains at the rate of forty per cent and the non-resident partnerships, etc., were taxed at the rate of thirty per cent thereof. In the case of the non-resident individuals and Hindu undivided families, the income-tax rate on long-term capital gains is twenty per cent. As taxation at the uniform tax rate of twenty per cent has been provided on the income by way of interest, dividends, etc., in the case of foreign companies and the non-resident non-corporate assessees, section 112 has further been amended to provide that in their case, the income-tax rate on long-term capital gains will be twenty per cent.
FINANCE ACT, 1994
46.3 This amendment takes effect from 1st April, 1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 31]
FINANCE ACT, 1994
Taxation of income by way of interest, dividends, etc., at uniform rate in the case of the non-residents
47.1 Prior to the amendment made by the Finance Act, the income by way of dividends, interest and income in respect of units of Unit Trust of India and other specified mutual funds, was taxed at different rates in the case of the non-residents. These items of income were taxed at the rate of twenty-five per cent in the case of foreign companies, on gross basis, i.e., without deduction of any expenditure or allowance while computing the income. In the case of non-resident non-corporate persons, such items of income were taxed at the rates prescribed in the annual Finance Acts applicable to different categories of persons. In their case, the taxation of these items of income was on net basis, i.e., after allowing expenditure or allowances, as per the Income-tax Act, while computing the income. The taxation of these items of income in the case of non-resident non-corporate assessees is also needed to be done on gross basis in order to remove the complexity involved in determining the net income. Further, the tax rate provided on the aforesaid items of income in most of India’s tax treaties with other countries is below twenty per cent. India has tax treaties with as many as forty countries.
FINANCE ACT, 1994
47.2 Therefore, as a measure of rationalisation, the Finance Act has amended section 115A of the Income-tax Act, in order to provide that the income of a non-resident non-corporate assessee or a foreign company, by way of—
(i) dividends,
(ii) interest received from Government or an Indian concern on monies borrowed or debt incurred by Government or the Indian concern in foreign currency, or
(iii) income received in respect of units, purchased in foreign currency, of a Mutual Fund specified under clause (23D) of section 10 or of the Unit Trust of India,
shall be taxed at the rate of twenty per cent.
FINANCE ACT, 1994
47.3 Prior to this amendment, section 115A of the Income-tax Act provided for the taxation of the aforesaid items of income, except income in respect of units of Unit Trust of India, at the rate of twenty-five per cent in the case of the foreign companies.
FINANCE ACT, 1994
47.4 It has also been provided that no deduction in respect of any expenditure or allowance shall be allowed under any provision of the Income-tax Act in computing the aforesaid income of the non-resident non-corporate assessees and the foreign companies. Further, where the gross total income of these assessees consists only of the incomes mentioned at (i) to ( iii) in para 47.2, no deduction shall be allowed to them under Chapter VI-A of the Income-tax Act. However, where the gross total income includes the aforesaid incomes, the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by the said incomes.
FINANCE ACT, 1994
47.5 It has further been provided that it shall not be necessary for the aforesaid assessees to furnish a return of their income under sub-section (1) of section 139, if—
(a) the total income in respect of which they are assessable under the Act during the previous year consists only of the incomes referred to at (i) to (iii) in para 47.2, and
(b) the tax deductible at source under the provisions of Chapter XVII-B of the Act has been deducted from such income.
FINANCE ACT, 1994
47.6 Consequential amendments have been made to sections 44D, 57 and 196A of the Income-tax Act, in view of the amendments made to section 115A of the Income-tax Act.
FINANCE ACT, 1994
47.7 These amendments, except amendment to section 196A, take effect from 1st April, 1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years. The amendment in respect of section 196A applies from 1st June, 1994.
[Sections 17, 19, 32 and 41]
.
FINANCE ACT, 1994
Extension of the simplified procedure for small businessmen beyond assessment year 1994-95
48.1 A simplified procedure for small businessmen, carrying on certain specified businesses or any vocation, was introduced by the Finance Act, 1992. The Finance Act, 1993 extended the scheme to transport operators also. Under the scheme as it stood prior to the amendment made by the Finance Act, the income of a person was deemed to be Rs. 37,000. No deduction under Chapter VI-A (except section 80L) and rebate under Chapter VIII is allowed. The scheme was originally applicable for two assessment years, viz., assessment years 1993-94 and 1994-95.
FINANCE ACT, 1994
48.2 A person was eligible to opt for the scheme if—
- his income from such business or vocation did not exceed Rs. 37,000; and
- taxable income from any source other than the business or vocation did not exceed Rs. 5,000.
FINANCE ACT, 1994
48.3 The tax in respect of the deemed income of Rs. 37,000 amounted to Rs. 1,400 and for income up to Rs. 5,000 from any other source (as reduced by deduction under section 80L) is required to be paid at the appropriate rate, i.e., 20 per cent.
FINANCE ACT, 1994
48.4 The simplified procedure is an important measure to widen the tax base. It mobilises resources from small assessees without much compliance cost to them and administrative cost to the Government.
FINANCE ACT, 1994
48.5 With a view to continuing the simplified procedure beyond the two assessment years (1993-94 and 1994-95) for which it is applicable at present, section 115K has been amended to make the scheme open-ended. Power has now been given to prescribe in the rules any other business to which the scheme may be made applicable. This will prevent frequent amendment of the provision merely to extend the simplified procedure to other businesses.
FINANCE ACT, 1994
48.6 In order to widen the scope of the simplified procedure, the qualifying amount and the deemed income under the simplified procedure have been raised from Rs. 37,000 to Rs. 42,000.
FINANCE ACT, 1994
48.7 Some other amendments in the provisions have been made to avoid repeated mention of the specified businesses in several clauses. Reference to the business of plying trucks has been omitted in view of the specific provisions in this regard, introduced in the new section 44AE.
FINANCE ACT, 1994
48.8 These amendments take effect from 1-4-1995 and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Sections 33 and 34]
FINANCE ACT, 1994
Change in the due date for filing returns of income by companies
49.1 The Explanation to section 139(1) of the Income-tax Act, as it stood with effect from 1st April, 1989, provided that the due date for furnishing returns of income in the case of companies was to be the 31st day of December of the relevant assessment year. Prior to 1st April, 1989, the due dates by which the returns of income were required to be furnished by all the taxpayers, including the companies, were only two, i.e., 30th June and 31st July of the relevant assessment year. The staggering of the due date for furnishing returns in the case of companies to the end of the month of December of the relevant assessment year, had resulted in delay in the realisations by way of self-assessment tax. Further, the work of processing of returns of the companies could be taken up only towards the end of the assessment year.
FINANCE ACT, 1994
49.2 The Finance Act has, therefore, amended the Explanation to section 139(1) of the Income-tax Act, to provide that the due date for furnishing returns of income in the case of companies shall be the 30th day of November, instead of the 31st day of December.
FINANCE ACT, 1994
49.3 Section 44AB of the Income-tax Act contains provisions relating to audit of accounts of certain persons carrying on business or profession. As the "due date" specified in section 139 for companies has been amended and the period within which the accounts are required to be got audited is linked to the "due date" for furnishing returns, a consequential amendment has been made in the definition of "specified date" as contained in clause (ii) of the Explanation to section 44AB.
FINANCE ACT, 1994
49.4 These amendments take effect from 1st April, 1994 and will, accordingly, apply in relation to the assessment year 1994-95 and subsequent years.
[Sections 36 and 50]
FINANCE ACT, 1994
Direct appeal against prima facie adjustments
50.1 Under the provisions of section 143(1) or 143(1B), the Assessing Officer can make certain prima facie adjustments to the income or loss declared in a return of income. The assessee is required to pay tax on the enhanced income and is also liable to pay additional tax under section 143(1A) where there is such an enhancement of income or reduction of loss. There was, however, no right of appeal against the prima facie adjustments and consequential levy of tax and additional tax. The taxpayer was entitled to claim that the adjustments made to vary the income or loss were not correct and needed to be rectified as a mistake apparent from the record. The assessee had been given a right to file an appeal against the order on the rectification petition. In case the Assessing Officer had not disposed of the petition for rectification within three months from the end of the month in which the petition was filed, then only the assessee could file an appeal against the original adjustments contained in the intimation.
FINANCE ACT, 1994
50.2 To simplify this cumbersome procedure, the Finance Act has provided that an intimation sent to the assessee under section 143(1) or 143(1B) shall be deemed to be an appealable order for the purposes of section 246 of the Income-tax Act. In view of this amendment, the proviso to section 154(2) relating to filing of appeal against intimation in respect of which no order of rectification is passed by the Assessing Officer within the specified period, has been omitted.
FINANCE ACT, 1994
50.3 These amendments take effect from 1st June, 1994, and will, accordingly, apply to all intimations under section 143(1) or 143(1B) received by the assessees on or after 1st June, 1994.
[Sections 37, 38 and 46]
FINANCE ACT, 1994
Enlarging the scope of the provision regarding deduction of income-tax at source on payments by contractors to sub-contractors
51.1 Section 194C(2) of the Income-tax Act contains provisions relating to deduction of income-tax at source from payments made to a sub-contractor by a contractor. Prior to the amendment made by the Finance Act, these provisions were applicable only where the contractor was a resident person referred to in section 194C(1) of the Act, that is to say, he had taken a contract for carrying out any work, or for supply of labour for carrying out any work, from the Central Government or any State Government, a local authority, a statutory corporation or a company, etc. [i.e., the agencies specified in section 194C(1)]. In the recent past, certain instances had come to notice where the resident contractors entered into contracts with the Government of a foreign State, etc., and parcelled out the work of such contracts to sub-contractors who were also residents. In such cases, the payments made by the contractors to sub-contractors were not subject to the requirement of deduction of income-tax at source. The need is to bring these payments also within the scope of deduction of income-tax at source.
FINANCE ACT, 1994
51.2 The Finance Act has, therefore, amended section 194C(2) of the Income-tax Act, in order to provide that the expression "contractor" shall also include a contractor who is carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and the Government of a foreign State or a foreign enterprise or any association or body established outside India.
FINANCE ACT, 1994
51.3 This amendment takes effect from 1st June, 1994.
[Section 39]
FINANCE ACT, 1994
Provision for deduction of income-tax at source from income by way of rent
52.1 An effective method of widening the tax base is to enlarge the scope of deduction of income-tax at source. Apart from bringing in more persons in the tax net, it also helps in the reporting of correct incomes. An item of income which needs to be covered within the scope of deduction of income-tax at source is the income by way of rent. In a number of countries, such income is subject to deduction of income-tax at source.
FINANCE ACT, 1994
52.2 The Finance Act has, therefore, inserted a new section 194-I in the Income-tax Act relating to deduction of income-tax at source from rent. The new section provides that income-tax has to be deducted at source at the rate of twenty per cent on payments of rent beyond one hundred and twenty thousand rupees in a financial year made by any person other than an individual or a Hindu undivided family. The expression ‘rent’ has been defined in the Explanation to the section, to mean any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee.
FINANCE ACT, 1994
52.3 Section 197 of the Income-tax Act, relating to certificate, for deduction of income-tax at lower rate or for no deduction of income-tax in appropriate cases, has been amended to include income by way of rent within the scope of the said section. The application for such certificate has to be made in Form No. 13. The certificate by the concerned Assessing Officer has to be given in Form No. 15AA.
FINANCE ACT, 1994
52.4 Sections 198 to 200 and 202 to 205 of the Income-tax Act, relating to provisions in respect of deduction of income-tax at source, have been amended in consequence to the insertion of new section 194-I in the Act. The certificate of tax deducted at source from rent has to be given in Form No. 16A. The annual return of tax deducted at source from rent, has to be furnished in Form No. 26J.
FINANCE ACT, 1994
52.5 The aforesaid amendments take effect from 1st June, 1994.
[Sections 40, 42 and 43]
FINANCE ACT, 1994
Change in the number of instalments of advance tax and the amount payable thereunder in the case of companies
53.1 Section 211 of the Income-tax Act, prior to its amendment by the Finance Act, provided that advance tax on the current income, calculated in the manner laid down in section 209 of the Act, was payable by all the assessees who are liable to pay the same in three instalments during each financial year. The due date of, and the amount payable in, each such instalment, were as follows :
Due date of instalment Amount payable
On or before 15th September Not less than thirty per cent of such advance tax.
On or before 15th December Not less than sixty per cent of such advance tax, as reduced by the amount, if any, paid in the earlier instalment.
On or before 15th March The whole amount of such advance tax, as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments.
Thus, the first instalment of advance tax is payable only in the sixth month of the financial year and that instalment constitutes only thirty per cent of the total advance tax. The entire amount of advance tax is payable during the last seven months of the financial year. About two-thirds of the collection of advance tax comes from the companies. The spread of the payment of advance tax during the financial year, therefore, needs to be made more even in the case of companies.
FINANCE ACT, 1994
53.2 The Finance Act has, therefore, amended section 211 of the Income-tax Act to provide that all the companies, who are liable to pay advance tax, will, hereafter, pay advance tax in four instalments. The advance tax so payable in a financial year,—
(a) on or before 15th June, shall not be less than fifteen per cent;
(b) on or before 15th September, shall not be less than forty-five per cent;
(c) on or before 15th December, shall not be less than seventy-five per cent;
(d) on or before 15th March, shall be the whole amount,
of such advance tax.
FINANCE ACT, 1994
53.3 In the case of other assessees, who are liable to pay advance tax, the advance tax shall be payable in three instalments as earlier, i.e., on 15th September, 15th December and 15th March, the amount of each instalment also remaining uncharged.
FINANCE ACT, 1994
53.4 This amendment takes effect from 1st April, 1994 and will apply to payment of advance tax during the financial year 1994-95 and subsequent years.
FINANCE ACT, 1994
53.5 In consequence of the aforesaid amendment, sub-section (1) of section 234C of the Income-tax Act, relating to interest for deferment of advance tax, has also been amended. It has been provided that the shortfall for the purpose of charging interest for deferment of advance tax in the case of companies, which are liable to pay advance tax shall be the difference between,—
(i) fifteen per cent of the tax due on the returned income and the advance tax paid by the company on or before the 15th day of June,
(ii) forty-five per cent of the tax due on the returned income and the advance tax paid by the company on or before the 15th day of September, and
(iii) seventy-five per cent of the tax due on the returned income and the advance tax paid by the company on or before the 15th day of December.
It has also been provided that where the advance tax paid by the companies on or before the 15th day of June is not less than twelve per cent of the tax due on the returned income and the advance tax paid on or before the 15th day of September is not less than thirty-six per cent of the tax due on the returned income, then, the companies will not be liable to pay any interest on the amount of the shortfall on the aforesaid dates.
FINANCE ACT, 1994
53.6 The aforesaid amendment takes effect from 1-4-1995 and will, accordingly, apply to the assessment year 1995-96 and subsequent years.
[Sections 44 and 45]
FINANCE ACT, 1994
Enlarging the scope of levy of interest for deferment of advance tax
54.1 The whole amount of the advance tax payable is required to be paid on or before 15th March during the financial year. The proviso to section 211(1), however, provides that any amount paid by way of advance tax on or before the 31st day of March, is also to be treated as advance tax paid during the financial year. This proviso was inserted as certain High Courts had held that payment made after the 15th March during the financial year would not cease to be payment of advance tax. There is no penal provision in the law to enforce payment of the last instalment of advance tax by 15th March. The aforesaid proviso and the absence of a penal provision, have generated a tendency among the assessees to make payment of advance tax only towards the last day of the financial year.
FINANCE ACT, 1994
54.2 The Finance Act has, therefore, amended section 234C(1) of the Income-tax Act to provide that where the whole amount of advance tax paid by an assessee on or before the 15th day of March in the financial year is less than the tax due on the returned income, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent on the amount of the shortfall from the tax due on the returned income.
FINANCE ACT, 1994
54.3 The calculation of interest as a result of the aforesaid amendment, may be illustrated by means of the following examples:
Example I : Where an assessee has paid sums of Rs. 300 on 15th September, Rs. 300 on 15th December and Rs. 400 on 20th March, by way of advance tax and the tax due on his returned income is Rs. 1000, he will be liable to pay interest of Rs. 6, i.e., at the rate of one and one-half per cent on the amount of shortfall of advance tax paid on or before 15th March from the tax due on the returned income, i.e., Rs. 400 (Rs. 1000 — Rs. 600).
Example II : Where an assessee, who is liable to pay advance tax, has failed to pay such tax during the financial year and the tax due on his returned income works out to Rs. 1000, he will be liable to pay interest of Rs. 15, i.e., at the rate of one and one-half per cent on the amount of shortfall of advance tax payable on or before 15th March from the tax due on the returned income, i.e., Rs. 1000 (Rs. 1000 — 0). Further, he shall also be liable to pay interest under section 234C on the amount of the shortfall on the other specified dates, i.e., 15th June (in the case of a company only), 15th September and 15th December.
FINANCE ACT, 1994
54.4 This amendment takes effect from 1st April, 1995 and will accordingly, apply in relation to assessment year 1995-96 and subsequent years.
[Section 15]
FINANCE ACT, 1994
Amendment of section 269 of the Income-tax Act relating to definition of High Court
55.1 Section 269 of the Income-tax Act defines " High Court". Sub-clause (i) defines High Court, in relation to any State, as the High Court for that State. Sub-clauses (ii ) to (vii) define High Court in relation to Union Territories. As the Union Territories of Arunachal Pradesh, Mizoram and Goa have become States, the Finance Act has amended section 269 in order to omit clause (iii) and amend clause (vi) thereof.
FINANCE ACT, 1994
55.2 This amendment takes effect from 1st April, 1995.
[Section 47]
FINANCE ACT, 1994
Delegation of power to Chief Commissioner and Directors General to approve reduction or waiver of penalty
56.1 For assessment year 1988-89 and earlier years, the provisions of section 273A, as these stood prior to the amendment by the Finance Act, allowed the Commissioner or the Chief Commissioner to reduce or waive penalty under section 271(1)(i) or section 271(1)(iii) or section 273 or interest under section 139(8) or section 215 or section 217. Where the quantum of penalty exceeded certain monetary limits, the provisions of sub-section (2) and sub-section (4) of section 273A provided that the Commissioner or the Chief Commissioner could pass the order reducing or waiving the penalty on satisfaction of certain conditions specified in sub-section (1) and sub-section (4) of section 273A, only with the previous approval of the Board.
FINANCE ACT, 1994
56.2 For the purpose of facilitating quicker disposal of cases (relating to the aforesaid assessment years) covered under section 273A, the Finance Act provides that when the Commissioner passes the order of reduction or waiver of penalties wherever the previous approval is necessary in terms of sub-section (2) or sub-section (4), such approval is to be given by the Chief Commissioner or, as the case may be, the Director General and not by the Board. Only the Commissioner is to pass the order. Similar provisions already exist for the cases covered under section 273A pertaining to assessment year 1989-90 and subsequent years. The Board will, therefore, not be required to give any approval for passing an order under this section for any assessment year. As a result of this amendment, the cases pending with the Board for approval stand transferred to the Chief Commissioners and Directors General.
FINANCE ACT, 1994
56.3 This amendment takes effect from 1st June, 1994.
[Section 48]
FINANCE ACT, 1994
Laying of rules of procedure framed by Income-tax Appellate Tribunal, etc.
57.1 Section 255(5) of the Income-tax Act gives power to the Appellate Tribunal to regulate its own procedure and the procedure of its Benches in all the matters arising out of the exercise of its power or of the discharge of its functions including the places at which the Benches shall hold their sittings. In exercise of this power, the Appellate Tribunal made its rules called the Income-tax Appellate Tribunal Rules, 1963, by Notification No. 1-IT/63, dated 17-4-1963.
FINANCE ACT, 1994
57.2 The Committee on Subordinate Legislation had recommended an amendment to the Income-tax Act to incorporate a provision for laying of the rules of procedure framed by the Income-tax Appellate Tribunal before both the Houses of Parliament. In pursuance of this recommendation, the Finance Act has amended the provisions of section 296 to provide that the rules of procedure framed by the Appellate Tribunal under section 255 shall be laid before both the Houses of Parliament.
FINANCE ACT, 1994
57.3 Since the Settlement Commission as also the Authority for Advance Rulings, have similar powers to regulate their own procedure, under sections 245F(7) and 245V of the Income-tax Act respectively, in all matters arising out of the exercise of their powers or of the discharge of their functions, section 296 has been amended to provide that the rules of procedure framed by the Settlement Commission and by the Authority for Advance Rulings shall also be laid before both the Houses of Parliament.
FINANCE ACT, 1994
57.4 Corresponding amendment has been made to section 46 of the Wealth-tax Act.
FINANCE ACT, 1994
57.5 This amendment takes effect from 1st June, 1994.
[Sections 49 & 53]