INCOME-TAX ACT
Finance Act, 1992
Enlarging the meaning of definition of the expression "company
in which the public
are substantially interested"
14. The definition of the expression
"company in which the public are substantially
interested" is provided in clause (18)
of section 2 of the Income-tax Act. The company
fulfilling the requirements of any one of sub-clauses of clause (18)
of section 2 is treated
as a company in which the public are substantially interested and is taxed at a rate lower
than the rate applicable to other companies. Under the hitherto existing provision, a
company formed by cooperative societies could not be treated as a company in which the
public are substantially interested.
Finance Act, 1992
14.1 An amendment has been made
by the Finance Act, 1992 to insert a new sub-clause
(ad) in clause (
18) of section 2 of the Income-tax Act to provide that a
company where
shares carrying not less than fifty per cent of the voting power have been allotted
unconditionally to, or acquired unconditionally by, and are throughout the relevant
previous year held by one or more co-operative societies shall be treated as a "company
in which the public are substantially interested".
Finance Act, 1992
14.2 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to assessment year 1993-94 and onwards.
[Section 3]
Finance Act, 1992
Modification of the provisions regarding "rates in force"
15. Under the scheme of deduction
of tax at source as it hitherto existed, even in cases
where a lower rate of tax is provided with regard to an item of income in a tax treaty
entered into by the Central Government with the Government of a country outside India,
tax had to be deducted at the rate prescribed in the Income-tax Act or the relevant
Finance Act. As a result, in many cases, the amount of tax deducted from sums remitted
to the residents of tax treaty partner countries was larger than the final tax liability, thus
requiring filing of claims for refund.
Finance Act, 1992
15.1 With a view to correcting
this position, the Act amends section 2(37A)
of the
Income-tax Act to secure that deduction of tax at source from payments made to non-residents will be
at the rate or rates of tax specified in an agreement entered into by the
Central Government under section 90 of the Income-tax Act or the rate or rates of tax
specified in the annual Finance Act, whichever is applicable.
Finance Act, 1992
15.2 This amendment takes effect
from 1st June, 1992.
[Section 3]
Finance Act, 1992
Provision for income-tax exemption on winnings from horse races
16. The income-tax exemption
available to income by way of winnings from races
including horse races, to the extent such income does not exceed five thousand rupees,
was withdrawn with effect from 1st October, 1991. It had been represented that it is
difficult for the recipients of the aforesaid income to keep a record of small amounts
received. Therefore, the Act seeks to amend clause (3)
of section 10 of the Income-tax
Act, to provide that winnings from races including horse races will not be included in the
total income of a person, to the extent such receipts do not exceed two thousand five
hundred rupees in the aggregate in a previous year.
Finance Act, 1992
16.1 This amendment takes effect
from 1st April, 1992.
[Section 4]
Finance Act, 1992
Modification of the provisions of sections 10(6)(viia), 10(6A) and 115A
of the
Income-tax Act
17. Section 10(6
)(viia)
of the Income-tax Act provides for exemption from income-tax of
the tax paid by the employer on behalf of the foreign technicians for a maximum period
of 48 months from the date of his arrival in India, subject to certain conditions. One of
the conditions is that the contract of service of the technician in India is approved by the
Central Government.
Finance Act, 1992
17.1 Section 10(6A
) of the Income-tax Act provided that where in the case of a foreign
company deriving income by way of royalty or fees for technical services received from
the Government or an Indian concern in pursuance of an agreement made after the 31st
day of March, 1976 and approved by the Central Government, the tax on such income
was payable, under the terms of such agreement, by Government or the Indian concern,
the tax so paid was not to be included in the total income of the foreign company.
Finance Act, 1992
17.2 Section 115A of the Income-tax
Act provided that where the total income of a
foreign company included any income by way of royalty or fees of technical services
received from the Government or an Indian concern in pursuance of an agreement made
after the 31st day of March, 1976 and where such agreement was with an Indian concern,
the agreement was approved by the Central Government, the income-tax payable on
income by way of royalty or fees for technical services was to be thirty per cent thereof.
Finance Act, 1992
17.3 The Government tabled a
Statement on Industrial Policy in both the Houses of
Parliament on July 24, 1991. A copy of the statement is annexed to this circular. The
statement has substantially liberalised the provisions and simplified the procedure
regarding foreign technology agreements. For hiring of foreign technicians, no approval
of the Government is henceforth necessary. For foreign testing of indigenous raw
materials and products and indigenously developed technology, the powers of the
Government have been delegated to the Reserve Bank of India.
Finance Act, 1992
17.4 The Act, therefore, amends,—
(
i) section
10(6)(viia
) of the Income-tax Act, so as to omit the condition of
approval by the Central Government of the contract of service of a foreign technician or
extension of his employment after a period of 24 months commencing from the date of
his arrival in India,
(
ii) section 10(
6A) of the Income-tax Act to provide that the agreement under
which royalty or fees for technical services received by a foreign company, should either
be approved by the Central Government or where the agreement relates to a matter
included in the Industrial Policy, for the time being in force, of the Government of India,
such agreement is in accordance with that policy, and
(
iii) section 115A of the Income-tax
Act to provide that the agreement under
which royalty or fees for technical services received by a foreign company from an
Indian concern, should be either approved by the Central Government or where the
agreement relates to a matter included in the Industrial Policy, for the time being in force,
of the Government of India, such agreement is in accordance with that policy.
Finance Act, 1992
17.5 These amendments take effect
from 1st June, 1992.
[Sections 4 and 54]
Finance Act, 1992
Modification of the provisions relating to exemption in respect of payments
under
voluntary retirement schemes
18. Section 10(10C
) of the Income-tax Act, as it existed prior to 1st June, 1992, exempted
from income-tax any payment received by an employee of a public sector company at the
time of his voluntary retirement in accordance with any scheme which the Central
Government may, having regard to the economic viability of such company and other
relevant circumstances, approved in this behalf. This exemption is available to any
employee, whether a workman or an executive.
Finance Act, 1992
18.1 With a view to making themselves
economically viable, a number of companies in
the private sector have formulated schemes for payment of lump sum compensation and
some other terminal benefits to the workmen and the executives on voluntary retirement.
It had been represented that the monetary benefit of the compensation received got
diluted as the compensation was subjected to income-tax.
Finance Act, 1992
18.2 The Act, therefore, amends
section 10(10C) of the
Income-tax Act to provide
income-tax exemption to any amount received by an employee of a public sector
company or of any other company at the time of his voluntary retirement in accordance
with any scheme or schemes of voluntary retirement. The schemes of the said companies
are to be in accordance with the guidelines prescribed which may include the criteria of
economic viability. In the case of companies other than public sector companies, the
schemes are to be approved by the Chief Commissioner or Director-General.
Finance Act, 1992
18.3 This amendment takes effect
from 1st April, 1993 and, accordingly, applies to
assessment year 1993-94 and subsequent assessment years.
[Section 4]
Finance Act, 1992
Provision for exemption from income-tax on interest payable by SIDBI
on moneys
borrowed by it from sources outside India
19. Section 10(15
)(iv)(
d) of the Income-tax Act provides that interest payable by
certain
financial institutions on moneys borrowed by them from sources outside India, to the
extent to which such interest does not exceed the amount of interest calculated at the rate
approved by the Central Government in this behalf, having regard to the terms of the loan
and its repayment, shall not be included in the total income of the person. The effect of
the aforesaid provision is that the cost of borrowing in the case of the financial
institutions specified in the said item is reduced.
Finance Act, 1992
19.1 The Act amends section
10(15)(iv
)(d)
of the Income-tax Act with a view to
including Small Industries Development Bank of India among the financial institutions
mentioned in the said item.
Finance Act, 1992
19.2 This amendment takes effect
retrospectively from 1st April, 1992.
[Section 4]
Finance Act, 1992
Enlarging the scope of the provision relating to exemption of income
of specified
mutual funds
20. Section 10(23D
) of the Income-tax Act hitherto provided exemption from income-tax
to any of such Mutual Funds set up by a public sector bank or a financial institution as
the Central Government may by notification in the Official Gazette, specify in this
behalf. Government had agreed in principle to allow Mutual Funds to be set up in the
joint sector and the private sector. With a view to providing exemption from income-tax
to the income of such Mutual Funds, the Act enlarges the scope of clause (23D)
of
section 10 by including therein the Mutual Funds authorised by the Securities and
Exchange Board of India and the Reserve Bank of India. The expression "Securities and
Exchange Board of India" has been defined for the purposes of this clause.
Finance Act, 1992
20.1 This amendment takes effect
from 1st April, 1993 and will, accordingly, apply in
relation to assessment year 1993-94 and subsequent assessment years.
[Section 4]
Finance Act, 1992
Income-tax exemption to co-operative societies promoting the interests
of the
members of the scheduled castes and the scheduled tribes
21. Section 10(26B
) of the Income-tax Act provides for income-tax exemption in respect
of income derived by any body, institution or association wholly financed by the Central
or State Government where such body, institution or association has been set up for
promoting the interests of the members of the Scheduled Castes or Scheduled Tribes.
Certain co-operative societies which are so set up, however, did not get this concession as
these were not wholly financed by the Government. In order to provide income-tax
exemption to the income of such co-operative societies, the Act inserts a new clause (27
)
in section 10 of the Income-tax Act to provide that any income of such a co-operative
society whose membership consists only of other co-operative societies and such society
is financed by the members thereof and the Government, will be exempt from income-tax.
Finance Act, 1992
21.1 This amendment takes effect
retrospectively from 1st April, 1989, and will,
accordingly, apply, in relation to assessment year 1989-90 and subsequent assessment
years.
[Section 4]
Finance Act, 1992
Exemption of compensation received by victims of Bhopal Gas Leak Disaster
22. Pursuant to the decision
of the Supreme Court, victims of Bhopal Gas Leak Disaster
are to be paid compensation in accordance with the provisions of the Bhopal Gas Leak
Disaster (Processing of Claims) Act, 1985. With a view to providing relief to these
persons, a new clause (10BB)
has been inserted by the Finance Act, 1992 in section 10 of
the Income-tax Act providing for exemption from income-tax to such compensation.
However, compensation received by an assessee in respect of an expenditure which has
been incurred and allowed as a deduction from taxable income, will not be exempt from
income-tax.
Finance Act, 1992
22.1 This clause comes into
effect from 1st April, 1992 and, accordingly, applies in
relation to assessment year 1992-93 and subsequent assessment years.
[Section 4]
Finance Act, 1992
Provisions relating to charitable trusts and other institutions
23. Under the existing provisions
of section 13(1)(d) of
the Income-tax Act, exemption
from income-tax provided to a charitable or religious trust or institution will be forfeited
if any funds of the trust or institution are invested or deposited after 28th February, 1983,
otherwise than in any one or more of the forms or modes specified in section 11(5) of the
Act. The specified forms or modes of investment, generally, are Government securities,
units of the Unit Trust of India, bonds issued by certain financial corporations, deposits in
Post Office Savings Bank or in any scheduled bank or immovable property other than
plant or machinery. However, the proviso to section 13(1)(d)
provided that the aforesaid
provisions shall not apply to,—
(
i) any assets
held by the trust or institution where such assets form part of
the corpus of the trust or institution as on the 1st day of June, 1973 and such assets were
not purchased by the trust or institution or acquired by it by conversion of, or in exchange
for, any other asset,
(
ii) any debentures
of a company or a corporation acquired before 1st March,
1983.
So far as the assets not conforming to the provisions of section 11(5)
are concerned, the
proviso to section 13(1)(d)
provided that holding such assets would not make the trust or
institution lose tax exemption if such assets were disposed of or converted into
permissible investments within one year from the end of the financial year in which such
assets were received on 31st March, 1992, whichever was later.
Finance Act, 1992
23.1 Certain anomalies and hardships
arising out of the requirements of the aforesaid
investment pattern had been brought to the notice of the Government. With a view to
removing these, the Act,—
(
i) amends
clause (i) in the proviso
to section 13(1)(d) to
provide that the
provisions of section 13(1)(d)
shall not apply in relation to assets held by the trust or
institution where such assets form part of the corpus of the trust or institution as on the
1st day of June, 1973, irrespective of the fact whether such assets are held originally by
the trust or institution or they are acquired by conversion or exchange of the original
assets or purchased out of the sale proceeds on transfer of the original assets, as the case
may be,
(
ii) inserts a new
clause (ia) in the proviso
to section 13(1)(d) so
that it shall
not apply in relation to any accretion to the assets, being shares of a company, forming
part of the corpus of the trust or institution, as on 1st June, 1973 where such accretion
arises by way of allotment of bonus shares,
(
iii) amends clause (
iia) in the proviso to section 13(1)(d
) to provide that
where an asset, other than an investment or deposit mentioned in section 11(5), is held by
the trust or institution, and can be disinvested by 31st day of March, 1992, it can now be
disinvested by 31st day of March, 1993.
Finance Act, 1992
23.2 The amendments at (
i) and (ii)
above take effect retrospectively from 1st April,
1983, and the amendment at (iii)
takes effect from 1st April, 1992.
Finance Act, 1992
23.3 Under the provisions of
section 10(21), section
10(23), and clauses (
iv) and (v)
of
section 10(23C) of the
Income-tax Act, the notified scientific research associations, the
notified sports associations or institutions, the notified charitable funds or institutions and
the notified wholly public religious and charitable trusts or institutions are required to
invest or deposit their funds in any one or more of the forms and modes specified in
section 11(5) of the Income-tax Act. If there is a violation of the aforesaid requirement,
the exemption from income-tax is denied to such associations, institutions, trusts, etc. It is
also provided that where the funds are not so invested, such investments are to be
converted into permissible investments by 30th March, 1992.
Finance Act, 1992
23.4 It had been represented
that whereas the trusts or institutions which claim exemption
under section 11 are allowed to retain the assets forming part of their corpus as on 1st
June, 1973 or debentures of a company or corporation acquired before 1st March, 1983,
this facility was not available to the associations, institutions, trusts, etc., referred to in
sections 10(21), 10(
23) and clauses (iv)
and (v) of section 10(
23C).
Finance Act, 1992
23.5 The Act, therefore, amends
the aforesaid provisions to provide that in case of the
associations, institutions, funds or trusts referred to in sections 10(21),
10(23) and clauses
(iv) and (v
) of section 10(23C),
the requirement of investment of funds in any one or
more of the forms or modes specified in section 11(5) will not be insisted upon in certain
cases. It provides that (i)
funds held by these associations or institutions, etc., and
forming part of their corpus as on 1st June, 1973 and any accretion thereto by way of
bonus shares, and (ii)
debentures acquired by them before 1st March, 1983, are not to be
disinvested.
Finance Act, 1992
23.6 These amendments take effect
retrospectively from 1st April,1990.
Finance Act, 1992
23.7 Further, the period of
disinvestment of funds held otherwise than in the forms or
modes specified in section 11(5) has been extended from 30th March, 1992 to 30th
March, 1993.
Finance Act, 1992
23.8 This amendment takes effect
from 1st April, 1992.
[Sections 4 and 5]
Finance Act, 1992
Tax incentive to working women
24. Under section 16 of the
Income-tax Act, a standard deduction of a sum equal to 331/3
per cent of the salary or twelve thousand rupees, whichever is less, is allowed in
computing the income under the head "Salaries".
Finance Act, 1992
24.1 With a view to giving an
incentive to women to take up jobs and to improve their
socio-economic conditions, the Finance Act seeks to provide for a higher standard
deduction of fifteen thousand rupees in respect of working women whose total income
before making the standard deduction does not exceed seventy-five thousand rupees.
Finance Act, 1992
24.2 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to the assessment year 1993-94 and subsequent years.
[Section 7]
Finance Act, 1992
Exemption of perquisite in the form of medical benefits provided by
employer in
private hospitals
25. For the purpose of computing
income under the head "Salaries", the taxable salary
includes the value of any benefit or amenity granted free of charge or at concessional rate
by the employer. Section 17 of the Income-tax Act, however, provides for exemption
from tax in respect of perquisite in the form of medical facilities provided by the
employer. 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, local authority, or in a hospital approved by the
Government for the purposes of medical treatment of its employees.
Finance Act, 1992
25.1 The restriction that, for
claiming exemption, medical treatment should be in a
hospital approved by the Government, leaves out all cases where the treatment has been
undergone in a hospital not so approved. With a view to mitigating this hardship, the
Finance Act has liberalised the provisions relating to medical benefit provided by the
employer in case of hospitalisation. The exemption has now been extended to expenses
incurred by the employer on medical treatment of the employee or his family in hospitals
other than those approved by the Government for the medical treatment of its employees.
However, this concession will be allowed only where the payment in respect of the
expenditure is made directly by the employer to the hospital and in respect of specified
diseases or ailments which have been prescribed in the Income-tax Rules. The hospitals
and nursing homes, treatment in which the concessions will be extended to, will be those
approved by the Chief Commissioner of Income-tax in accordance with prescribed
guidelines.
Finance Act, 1992
25.2 Under the existing provisions
of section 17 of the Income-tax Act, there is a
restriction that the expenditure on travel abroad for medical treatment would be exempt
only in the case of employees whose gross total income is up to Rs. 1,00,000. With a
view to extending the scope of the exemption to a larger number of employees, this limit
has been raised to employees whose gross total income is up to Rs. 2,00,000.
Finance Act, 1992
25.3 These amendments will take
effect from 1st April, 1993 and will, accordingly, apply
in relation to assessment year 1993-94 and subsequent years.
[Section 8]
Finance Act, 1992
Modifications relating to house property income
26. Under the provisions of
the second proviso to sub-section (1) of section 23 of the
Income-tax Act, a deduction of Rs. 3,600 is allowed from the annual value of a house
property, in respect of new residential units. The deduction is allowed for a period of five
years from the date of completion of such unit.
Finance Act, 1992
26.1 As part of a package which
includes reduction in the rate of personal taxation and
raising of the exemption limit, the provisions relating to house property income have
been rationalised. The Finance Act has, accordingly, amended section 23 of the Income-tax Act in order
to provide that no deduction will be allowed for new residential units
completed after 31st March, 1992.
Finance Act, 1992
26.2 Under the provisions of
section 24 of the Income-tax Act, deduction is allowed at
the rate of 1/6th of the "annual value" towards repair of the house property. Another item
under section 24 relates to deduction in respect of collection charges. This deduction is
based on actual subject to a maximum of 6% of the "annual value" of the property. In
practice, however, many taxpayers claim deduction of the entire 6% of the "annual value"
as collection charges, irrespective of the actual expenditure incurred. This leads to
avoidable disputes and administrative work, without any significant revenue implication.
Finance Act, 1992
26.3 With a view to rationalising
and simplifying the aforesaid deductions, the Finance
Act has provided for a composite standard deduction both for repair of the house property
and for collection of rent of an amount equal to 1/5th of the "annual value" of the
property.
Finance Act, 1992
26.4 Section 24 of the Income-tax
Act also provides for a deduction in respect of the
current interest liability on money borrowed for the acquisition, construction, repair,
renewal or construction of the property. It has been noticed that in many cases, taxpayers
show negative income from house property, largely because of the deduction allowed in
respect of interest on money borrowed. This negative income is then set off against
income from other sources such as salaries, business or professional income, etc.
Finance Act, 1992
26.5 The Finance Act has amended
the provisions in Chapter VI of the Income-tax Act,
relating to carry forward and set off, with a view to providing that the loss from house
property will not be allowed to be set off against income under any other head of income.
Further, the carry forward of loss of any year from house property will be allowed to be
set off only against income from house property of subsequent years.
Finance Act, 1992
26.6 These amendments will take
effect from 1st April, 1993, and will, accordingly apply
in relation to assessment year 1993-94 and subsequent years.
[Sections 9, 10, 37 and 38]
Finance Act, 1992
Extension of benefit of section 33AC to Government shipping companies
27. Under the provisions of
section 33AC of the Income-tax Act, before being amended
by the Finance Act, a deduction of an amount credited to a reserve account for the
purpose of utilisation in a specified manner was allowed, subject to certain conditions, in
case of a public company formed and registered in India with the main object of carrying
on the business of operation of ships. This deduction was not available to Government
companies.
Finance Act, 1992
27.1 An amendment has been made
to section 33AC which extends the benefit of
deduction to a Government company as defined in section 617 of the Companies Act,
1956.
Finance Act, 1992
27.2 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to the assessment year 1993-94 and subsequent assessment years.
[Section 12]
Finance Act, 1992
Deferment of unabsorbed carried forward depreciation and investment
allowance
28. Under the existing provisions
of Income-tax Act, unabsorbed depreciation allowance
and unabsorbed investment allowance are allowed as deductions in the computation of
income from business or profession.
Finance Act, 1992
28.1 The Finance Act, 1992 has
introduced a new section 34A in the Income-tax Act to
provide that in the case of domestic companies, only sixty-six and two-third per cent of
unabsorbed depreciation allowance or unabsorbed investment allowance or the aggregate
of such allowances carried forward from earlier years shall be allowed to be deducted
from the business income and the balance shall be carried forward and allowed in the
subsequent years until the same is absorbed. However, to ensure that marginal cases are
not affected, the operation of this amendment has been restricted only to cases where
such brought forward allowance is Rs. 1,00,000 or more.
Finance Act, 1992
28.2 The provisions relating
to charging of interest under sections 234B and 234C of the
Income-tax Act will not apply to any shortfall in the payment of any tax due on the
assessed income or returned income where such shortfall is due to the restriction on the
quantum of unabsorbed depreciation or investment allowance and the assessee has made
good the shortfall by paying the amount before filing the return of income under section
139(1).
Finance Act, 1992
28.3 This section will take
effect from 1st April, 1992 and will, accordingly, apply in
relation to the assessment year 1992-93 only.
[Section 13]
Finance Act, 1992
Enlarging the meaning of "financial corporation" to include
"Government
company"
29. Under the provisions of
clause (viii) of sub-section
(1) of section 36 of the Income-tax Act, a deduction in respect of a special reserve of an amount not
exceeding 40% of
the total income, as stipulated therein, carried to such reserve account is allowed, within
specified limits, inter alia,
to a financial corporation engaged in providing long-term
finance for industrial or agricultural development.
Finance Act, 1992
29.1 The term "financial
corporation" has been defined in the Explanation
to the
aforesaid clause to include a public company. It has been provided in clause (b)
of the
Explanation that public
company shall have the meaning assigned to it in section 3 of the
Companies Act, 1956. As the expression "public company" does not include
"Government company", the deduction was not available to Government companies. The
Finance Act has enlarged the definition of "financial corporation" so as to include
"Government company" as defined in section 617 of the Companies Act, 1956 to become
eligible for deduction under clause (viii)
of sub-section (1) of section 36.
Finance Act, 1992
29.2 This amendment will take
effect retrospectively from 1st April, 1987 and will,
accordingly, apply in relation to assessment year 1987-88 and subsequent assessment
years.
[Section 14]
Finance Act, 1992
Increasing the limit of allowable business expenses
30. Under section 37 of the
Income-tax Act, there were restrictions on the quantum of
expenses allowable as entertainment expenditure. Similarly, there were restrictions under
sub-section (12) of section 40A of the Income-tax Act on the admissible expenditure for
services in connection with any proceeding under the Income-tax Act.
Finance Act, 1992
30.1 The Finance Act has liberalised
the allowable deductions as under:—
(
a) In respect of
entertainment expenditure, actual expenditure up to Rs.
10,000 and 50% of the balance. This has been done by substitution of a new sub-section
(2) for sub-sections (2) and (2A) in section 37 of the Income-tax Act;
(
b) In respect of
expenditure for services in connection with any proceeding
under the Income-tax Act, the actual expenses. This has been achieved by omission of
sub-section (12) of section 40A.
Further, in case of articles of gifts the income-tax rules have been amended
by the
Income-tax (Tenth Amendment) Rules, 1992 to provide that in respect of each article of
gift 100% of the actual expenses up to Rs. 1,000 will be allowed and if the cost is more
than Rs. 1,000 then 50% of the balance. Similarly, in case of hotel expense the income-tax rules have
also been amended and it has been provided that actual expenses up to Rs.
1,500 per day will be allowed and if the expenditure exceeds Rs.1,500, 75% of the
balance will be allowed.
Finance Act, 1992
30.2 The operation of these
provisions will take effect from 1st April, 1993 and will,
accordingly, apply for the assessment year 1993-94 and onwards.
[Sections 15 & 17]
Finance Act, 1992
Provision for taxing of benefit by way of remission or cessation of
trading liability in
the hands of recipient
31. Under the provisions of
sub-section (1) of section 41 of the Income-tax Act, where an
assessee who has been allowed deduction in respect of any loss, expenditure or trading
liability in any year obtains any amount in respect of such loss or expenditure or any
benefit in respect of trading liability by way of remission or cessation thereof, the amount
obtained by him or the value of benefit accruing to him is deemed to be profits and gains
of business or profession. However, it has been held by Courts that such an amount or
benefit can be charged to tax only if the assessee who receives the amount or benefit is
the same person who was allowed the deduction earlier.
Finance Act, 1992
31.1 With a view to ensuring
that there is no loss of revenue and undue enrichment, sub-section (1) of section 41 has been substituted
by the Finance Act, 1992 so as to bring to
tax the amount or benefit, as the case may be, also in cases where the recipient is a
successor in business and is other than the person who was allowed the deduction earlier.
Finance Act, 1992
31.2 This provision will take
effect from 1st April, 1993 and will, accordingly, apply for
the assessment year 1993-94 and subsequent assessment years.
[Section 18]
Finance Act, 1992
Raising of monetary ceiling of income and turnover for the purpose of
maintenance
of accounts
32. Under the provisions of
section 44AA of the Income-tax Act, every person carrying
on business or profession other than the profession specified in sub-section (1) thereof
(legal, medical, engineering profession, etc.) is to keep and maintain such books of
account and other documents as may enable the Assessing Officer to compute his total
income in accordance with the provisions of the Income-tax Act, if,—
(
i) his income
from business or profession exceeds Rs. 25,000 or his total
sales, turnover or gross receipts exceed rupees two hundred and fifty thousand in any one
of the three years immediately preceding the previous year, or
(
ii) his income from
business or profession, where the business or profession
is newly set up in any previous year, is likely to exceed twenty-five thousand rupees or
his total sales, turnover or gross receipts are likely to exceed two hundred and fifty
thousand rupees, during such previous year.
Finance Act, 1992
32.1 The aforesaid monetary
limits were prescribed in 1976. As a measure of
rationalisation, the Finance Act has amended section 44AA of the Income-tax Act to
provide that the monetary limits of income and total sales, etc., specified in sub-section
(2) of section 44AA of the Income-tax Act, shall be revised from twenty-five thousand
rupees to forty thousand rupees and from two hundred and fifty thousand rupees to five
hundred thousand rupees, respectively.
Finance Act, 1992
32.2 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to the assessment year 1993-94 and subsequent assessment years.
[Section 19]
Finance Act, 1992
Exclusion of persons assessed on presumptive basis from requirement
of
compulsory audit
33. Under section 44AB of the
Income-tax Act, every person carrying on business or
profession is required to get his accounts audited, if his total sales in business or gross
receipts of profession exceed Rs. 40 lakhs or Rs. 10 lakhs, respectively.
Finance Act, 1992
33.1 The purpose of compulsory
audit under the provisions of section 44AB is to ensure
that the true income is reflected in the return of income through the books of account,
duly audited. However, under sections 44AC, 44B, 44BB, 44BBA and 44BBB, income
chargeable to tax is determined on presumptive basis and the provisions of sections 28 to
43C do not apply. Accordingly, assessees deriving income of the nature referred to in the
aforesaid provisions, have been excluded from the purview of the compulsory audit.
Finance Act, 1992
33.2 The amendment will take
effect retrospectively from 1st April, 1985 and will,
accordingly, apply to assessment year 1985-86 and subsequent assessment years.
[Section 20]
Finance Act, 1992
Withdrawal of presumptive tax in respect of certain trades
34. Under section 44AC of the
Income-tax Act, for computing profits and gains of
persons engaged in the trading of country liquor, timber obtained under forest lease,
timber obtained by any other mode other than under a forest lease and any other forest
produce not being timber, a prescribed percentage of the purchase price is deemed to be
the profit in respect of trading in such specified goods.
Finance Act, 1992
34.1 Having regard to the controversy
on the interpretation of the provisions of section
44AC and the administrative difficulties in the implementation of this provision, this
section has been deleted through the Finance Act.
Finance Act, 1992
34.2 This amendment takes effect
from 1st April, 1993 and accordingly, applies in
relation to the assessment year 1993-94 and subsequent years.
Finance Act, 1992
34.3 However, section 206C providing
for collection of tax at source in respect of these
cases shall continue to remain in force with certain amendments consequential to the
deletion of section 44AC of the Income-tax Act. The amended section takes effect from
1st April, 1992.
[Sections 21 and 79]
Finance Act, 1992
Taxation of capital gains
35. The Finance Act has recast
the system of taxation of long-term capital gains. At
present, an asset is considered to be long-term if it is held for a period of more than 36
months except for shares of a company, where the period of holding should be more than
12 months. This definition continues to be the same in the changed format. In the scheme
prior to 1-4-1992 a basic deduction of Rs. 15,000 and a fixed percentage of the balance
amount of capital gains was allowed as deduction under section 48(2). The percentage
depended on the nature of the asset and the status of the assessee, but was unrelated to the
length of the period of holding. This deduction was intended to give a rough and ready
relief for inflation, to counteract bunching of profits and to exclude from the tax net
capital gains which were relatively small. As an additional measure to offset the effect of
inflation, all appreciation before 1-4-1974 in the value of assets was excluded from
taxation. A fair method of allowing relief for these factors is to link it to the period of
holding. For this purpose, the cost of acquisition of and the cost of improvement to the
asset are to be inflated to arrive at the indexed cost of acquisition and indexed cost of
improvement and then deduct these amounts from the sale consideration to arrive at the
long-term capital gains. The cut-off date for assets held for purposes of indexation is
taken as 1-4-1981. Accordingly, for an asset acquired before this date its value as on 1-4-1981 will
be taken for indexation. The cost of improvement after this date only will be
taken into account for indexation.
Finance Act, 1992
35.1 As per the revised format
of section 48, the long-term capital gains arising out of
sale of a long-term asset is to be computed by deducting from the full value of the
consideration received or accruing as a result of the transfer of the capital asset the
following amounts :—
(
i) Expenditure
incurred wholly and exclusively in connection with such
transfer;
(
ii) The indexed
cost of acquisition of the asset and the indexed cost of any
improvement thereto.
Finance Act, 1992
35.2 "Indexed cost of acquisition"
means an amount which bears to the cost of
acquisition the same proportion as Cost Inflation Index for the year in which the asset is
transferred bears to the Cost Inflation Index for the first year in which the asset was held
by the assessee or for the year beginning on the first day of April, 1981, whichever is
later. Similarly, "indexed cost of any improvement" means an amount which bears to the
cost of improvement the same proportion as Cost Inflation Index for the year in which the
asset is transferred bears to the Cost Inflation Index for the year in which the
improvement to the asset took place. "Cost Inflation Index" for any year means such
index as the Central Government may, having regard to 75% of average rise in the
Consumer Price Index for urban non-manual employees for that year, by notification in
the Official Gazette, specify in this behalf. The Cost Inflation Index for the financial
years 1981-82 to 1992-93 have been notified as under :
Financial
Year
Cost Inflation Index
1981-82 100
1982-83 109
1983-84 116
1984-85 125
1985-86 133
1986-87 140
1987-88 150
1988-89 161
1989-90 172
1990-91 182
1991-92 199
1992-93 223
Finance Act, 1992
35.3 Under the provisos to section
48(1)(a), non-resident
Indians were given protection
from fluctuation in the rupee value in terms of the foreign currency utilised for the
purpose of shares or debentures while computing capital gains on transfer of assets being
such shares or debentures. Under the first proviso to section 48, the protection has now
been extended to all non-residents in respect of long-term capital gains arising out of
transfer of shares and debentures originally purchased by utilising foreign currency.
However, in the earlier scheme, the non-resident Indians were allowed further deduction
under section 48(2). As protection from fluctuation in rupee value in terms of foreign
currency ensures protection from inflation, further relief in terms of indexation will not
be available to non-residents who will enjoy the concession available in the first proviso
to section 48.
Finance Act, 1992
35.4 These amendments come into
force with effect from 1st April, 1993 and,
accordingly, will apply to assessment year 1993-94 and subsequent years.
Finance Act, 1992
35.5 The Cost Inflation Index
is to be prescribed for each year starting with 1981-82. For
this purpose, it has been provided in section 49 that in respect of assets acquired before 1-4-1981,
for the purpose of indexation, the market value as on 1-4-1981 will be taken for
indexation in place of cost of acquisition. However, the assessee will have the option of
substituting the cost of acquisition to be the value as on 1-4-1981. For example, if an
asset has been purchased for Rs. 50,000 before 1-4-1981 and its market value as on 1-4-1981 is Rs. 80,000
then Rs. 80,000 will be taken for indexation. In another case, if the
purchase value is Rs. 80,000 (prior to 1-4-1981) and the market value as on 1-4-1981 is
Rs. 70,000 then the assessee may opt for Rs. 80,000 being considered as the value as on
1-4-1981 for the purpose of indexation. Since the market value as on 1-4-1981 is taken
into account for indexation, the cost of improvement to the asset prior to this date will be
ignored. Only the cost of improvements taking place on or after this date will be taken
into account for indexation.
Finance Act, 1992
35.6 For the financial year
1981-82 Cost Inflation Index is 100 and the C.I.I. for each
subsequent year would be determined in such a way that 75% of the rise in Consumer
Price Index for urban non-manual employees would be reflected in the rise in C.I.I. It
would be seen that the date of transfer of an asset would be immaterial as long as it is
within a particular financial year. That means that transfers of assets in any part of the
year would be subject to indexation using the same C.I.I. as applicable to an asset
transferred on 1st April of the year. This has the effect of all the assets transferred during
the year to be deemed to be sold on the first day of the year.
Finance Act, 1992
35.7 These amendments come into
force with effect from 1st April, 1993 and accordingly
will apply to assessment year 1993-94 and subsequent years.
Finance Act, 1992
35.8 The provisions of section
53 have been omitted with effect from 1-4-1993 and,
accordingly, will not apply for assessment year 1993-94 onwards. Under the existing
provisions long-term capital gains arising to an individual or a Hindu undivided family
from sale of a residential house is fully exempt if the full value of consideration is up to
Rs. 2,00,000. If it exceeds Rs. 2,00,000 then a proportionate amount out of the capital
gains is exempt from tax. As a measure of rationalisation, this provision has been
withdrawn from assessment year 1993-94.
Finance Act, 1992
35.9 Exemption from tax in respect
of long-term capital gains is allowed under section
54E to the extent the net consideration is invested or deposited in any specified asset
prescribed in that section. As a measure of rationalisation and simplification this
provision also stands withdrawn from assessment year 1993-94. The provisions of section
54E will be available for all sales made before 1-4-1992 if the whole or any part of the
net consideration is invested in specified assets within 6 months after the date of such
transfer.
Finance Act, 1992
35.10 According to the second
proviso to section 54E(1), as it stood before 1-4-1992,
where long-term capital gains arise out of compulsory acquisition of an asset under any
law and there is any delay in receipt of the compensation, then the period of 6 months for
depositing or investing in specified assets was to be reckoned from the date immediately
following the date on which such compensation was received by the assessee. However,
as per the amendment to this proviso, the reckoning of 6 months from the date
immediately following the date on which such compensation was received will be
allowed only in respect of compensation received before 1-4-1992. The benefit of section
54E will not be available in respect of compensation received after 31-3-1992.
Finance Act, 1992
35.11 An assessee could invest
or deposit in any specified assets from out of the amount
received as advance money and get the benefit of exemption under section 54E as and
when long-term capital gains arise on transfer of the capital asset. It may so happen that
some assessees may have invested or deposited in the specified assets as prescribed in
section 54E from out of advance money received before the presentation of the Budget.
In order to give protection to such deposits or investments, it has been provided that these
investments or deposits will be eligible for the purpose of exemption from tax under
section 54E whenever long-term capital gains arise out of transfer of the capital asset on
a date after 31-3-1992, provided such investments have been made on or before 29-2-1992. Thus, the provisions
of section 54E will be enforced in respect of only such cases
where the assessee has made deposits or investment in specified assets from out of the
advance money received on or before 29-2-1992.
Finance Act, 1992
35.12 These amendments will
come into force with effect from 1-4-1992 and will
accordingly apply to assessment year 1992-93 and subsequent years.
Finance Act, 1992
35.13 Section 47 prescribes
certain transactions which are not regarded as transfers for
the purpose of computing capital gains. One of these is contained in clause (vi)
which
refers to any transfer, in a scheme of amalgamation, of a capital asset by the
amalgamating company to the amalgamated company, if the amalgamated company is an
Indian company. It has been represented that, in the case of foreign companies, which
have invested in Indian companies, a situation may arise where there may be transfer of
shares of the Indian company from one foreign company to another by way of
amalgamation. The Finance Act has, therefore, inserted a new clause (via)
in section 47
providing for one more situation where there is no transfer, in a scheme of amalgamation,
of a capital asset, being a share or shares held in an Indian company, by a foreign
company to another foreign company. However, the following conditions are to be
fulfilled :—
(
a) At least 25%
of the shareholders of the amalgamating foreign company
should continue to remain shareholders of the amalgamated foreign company.
(
b) Such transfer,
in a scheme of amalgamation, does not attract tax on capital
gains in the country, in which the amalgamating company is incorporated. A
consequential amendment has been made in section 49(1)(iii)(
e) that in a case where the
amalgamated foreign company comes to hold shares in an Indian company by way of
transfer from the amalgamating foreign company, the cost of capital asset shall be
deemed to be the cost for which the amalgamating company acquired it.
Finance Act, 1992
35.14 These amendments come
into force with effect from 1st April, 1993 and will
accordingly apply in relation to the assessment year 1993-94 and subsequent years.
Finance Act, 1992
35.15 Long-term capital gain
is to be taxed separately at a flat rate and other incomes at
appropriate slab rates prescribed in the Finance Act. For an assessee having income from
long-term capital gains, the manner of taxation has been prescribed in a new section 112
inserted through the Finance Act, 1992. The rates of taxation for long-term capital gains
are as under :
|
S.No
|
Assessee
|
Rate of
tax
|
|
1.
|
(a
) In the case of a company, except in a situation referred to in
(b)
|
40%
|
|
|
(b
) For venture capital company in relation to long-term capital
gains arising from the transfer of equity shares of venture capital
undertaking
|
20%
|
|
2
|
In the case of
an individual or a Hindu undivided family
|
20%
|
|
3.
|
In any other case
|
30%
|
The terms ‘venture capital company’ and ‘venture capital
undertakings’ have been
defined in the Explanation
to sub-section (1) of section 112.
Finance Act, 1992
35.16 The total amount of tax
payable by an assessee will be the amount of tax on long-term capital gains calculated at rates stated
above and the amount of income-tax payable
on the total income without taking into consideration long-term capital gains. Where the
assessee has income from long-term capital gains, deduction under Chapter VI-A shall be
allowed on the gross total income without taking into consideration the long-term capital
gains. Further, rebate under section 88 will be allowed only from the income-tax payable
on the total income without including in it the long-term capital gains. Surcharge is
payable on the capital gains tax on the same lines as that on other income.
Finance Act, 1992
35.17 These amendments come
into force with effect from 1st April, 1993 and will,
accordingly, apply in relation to assessment year 1993-94 and subsequent years.
Finance Act, 1992
35.18 As a consequence of recasting
of the provisions of section 48, the Explanation to
sub-section (2) to each of sections 54, 54B, 54D, 54G and Explanation to
sub-section (4)
of section 54F have been omitted. These Explanations provide
for disallowance of the
initial deduction of Rs. 15,000 under sub-section (2) of section 48 while charging tax on
capital gains, exempted earlier and subsequently withdrawn, when certain conditions laid
down in the respective sections granting exemption from capital gains tax are breached in
subsequent years.
Finance Act, 1992
35.19 As a consequence of omission
of section 53, section 45 has been amended so as to
omit reference to section 53. Section 54H has been amended to omit reference to section
54E in it. As per the new provisions of section 48, non-residents have been protected
from fluctuation of rupee value in terms of foreign currency while computing long-term
capital gains on shares and debentures originally subscribed in such foreign currency. In
such cases, indexation in terms of the second proviso to section 48 will not be applicable.
Sub-section (2) of each of sections 115AB and 115D have been amended to provide that
while computing long-term capital gains, indexation in terms of the second proviso to
section 48 shall not be applicable.
Finance Act, 1992
35.20 These amendments come
into force with effect from 1-4-1993 and, accordingly,
apply in relation to assessment year 1993-94 and subsequent years.
[Sections 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 53, 55 and
57]
Finance Act, 1992
Clubbing of minors’ income
36. Section 64 of the Income-tax
Act provided that in computing the total income of any
individual, there shall be included all such income as arises directly or indirectly to a
minor child of such individual from,—
(
i) the admission
of the minor to the benefits of partnership in a firm,
(
ii) assets transferred
directly or indirectly to the minor child by such
individual otherwise than for adequate consideration, and
(
iii) assets transferred
directly or indirectly by such individual to any person or
association of persons otherwise than for adequate consideration, to the extent to which
income from such assets is for the immediate or deferred benefit of such individual’s
minor child.
Finance Act, 1992
36.1 In reality as well as in
law, the minor children cannot administer their property nor
can they take decisions on the disposal of income arising therefrom. These
responsibilities fall on the parents, who, for all practical purposes, treat and use this
income as part of their own income. Exclusion of minor children’s income from the
income of their parents also leads to tax avoidance. The aforesaid provisions of section
64 with regard to clubbing of minor’s income had also led to litigation between the
Income-tax Department and the assessees.
Finance Act, 1992
36.2 Section 64 of the Income-tax
Act has, therefore, been amended to provide that all
income of a minor is to be included in the income of his parent. However, the income
derived by the minor from manual work or from any activity involving his skill, talent or
specialised knowledge or experience will not be included in the income of his parent. It
has also been provided that the income of the minor will be included in the income of that
parent whose total income is greater. Once clubbing of minor’s income is done with that
of one parent, it will continue to be clubbed with that parent only, in subsequent years.
The Assessing Officer may, however, club the minor’s income with that of the other
parent if, after giving the other parent an opportunity to be heard, he is satisfied that it is
necessary to do so. Where the marriage of the parents does not subsist, the income of the
minor will be includible in the income of that parent who maintains the minor child in the
relevant previous year.
Finance Act, 1992
36.3 The Act has also inserted
clause (32) in section
10 of the Income-tax Act to provide
that in case the income of an individual includes the income of his minor child in terms of
section 64 of the Act, such individual shall be entitled to exemption of one thousand five
hundred rupees in respect of each minor child if the income of such minor as includible
under section 64 exceeds that amount. However, where the income of any minor so
includible is less than one thousand five hundred rupees, the aforesaid exemption shall be
restricted to the income so included in the total income of the individual. This provision
is to provide relief to the individuals in whose total income the income of the minor child
is to be included.
Finance Act, 1992
36.4 These amendments take effect
from 1st April, 1993 and will, accordingly, apply in
relation to assessment year 1993-94 and subsequent years.
[Sections 4 and 35]
Finance Act, 1992
Modification of the tax concessions relating to savings
37. Under the provisions of
section 80CCA of the Income-tax Act, full deduction is
allowed from the gross total income of a taxpayer in respect of deposits made under
National Savings Scheme or payment to a deferred annuity plan subject to a limit of Rs.
40,000. When any amount standing to the credit of the taxpayer under the aforesaid
schemes in respect of which a deduction has been allowed, together with interest accrued
thereon, is withdrawn, it is deemed to be the income in the year of withdrawal. Similarly,
any amount received on surrender of a policy or as annuity or bonus in accordance with
the notified annuity plan of the Life Insurance Corporation is also deemed to be the
income of the taxpayer in the year of its receipt.
Finance Act, 1992
37.1 Likewise, the provisions
of section 80CCB stipulate full deduction in relation to
investment made in the units of any plan, framed in accordance with the Equity- Linked
Savings Scheme of specified Mutual Funds or of Unit Trust of India, subject to a limit of
Rs. 10,000. When an amount in respect of which deduction has been allowed is returned
to the taxpayer, the same is deemed to be the income of the taxpayer in the year of its
receipt.
Finance Act, 1992
37.2 As part of a package which
includes raising of the exemption limit and reduction in
the rates of personal taxation, the Finance Act has withdrawn the deduction allowed
under sections 80CCA and 80CCB in respect of payments made under the aforesaid
schemes after 31st March, 1992. These withdrawals are coupled with an enlargement of
the scope of tax rebate under section 88 so as to include schemes which are, at present,
included for the concession under sections 80CCA and 80CCB. Contributions to pension
funds set up by the National Housing Bank and approved Mutual Funds will also be
entitled to the tax rebate under section 88. The overall investment level under section 88
has also been enhanced from Rs. 50,000 at present to Rs. 60,000. In effect, the ceiling of
the maximum rebate has been raised from ten thousand rupees to twelve thousand rupees.
Thus, instead of a deduction from the income, a tax rebate of 20 per cent of the amount
invested in the national Savings Scheme or an annuity plan of LIC (such as Jeevan
Akshay and Jeevan Dhara) or any Equity-Linked Savings Scheme will be allowed. The
enhanced overall investment level of Rs. 60,000 is subject to the condition that, in respect
of Equity-Linked Savings Schemes, the tax rebate will be allowed only for subscription
up to Rs. 10,000 during the previous year.
Finance Act, 1992
37.3 A person who has already
effected a contract for annuity plan of LIC will, if he
continues with the annuity plan, now be eligible for the tax rebate under section 88.
However, in order to mitigate the hardship of any person who desires to opt out of the
annuity plan of the LIC before 1st October, 1992 as a result of the withdrawal of the tax
concession under section 80CCA, the amount received on surrender of such annuity plan
will not be deemed to be his income in the year of the receipt.
Finance Act, 1992
37.4 Under the existing provisions
of section 80L of the Income-tax Act, deduction in
respect of income from interest on certain securities, deposits, debentures as well as
income from dividends and from units of the Unit Trust of India is allowed up to Rs.
7,000 and additional deduction of up to Rs. 6,000 is allowed in respect of income from
certain specified savings schemes, thus amounting to a total deduction of Rs. 13,000.
Finance Act, 1992
37.5 With a view to rationalising
the concession available under section 80L, the
deduction has been reduced to Rs. 7,000 in all cases without any additional deduction
allowed earlier in respect of income from certain savings instruments.
Finance Act, 1992
37.6 These amendments will take
effect from 1st April, 1993 and will, accordingly, apply
in relation to assessment year 1993-94 and subsequent years.
[Sections 42, 43, 48 & 51]
Finance Act, 1992
Increase in the tax relief in respect of medical insurance premia
38. Under the provisions of
section 80D of the Income-tax Act, a deduction of Rs. 3,000
is allowed in respect of any sum paid by an assessee to effect an insurance on his health
and that of his family (including dependent parents).
Finance Act, 1992
38.1 Since self-employed persons
do not have the support of any employer for their
medical treatment, it is necessary to provide adequate incentives to them for effecting
medical insurance for themselves and for their families in order to cover unforeseen
expenses on account of medical treatment. It is also desirable to encourage salaried
persons who are not provided adequate medical facilities by their employers to take up
medical insurance. In view of this, section 80D has been amended with a view to raising
the monetary limit of deduction from Rs. 3,000 to Rs. 6,000.
Finance Act, 1992
38.2 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to assessment year 1993-94 and subsequent years.
[Section 44]
Finance Act, 1992
Relief in respect of medical treatment of handicapped dependants
39. Under the provisions of
section 80DD of the Income-tax Act, a deduction of rupees
six thousand is allowed in respect of expenditure incurred by a resident-assessee being an
individual or a Hindu undivided family, on the medical treatment, training and
rehabilitation, etc., of handicapped dependants. The deduction is not allowed to a person
whose total income exceeds one lakh rupees.
Finance Act, 1992
39.1 In order to help the guardians
to provide better facilities to their handicapped
dependants, as also to compensate for the increased cost of the aforesaid treatment and
rehabilitation, a higher deduction of twelve thousand rupees has now been provided for
under section 80DD as against six thousand allowed earlier. Further, since treatment and
rehabilitation of handicapped dependants is a heavy burden on all parents, no matter what
their level of income be, the income ceiling of one lakh rupees for being eligible for this
deduction has been removed.
Finance Act, 1992
39.2 These amendments will take
effect from 1st April, 1993 and will, accordingly, apply
in relation to assessment year 1993-94 and subsequent years.
[Section 45]
Finance Act, 1992
Rationalisation of provisions relating to tax concession for export
profits
40. Under the provisions of
section 80HHC of the Income-tax Act, exporters are allowed,
in the computation of their total income, a deduction of the entire profits derived from
export. There exists a dual system for computation of export profits. The first method
operates in cases where the export is of goods manufactured by the taxpayer. The export
profit is computed on the basis of the ratio of export turnover to total turnover. In
effect,—
export
turnover
80HHC concession = export profits - total profits ×
____________________
total
turnover
Where the export
is of goods purchased from third party, i.e.,
"trading goods", the second
method of computation operates, that is to say, the export profit is calculated by
deducting from the export turnover, the direct and indirect costs attributable to such
export, i.e.,—
80HHC concession = export profits = export turnover - (direct costs + indirect
costs)
"Trading goods" have been defined to mean goods not manufactured
by the assessee.
Thus, even where goods are processed by the taxpayer, they are treated as trading goods.
To remove this anomaly, the Finance Act, 1992, has amended the definition of ‘trading
goods’ to mean "goods not manufactured or processed by the assessee". Thus, in effect,
where goods processed by the taxpayer are exported, the first method of computation will
apply.
Finance Act, 1992
40.1 Another amendment to section
80HHC made by the Finance Act, 1992 relates to the
provision concerning the disclaimer of the tax concession under section 80HHC by a
recognised Export or Trading House in favour of supporting manufacturers. When an
Export or Trading House disclaims the concession, the tax concession in the case of the
Export or Trading House is reduced by the amount which bears to the total export profits
of the assessee the same proportion as the disclaimed export turnover bears to the total
export turnover. That is to say,—
80HHC concession = export profits
disclaimed export turnover]
- [export profits
x ________________________________
total export turnover
With the adoption of the dual system for computing export profit, the computation
of the
disclaimed export turnover also required modification. The Finance Act has therefore
amended section 80HHC in order to provide that, where the Export or Trading House
disclaims the tax concession in favour of the supporting manufacturer, the concession to
the Export or Trading House will be reduced by the amount which bears to the total
export profits of trading goods the same proportion as the disclaimed export turnover
bears to the total export turnover of trading goods. The formula in such cases will now
be,—
80HHC concession = export profits
disclaimed export turnover]
- [export profits
on trading goods x ________________________________
total export turnover
Finance Act, 1992
40.2 These amendments will take
effect from 1st April, 1992, the date from which the
dual system of computation of export profits comes into effect.
[Section 46]
Finance Act, 1992
Rationalisation of the definition of "small scale industrial undertaking"
in the
provisions relating to concessions for new industrial undertakings
41. Section 80-IA of the Income-tax
Act provides that, in computing the total income of
taxpayer, a deduction of 25 to 30 per cent of the profits earned by a new industrial
undertaking or a hotel or a ship is allowed for a period of ten years. In the case of a hotel
set up in a remote area, this deduction is allowed at the rate of 50 per cent of the profits
earned. In the case of co-operative societies, the deduction is for an increased period of
twelve years. The deduction is not allowed if the industrial undertaking manufactures or
produces any article listed in the Eleventh Schedule to the Income-tax Act. This
condition, however, does not apply to small scale industrial undertakings.
Finance Act, 1992
41.1 With a view to bringing
the definition of "small scale industrial undertaking" in the
Income-tax Act, in line with the industrial policy of the Government, section 80-IA has
been amended. A "small scale industrial undertaking" will now mean an industrial
undertaking which is regarded as a small scale industrial undertaking under section 11B
of the Industries (Development and Regulation) Act, 1951.
Finance Act, 1992
41.2 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to assessment year 1993-94 and subsequent years.
[Section 47]
Finance Act, 1992
Enhanced incentive for savings by artists, authors, sportsmen, actors,
etc.
42. Under the provisions of
section 88 of the Income-tax Act, a rebate, at the rate of 20
per cent of the amount paid by way of life insurance premia, contribution to provident
fund or subscription to certain notified schemes etc., is allowed to an individual from the
tax payable. This is subject to a limit of fourteen thousand rupees in the case of authors,
playwrights, artists, musicians, actors and sportsmen.
Finance Act, 1992
42.1 The earning life of an
author, playwright, artist, musician, actor or sportsman from
his respective profession is substantially shorter than in most other cases. His earnings
depend substantially on popularity, current trends and form. He, therefore, requires an
incentive for higher than normal savings during the short but active and remunerative
period of his career. With this end in view, the Finance Act has provided for a higher tax
rebate for authors, playwrights, artists, musicians, actors and sportsmen, at the rate of 25
per cent of the contribution to life insurance premia, provident fund or subscription to
certain notified schemes, etc., as against 20 per cent allowed normally. The ceiling of the
maximum rebate in their case has been raised from fourteen thousand rupees to seventeen
thousand five hundred rupees.
Finance Act, 1992
42.2 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to assessment year 1993-94 and subsequent years.
[Section 51]
Finance Act, 1992
Special relief for senior citizens
43. With a view to helping senior
citizens meet the increased expenses in their old age,
the Finance Act has inserted a new section 88B in the Income-tax Act to provide for a
special tax relief in the form of an additional rebate of ten per cent from the net tax
payable by persons who have attained the age of 65 years and have a gross total income
not exceeding fifty thousand rupees.
Finance Act, 1992
43.1 This amendment will take
effect from 1st April, 1993 and will, accordingly, apply in
relation to assessment year 1993-94 and subsequent years.
[Section 52]
Finance Act, 1992
Tax incentive for investment in bonds or shares of Indian companies
issued abroad
44. Under section 115AB of the
Income-tax Act, in the case of off-shore funds, income in
respect of units purchased in foreign currency and income by way of long-term capital
gains arising from the transfer of such units are charged to tax at the rate of ten per cent.
Finance Act, 1992
44.1 The Government had approved,
in principle, the scheme of permitting issue abroad
of foreign currency convertible bonds/equity by established Indian companies. These
bonds and shares can be purchased by the non-residents in foreign currency. The object
of the scheme is to augment the foreign exchange resources of the country. It was,
therefore, necessary that the tax regime for the non-resident investors of these
bonds/equities was competitive vis-a-vis
tax regime of other such instruments of
investment available in the international market. Accordingly, a new section 115AC has
been inserted in the Income-tax Act to provide for special rates of tax applicable to
income from such bonds or shares purchased in foreign currency or long-term capital
gains arising from their transfer.
Finance Act, 1992
44.2 The income by way of interest
or dividends in respect of bonds issued by or shares
in an Indian company purchased in foreign currency in accordance with the notified
scheme of the Central Government in this behalf and income by way of long-term capital
gains arising from the transfer of such bonds or shares is to be charged to tax at the rate
of ten per cent. However, this rate of tax is to apply on the gross income of the nature
specified above without allowing for any deduction under sections 28 to 44C, 48 and 57
and Chapter VI-A. The provisions for protection from fluctuation of rupee value against
foreign currency for computing capital gains in the case of non-residents are not to apply
to the aforesaid shares. Further, when the said bonds or shares are transferred outside
India, by a non-resident to another non-resident it is not to be regarded as transfer for the
purpose of capital gains tax. It has also been provided that it shall not be necessary for a
non-resident to furnish a return of income under section 139(1) if his total income
consists only of interest or dividends referred to above and tax has been deducted on such
income.
Finance Act, 1992
44.3 These amendments take effect
from 1st April, 1993 and, accordingly, apply in
relation to assessment year 1993-94 and subsequent assessment years.
Finance Act, 1992
44.4 In order to facilitate
collection of tax from the non-resident investors of these
bonds/equity, a new section 196C has been inserted in the Income-tax Act, to provide
that any person responsible for paying any income payable in respect of these bonds, etc.,
shall deduct income-tax at the rate of ten per cent of such income. The tax is required to
be deducted either at the time of payment or credit to the account of the payee, whichever
is earlier. In view of the insertion of section 196C in the Income-tax Act, sections 198 to
200, 202 to 203A and 205 of the Income-tax Act relating to procedure in respect of tax
deduction at source have also been amended.
Finance Act, 1992
44.5 These amendments take effect
from 1st June, 1992.
[Sections 56, 75 and 78]
Finance Act, 1992
Special provisions for small shopkeepers, etc.
45. With a view to building
an atmosphere of trust and confidence and also to widen the
tax base by encouraging small shopkeepers to pay their taxes, the Finance Act has
introduced a new simplified procedure for taxation. The new procedure is intended to
help small shopkeepers in meeting their tax liability by filing a simple statement-cum
-challan at the bank counter without having to go through the intricacies
of income-tax
law and procedure. The salient features of the simplified procedure are as follows:—
(
a) the scheme is
optional;
(
b) it is open to
individuals and HUFs, not assessed to tax earlier, who have
income of not more than Rs. 35,000 from the business of retail trade or of running an
eating place or any vocation and, in the case of business of retail trade, have an annual
turnover of up to five lakh rupees;
(
c) a person
carrying on the business of retail trade and opting for the
simplified procedure will be deemed to have a turnover of five lakh rupees and his total
income will be deemed to be 7 per cent of this turnover. Thus, in effect, his total income
will be presumed to be Rs. 35,000. A person running an eating place or engaged in any
vocation and opting for the simplified procedure will be deemed to have total income of
Rs. 35,000. Thus, the tax in respect of income from the business of retail trade or of
running an eating place or any vocation works out to Rs. 1,400;
(
d) persons opting
for the simplified procedure should not have taxable
income exceeding Rs. 5,000 from any source other than the business or vocation
mentioned above. No deduction under Chapter VI-A except under section 80L will be
allowed. No rebate under Chapter VIII will be allowed. Tax in respect of the income up
to Rs. 5,000 from any other source (as reduced by deduction under section 80L) will be
required to be paid at the appropriate rate - which at present is 20 per cent;
(
e) such persons
will not be required to file any income-tax return. Chapter
XIV relating to "Procedure for assessment" will not apply in their case. Instead, a simple
prescribed statement containing the name, address, nature of business, and a declaration
that the conditions mentioned in (b)
above are fulfilled;
(
f) the tax
is required to be paid along with the prescribed statement by the
31st March of the financial year in which the income is earned;
(
g) there will be
no enquiry nor assessment;
(
h) no proceeding
under any other provision of the Income-tax Act will be
initiated against a person opting for the scheme, in respect of his income from retail trade,
from running an eating place or from any vocation, for the assessment year for which the
statement under the scheme has been filed, unless the Department has evidence in its
possession that the statement furnished by the person is untrue;
(
i) the scheme will
be in force initially for two assessment years, viz.,
assessment years 1993-94 and 1994-95.
Finance Act, 1992
45.1 For the purposes of this
provision, vocation has been defined to include tailoring,
hair-cutting, washing clothes, typing, photocopying, repair work of any kind and other
services of a similar nature. Other services of a similar nature would include vocations
which are of the same genus as the ones mentioned in the definition, that is to say,
vocations which do not require any substantial intellectual input. Illustrations of this
would be persons earning their livelihood as carpenters, electricians, plumbers, painters,
welders, lathe machine operators, taxi drivers, etc. The simplified procedure will, thus,
not be available to professionals like lawyers, accountants, consultants, engineers,
architects, teachers, etc.
[Section 58]
Finance Act, 1992
Omission of waiver of requirement of furnishing the return of income
in certain
case
46. Section 139(1A) of the Income-tax
Act provides that if the total income of a person
consists only of income chargeable under the head "Salaries" or income chargeable under
that head and also income in the nature of dividends, interest or income from units
referred to in clauses (i)
and (ix) of sub-section
(1) of section 80L, it is not necessary for
such a person to furnish a voluntary return of income, subject to certain conditions.
Finance Act, 1992
46.1 As the Finance Act restricts
the deduction under section 80L from Rs. 13,000 to Rs.
7,000 and also raises the income-tax exemption limit from Rs. 22,000 to Rs. 28,000, it
also omits the provisions of sub-section (1A) of section 139. It is only in order that the
persons who pay income-tax are on the register of the Income-tax Department.
Finance Act, 1992
46.2 The aforesaid amendment
takes effect from 1st April, 1993 and will, accordingly,
apply in relation to the assessment year 1993-94 and subsequent years.
[Section 59]
Finance Act, 1992
Modification in the procedure for assessment
47. Under section 143(1A) of
the Income-tax Act, an assessee is required to pay
additional income-tax at rate of 20 per cent of the tax payable on the excess amount of
the income determined over that returned by the assessee. In cases where, in the course of
regular assessment proceedings under sub-section (3) of section 143, the additions made
while processing a return of income under clause (a)
of sub-section 1 of section 143 are
not sustained, the additional income-tax levied under section 143(1A) is to be deleted or
modified as the case may be. With a view to making this position beyond doubt, an
amendment has been made to sub-section (1A) of section 143 of the Income-tax Act.
Finance Act, 1992
47.1 The above amendment takes
effect retrospectively from 1st April, 1989 and,
accordingly, applies to the assessment year 1989-90 and subsequent years.
Finance Act, 1992
47.2 Under the provisions of
the Income-tax Act, an assessee can file an application for
rectifying any mistake in the intimation referred to in clause (a)
of sub-section (1) of
section 143. The assessee can go in appeal only against the order passed under section
154 in respect of the application for rectification, no order of appeal being available
against such intimation. In order to expedite the disposal of such applications and to
provide a right of appeal within a fixed time frame, sub-section (2) of section 154 of the
Income-tax Act has been amended. Under the amended provisions, the Assessing Officer
is required to take action on the application for rectification within a period of 3 month
from the end of the month in which the application is filed. Where no order is made
within the said period, the assessee will have a right to appeal to the Deputy
Commissioner (Appeals) or, as the case may be, to the Commissioner (Appeals).
Finance Act, 1992
47.3 This amendment takes effect
from 14th May, 1992, i.e.,
the date on which the
Finance Bill, 1992 received the assent of the President.
[Sections 60 and 61]
Finance Act, 1992
Taxation of firm’s income
48. Before the changes made
by the Finance Act, the system of levy of tax on firms
involved double taxation. The firm as such was taxed in respect of its total income at
rates varying from 5% to 18% (the maximum rate being applicable at Rs. 1 lakh and
above). After deducting the tax payable by the firm, the balance of income was
distributed amongst the partners and they were again taxed at the appropriate
rates.Further, the tax liability of a firm and its partners depended upon the question
whether the firm was granted registration under the Income-tax Act or not. In the case of
a registered firm, the firm paid tax on its total income according to the rates prescribed in
the Schedule for registered firms. An unregistered firm was taxed at the rates applicable
to individuals, with the share income included in the hands of the partners for rate
purposes only. There has been a consistent demand for removal of the double taxation. A
new scheme of assessment of firms has been introduced from assessment year 1993-94.
The scheme is modelled after the scheme introduced by the Direct Tax Laws
(Amendment) Act, 1987, with suitable modifications to take care of the difficulties
pointed out in the context of the 1987 scheme. The scheme contained in Direct Taxes
Laws (Amendment) Act, 1987 sought to tax firms at the maximum marginal rate after
allowing interest and remuneration to partners. Further there was a rigorous definition of
"Whole time working partners" to whom alone remuneration was payable. The deduction
for remuneration and interest allowable to partners and allowing remuneration to any
partner or partners at the discretion of the firm, have been suitably restructured.
Finance Act, 1992
48.1 A firm will now onwards
be taxed as a separate entity (sections 184 & 185). There
will be no distinction between registered and unregistered firms, and clauses 39 and 48 of
section 2 containing the definition of "registered firm" and "‘unregistered firm"
have
been omitted. After allowing remuneration and interest to the partners, the balance
income of the firms will be subject to maximum marginal rate of tax of income-tax,
which will be 40% for assessment year 1993-94. The surcharge on income-tax will be at
the rate of 12%, of the total tax, if the income exceeds Rs. 1,00,000. The earlier
distinction between rates of income-tax for professional and non-professional firms has
been removed. Partners are not liable to tax in respect of the share of income from the
firm. However, remuneration and interest allowed to partners will be charged to income-tax in their
respective hands. The only distinction between professional and non-professional firms will be in respect
of slabs for allowing deduction to firms in respect of
remuneration.
Finance Act, 1992
48.2 The share of the partner
in the income of the firm will not be included in computing
his total income [section 10(2A)].
However, interest, salary, bonus, commission or any
other remuneration allowed by the firm to a partner will be liable to be taxed as business
income in the partner’s hand, [section 2(24)(
ve) and section 28(v
)]. An Explanation
has
been added to the newly inserted clause (2A)
of section 10 to make it clear that the
remuneration or interest which is disallowed in the hands of the firm will not suffer
taxation in the hands of the partner. In case any remuneration paid to a partner is
disallowed in the hands of the firm or the amount is varied in subsequent proceedings, the
partner’s assessment can be rectified [section 155(1A)].
Finance Act, 1992
48.3 The gross total income
of the firm is to be determined in the normal way under
different heads as in the case of any taxable entity. The gross total income so computed is
reduced by salary, bonus, commission, or any remuneration payable or paid to a partner
[section 40(b)]. Remuneration
due to or received by a partner is not to be assessed as
income under the head "Salaries" (Explanation 2
to section 15). Any salary, interest,
bonus, commission or remuneration due to or received by a partner in view of clause (v
)
to section 28 shall be chargeable to income-tax under the head "Profits and gains of
business or profession".
Finance Act, 1992
48.4 The payment of remuneration
only to a working partner is allowable [defined in
Explanation 4 to section
40(b)]. Only individuals
are capable of being working partners.
Finance Act, 1992
48.5 The payment should be duly
authorised by and in accordance with the terms of the
partnership deed. These payments will be allowed as deduction only for a period
beginning with the date of the partnership deed and not for any earlier period. Thus, if a
partner is allowed a higher remuneration by varying the terms of the deed on a particular
date, such higher remuneration cannot be allowed to him for any period prior to the said
date. However, as the financial year 1992-93 had already commenced, by the time the
Bill received the Presidential assent, it would not have been possible for assessees to
change the partnership deed with effect from 1-4-1992. Therefore, the Finance Act has
provided that for the previous year 1992-93 interest or remuneration would be allowed if
the partnership deed provides for such payment any time during the accounting period.
Thus for the previous year 1992-93, relevant to assessment year 1993-94, the terms of the
partnership deed may be amended to have retrospective operation. There is no restriction
as to the number of times the terms of a partnership deed may be changed during a
previous year in so far as payment of salary, bonus, commission or other remuneration to
a working partner is concerned. It is also possible that a partner who is not a ‘working
partner’ may become a ‘working partner’ at any point of time during a year (or
vice
versa). In such a situation also, the said terms of the deed
may be suitably amended.
Finance Act, 1992
48.6 Of the aggregate payment
to all partners by way of salary, bonus, commission or
other remuneration up to Rs. 50,000 is fully allowable in the hands of the firm. In case
the aggregate payment exceeds the limit of Rs. 50,000, certain monetary limits have been
prescribed under section 40(b)(
v) in the form of a percentage of "book profit"
[defined in
Explanation 3 to section 40(b)].
Up to a "book-profit" of Rs. 1,00,000 or a loss, in the
case of a professional firm and Rs. 75,000, in the case of a non-professional firm, the
limit is 90% of the "book-profit" or Rs. 50,000, whichever is higher. For "book-profit"
exceeding Rs. 1,00,000 in the case of a professional firm and Rs. 75,000 in the case of a
non-professional firm, the limit is 60% of the "book-profit" in this slab. For the balance
of the "book-profit" after these two slabs, the limit is 40% .
Finance Act, 1992
48.7 Under the provisions of
section 40A(2) an Assessing Officer can disallow any
expenditure, if it is excessive, having regard to the legitimate needs of the business.
There have been several representations on this issue. A demand has been raised that this
provision should not be used in the case of remuneration paid by a firm to its partners,
since a ceiling is already separately provided. The Finance Minister, in his speech dated
30-4-1992 in Parliament during the Budget discussion stated as follows:
"There
seems to be some apprehension that the provisions of section
40A(2) of the Income-tax Act, may be indiscriminately resorted to by the Assessing
Officer to make disallowance out of salary paid to the partners as being excessive. The
Central Board of Direct Taxes will be asked to issue instructions to the Assessing
Officers so as to ensure that this power is not used in the case of small firms and even
otherwise, it should be used sparingly."
The Assessing Officers who invoke the provisions of section 40A(2) in any
case, must
keep in mind the assurance given by the Finance Minister to Parliament.
Finance Act, 1992
48.8 Interest paid to a partner
would be allowed as a deduction in the hands of the firm.
The payment of interest should be in pursuance of the partnership deed. The maximum
rate of interest allowed would be 18% simple interest per annum [section 40(b)(
iv)].
Finance Act, 1992
48.9 Changes have been made
in the scheme of set off and carry forward of losses. The
existing provisions relating to firms and their partners in sections 76 and 77 have been
omitted. Under the new scheme, the firms are treated as a separate entity and the losses
suffered by them would be allowed to be carried forward in their hand only. There would
be cases where brought forward losses apportioned to a partner have not been set off in
the hands of the partner prior to assessment year 1992-93. A provision has been made for
dealing with brought forward losses pertaining to assessment years prior to assessment
year 1993-94. In such cases, the carried forward losses of a partner will be allowed as a
set off in the assessment income of the firm subject to the condition that the partner
continued to remain a partner in the said firm (section 75).
Finance Act, 1992
48.10 Although, the distinction
between a registered and unregistered firm has been
removed, a partnership will be assessed as a firm only if—
(
i) the partnership
is evidenced by an instrument; and
(
ii) the individual
shares of the partners are specified in that instrument.
A copy of the partnership instrument duly certified has to accompany the
return of
income for the relevant year for which assessment as a firm is first sought. Thereafter,
assessment as a firm will continue to be made so long as the constitution of the firm
remains unchanged. Whenever there is a change in the constitution of a firm, a copy of
the new partnership instrument has to be similarly filed. Where a firm does not comply
with the provisions of section 184 for any assessment year, the firm shall be assessed as
for the assessment year in the same manner as an association of persons and all the
provisions of this Act shall accordingly be applicable (section 185).
[Sections 3, 4, 6, 11, 16, 35, 36, 39, 40, 41, 49, 62 to 69, 83, 84, 86
and 88]
Finance Act, 1992
Modification of the provisions regarding deduction of tax at source
49. Under the provisions of
section 194A of the Income-tax Act, deduction of income-tax
at source is to be made from interest in respect of time deposits with banks, etc., at the
rates in force. Similarly, under the provisions of section 194H of the Act, deduction of
income-tax at source is to be made from income by way of commission (other than
insurance commission) or brokerage, at the rate of ten per cent thereof. These changes
came into force from 1st October, 1991.
Finance Act, 1992
49.1 A large number of representations
had been received from members of public,
representative bodies and banks pointing out various difficulties which had arisen on
account of the operation of these provisions. Keeping in view these difficulties, the Act
amends,—
(
a) section 194A
of the Income-tax Act, to restore the position as obtaining
before 1st October, 1991 in relation to deduction of income-tax at source in the case of
income credited or paid in respect of deposits with a banking company to which the
Banking Regulation Act, 1949 applies (including any bank or banking institution referred
to in section 51 of that Act) or with a co-operative society engaged in carrying on the
business of banking (including a co-operative land mortgage bank or a Co-operative
Land Development Bank), and
(
b) section 194H
of the Income-tax Act, to provide that the deduction of
income-tax at source from income by way of commission or brokerage will not be
required to be made on or after 1st June, 1992.
Finance Act, 1992
49.2 Under the provisions of
section 194C of the Income-tax Act, income-tax is
deductible at source from income comprised in payments made by the persons stipulated
therein to resident contractors engaged for carrying out any work (including supply of
labour for carrying out any work) at the rate of two per cent of such payments. Statutory
authorities set up for the purpose of development or improvement of cities, etc.,
registered societies, trusts and universities, which award contracts for carrying out works
involving substantial consideration were not referred to in section 194C.
Finance Act, 1992
49.3 The Act, therefore, amends
section 194C of the Income-tax Act, with a view to
including the following categories of persons who will be required to deduct income-tax
at source from payments made by them to contractors :
(
i) any authority
constituted in India by or under any law, engaged either for
the purpose of dealing with and satisfying the need for housing accommodation or for the
purposes of planning, development or improvement of cities, towns and villages, or for
both; or
(
ii) any society
registered under the Societies Registration Act, 1860 or under
any law corresponding to that Act in force in any part of India; or
(
iii) any trust; or
(
iv) any University established
or incorporated by or under a Central, State or
Provincial Act and an institution declared to be a University under section 3 of the
University Grants Commission Act, 1956.
Finance Act, 1992
49.4 Section 194G of the Income-tax
Act provides for deduction of income-tax at source
from income by way of commission, etc., on sale of lottery tickets, where such income
exceeds one thousand rupees, at the rate of ten per cent thereof.
Finance Act, 1992
49.5 In order to obviate the
hardship in the cases of persons who have no tax liability or
who have tax liability which is below the rate of deduction of tax at source prescribed in
section 194G, the Act amends section 194G of the Income-tax Act to provide that where
the Assessing Officer is satisfied that the total income of a person who is or has been
stocking, distributing, purchasing or selling lottery tickets justifies the deduction of
income-tax at any lower rate or no deduction of tax, as the case may be, the Assessing
Officer shall, on an application made by such person in this behalf, give to him such
certificate as may be appropriate. It also seeks to provide that where any such certificate
is given, the person responsible for paying the income by way of commission,
remuneration or prize (by whatever name called) on lottery tickets shall, until such
certificate is cancelled by the Assessing Officer, deduct income-tax at the rate specified
in such certificate or deduct no tax, as the case may be.
Finance Act, 1992
49.6 Section 197 of the Income-tax
Act provides that the Assessing Officer can issue a
certificate to a non-corporate person for deduction of income-tax at rates lower than the
rates in force or for no deduction of tax at source, if he is satisfied that the income of the
recipient so warrants.
Finance Act, 1992
49.7 Representations had been
received to the effect that there was no justification for
excluding from the ambit of section 197 the cases of companies which suffered losses or
were not likely to have an income or their income liable to tax was likely to be
inadequate to absorb the full amount of tax deducted. As a measure of rationalisation, the
Act, therefore, amends section 197 of the Income-tax Act with a view to making the
provisions thereof applicable to any person, including a company.
Finance Act, 1992
49.8 As all the persons are
proposed to be covered within the ambit of section 197 of the
Income-tax Act, the Act also amends section 193 of the Income-tax Act relating to
interest on securities, with a view to omitting the first proviso to section 193, which
enabled the Central Government to specify a lower rate at which deduction of income-tax
is to be made in respect of a scheduled bank.
Finance Act, 1992
49.9 Under the provisions of
the proviso to sub-section (1) of section 194A, relating to
deduction of tax at source from income by way of interest other than interest on securities
a person (other than a company or a registered firm) could furnish an affidavit or a
statement in writing for non-deduction of income-tax at source in its case. The statement
in writing had to be signed in the presence of a gazetted officer, etc. On the other hand,
sub-section (1) of section 197A of the Income-tax Act also provided for furnishing of a
declaration by a resident individual deriving income from interest other than interest on
securities, for the purpose of non-deduction of tax at source. Therefore, as a measure of
rationalisation, the Act applies the provisions of sub-section (1) of section 197A to the
persons (not being companies or firms) entitled to receive income by way of interest
other than interest on securities referred to in section 194A.
Finance Act, 1992
49.10 The aforesaid amendment
takes effect from 1st June, 1992.
[Sections 70,71,72, 73,74, 76 and 77]
Finance Act, 1992
Modification of the provisions relating to advance payment of tax
50. Section 211 of the Income-tax
Act provides that advance tax on the current income,
calculated in the manner laid down in section 209 of the Act, shall be 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 the
15th
September
|
Not less than 20%
of such advance tax
|
|
On or before the
15th
December
|
Not less than 50%
of such advance tax, as reduced by the
amount, if any, paid in the earlier instalment.
|
|
On or before
the 15th
March
|
The whole amount
of such advance tax as reduced by the
amount or amounts, if any, paid in the earlier instalments.
|
Finance Act, 1992
50.1 Thus, in the first instalment
of advance tax, an assessee was required to pay
minimum of 20% of advance tax only, even though about six months had passed in the
financial year. Similarly, in the second instalment, an assessee was required to pay
minimum of 50% of advance tax only, even though about nine months had passed in the
financial year.
Finance Act, 1992
50.2 As a measure of rationalisation,
the Act amends section 211 of the Income-tax Act
to provide that the advance tax payable in a financial year,—
(
a) on or before
the 15th day of September, shall not be less than thirty per
cent, and
(
b) on or before
the 15th day of December, shall not be less than sixty per
cent of such advance tax.
Finance Act, 1992
50.3 This amendment takes effect
from 1st April, 1992.
Finance Act, 1992
50.4 The Act also amends sub-section
(1) of section 234C of the Income-tax Act relating
to interest for deferment of advance tax. It has been provided that the shortfall for the
purpose of charging interest for deferment of advance tax shall be the difference
between,—
(
i) thirty
per cent of the tax due on the returned income and advance tax paid
by the assessee on or before 15th day of September, and
(
ii) sixty per cent
of the tax due on the returned income and advance tax paid
by the assessee on or before the 15th day of December.
Finance Act, 1992
50.5 The aforesaid amendment
takes effect from 1st June, 1992.
Finance Act, 1992
50.6 The Act also makes an amendment
of clarificatory nature in the Explanation
to sub-section (1) of section 234C to make it clear that interest under that section will be
chargeable even in cases where no advance tax is paid.
Finance Act, 1992
50.7 This amendment takes effect
retrospectively from 1st April, 1989.
[Sections 80 and 81]
Finance Act, 1992
Reduction in the period for claiming deduction
51. Under the provisions of
section 239 of the Income-tax Act, as these hitherto existed, a
taxpayer claiming refund had to file a claim in the prescribed form within a period of two
years from the last day of the assessment year to which the claim for refund related.
Every claim for refund has to be accompanied by a return of income unless the claimant
has already filed such return. However, under the provisions of sub-section (4) of section
139, a refund of income can be filed only within a period of one year from the date of the
relevant assessment year or before the completion of the assessment, whichever is earlier.
Finance Act, 1992
51.1 With a view to bringing
the provisions of section 239 in conformity with those of
section 139, the Act reduces the period during which a taxpayer can claim refund from
two years from the end of the assessment year concerned to one year from the end of that
assessment year.
Finance Act, 1992
51.2 This amendment takes effect
from the 1st day of April, 1993.
[Section 82]
Finance Act, 1992
Filing fee for appeals before Income-tax Appellate Tribunal
52. The Finance Act has amended
section 253 enhancing the fee to be paid for filing
appeals before the Income-tax Appellate Tribunal. Under the pre-amended provisions of
sub-section (6), an appeal to the Appellate Tribunal shall be in the prescribed format and
shall be accompanied by a fee of Rs. 200. After the amendment, the fee will be Rs. 250,
where the total income computed by the Assessing Officer is up to Rs. 1 lakh and Rs.
1,500 in cases where the total income as so computed is more than Rs. 1 lakh. The former
type of cases would include cases where the total income computed by the Assessing
Officer is a negative figure.
Finance Act, 1992
52.1 These amendments come into
force with effect from 1st June, 1992.
[Section 85]
Finance Act, 1992
Provision of limitation for the sale of immovable property attached
towards
recovery of tax
53. Section 222 of the Income-tax
Act prescribes the modes of recovery of tax from an
assessee who is in default in making payment of tax, in accordance with the rules laid
down in the Second Schedule to the Income-tax Act. One of the prescribed modes is
attachment and sale of the assessee’s immovable property. Part III of the Second
Schedule to the Income-tax Act contains the rules for attachment and sale of immovable
property. No limitation of time had been provided for sale of the immovable property
attached towards recovery of tax.
Finance Act, 1992
53.1 The recovery provisions
without the prescribed time limit of disposal of attached
immovable properties had not proved as coercive and deterrent as they should have been.
Finance Act, 1992
53.2 The Act, therefore, inserts
a new rule, i.e., rule
68B in the Second Schedule to the
Income-tax Act to provide a time limit of three years from the end of the financial year in
which the order, giving rise to a demand of any tax, interest, fine, penalty or any other
sum for the recovery of which the immovable property has been attached, has become
conclusive under the provisions of section 245-I or has become final, as the case may be,
in terms of the provisions of Chapter XX of the Income-tax Act. The period of three
years shall stand extended by one year in certain cases where the sale falls through.
Further, certain periods during which the order is stayed by any court, are also to be
excluded from the aforesaid period of limitation.
Finance Act, 1992
53.3 This amendment takes effect
from 1st June, 1992.
[Section 87]