( S.Rajaratnam, Tax Management consultant, Retd. Member ITAT)

Exemption limit has been raised by Rs.40,000 for individuals and Hindu Undivided Families, but the corresponding increase for women and senior citizens will be Rs.35,000 and Rs.30,000 respectively. Slab rates have also undergone revision with the lowest slab at 10% for incomes between 1.5 lakhs to 3 lakhs, 20% for Rs. 3 lakhs to 5 lakhs and 30% thereafter. There is no change in respect of surcharge and cesses, but surcharge is, however, applicable only for income above Rs.10 lakhs.

Section 80C would include more items being five years Post Office Time Deposits and investment in Senior Citizens Savings Scheme, 2004. Any encashment before the maturity period of 5 years will attract tax on the amount returned. Ceiling of Rs. 1 lakh will, however, continue.

Section 80D is liberalised by having the split up ceiling between the parent and individual, so that Rs. 15,000 each can be claimed by the parent and the individual, if they respectively contribute the same. If the beneficiary is a senior citizen, the ceiling for the premium for the parent, who is a senior citizen can go up to Rs.20,000.

Reverse mortgage is meant for senior citizens, who have a house property to mortgage the same and draw money against it from lending institutions either by way of lump sum or instalments, such mortgage becoming enforceable on the death of owner. Such mortgage could not be treated as transfer as provided under section 47(xvi), so that it will not be liable for capital gains tax and receipt of instalment will also be exempt under section 10(43) of the Act.

A clarificatory amendment to agricultural income by way of insertion of Explanation 3 to section 2(1A) to include any income derived from sale of saplings and seedings grown in nurseries would be agricultural income. Agricultural income under the Constitution is within the purview of taxation of the States. This amendment is consistent with the view taken by the Courts as for example in CIT v. Green Gold Tree Farmers (P) Ltd. (2008) 167 Taxman 151 (Uttarakhand) and CIT v. Soundarya Nursery (2000) 241 ITR 530 (Mad).

By substitution of definition of charitable purpose under section 2(15), whereby any business or commercial activity in respect of an advancement of any object of general public utility will become taxable. This effectively nullifies the Supreme Court decision in CIT v. Gujarat Maritime Board (2007) 295 ITR 516 (SC) rendered on 5th December 2007, following the decisions in CIT v. Andhra Pradesh State Road Transport Corporation (1986) 159 ITR 1 (SC) and CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). In Gujarat Maritime Board’s case (supra), where the activity was for improvement of minor ports being an object of general public utility, it was held to qualify for exemption. The decisions starting from Andhra Chamber of Commerce, which have stood the test of time for more than four decades would now stand nullified on the provocation of the judgement in Gujarat Maritime Board’s case (supra), which is a public authority statutorily constituted under section 3(2) of the Gujarat Maritime Board Act, 1981. Mercifully, such activities by trusts and institutions in relation to relief of poor, education or medical relief would continue to be eligible for exemption. This amendment would hit a number of public bodies like Chambers of Commerce and other trusts and institutions with composite objects having income from commercial activities.

Exemption provision under section 10 now stand extended to Sikkimese on their income from Sikkim and such other income from dividend or interest on securities. But non-Sikkimese women married to Sikkimese men would not qualify for exemption. This exemption is retrospective with effect from 1.4.1990. Exemption is prospectively conferred on Coir Board and reverse mortgage already considered under personal taxation.

Deduction on a staggered basis of capital expenditure incurred for the industrial expansion is now liberalised to cover not only establishment of industrial unit but also others by omitting the word "industrial" in "industrial unit". The object is to make it available for service industry as well.

Section 80IB has been amended by insertion of sub-section (11C) and (11D) extending the benefit to hospitals and hotels situated in specified areas. Incidentally deduction under section 80IB(9) giving benefit for producers or refiners of mineral oil in North Eastern region is now available, if they had started this industrial undertaking before 1.4.1997 and in any other part of India, if they have started on or after 1.4.1997. Those undertakings, which will start refining on or after 1.4.2009 will not get the benefit. There is no extension of the present concessions under section 80IA or 80IB.

Relief in respect of multiple dividend to a limited extent is proposed in respect of dividend declared by subsidiary company to a domestic holding company, if its holding in the subsidiary company is more than 50% of the equity share capital. It is a partial restoration of the earlier relief under section 80M to an extremely limited extent.

A major change is the stepping up of tax on short term capital gains from 10% to 15% in cases, where securities transaction tax is paid, by an investor in shares. Needless to point out, that a person who is a dealer would have to pay normal tax even independently of the amendment.

Another adverse amendment is to replace the tax rebate for securities transaction tax suffered, hitherto allowed under section 88E for a person, who carries on business in shares and securities, by a deduction under section 36(1)(xv). This will greatly reduce the benefit, since section 88E allows set off of securities tax paid against tax payable, while it will now be allowable only as deduction from income from A.Y. 2009-2010.

Commodities Transaction Tax has now been introduced on sale of option in goods and option in commodity derivatives with effect from 1.4.2009 with such tax becoming deductible under section 36(1)(xvi) on par with deduction with Securities Transaction Tax itself under section 36(1)(xv).

There would be widespread disappointment that the dividend distribution tax has not been dispensed with. This makes an invidious discrimination between companies and firms, since partners are exempt on profits drawn from the firm, though assessed like a company in other respects. Other burdens like Minimum Alternate Tax confined to companies or deemed dividend provision under section 2(22)(e) will continue for companies.

The problem of investors in getting deduction of interest from borrowed capital for investment in shares in the context of exemption for dividend income under section 10(34) is not resolved. The proposed amendment in section 115WKB treating fringe benefits tax borne by the employee as income tax paid by him and the rationale explained in the Memorandum explaining the need for amendment should justify the inference that dividend distribution tax paid by the company should be treated as income tax paid by the shareholder. The larger issue, whether the shareholder is an investor or dealer will also remain clouded in most cases with inference likely to be controversial in quite a few cases.

Global Depository Receipts purchased in foreign currency convertible to shares or debentures would not be liable to tax on such conversion as now proposed to be provided by way of exemption under section 47(xa) with section 49(2A) providing for adoption of the cost of the original subscription for ascertaining capital gains on sale of such converted asset.

Section 40A(3) providing for 100% disallowance of any payment for expenditure, which will include purchases with rare exceptions, is hard enough, but it is made harder by an amendment, which now stipulates that the minimum amount required to be paid by account payee cheque at Rs.20,000 would apply for aggregate payments during the day, so that splitting up the payment during the day will no longer be possible, nullifying a spate of decisions starting with CIT v. Aloo Supply Co. (1980) 121 ITR 680 (Ori) and a large number of other cases to the same effect.

A further sub-section (3A) would cover even past deductions allowed on accrual basis, if paid in a later year, so that the disallowance under section 40A(3) would cover such payments as well. In effect, what has already been allowed in the year of accrual can be taken back in the year of payment making the taxable income all the more unreal.

An amendment to written down value under section 40A(3) by way of Explanation 6 would require deemed depreciation for depreciable assets to be reckoned even where the assessee was not required to compute its total income in the relevant years, in determination of written down value for future deduction. It is a retrospective amendment effective from 1.4.2003. This amendment can be taken to be merely clarificatory in nature.

Securities offered under stock option plan or scheme would also be covered for fringe benefits tax by amendment to Explanation to section 115WB(1)(i)(b) of the Act. In section 115WB(2)(B), clause (iii) has been inserted in the matter of treatment of hospitality expenses. Where an expenditure or payment is made through non-transferable pre-paid electronic meal card usable only at eating joints, such payment would now require compliance with conditions which may be prescribed. Additional items covered for exceptions under section 115WB(2)(E) covering employee welfare are provision of creche facility for the children of employees, sponsorship of a sportsmen being an employee or organisation of sport events for employees.

Section 115WKB is amended, so that the amount of fringe benefits tax in respect of sweat equity recovered from employees would now be treated as paid by the employees, so as to enable such of those employees, who are non-residents to get credit for such tax against tax payable, if any, in their country under relevant Double Tax Avoidance Agreement.

Substantial amendments have been made to substantive law as part of the Finance Bill, while these should have been part of a separate Amendment Bill, so as to enable discussion and better consideration.

There are a number of proposals as regards procedural law as well.

Time for compliance of voluntary return under section 139(1) advanced

Time limit for filing voluntary return under section 139(1) is advanced to 30th September for those, who are presently required to file return by 31st October. Since this amendment is effective from 1st April, 2008, it will be effective even for return for A.Y. 2008-2009.

Section 142(2C) is amended enabling the Assessing Officer to grant extension of time for completion of special audit of his own accord, even without an application in this behalf.

From 1.6.1999, no prima facie adjustments could be made but power is now proposed to be taken under sub-section (1) of section 143 as substituted, for the Board to frame rules, so as to make such adjustments as they arise due to arithmetical errors and incorrect claims with reference to materials available in the return itself, through the computerised and centralised system of processing of returns. A welcome feature of the amendment is that, any notice on the basis of such adjustments shall not be served beyond six months from the end of the financial year in which return is filed.

The subsisting controversy as to whether the Assessing Officer can assess or reassess income other than what has become subject matter of appeal is now proposed to be statutorily clarified by insertion of a proviso to section 147 empowering the Assessing Officer to assess or reassess any income other than the income for which notice has been issued, subject only to those items, which have already become subject matters of appeal, reference or revision. The reason for the amendment is that judicial interpretation in some of the cases are not consistent with legislative intent, so as to require this clarificatory amendment. One of the decisions, which would now stand overruled, is Amrinder Singh Dhiman v. ITO-cum-AO (2004) 269 ITR 378 (P&H). The amendment is said to be prompted by the decision in CIT v. Sakseria Cotton Mills Ltd. (1980) 124 ITR 570 (Bom), a decision which could be hardly relevant in the light of further development of law practically upholding what is now proposed in this amendment.

A clarificatory amendment to section 151 by way of Explanation inserted thereto "for the removal of doubts" provides, that the authority sanctioning action under section 147 need not himself issue notice. This is meant to nullify the view taken in Dr. Shashi Kant Garg v. CIT (2006) 285 ITR 158 (All).

Extended time limit for fresh assessments consequent on appeal

The need for extended time limit for completion of post-search assessment under section 153A is felt, when a fresh assessment is necessary but delayed, because an appeal against order of annulment or set aside was pending before a higher forum. On such appeal becoming successful, the normal time limit for appeal might have been lost. Amendment to section 153A would enable completion of assessments within one year from date of receipt of such order of revival by the Commissioner. Consequential amendments have been made to sections 153B, 153C and 153D. This amendment is made retrospectively from 1st June, 2003.

Similar amendment by way of insertion of an Explanation under section 153A would extend the period of application of assessment and levy of interest for a period of one year in respect of abated proceedings before the Settlement Commission for completion by the Assessing Officer.

A clarificatory amendment made by way of insertion of proviso to section 156 would require treatment of demand raised in an intimation under section 143(1) as a demand under section 156.

Provisions relating to tax deduction at source have been the subject matter of amendment to sections 191, 193, 194C, 199, 201, 203 and 206C. Explanation to section 191 sparing the deductor from liability, where tax is paid by the employer, a position of law consistent with earlier precedents on the subject, is now sought to be modified, so as to clarify the intent with retrospective effect from 1.6.2003 from the date on which earlier Explanation was introduced. Memorandum explaining the provision annexed to the Bill, explains that the amendments to section 201 and the substitution of Explanation to section 191 are to rule out the view that section 201(1) does not cover failure to deduct tax at source in such circumstances as decided by the Supreme Court in Hindustan Coca Cola Beverage P. Ltd. v. CIT (2007) 293 ITR 226 (SC). The effect of the amendment is that, though tax already recovered directly cannot be enforced against deductor, who failed to deduct the tax, liability for interest till date of such direct payment and penalty, where there is no sufficient cause, cannot be avoided.

Tax deduction at source is spared for interest on securities, which are listed in a recognised stock exchange and are in dematerialised form covered by section 193. Section 194C providing for tax deduction from contractors would now cover contractors with the status of Association and Persons or Body of Individuals as well.

Power is proposed to be taken under the new sub-section (6) of section 195 read with section 295(2) of the Act to prescribe the form and the manner of supply of information relating to the tax deduction at source by the person responsible for payment of any amount to a non-resident.

Where tax is deducted from payment to one person, such amount from which tax is deducted may well belong to another person. Sub-section (3) inserted under section 199 provides for rule-making power for the Board as are necessary for enabling credit to such third party to whom the income belongs.

Dematerialisation of TDS and TCS collection to provide for automatic credit through the computer media was initially expected to come into effect from 1.4.2005 under section 203 has been successively extended to 1.4.2006 and later to 1.4.2008 and now proposed to be further extended to 1.4.2010, since information technology infrastructure has not yet become operational.

The proviso, which limited the power of stay to an aggregate period of 365 days would now make it clear that even where delay in disposing appeal is not attributable to the assessee, stay will stand vacated under a substituted proviso proposed under section 254. This nullifies the decision of the High Court in Narang Overseas (P) Ltd. v. ITAT (2007) 295 ITR 22 (Bom) and a number of decisions of the Tribunal.

No holds barred for appeal

In a number of cases, the Commissioners disregarded the monetary limit prescribed for filing appeal, so that such appeals were consequently held as not maintainable. Section 268 is now proposed to be amended to rule out any objection on the part of the assessee to such appeal leaving the matter of admission to depend upon the circumstances in which such appeal or reference is filed. This amendment is made to nullify the decisions in CIT v. Camco Colour Co. (2002) 254 ITR 565 (Bom), CWT v. S. Annamalai (2002) 258 ITR 675 (Mad), CIT v. ITAT (1998) 232 ITR 207 (Del), CIT v. Ayurved Sewa Ashram Ltd. (1997) 225 ITR 778 (Raj), CIT v. Om Trading Co. (1996) 220 ITR 149 (AP), CIT v. S.C.Nagpal [1998] 229 ITR 566 (P&H) and CWT v. Executors of late D.T.Udeshi [1991] 189 ITR 319 (Bom). However, even after the amendment, it will not be open to admit every appeal against monetary limits unless justified by the circumstances in which it is filed. Probably, the better course is for Commissioner to get clearance from the Board itself pointing out the special circumstances like cumulative tax effect or precedent value of issue involved. This amendment is made retrospectively with effect from 1.4.1999 by section 268A now proposed to be inserted.

This section 268A also seeks to rule out the inference of acquiescence on the part of department on any issue either in same case or any other case, so that the appellate authority is not influenced by acceptance of department to any view adverse to it in the same or any other case. But then, where decision is consciously accepted on a principle, any departure from such principle in any other case would hardly be judicial, since equal treatment is a legitimate expectation of the assessee and is the essence of justice. In fact, any other view will be against rule of law assured by the Constitution. It would make a mockery of principle of stare decisis. This amendment is made as admitted in the Memorandum accompanying the Bill to nullify the Supreme Court decision in Berger Paints India Ltd. v. CIT (2004) 266 ITR 99 (SC). This amendment retrospective with effect from 1.6.1999 may well be invalid or, at any rate, should justify rethinking. It should be dropped.

Recording of satisfaction, which is a requirement for initiation of penalty proceedings, has been stressed by the Delhi High Court in number of cases, so that mere recording of fact of initiation could not be considered sufficient to meet such requirements of section 271 as held in a number of cases as in CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del). Such view would stand nullified, while the decision holding a contrary view in favour of revenue in Nainu Mal Het Chand v. CIT (2007) 295 ITR 185 (All) now gets statutory recognition.

(ii) Penalty and prosecution in cases of abated settlement petition

Consequent on many petitions to the Settlement Commission getting abated, there is power given to the Commissioner to grant immunity from penalty in such cases during the course of regular assessment consequent thereto by insertion of a new section 273AA with effect from 1.4.2008. Similar power is sought to be given for immunity from prosecution under section 278AB.

Where a document including a notice is required to be authenticated by the signature of the Assessing Officer, it is proposed under new section 282A that the computerised notice would be treated as valid.

Valid service of notice under section 143(2) in scrutiny cases and for assessment/ reassessment in cases, where notice calling for returns is issued under section 142(1) or 147, has always been considered mandatory as a threshold requirement. In view of such requirement, the fact that an assessee may participate in further proceedings would not amount to waiver of such statutory right was the view, that was consistently being taken including the one in a recent case in CIT v. Hotline International P. Ltd. (2008) 296 ITR 333 (Del), which rejected the departmental contention that the subsequent participation of the Chartered Accountant in the proceedings would dispense with the need for valid service. The view, that was rejected, would now find statutory support in the proposed amendment to section 143(2). It is regrettable that the omission of such vital requirement of valid service of statutory notices should be treated as unnecessary, even where the taxpayer out of courtesy may attend the call of the Assessing Officer as he often does. This amendment by the new section 292BB is a handicap for the Assessing Officers, since the assessee would now take the precaution of ignoring the further notices where original notice has not been served. Where an assessee attends after invalid service, nothing is easier for the Assessing Officer than getting it served on him during his presence. If it was already time-barred, the dead proceedings cannot be revived by such belated service and much less by the appearance of the assessee before the Assessing Officer.

The presumption, that what was found during a search, belongs to the persons searched and is true as provided under section 132(5) is now extended to cases of requisition under section 132A and survey under section 133A by the proposed amendment to section 292C. Section 292C inserted by the Finance Act, 2007 already makes such presumption during seizure proceedings would bind the assessee in regular assessment. Section 292C has also been consequently amended to extend the presumption to survey and requisition cases. This amendment is sought to be made retrospective from 1.10.1975.

Recognised Provident Fund - Time limit for satisfaction of conditions extended to 31.3.2009

Where a provident fund already recognised does not satisfy the conditions therefor, it had to satisfy conditions before 31.3.2008. Such date is now extended to 31.3.2009 by an amendment to Fourth Schedule.

All the procedural provisions relating to section 17 of Wealth Tax Act corresponding to section 147 and other provisions relating to time limit for completion of assessment, powers in respect of penalty and prosecution in respect of abated settlement petition and the extension of the presumption from materials found during search to survey and requisition cases are also introduced for wealth tax.