India Budget 2009 VERENDRA KALRA NANGIA & CO. Chartered Accountants Nangia & Co. Budget 2009...

India Budget 2009

VERENDRA KALRANANGIA & CO.

Chartered AccountantsNangia & Co. Budget 2009

PRESENTATION MADE TO

Dehradun Branch of CIRC of ICAI

AT Dehradun

ON 18Th July 2009

INCOME TAXPara A of Part III of the First Schedule For AY 2010-11

Tax RatesIncome Tax exemption limits have been raised across the board for all

individuals. The new income tax rates are as under:

The minimum amount not chargeable to tax in the case of Women however, shall be Rs. 190,000 and in the case of Senior Citizens shall be Rs. 240,000.

Income up to Rs. 160,000 NIL

Rs. 160,001 to Rs. 300,000 10%

Rs. 300,001 to Rs. 500,000 20%

Rs. 500,001 and above 30%

Nangia & Co. Budget 2009

INCOME TAXPara A of Part III of the First Schedule For AY 2010-11SurchargeNo surcharge shall be levied in the case of Individuals, Cooperative

Societies, Firms (which now includes LLP’s) and Local Authorities.

TDS rate not to include Surcharge and Education Cess:

W.E.F. - April 1, 2010

In order to simplify the computation of TDS, it is proposed to remove surcharge and cess on the basic tax rates provided for tax deduction on non-salary payments made to resident taxpayers. SC will continued to be levied on TDS payments on salaries to residents and on all payments to non-resident companies.


DEFINITIONSModification in Section 2(15) W.E.F. - April 1, 2009Charitable PurposesThe definition of charitable purpose has been amended to include – ‘the

preservation of the environment (including watersheds, forests and wildlife)’ and ‘preservation of monuments or places or objects or artistic or historic interest’ along with relief to the poor, education and medical relief.

The above modification has been made so as to separately list the preservation of environment and preservation of monuments or places or objects of artistic or historic interest so that they would be excluded from the applicability of the restrictive conditions applicable to the “advancement of any other object of general public utility”.


DEFINITIONSModification in Section 2(22AAA) W.E.F. - April 1, 2010Electoral TrustElectoral trust has been defined to mean a trust so approved by the

Board in accordance with the scheme made by the Central Government.

Modification in Section 2(24)(iia) W.E.F. - April 1, 2010IncomeDefinition of income has also been amended to include therein voluntary

contributions received by the such trusts.


DEFINITIONSInsertion of clause (29BA) in section 2 W.E.F. - April 1, 2009ManufactureIt is proposed to insert a new clause (29BA) in section 2 so as to provide

that ‘manufacture’, with all its grammatical variations, shall mean a change in a non-living physical object or article or thing,

Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or

Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.

To overcome decisions in the SC case of Indian Cine Agencies Vs. CIT308 ITR 98, where it was held that cutting of jumbo rolls into smallerrolls is manufacture for the purpose of claiming benefits U/s 80HH & I.


DEFINITIONSInsertion of clause (29BA) in section 2 W.E.F. - April 1, 2009ManufactureOur CommentsThe definition is similar to the interpretation given to the term

‘manufacture’ by the Supreme Court in Aspinwall and Co Ltd [2001] 251 ITR 323 (SC).

However, it should be noted that the term ‘Production’ which is considered to be a wider term has not yet been defined under the Act.

The amended section only covers ‘physical’ objects or articles or things. Therefore, it should be noted that computer software or any other intangible product or thing are not covered under the proposed sub-section.

The definition of ‘ manufacture’ as per Central Excise Act, 1944 is much wider.

The use of the conjuctives name, character and use will make the definition really restrictive.


DEFINITIONSAmendment in Section 2(48) W.E.F. - April 1, 2009Zero Coupon Bonds

The definition of zero coupon bond has been amended to include such bonds issued by ‘scheduled’ banks’.

This will enable such banks to raise long term funds through zero coupon bonds in the same manner as allowed like FI’s.


EXEMPTIONSSection 10(23C) W.E.F. - April 1, 2009Extension of time limit for filing applications for tax exemptionTrusts, Institutions, Universities, Educational Institutions, Hospitals, etc.

are required to make an application for the purposes of grant of exemption or continuance thereof at any time during the financial year immediately preceding the assessment year from which the exemption is sought.

Under the new provision, such assessee will have to file the said application on or before September 30 of the relevant assessment year. This is an amendment beneficial to the assessee as it extends the period for filing such an application.


EXEMPTIONSInsertion of proviso to Section 89 and to clause (10C) of Section 10

W.E.F. - April 1, 2010

Compensation received on voluntary retirement or termination of service under a scheme of voluntary separationPresently, moneys received under a Voluntary Retirement Scheme are

exempt from tax up to a limit of Rs. 500,000. Now, where any relief has been allowed to an assessee u/s 89 for any

assessment year in respect of any amount received under a Voluntary Retirement Scheme, no exemption u/s 10(10C) shall be allowed to him in relation to such, or any other assessment year.

Similar amendments have been made in Section 89 to deny the benefit under that section in case exemption u/s 10(10C) has been claimed.


EXEMPTIONSInsertion of proviso to Section 89 and to clause (10C) of Section 10

W.E.F. - April 1, 2010

Compensation received on voluntary retirement or termination of service under a scheme of voluntary separation

These amendments negate the following decisions in favor of the assessee:CIT Vs. Nagesh DeviDas Kulkarni ( 291 ITR 407) BomCIT Vs. Koodathil Kallytan Ambujakashan ( 219 CTR 80) BomCIT Vs. S.Sundar ( 284 ITR 687) Mad CIT Vs. Abdul kareem ( 311 ITR 162) MadSt.Bank Of Travancore Vs. CBDT ( 282 ITR 587) Ker


EXEMPTIONSAmendment of Section 10(23D) W.E.F. - April 1, 2010

Incorporating “Other Public Sector Banks” under the expression “Public Sector Bank”Presently, an exemption is available in respect of income of a Mutual

Fund set up by a public sector bank or a public financial institution authorized by Reserve Bank of India.

Now, this exemption can also be availed by a bank included in the category ‘other public sector banks’ by the Reserve bank of India.


EXEMPTIONSExtension of Sections 10A & 10B W.E.F. - April 1, 2010Extension of sunset clause for units in free trade zone and for export oriented undertakingsTime limit for claiming exemption u/s 10A and 10B, in relation to

exemption in respect of newly established industrial undertakings in free trade zones, etc. and newly established 100% Export Oriented Units respectively has been extended from AY 2010-11 to AY 2011-12.

Our CommentsThe amended section will give boost to the Software Companies enjoying

these tax benefits as the benefit has extended up to AY 2011-2012.


EXEMPTIONSSubstitution in Section 10AA(7) W.E.F. - April 1, 2010Clarification regarding computation of exempted profits in the case of units in Special Economic Zones (SEZs)Under the existing provisions contained in section 10AA(7), profits

derived by newly established units in SEZ, from export of articles or things or services shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the assessee.

Now, “assessee” will be substituted by the word “undertaking”. After the amendment, deduction under aforesaid section shall be computed with reference to the total turnover of the undertaking.


EXEMPTIONSSubstitution in Section 10AA(7) W.E.F. - April 1, 2010Clarification regarding computation of exempted profits in the case of units in Special Economic Zones (SEZs)

With this amendment, the government has accepted a long standing demand of the Industry. Earlier, SEZ units having operations outside the SEZ area could not avail the full benefits under this section as the old formula to calculate the exemption did not permit them to do so.

The amendment could have been made retrospectively w.e.f. 10-02-2006, i.e. the date when the SEZ rules were notified.


EXEMPTIONSInsertion of Section 13B W.E.F. - April 1, 2010Deduction in respect of contributions to Electoral trustsVoluntary contributions received by an electoral trust shall not be

included in the total income if such electoral trust functions in accordance with the rules framed by the Central Government; and such electrical trust distributes to any political party, registered u/s 19A of the Representation of People Act, 1951, 95% of the aggregate donations received by it alongwith the surplus, if any brought forward.

This amendment is a significant development as it will help the donors to maintain their anonymity by routing donations to political parties through trusts. It will help to bring transparency in public & political life .

However, it seems that the amendments would require more clarifications and changes from its present form due to overlooking of certain practical problems.


EXEMPTIONSInsertion of Section 13B W.E.F. - April 1, 2010

Deduction in respect of contributions to Electoral trusts• Entire amount will becoem taxable, if trusts fail to disburse 95%. This is

not the case with trusts exempt u/s 11, wherein only shortfall in application is taxed.

• What is surplus needs to be defined properly, especially in cases where the trust has failed to get exemption. Whether such taxed income, will again be considered as surplus to be B/F and utilized in next year needs to be clarified.

• Only voluntary contributions are tax free. What about intt. & other income on amount retained by trust. There is no provision for that.

• 95% of the income of the trust has to be distributed. What about exepnsses in running the trusts?


SALARIESSubstitution of sub-clause (vi) of clause (2) of Section 17

W.E.F. - April 1, 2010

Perquisite on ESOPsPresently, ESOPs, etc. are taxed as ‘Fringe Benefits’. Now, it has been

proposed to amend section 17(2) and define ‘perquisites’ to include the value of any ESOPs. Thus, instead of being taxed as Fringe Benefits, the value of the ESOPs will be directly includible in the hands of the concerned employee in the following manner:

Perquisite value will be the difference between FMV on the date of exercise of ESOPs and the amount actually paid by the employee.

FMV will be computed as per the method to be notified. Presently, value of ESOPs considered for computing perquisite in the

hands of the employees is considered as cost of acquisition on sale. Now, FMV considered for computing the perquisite value shall be considered as cost of acquisition on sale.


SALARIESSubstitution of sub-clause (vi) of clause (2) of Section 17

W.E.F. - April 1, 2010

Perquisite on ESOPsThere is no clarification on what happens to ESOP’s already exercised in

last year? There is no clarification.FMV can fluctuate from date of exercise to date of sale. Can lead to

hardship for employees as taxed will be paid on non- realised income.


SALARIESInsertion of sub-clause (vii)in clause (2) of Section 17

W.E.F. - April 1, 2010

Perquisite on contribution to Superannuation Fund Presently, Superannuation fund contributions made by the employer for

an employee are taxed as ‘Fringe Benefits’. Now, any contribution to an approved superannuation fund by the employer shall be taxed as a perquisite in the hands of the assessee, to the extent it exceeds Rs. 100,000.

However, this will result in double taxation as withdrawals of Super Annuation fund are also taxable.

Insertion of sub-clause (viii) in clause (2) of Section 17

W.E.F. - April 1, 2010

Perquisite on any other BenefitPerquisite taxable in the hands of the employees will now include the

value of any other fringe benefit or amenity as may be prescribed. Nangia & Co. Budget 2009

SALARIES

Both these amendments will result in tax in the hands of the employees, despite the fact that such income does not result in cash inflow for the employee at the time of paying the tax.

However, the shifting of tax incidence in the hands of the employees on ESOP’s will enable expat employees to claim tax credit for tax paid in India on such perquisites.


BUSINESS INCOMEInsertion of Section 35AD W.E.F. - April 1, 2010Investment-linked tax incentive for Specified BusinessSection 35AD has been enacted to provide for taxation of newly set up

“specified businesses”. Specified businesses include the business of setting up and operating of cold chain facilities for storage or transportation of agricultural produce, dairy products and other related items, including business of warehousing for storing agricultural produce and the business of laying and operating a cross-country national gas or crude or petroleum oil pipeline network for distribution, including storage facilities.

The salient features of the new regime of investment-linked tax incentives are:

Deduction of the entire capital expenditure incurred (except expenditure incurred on acquisition of land or goodwill or financial instrument) would be allowed, if it has been incurred wholly and exclusively for the said specified business.


BUSINESS INCOMEInsertion of Section 35AD W.E.F. - April 1, 2010Investment-linked tax incentive for Specified Business

The deduction shall be available only if operations of the business of laying and operating a cross-country national gas or crude or petroleum oil pipeline network for distribution, including storage facilities is commenced on or after April 1, 2007 and for other specified businesses, on or after April 1, 2009.

No deduction shall be permissible in respect of the capital expenditure under any other provision.

In cases where expenditure on a capital asset has been allowed u/s 35AD and such asset is demolished, destroyed, discarded or transferred, any sum received or receivable on such account (except to the extent relating to land or goodwill or a financial instrument) shall be taxed as profits and gains of business or profession.


BUSINESS INCOMEInsertion of Section 35AD W.E.F. - April 1, 2010Investment-linked tax incentive for Specified Business

The word used is Specified “business” and not “undertaking.”This will impact subsequent claims as more undertakings are set up but the specified business remains the same.

It is actually accelerated depreciation and nothing more. Something like 100% depreciation on “ pollution control equipments”. Yet , it is not treated like that.

Sale value of assets will become fully taxable. If it had been treated like depreciation, then such sale value would have been allowed to be deducted from Block value, but here it becomes fully taxable.

The logic ion favor of investment based benefits is totally contrary to the logic given earlier at the time of withdrawal on investment allowance U/s 32A, when it was stated that investment based tax breaks act as distortions.


BUSINESS INCOMEExtension of Section 35(2AB) W.E.F. - April 1, 2010Weighted deduction for in-house research and developmentUnder Section 35(2AB), weighted deduction of 150% of expenditure

incurred on scientific research is allowed to assessee’s engaged in the business of biotechnology or in the business of manufacture or production of drugs, pharmaceuticals, electronic equipments, computers, telecommunication equipments, chemicals or any other article notified by the Board and which has incurred expenditure on in-house scientific research and development facility approved by the prescribed authority.

It is proposed to extend the benefit of weighted deduction to all companies engaged in the business of manufacture or production of an article or thing except those specified in the Eleventh Schedule of the Income-tax Act, 1961.


BUSINESS INCOMEAmendment in Section 36(1)(viii) W.E.F. - April 1, 2010Special deduction to National Housing Bank (NHB) Presently, a specified entity engaged in a specified business, including the business of

long term financing of ‘construction or purchase of houses in India for residential purpose’ is allowed deduction upto twenty percent of profits derived from such business, if such amount is transferred to a special reserve. The ambit of this provision is sought to be widened whereby the words ‘construction or purchase of houses in India for residential purpose’ shall be substituted with the words ‘housing development’.

The modification should have been by way of addition and not replacement as it may affect existing beneficiaries.

Omission of clause (xvi) in sub-section (1) of Section 36

W.E.F. - April 1, 2009

Commodities Transaction TaxDeduction of Commodities Transaction Tax shall no longer be available.This amendment is consequential in nature and will be applicable with

retrospective effect from April 1, 2009. CTT in fact was never notified in the first place.Nangia & Co. Budget 2009

BUSINESS INCOMERevision of limits in Section 40(b)(v) W.E.F. - April 1, 2010Remuneration to partners in a FirmUnder the provisions of Section 40(b)(v), the payment of salary, bonus,

commission or remuneration to a working partner of a partnership firm is allowed as deduction if it is authorized by the partnership deed and subject to ceiling of monetary limits.

It is proposed to revise the existing limits of the remuneration as well as prescribe uniform limits for both professional and non-professional firms. The revised limits are:

On the first Rs. 300,000 or book profit/loss

Rs. 150,000 or 90% of book profit

On the balance book profit At the rate of 60%Nangia & Co. Budget 2009

BUSINESS INCOMERevision of limits in Section 40A(3) W.E.F. – October 1, 2009Enhancement of limit for disallowance of expenditure made in the case of transportersU/s 40A, expenditure is disallowed in cases where the payment is made

in excess of Rs. 20,000 in a day, otherwise than by account payee cheque drawn on a bank or account payee bank draft.

Now, the amount of Rs. 20,000 has been enhanced to Rs. 35,000 in cases where the payments are made for plying, hiring or leasing goods carriages.

This limit needs to be revised in other cases also as it was prescribed 40 years back.


BUSINESS INCOMESubstitution in Section 44AD W.E.F. – April 1, 2011Special provision for computing profits and gains of business on presumptive basisPresently u/s 44AD, assessee engaged in the business of civil construction

are subject to presumptive taxation at the rate of 8% of gross revenues provided that the gross receipts during the year did not exceed Rs. 40 lacs.

Now, the benefit of this presumptive taxation scheme has been extended to all businesses, except the business of plying, hiring or leasing goods carriages referred to in section 44AE.

The benefit of this presumptive tax scheme shall be available to Individuals, HUF & Partnership Firms not being LLPs.

Assessee availing the benefit of the aforesaid presumptive tax scheme shall not be liable to pay advance tax.

Consequential changes have been made in sections dealing with maintenance of books and Tax audit requirements.


BUSINESS INCOMESubstitution in Section 44AD W.E.F. – April 1, 2011Special provision for computing profits and gains of business on presumptive basisOur CommentsNo reason for excluding LLPs from claiming benefits under section 44AD has

been provided.The words gross receipts as well as certain decisions which held that the word

Business includes “ profession” create a doubt whether 44AD will apply to professional firms also.

An assessee opting for claiming benefits under section 44AD shall be exempted from payment of advance tax related to such business under the current provisions of the Income-tax Act. However, if he is earning income from any other source, he shall liable for payment of advance tax on that income.

In the case of a firm, the normal deduction in respect of salary and interest to partners under section 40(b) is still allowed.


BUSINESS INCOMERevision of limits of Section 44AE W.E.F. - April 1, 2011Presumptive income for truck owners Presently, there is a presumptive tax scheme of assessee’s engaged in the

business of plying, hiring or leasing not more than 10 goods carriages. For this purpose, the said section prescribes deemed profit rates of Rs. 3,500 per month for each heavy goods vehicle and Rs. 3,150 per month for each other vehicle.

These rates have been amended so as to provide for deemed profit rates of Rs. 5,000 for each heavy goods vehicle and Rs. 4,500 for other vehicles.

Modification in Section 43(6) W.E.F. - April 1, 2010Definition of Written down Value Written down value of assets used in a business which is partially agricultural

and partially chargeable to tax shall now be determined by reducing the total depreciation that would have been allowed from the actual cost of the assets, if the entire income was chargeable to tax. Modification made to overrule decision in the case of CIT vs. Doom Dooma India Ltd. ( 222 CTR 105)


CAPITAL GAINSModification in Section 50C W.E.F. – October 1, 2009Provisions for deemed valuation in certain cases of TransferThe existing provisions of section 50C provide that where the

consideration received or accruing as a result of the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed by an authority of a State Government (stamp valuation authority) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer for computing capital gain.

Now, the value which stamp duty valuation authority would have adopted or assessed if referred to, would be considered as full value of consideration, if the same is higher than the actual consideration.

Difference of opinion on the assessable value, will need to be referred to the valuer.Nangia & Co. Budget 2009

CAPITAL GAINSModification in Section 50C W.E.F. – October 1, 2009Provisions for deemed valuation in certain cases of TransferIt has been made to cover cases of transactions by POA’s / agreements .It may also cover cases of amalgamations where according to state laws,

the transactions need not actually require payment of stamp duty.


INCOME FROM OTHER SOURCESModification in Section 56 W.E.F. – October 1, 2009

Taxation of certain transactions without consideration or for an inadequate consideration as income from other sources Presently under section 56(2)(vi), any sum of money, exceeding Rs. 50,000, which is

received without consideration by an individual or HUF from persons other than relatives, is considered as taxable in the hands of the recipient.

Now, in cases where specified properties, including a sum of money, are received from persons other than relatives, without consideration or for inadequate consideration, the same would be taxable in the hands of the recipient as ‘Income from Other Sources’, as under:

Where an immovable property is transferred without any consideration or for insufficient consideration, and the stamp duty value of such property exceeds Rs. 50,000, the entire stamp duty value, or the difference between the stamp value and the consideration;

Where a movable property is transferred without any consideration or for insufficient consideration, and the FMV value of such property exceeds Rs. 50,000, the entire FMV value, or the difference between the FMV and the consideration.


INCOME FROM OTHER SOURCESModification in Section 56Our Comments Individuals/HUF’s receiving shares, jewellery, archaeological collections,

valuable drawings, paintings, sculptures or property valued at over Rs 50,000 as gifts from non-relatives, will have to pay tax from October 1, 2009. Therefore, jewellery or valuable artifacts, received from a non-relative for little or no consideration, a fair market value will be arrived at to determine the tax liability in the hands of the recipient.

If the property is received for inadequate consideration, it will also come under the tax net and tax will be imposed on the difference between the state government notified rate and the price paid for it.

The owner of the immovable property will be covered u/s 50C for transferring property not registered with stamp duty valuation authority and will be liable to pay tax on the capital gain computed by taking into account value assessed by stamp valuation authority as full value of consideration received. (will result in tax on both buyer and seller of capital assets)Nangia & Co. Budget 2009

INCOME FROM OTHER SOURCESModification in Section 56Our Comments It is important to remember that still, only properties so specified will stand

covered as definition has been made exhaustive.The provisions say that rules will be made to assess value. It remains to be seen

as how rules can be made to cover each such situation.Will lead to disputes in valuations at the time of assessments and will have

consequences for assessee such as short payment of advance taxes, and levy of intt. U/s 234A,B.

How will one judge the value and take effect for differences in valuation in cases of Unequal partition of HUF’s , amalgamations, De merger etc.

Definition of income has not been amended u/s 2(24) to include under it incomes specified in the newly inserted section 56(20(vii).

Further, amendment is also required in Sec 49 , to increase the cost of acquisition, on the amount on which tax is paid, when the recipinet sells the assets and pays his capital gains.


INCOME FROM OTHER SOURCESInsertion of clause (viii) in sub-section (2) of 56 and substitution in Section 145A

W.E.F. – April 1, 2010

Rationalization of provisions for taxation of interest received on delayed compensation or enhanced compensation It is proposed to insert clause (viii) in sub-section (2) of 56 to provide that

interest received on compensation or on enhanced compensation shall be chargeable to tax as ‘income from other sources’. Further, a deduction of 50% of such amount shall be allowed u/s 57(iv).

Section 145A has been substituted to provide that interest received by an assessee on compensation or on enhanced compensation shall be deemed to be the income of the year in which it is received, irrespective of method of accounting followed.

The amendments have been made to nullify the judgment in the case of Rama bai ( 181 ITR 400) SC , wherein it was held that income will have to be taxed on accrual basis. This judgment had precluded the Deptt. to levy tax in time barred cases. An express provision to allow deduction of interest should also be made in case intt. is required to be refunded, in case it is not recd. finally.


SET OFF & C/F OF LOSSESinsertion of Section 73A W.E.F. – April 1, 2010

Set off & Carry forward of losses of Specified businesses U/s 35AD

It has now been provided that losses of such businesses can only be set off against income from specified businesses and can be carried forward indefinitely till they are setoff fully.


DEDUCTIONSModification in Section 80A W.E.F. – April 1, 2003Amendment in Chapter VIA to prevent abuse of tax incentivesPresently, deductions specified in sections 80C to 80U of the Act are

allowed from the gross total income to the extent such deductions do not exceed the gross total income of the assessee.

The amendment seeks to provide that in the case of a taxpayer claiming exemption u/s 10A, 10AA, 10B or 10BA, no further deduction under any provision of the Act will be provided in respect of the profits and gains so claimed exempt. (section 80A(4))

Further, in cases where a taxpayer fails to claim exemption u/s 10A, 10AA, 10B or 10BA, or under sections 80C to 80U in his return of income, no deduction shall be allowed to such taxpayer. (section 80A(5))


DEDUCTIONSModification in Section 80A W.E.F. – April 1, 2003Amendment in Chapter VIA to prevent abuse of tax incentivesOur CommentsThe above amendments have been proposed to prevent the misuse of of

the tax incentives provided and overrule the decision in the case of Jindal Exports (P) Ltd 311 TD 217 but is in consonance with the judgement of ITAT in the case of ACIT vs. Hindustan Mint & Agro Products Pvt. Ltd. [ITA No. 1537/Del/07] wherein it was held that the deduction of export profit under Section 80HHC of the Act is required to be computed after reducing the profits which are allowed as deduction under Section 80IA or 80IB.

The stringent requirement proposed for availing tax exemption/ deduction only on claiming such exemption/deduction of income is in line with the decision of the Apex Court in case of Goetze (India) Ltd. v. Commissioner of Income-Tax (284 ITR 323). However, it is contrary to the CBDT circular dated 11-4-55.


DEDUCTIONSModification in Section 80A W.E.F. – April 1, 2003Amendment in Chapter VIA to prevent abuse of tax incentivesOur CommentsThere are certain judgments which say that claims which could not be

raised before the AO can be raised before the Commissioner or even the Tribunal. Can this amendment prevent such claims remains to be seen.

Tommorrow, if income is enhanced by the AO, the assessee will suffer hardship as he will not be allowed to raise claims, because he never claimed them at the time of filing of return.


DEDUCTIONSModification in Section 80A W.E.F. – April 1, 2009

Amendment in Chapter VIA to prevent abuse of tax incentivesFurther, under section 80A(6), where goods or services are transferred by

the taxpayer between the eligible undertaking and any other business carried on by the taxpayer and the consideration for transfer does not correspond with the market value, then, for the purpose of deduction, the profits or gains of the undertaking will be computed by adopting the market value on the date of the transfer.

Revision of limits in Section 80-DD W.E.F. – April 1, 2010

Deduction for medical treatment of a dependent suffering from disabilityPresently, deduction, subject to an upper limit, of Rs. 75,000 is available to

an Individual or HUF, who is resident in India, in respect of expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; and amount paid to LIC or other insurance in respect of a scheme for the maintenance of a disabled dependant. Now, this upper limit has been revised to Rs. 100,000.

Nangia & Co . Budget 2009

DEDUCTIONSModification in Section 80CCD W.E.F. – April 1, 2009Tax Benefits for New Pension SystemPresently, an individual employed by the Central Government or any other

employer who has paid or deposited any amount in his account under a Government notified pension scheme, is allowed deduction in computing his total income of the whole of the amount paid or deposited by him not exceeding 10% of his salary in the previous year. Now, the deduction under this section has been extended to all other individual taxpayers.

Further, Section 80CCD(5) has been inserted to provide that the assesee shall be deemed to have not received any amount in the previous year if such amount is used to purchase an annuity.

The above provisions will help to make the pension scheme attractive.However, Sec 80CCD(1) still says 10% of his salary. This needs to be amendedto allow computation in the hand of the individual non salaried tax payer.


DEDUCTIONSModification in Section 80E W.E.F. – April 1, 2010

Deduction in respect of Interest on loan taken for higher education Interest on loan taken from any financial institutions or any approved

charitable institution for the purpose of pursuing higher education in specified fields of study is allowable as a deduction.

Under the existing provisions, the deduction is available only for pursuing full time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics.

Now, the benefit of this deduction shall be extended in respect of any course of study pursued after passing the SSE or its equivalent from any school, board or university recognized by the Union or the State Government or local authority or by any other authority authorized.

Our CommentsThe amendment had been brought to create human capital in the country

and will help taxpayers pursuing vocational courses.Nangia & Co. Budget 2009

DEDUCTIONSModification in Section 80G W.E.F. – October 1, 2009Donations to Certain Funds, Charitable Institutions, etc.Presently, approval is granted by the Commissioner to any institution or

fund for the purpose of section 80G(5)(vi). Such approval is valid for a period of maximum period of 5 years. Now, the limit of maximum period has been discontinued and consequently, approvals shall be valid in perpetuity.

An amendment has also been made to provide that trusts receving approval under this section in FY 07-08 will be held to be charitable for FY 08-09, even if they are covered by the proviso to sec 2(15).

Our CommentsThe proposed amendment has been brought into effect due to the

hardships faced by the approved institutions in getting their approvals renewed from time to time. It was burdensome on the approved institutions and led to wastage of time and resources of the tax administration in the renewal process.


DEDUCTIONSINSERTION OF SECTION 80GGD W.E.F. – April 1, 2010

Donations in respect of contributions to political partiesPresently, any sum contributed by an Indian company to a political party

is allowable as a deduction. The benefit of the deduction has been extended to cover contributions made to Electoral Trusts. (Section 80GGB)

Presently, any sum contributed by any other person, except a local authority or artificial juridical person wholly or partly funded by the Government, to a political party is allowable as a deduction. The benefit of the deduction has been extended to cover contributions made to Electoral Trusts. (Section 80GGC).

Our CommentsThe above amendments have been brought into effect to maintain the

anonymity of the political parties to whom the contribution is being made.


DEDUCTIONSExtension of time limit in Section 80-IA W.E.F. – April 1, 2009Extension of sunset clause for tax holiday Presently, deduction u/s 80IA for the following undertakings was subject

to sunset clause whereby deduction would no longer be permissible for operations commenced after March 31, 2010:

Undertaking set up in any part of India for the generation or generation and distribution of power;

Transmission or distribution by laying a network of new transmission or distribution lines;

Undertakes substantial renovation and modernization of existing network or transmission or distribution lines.

The sunset clause has been amended whereby, the period of commencement of operations shall be extended from March 31, 2010 to March 31, 2011.


DEDUCTIONSExtension of time limit in Section 80-IA W.E.F. – April 1, 2009Extension of sunset clause for tax holiday Deduction u/s 80IA is allowable to undertakings set up for reconstruction

or revival of a power generating plant, if such undertaking begins to generate or transmit or distribute power before March 31, 2008. The date to being generation, transmission or distribution of power has been extended from March 31, 2008 to March 31, 2011.

Amendment in Section 80-IA W.E.F. – April 1, 2010Omission of Profit-linked DeductionPresently, deduction u/s 80IA is allowable to undertakings engaged in

the business of laying and operating a cross-country natural gas distribution network. This deduction shall be omitted with effect from April 1, 2010 as they are now covered under section 35AD.


DEDUCTIONSAmendment in Section 80-IBDeduction in respect of profits and gains from undertakings engaged in commercial production of mineral oilDeduction u/s 80-IB is allowable in certain cases to undertakings other

than infrastructure development undertakings, deriving profits and gains from commercial production or refining of mineral oils. The amendments provide that the assessee will be entitled to a deduction of 100% of profits and gains for 7 years if the undertaking fulfils either of the following conditions: The undertaking is located in any part of India and has begun or

begins commercial production of mineral oil on or after April 1, 1997; or

The undertaking is engaged in the refining of mineral oil and begins such refining on or after the October 1, 1998.


DEDUCTIONSAmendment in Section 80-IBDeduction in respect of profits and gains from undertakings engaged in commercial production of mineral oil (cont.)Now, in computing the deduction allowable under this section, all blocks

licensed under a single contract shall be treated as a single ‘undertaking’. (Section 80IB(9)) [ WEF APRIL 1, 2000]

Furthermore, the deduction shall be so allowable to the undertakings engaged in the refining of mineral oils and which begin such refining before March 31, 2012. (as against 31-03-2009 earlier).

Additionally, now the benefit of the said deductions will also be allowed in respect of commercial production of natural gas, but only in cases where the undertaking is engaged in commercial production of natural gas in blocks licensed under the VIII Round of bidding for the award of exploration contracts under NELP and begins commercial production of natural gas on or after April 1, 2009. [ WEF AY 10-11]


DEDUCTIONSOur CommentsThe said amendment restricts the deduction to all blocks licensed under a

single contract by treating them as a single ‘undertaking’. This is against the interpretation of the term ‘Undertaking’ as hedl in the case of ACIT vs. Niko resources and will also impact the defintion as understood by the Supreme Court in Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 (SC) and various High Courts in CIT v. Premier Cotton Mills Ltd. (240 ITR 434) (Mad), etc.

Till date, the section was silent on whether the term ‘mineral oil’ includes natural gas for the purpose of the applicability of this section. Due to the absence of the clear definition of the term ‘mineral oil’, the assesses used to rely on the meaning given in sister legislations (e.g. Petroleum Tax Guide, 1999, Petroleum and Natural Gas Rules, 1959, Section 44BB of the IT Act etc.) which includes Natural Gas in the meaning of the term ‘Mineral Oil’. This view is in consonance with the Tax Tribunal judgment in the case of ACIT vs. Niko Resources Ltd. (123 TTJ 310) (AHD).


DEDUCTIONSOur CommentsThe amendment brings more clarity by stating that the benefit is

available to production of Natural Gas (though limited to NELP-VIII). But still the debate remains as to whether such interpretation applies to those earlier allotted contracts.


DEDUCTIONSAmendment in Section 80-IB(10) W.E.F. – April 1,2010Rationalizing the provisions of deduction of 80-IBDeduction u/s 80IB is allowable to the extent of 100% deduction of the

profits derived by an undertaking developing and building housing project approved by a local authority before March 31, 2007.

The following two additional conditions have been prescribed for grant of this deduction: That not more than one residential unit is allotted to any person not

being an individual; and In case where a residential unit in the housing project is allotted to a

person being an individual, no other residential unit in such housing project is allotted to:

spouse or minor children of such individual; or the HUF in which such individual is Karta; or the person representing such individual, the spouse or the mineral child of

such individual or the HUF in which the individual is the Karta. Nangia & Co. Budget 2009

DEDUCTIONSAmendment in Section 80-IB(10) W.E.F. – April 1,2010Rationalizing the provisions of deduction of 80-IBOur CommentsThe objective of the tax benefit for housing projects is to build housing stock for

low and middle income households. This has been ensured by limiting the size of the residential unit. However, this is being circumvented by the developer by entering into agreement to sell multiple adjacent units to a single buyer. To curb this exercise, the said amendment was brought into effect. But the question arises as to how the scheme will be implemented in cases where part benefits have already been claimed under proportionate completion method.

Further, there are certain judgements such as in the case of ACIT vs. Bengal Ambuja Housing Development Ltd. ( ITAT No. 1735 & 1595) Kol, wherein it was held that even if some of the units exceed the specified area, the deduction will be given proportionately. Keeping this in view, the assesee may not lose the full deduction in case of such violation.

Should prescribe procedure for computation of proprtionate benefit in such cases. Nangia & Co. Budget 2009

INTERNATIONAL TAXATIONExtension in Section 90 W.E.F. – October 1, 2009

Empowering Central Government to enter into agreement with specified non-sovereign territoriesPresently u/s 90, the Indian Government can enter into agreements with

foreign countries for the grant of relief in respect of income on which income-tax has been paid both under the said Act and income tax in the foreign country.

Now, the Indian Government, in addition to entering into agreements with foreign countries, can enter into agreements with specified territories outside India, like Hongkong, Taiwan, Cayman Islands.

These specified territories mean areas outside India that shall be notified as such, for the purpose of this section by the Central Government.

Our CommentsThe amendment will expand the government's scope by entering into a

DTAA or TIEAs with non-sovereign jurisdictions and will give rise to inquiry of overseas transactions like Vodafone-Hutch case.


INTERNATIONAL TAXATIONModification in Section 92C W.E.F. – October 1, 2009Determination of arm's length price in cases of international transactionsPresently u/s 92C, for the purpose of Transfer Pricing Provisions, where the

most appropriate method results in more than one price, the arithmetical mean of such, or at the option of the assessee, a price which differs from the arithmetical mean by an amount not exceeding 5% of such mean may be taken to be the arm’s length price in relation to the international transaction.

Now, where the most appropriate method results in more than one price, the arithmetical mean of such prices shall be the arm’s-length price. If the variation between the arm’s-length-price so determined and the price at which the international transaction has actually been undertaken does not exceed 5%, the price at which the international transaction has actually been undertaken, shall be deemed to be the arm’s-length-price.


INTERNATIONAL TAXATIONOur CommentsIt is not clear what would be the adjustment to the income of the

taxpayer when the variation exceeds 5%. Would the adjustment be restricted to variation in excess of 5% or it would extend to entire difference including 5%.

the following judgments are sought to be negated, wherein it has been held that the 5% range should be allowed to the taxpayer even in cases where the price of the transaction was outside the 5% range:

Development Consultants Pvt. Ltd. Vs DCIT (115 TTJ 577) (KOL), E-Gain Communication Pvt Ltd. Vs. ITO (ITA No.1685/PN/2007) (Pune), Mentor Graphics (Noida) Pvt. Ltd. Vs DCIT (18 SOT 76) (Delhi), Sony India (P) Limited Vs DCIT (2008-TIOL-439) (Delhi)


INTERNATIONAL TAXATIONExtension in Section 92C W.E.F. – April 1, 2009Determination of arm's length price in cases of international transactionsA new section has been introduced to provide for ‘safe harbor rules’ that

will be specified by the Board. ‘Safe Harbour’ means circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee.

Robust safe harbour rules in line with international recognized and practiced norms would be a welcome step which would simplify the arduous process of determination of arm’s length price and would significantly reduce the pending and potential disputes.


MINIMUM ALTERNATE TAXModification in Section 115JBRevision of Rates & Time Limit W.E.F. – April 1, 2010Presently under the provisions of 115JB, MAT is calculated at 10% of

book profit. Now, the MAT rate has been increased from 10% to 15% of book profit.

Presently, MAT credit can be carried forward and set off for a period of upto 7 Assessment Years. Now, the carry forward period has been increased to 10 years. (Section 115JAA(3A))

Modification in Section 115JBAmendment in the definition of ‘book profit’ W.E.F. – April 1, 1998/2001The definition of ‘book profit’ has been amended to provide that any

provision for diminution in the value of any asset will also be included in the computation of book profit. This amendment will take effect retrospectively from April 1, 1998 in case of Sec 115JA(2) and w.r.e.f April 1, 2001 in case of Section 115JA(2).


MINIMUM ALTERNATE TAXModification in Section 115JB W.E.F. – April 1, 2010Revision of Rates & Time LimitOur CommentsThe Supreme Court in the case of HCL Comnet Systems & Services

Limited [2008] 305 ITR 408 had held that provisions towards bad & doubtful debts should be viewed as a diminution in the value of an asset, rather than as provision towards an ‘Unascertained liability’. To reverse the aforesaid interpretation, the amendment has been introduced with retrospectively effect from AY 2001-02.


SEARCH & SEIZUREAmendment in section 132Clarificatory amendment in search and seizure operationsPresently, with regards to a search and seizure operation, where the

Director General or Director of the Chief Commissioner of Commissioner, or any such Joint Director or Joint Commissioner authorized by the Board on his satisfaction of certain conditions, may issue warrant of authorization for conducting search and seizure operation.

It has been clarified that Additional Director or Additional Commissioner had always the power to issue warrant of authorization for conducting search and seizure.

It has been further clarified that Joint Director or Joint Commissioner had always the power to issue warrant of authorization for conducting search and seizure-[WEF 1 OCTOBER 1998.]


SEARCH & SEIZUREAmendment in section 132Clarificatory amendment in search and seizure operationsFurthermore, now, no such authorization shall be issued by the

Additional Director or Additional Commissioner or Joint Director or Joint Commissioner on or after October 1, 2009 unless he has been empowered by the Board to do so. [ wef June 1, 1994]

This negates the following judgments in favor of the assessee:Dr.Nalini Mukherjee Vs. Director of I. Tax (Inv.) (257 ITR 123) AllRaghuraj pratap singh Vs. ACIT ( 179 Taxman 73 ) All Presently, Director General or Director of the Chief Commissioner or

Commissioner may authorize any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner of Income Tax Officer to requisition books of accounts, etc. Now, Additional Director or Additional Commissioner may be authorized to exercise the powers so specified.


ASSESSMENT PROCEDURESAmendment in section 143(1) W.E.F. – April 1, 2009Presently, for summary assessment u/s 143(1), it is provided that the Central

Government may, by notification make modifications to the provisions of the Act relating to processing the returns and that such notification may not be issued after March 31, 2009. The time limit has been extended from March 31, 2009 to March 31, 2010.

Section 144C W.E.F. – October 1, 2009

Alternate Dispute Resolution mechanismThe subjects of transfer pricing audit and the taxation of foreign company are at

a nascent stage in India. Often the Assessing Officers and the Transfer Pricing Officers tend to take a conservative view. The correction of such view takes a very long time with the existing appellate structure. For speedy disposal, an alternate Dispute Resolution Panel shall be formed. Under the new provisions, the Assessing Officer shall be bound to give a draft order to the assessee who shall have the option to take up the case before the Dispute Resolution Panel. The decision of the Dispute Resolution Panel shall be final and binding on the Revenue in case of orders U/s 92CA(3) and in cases of foreign companies.

Nangia & C o. Budget 2009

ASSESSMENT PROCEDURESSection 144C W.E.F. – October 1, 2009

Alternate Dispute Resolution mechanism In case the panel does not give its recommendations, then whether assesment

will be carried out as per draft order has not been specified any where.Whether CIT can revise this order u/s 263, as this order retains the character of

AO’s order, remains to be seen.Further, whether such an order is subject to proceedings u/s 148, remains an

area of concern.

Nangia & C o. Budget 2009

ASSESSMENT PROCEDURESAmendment in section 147Clarificatory amendment in respect of reassessment proceedingsReassessment provisions are sought to be amended to provide that an

AO may assess or reassess income in respect of any issue which has escaped assessment and such issue comes to his notice subsequently in the course of proceedings, notwithstanding the fact that the reasons for such issue have not been included in the reasons recorded prior to commencement of proceedings u/s 147.

Our CommentsThis amendment have been brought into effect after the case of Vipin

Khanna Vs. Commissioner of Income Tax (High Court of Punjab & Haryana) 255 ITR 220, wherein it was held that the Assessing Officer was not justified in launching inquiry into other issues which were not connected with the issues on which proceeding under section 147 were initiated. Also, the case of Jay Bharat Maruti Vs. CIT ( 223 CTR 269)


TAX DEDUCTION AT SOURCESection 194C W.E.F. – October 1, 2009Clarification regarding ‘work’For the purpose of TDS from contractual payments to resident

contractors the following amendments have been made: the expression ‘work’ is now defined to include advertising,

broadcasting and telecasting, carriage of goods or passengers by any mode of transport other than railways, catering and manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer. However, work shall not include manufacturing or supply a product according to the requirement of a customer by using material purchased from a person other than such customer. (Expl. (iv))

Tax shall be deducted on the value of the invoice excluding the value of material if such value is mentioned separately in the invoice, or on the whole of the invoice value if the value of material is not so separately mentioned. (Sec 194(C))(3))


TAX DEDUCTION AT SOURCESection 194C W.E.F. – October 1, 2009Clarification regarding ‘work’The changes give due regard to the decisions in the case of By virtue of the proposed amendment, the settled legal position [as laid

down in the cases of BDA Ltd. : 281 ITR 99 (Bom); CIT vs. Dabur India Ltd.: 283 ITR 197 (Del); CIT vs. Reebok India Co. 221 CTR 508 (Del); CIT vs. Seagram Manufacturing (P) Ltd. : 221 CTR 509 (Del) and Circular No. 13 of 2006 dated 13-12-2006 read with Circular No. 681 dated 08-03-1994 issued by the CBDT] that outsourcing of manufacturing of goods was a transaction for purchase and sale on principal to principal basis and did not amount to the transaction in the nature of work contract so as to attract provisions of section 194C of the Act has been given statutory recognition.


TAX DEDUCTION AT SOURCESection 194C W.E.F. – October 1, 2009Clarification regarding ‘work’ (cont.)

The provisions of TDS shall not apply in cases of payment for plying, hiring or leasing goods carriages provided that the resident contractor provides his PAN to the payer. Payers shall furnish to the prescribed Income Tax Authority such details and particulars as may be prescribed. (Sec 194C(6)).

Presently, payments to resident contractors are subject to TDS at the rate of 2%. The rates of TDS have been revised to 1% where the payee is an individual or HUF. For other payees, the rate shall continue to be 2%. (Sec 194C(1))

Presently, in the case of payment for an advertising contract, TDS is required to be deducted at 1%. Now, a person other than an Individual/HUF contractor/sub-contractor for advertising will be required to deduct TDS at 2% .


TAX DEDUCTION AT SOURCESection 194I W.E.F. – October 1, 2009Rationalization of TDS RatesPresently, rental payments in respect of land or building are subject to

TDS at 15% to 20% of gross rentals, depending upon the status of the payee. The TDS rates in such cases have been reduced to 10% for all payees. (section 194-I(b)).

Presently, rentals of plant or equipment are subject to TDS at 10% of gross rentals. The TDS rates have been reduced to 2%. (section 194-I(a)).


TAX DEDUCTION AT SOURCESection 200A W.E.F. – April 1, 2010Processing of statements of tax deducted at sourceAll TDS returns shall be processed by the Revenue Authorities and all

sums deductible shall be computed after making adjustment of any arithmetical error or apparent incorrect claim in the statement.

Interest, if any, shall be charged on the sum so computed. The sum payable or refundable to the deductor shall be determined after

adjusting the sum so computed against the tax and interest paid by the assessee.

Intimation shall be sent to the assessee specifying the amount payable or refundable. However, no intimation shall be sent after the expiry from the end of the financial year in which the statement is filed.

It is also provided that the Board may make a scheme for centralized processing of TDS returns to expeditiously determine the tax payable by, or the refund due to the deductor.


TAX DEDUCTION AT SOURCESection 201(3) W.E.F. – April 1, 2010 Providing time limits for passing of orders u/s 201(1) holding a person to be an assessee in default Presently, no time limit has been prescribed for passing an order, holding a

person to be taxpayer in default, for failure to withhold appropriate taxes. Now, the following time limits have been prescribed for passing an order

where the deductee is a resident taxpayer: Two years from the end of the financial year in which the statement of taxes

withheld is filed by the deductor; Four years from the end of the financial year in which payment is made or

credit is given, where no such statement is filed. Order for withholding tax proceedings for the financial year beginning April

1, 2007 and earlier years can be completed by March 31, 2011.The above time limits shall be subject to the time limits prescribed for the

order giving effect to the orders of the various appellate authorities, to the extent applicable.Nangia & Co. Budget 2009

TAX DEDUCTION AT SOURCEOur CommentsThe above amendment is welcome and the time limit prescribed is in

consonance with the Tribunal judgements in the case of Raymond Woolen Mills Ltd. v. ITO (57 ITD 536) (Mum). However, it seems that the amendment in relation to time limit for passing the order under section 201(1) is not applicable where –

The deductor has deducted but not deposited the tax; The employer has failed to pay the tax wholly or partly, under section

192(1A), as the employee would not have paid tax on such perquisites; and

The deductee is a non-resident (to overcome the decision of Special Bench of Tribunal in the case of Mahindra and Mahindra Ltd. v. DCIT (2009-TIOL-255-ITAT-MUM-SB)).

On the flip side, this will also ensure better follow up by the Deptt., more demands of interest, penalties etc. and will keep the assessee on his tows.Nangia & Co. Budget

2009

TAX DEDUCTION AT SOURCESection 200(3) W.E.F. – October 1, 2009Filing of TDS and TCS statementsChanges have been made to the system of filing of statements of taxes

withheld/collected. Presently, statements of taxes withheld/collected are required to be filed quarterly for each financial year.

Now, such statements will be required to be filed within the time limit and in a form and manner as prescribed by the CBDT. Corresponding amendments in other relevant sections have been made.


TAX DEDUCTION AT SOURCEInsertion of Section 206AA W.E.F. – April 1, 2010Compliance with provisions of quoting PAN through the TDS regimeA new section 206AA shall be inserted relating to the following

requirement to furnish PAN:Where the deductee fails to furnish its PAN or furnishes an incorrect PAN

to the deductor, the deductor will be required to withhold taxes, at higher of the following:

At the rate specified under the Income-tax Act; or At the rates in force; or At the rate of 20%No certificate for lower rate of withholding taxes shall be issued by the

Revenue authorities to the deductee, unless the PAN of the deductee is mentioned on the application.

PAN to be indicated in all correspondence, bills, vouchers and other documents exchanged between the deductor and deductee.


TAX DEDUCTION AT SOURCEInsertion of Section 206AA W.E.F. – April 1, 2010Compliance with provisions of quoting PAN through the TDS regimeOur CommentsThe above amendment is very harsh on the deductor as it will result into

disallowance of entire expenditure under section 40(a) if the deductor fails to deduct TDS at a appropriate rate, i.e. if the deductor has deducted TDS of 2% on a resident contractor but has furnished incorrect PAN, his entire expenditure will be disallowed as he was supposed to deduct TDS at 20%.

The onus has bee cast on every deductor to verify every PAN submitted by the payee. It is suggested to take a photo copy of the PAN card from each payee. PAN can be verified from www.tin-nsdl.com/ onlinepanintro.asp.

Causes hard ship to non-residents who may not like to take a PAN, especially where tax is being borne by the resident payer.


PENALTIESExplanation 5A to Section 271 W.E.F. – June 1, 2007Rationalization of provisions relating to penalty for concealment of incomePresently, in search cases, if the taxpayer is found to be the owner of

specified assets or income based on book entry for any financial year, which has ended before date of search and the due date of return of income has expired and the taxpayer has not filed the return of income, he would be deemed to have concealed the particulars of its income.

Now, the scope of penalty provisions will extend to cases where the taxpayer has filed the return of income for any financial year and the income found during the course of search is not disclosed in such return of income.


PROVISIONAL ATTACHMENTSection 281B W.E.F. – April 1, 1987Rationalization of provisions relating to provisional attachment of assetPresently u/s 281B, every order for provisional attachment of asset

ceases to have effect after an expiry of six months (extendable to two years) from the date of such order. In certain cases, the taxpayers obtain a stay from courts of the assessment proceedings, while the order for provisional attachment of asset may expire.

Now, the period during which assessment or reassessment is stayed by a court will be excluded in calculating the validity period of such an order.

This will hit all pending cases immediately.


LIMITED LIABILITY PARTNERSHIP

Clause 23 of section 2 defines ‘firms’, ‘partner’ and ‘partnership’. The definition has been amended to include ‘firms’, ‘partner’ and ‘partnership’ as defined in the Limited Liability Partnership Act, 2008.

The return of income of a LLP shall be signed and verified only by the designated partner. Where for unavoidable reason the designated partner is unable to sign the return or where there is no designated partner, the return may be signed and verified by any other partner.

Where any tax is due from a LLP which cannot be recovered, then every person who was a partner at the time (to which the tax pertains), shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP.


LIMITED LIABILITY PARTNERSHIPOur CommentsThe LLP Act also allows the conversion of general partnership and private

limited companies into LLP. However, no amendments in relation to tax implications of such a conversion have been carried out in the IT Act, 1961. Therefore, the issue would arise whether such a conversion would lead to a transfer liable to tax under section 45. In this regard, the explanatory memorandum to the Budget clarifies that no tax liability would arise in case of a conversion of a general partnership, so long as there is no change in the rights and obligations of the partners and no transfer of assets or liabilities post the conversion. However, the conversion of a general partnership into LLP would inevitably involve the limitation of personal liability of the partners, thereby resulting in a change in the obligations of the partners. This fact seems to have been inadvertently missed out while introducing the provisions relating to conversion of a general partnership into LLP.


LIMITED LIABILITY PARTNERSHIPOur CommentsThe practice of taxing the income of the LLP in the hands of the firm is a

divergence from the practice of treating the LLP as a tax transparent entity in certain other countries like UK and USA, which tax the income of the LLP in the hands of the partners. Thus, in case of the income of the LLP is also taxed in other jurisdiction where the income is taxed in the hands of the partners, the availability of tax credit to LLP in India might lead to certain difficulties.

LLPs will be more attractive as there is no MAT or DDT in case of LLP’s as compared to case of the companies.


TAX BENEFITS FOR NEW PENSION SYSTEM

Any income received by any person for or on behalf of the New Pension System Trust established on February 27, 2008 under the Indian Trust Act, 1882 will not be included in the total income of such trust. This amendment will take effect retrospectively from April 1, 2009.

The provisions of DDT (Section 115-O) have been amended to provide that in the case of any company, dividend chargeable to DDT shall now be reduced by the amount of dividend, if any, paid to any person for, or on behalf of, the NPS Trust. This amendment will take effect retrospectively from April 1, 2009.

Payments to any person for, or on behalf of the NPS Trust shall not be subject to TDS (Section 197A).

Securities Transaction Tax will not be applicable to transactions entered into by the NPS Trust.


MISCELLANEOUSModification in Section 115BBC W.E.F. – April 1, 2010Tax Relief on anonymous donations in certain casesUnder the provisions of section 115BBC, where the anonymous

donations is made to an educational or medical institution run by partly religious and partly charitable entities, such donations are taxed at the rate of 30%. Now it has been proposed that anonymous donations, to the extent they are in excess of, Rs. 100,000 or 5% of the total income of the assessee, whichever is more, shall be taxable at 30% with effect from April 1, 2010.

What will constitute ‘total income’ can be open to some doubt.


MISCELLANEOUSModification in Section 208 W.E.F. - April 1, 2009Enhancement of the limit for payment of advance taxUnder the provisions of section 208, the liability to pay advance tax is

attracted in case the tax payable is Rs. 5,000 or more. The ceiling of Rs. 5,000 has now been raised to Rs. 10,000.

Modification in Section 208 W.E.F. - October 1, 2009Introduction of facility of electronic communicationPresently, a notice or requisition may be served on a person either by

post or as if the same were summons issued by a court. Now, a notice, summon, requisition, order or any other communication may be served by delivering the same by post, courier, by electronic record or in any other prescribed manner. Further, the CBDT may prescribe rules in connection with the addresses for communication.


MISCELLANEOUSInsertion of Section 282B W.E.F. - October 1, 2010

Introduction of Document Identification NumberNow, every Revenue authority will allot and quote a computer generated

Document Identification Number in respect of every notice, order, letter or any correspondence issued to any person including any other Revenue authority. Similarly, every notice, order, letter or any correspondence received by the Revenue authority or on their behalf will be accepted and valid only after allotting and quoting a DIN.

Rule 3 and 4 of Part A of the Fourth Schedule W.E.F. – April 1, 2009

Extension of Time Limit for obtaining exemption from EPFOPresently, under Rule 3 and 4 of Part A of the Fourth Schedule to the

Income-tax Act, recognition accorded to provident funds which did not satisfy specified conditions till March 31, 2009 were to be withdrawn. An extension will be granted to provident funds till December 31, 2010 to satisfy the conditions.


MISCELLANEOUSInsertion of Section 115WM W.E.F. – April 1, 2009

Omission of Fringe Benefit TaxFringe Benefits Tax has been omitted.

Insertion of Section 293C W.E.F. – October 1, 2009

Power to withdraw approvalsA new section 293C has been inserted whereby, an authority granting an

approval shall automatically have the power to withdraw such approval after giving the assessee, an opportunity of being heard. For eg; in the case of approvals for 80G.

Amendment in Part B of the Thirteenth Schedule

W.E.F. – April 1, 2010

The list of items relating to the paper industry which are ineligible for the tax holiday granted to new units located in Himachal Pradesh and Uttaranchal will be replaced with a revised list and accordingly Part B of the Thirteenth Schedule to the Income-tax Act, 1961 will be amended to match with changes in the DIPP policy.Nangia & Co. Budget

2009

WEALTH TAXModification in Section 3 W.E.F. – March 31, 2010 Enhancement of the limit for payment of wealth taxUnder the existing provisions of section 3 of the Wealth-tax Act, wealth

tax is charged every year in respect of net wealth, on the valuation date, of every individual, Hindu undivided family and company at the rate of 1% of the amount by which the net wealth exceeds Rs. 15 lakhs.

It is proposed to raise the threshold limit for payment of wealth tax from Rs. 15 lakhs to Rs. 30 lakhs from the AY 2010-11.


THANK YOU


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