1. Place Of Effective Management [Poem] – Section 6 – Clause 42. Deduction u/s 32AC – Clause 143. Maintenance of Books of Account by a person carrying on a Profession – Section 44AA – Clause 244. Limit for Tax Audit – Section 44AB – Clause 255. Presumptive Taxation – Section 44AD – Clause 266. Presumptive Taxation – Section 44ADA – Clause 277. Conversion of Company into Limited Liability Partnership [LLP] – Section 47(xiiib) – Clause 288. Consolidating Plans of a Mutual Fund Scheme – Section 47(Xix) – Clause 289. Special provision for full value of consideration – Section 50C – Clause 3010.
Receipt by an Individual or HUF of sum of money or property without
consideration or for inadequate consideration – Section 56 (2)(Vii) –
Clause 3411. Deduction of Interest – Section 80EE – Clause 3712. Deduction for an eligible Start-Up – Section 80-IAC – Clause 4113. Deduction of profits from housing projects of Affordable Residential Units – Section 80-IBA – Clause 4314. Deduction for Additional Employee Cost – Section 80JJAA – Clause 4415. T ax on Income of Certain Domestic Companies – Section 115BA – Clause 4916. Additional Tax on Dividends from Companies u/s 115BBDA – Clause 5017. Provisions relating to Minimum Alternate Tax – Section 115JB – Clause 5318. T ax on Distribution of Income by domestic company on buy-back of shares – Section 115QA – Clause 5619. Special provisions relating to Tax on Accreted Incomeof Certain Trusts and Institutions – Chapter XII-EB – Sections 115 TD To 115 TF – Clause 6020. Persons having income Exempt u/s. 10 (38) required to file Return u/s 139 – Clause 6521. Adjustments to Returned Income – Section 143 – Clause 6622. Advance-Tax – Section 211 – Clause 8723. Penalty – Section 270A – Clause 9724. Equalisation levy – Chapter VIII – Clauses 160 to 17725. Income Declaration Scheme, 2016 – Clauses 178 To 19626. Shares Of Unlisted Companies – Period Of Holding For Becoming Long-Term Asset – Para 127 Of Budget Speech
1 Place of Effective Management [POEM] – section 6 – clause 4
Section
6(3) is proposed to be amended to bring in the concept of ‘Place of
Effective Management’ (POEM) in case of companies, w.e.f. 1-4-2017.
Section
6(3), as amended by the Finance Act, 2015 provides that a company shall
be resident in India in any previous year if it is an Indian company or
its place of effective management, in that year, is in India. The term
‘Place of Effective Management’ has been defined to mean a place where
key management and commercial decisions that are necessary for the
conduct of the business of an entity as a whole are, in substance made.
It
is submitted that the concept of POEM is a subjective one, and has
different meanings from country to country, as clarified by the OECD
itself. The OECD has, in its Report on BEPS Action Plan 6 – `Preventing
the Granting of Treaty Benefits in Inappropriate Circumstances’,
recognised that the concept of POEM is not an effective test of
residence, by stating that the use of POEM as tie-breaker test was
creating difficulties, and that dual residency should be solved on case
to case basis rather than by use of POEM.
It would also hamper
the efforts of Indian companies to become multinationals, by subjecting
their overseas subsidiaries to be potentially taxed in India, merely
because the holding company is involved in approving decisions of the
overseas subsidiaries.
Further, section 2(10) of the Black Money
(Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
defines ‘resident’ to mean a person who is resident in India within the
meaning of section 6 of the Income-tax Act. This could result into very
harsh and unintended consequences in cases where POEM of company is
subsequently held to be in India.
Suggestions: a) The earlier provision of ‘management and control being wholly located in India’ should be restored.
b)
The CBDT had on 23rd December, 2015, issued the Draft Guiding
Principles for determination of POEM of a company, for public comments
and suggestions. The said guiding principles have not been finalised so
far.
Hence, it is alternatively suggested that the
applicability of POEM for determination of residential status of
companies should be deferred for 1 more year and should be considered
along with introduction of GAAR provisions.
c) In
the alternate, considering the object of preventing misuse, appropriate
provision should be added in the current section providing that the
criteria of POEM shall apply only in case of shell companies.
d)
Suitable amendments should be made in the Black Money (Undisclosed
Foreign Income and Assets) and Imposition of tax Act, 2015, to obviate
any unintended consequences.
2 Deduction u/s. 32AC – clause 14
The
amendment proposed by the Finance Bill, 2016 effectively provides that
where the acquisition and installation of the plant and machinery is not
in the same year, the deduction under this section shall be allowed in
the year of installation. This amendment is proposed to become effective
from 1st April 2016.
Suggestion:
In
order to settle the controversy and avoid unnecessary litigation on the
issue, the proposed amendment be made effective from 1st April 2014 i.e.
from the date when section 32AC became effective.
3 Maintenance of books of account by a person carrying on a profession – section 44AA – clause 24
Although
it is proposed to introduce section 44ADA providing for presumptive
taxation for professionals referred in section 44AA(1), provision
contained in section 44AA regarding maintenance of books of account has
not been proposed to be amended. Consequentially, such professionals
will continue to be required to maintain books of account.
Suggestion:
Section
44AA be amended to exempt professionals covered by the presumptive
taxation scheme u/s 44ADA from mandatory requirement of maintenance of
books of account.
4 Limit for Tax Audit – section 44ab – Clause 25
(a)
It is proposed to amend section 44AD increasing the limit of being
‘eligible business’ as defined in clause (b) of the Explanation from Rs.
1 crore to Rs. 2 crore. This is welcome. However, the limit for
carrying out Tax Audit u/s. 44AB in case of business continues to be Rs.
1 crore.
Suggestion:
Simultaneously
with the amendment to increase the limit for applicability of
presumptive taxation u/s 44AD, the limit of Rs. 1 crore in clause (a) of
section 44AB be increased to Rs. 2 crore.
(b) A
professional who does not declare 50% of the gross receipts as income
from profession will be required to get his accounts audited u/s 44AB
irrespective of his gross receipts. A small professional needs to be
exempted from the requirement of Tax Audit even if he does not declare
income in accordance with the scheme of presumptive taxation u/s 44ADA.
Suggestion:
A
professional having gross receipts not exceeding Rs. 25 lakh should not
be required to get his accounts audited u/s. 44AB even if he has not
declared his professional income in accordance with the presumptive
taxation scheme u/s 44ADA. The existing limit of Rs. 25 lakh be
continued and where the gross receipts exceed Rs. 25 lakh, the higher
limit of Rs. 50 lakh should apply where the income from profession has
not been declared in accordance with the presumptive taxation scheme u/s
44ADA. Simultaneously, appropriate amendment may also be made in the
sub-section (4) of the proposed new section 44ADA.
5 Presumptive Taxation – Section 44AD – Clause 26
(a)
T he Finance Bill, 2016 proposes to delete the proviso to sub-section
(2) which provides for deduction of salary and interest paid to partners
of a partnership firm from the presumptive income computed under
sub-section (1). The reason given in the Memorandum explaining the
provisions of the Finance Bill is hyper technical. The provision has
been working well without any difficulty. A beneficial provision should
not be deleted for technical reasons.
Suggestion:
The proviso to sub-section (2) should not be deleted.
(b)
The Finance Bill, 2016 proposes to substitute subsection (4) by new
sub-section (4) which effectively provides that where an assessee does
not declare profit in accordance with the provisions of subsection (1)
in an assessment year, he shall not be eligible to claim the benefit of
section 44AD for the next five assessment years.
It is next to
impossible for a person to misuse the provisions of section 44AD by
manipulating the profits for five years. The proposed provision only
complicates the section. There is no reason to show lack of trust in
assessees.
Suggestion:
The proposed subsection (4) should not be introduced.
6 Presumptive Taxation – Section 44ada – Clause 27
(a)
The proposed new section 44ADA provides for presumptive taxation for
assessees carrying on a profession referred to in section 44(1) and
whose total gross receipts do not exceed Rs. 50 lakh. The Memorandum
explaining the provisions of the Finance Bill states that this provision
shall not apply to Limited Liability Partnership although the section
does not indicate so.
Suggestion:
There
is no reason why the presumptive taxation scheme u/s 44ADA should not
apply to a Limited Liability Partnership. The proposed section should
also apply to a Limited Liability Partnership.
In fact,
clause (a) of the Explanation to section 44AD should also be amended
making a Limited Liability Partnership an eligible assessee for the
presumptive taxation u/s 44AD.
(b) In the proposed section
44ADA, there seems to be no bar of deduction of salary and interest paid
to partner’s u/s 40(b) for firms rendering professional services. At
the same time, proviso similar to the existing proviso to sub-section
(2) of section 44AD is absent.
Suggestion:
A proviso similar to the proviso to sub-section (2) of section 44AD be introduced in the proposed new section 44ADA.
7 Conversion of company into limited liability partnership [LLP] – section 47(xiiib) – clause 28
For
conversion of a private company or an unlisted public company into an
LLP to be tax neutral the conditions mentioned in section 47(xiiib) of
the Act are to be satisfied.
The Finance Bill has proposed to
add one more condition viz., that the total value of the assets, as
appearing in the books of account of the company, in any of the three
previous years preceding the previous year in which the conversion takes
place does not exceed Rs. 5 crore.
The limit of Rs. 60 lakh on
the turnover of the company to be eligible for tax neutrality has made
the provisions of section 47(xiiib) a non-starter. Now, the insertion of
the proposed condition regarding total value of the assets, in the name
of rationalisation, will act as further dampener and would defeat the
very purpose of insertion of the section.
Suggestion:
It
is therefore suggested that in order to encourage conversion of
companies into LLPs by making the same tax neutral, the condition that
the company’s gross receipts, turnover or total sales in any of the
preceding three years did not exceed Rs. 60 lakh, should be withdrawn.
Further
the proposed amendment inserting the condition that the total value of
the assets, as appearing in the books of account of the company, in any
of the three previous years preceding the previous year in which the
conversion takes place does not exceed Rs. 5 crore, should be omitted.
8 Consolidating plans of a Mutual Fund Scheme – Section 47(xix) – Clause 28
Clause
(xix) in section 47 is proposed to be inserted to provide that capital
gain arising on transfer of a capital asset being unit or units in a
consolidating plan of a mutual fund scheme (Original Units) in
consideration of allotment of unit or units in the consolidated plan of
that scheme of the mutual fund (New Units) will not be chargeable to
tax.
Corresponding provision in section 2(42A) providing that in
the case of New Units, there shall be included the period for which the
Original Units were held by the assessee, has remained to be inserted.
Similarly,
corresponding provision in section 49 providing that in the case of New
Units, the cost of acquisition of the asset shall be deemed to be the
cost of acquisition to him of the Original Units, has remained to be
inserted.
Suggestion:
Corresponding amendments in section 2(42A) and section 49, as mentioned above, should be carried out.
9 Special provision for full value of consideration –
Section
50C – Clause 30 Section 50C is proposed to be amended to provide that
where the date of the agreement fixing the amount of consideration for
the transfer of immovable property and the date of registration are not
the same, the stamp duty value on the date of the agreement may be taken
for the purposes of computing the full value of consideration. The
proposed amendment is effective from 1-4-2017.
Suggestion:
Since
this is a clarificatory beneficial amendment, the same should be made
applicable from the date of the insertion of the section i.e. 1-4-2003.
10
Receipt by an individual or huf of sum of money or property without
consideration or for inadequate consideration – Section 56 (2) (vii) –
Clause 34
Section 56(2)(vii) charges to tax receipt by an
individual or an HUF of any sum of money or property without
consideration or for inadequate consideration. Second Proviso to section
56(2)(vii)(c) states that the clause does not apply to receipt of
property from persons mentioned therein or in circumstances mentioned
therein.
Second proviso is proposed to be amended to expand the
scope of non-applicability of the section and accordingly, this section
will also not apply to the receipt of shares of by way of transaction
not regarded as transfer under clause (vicb) or clause (vid) or clause
(vii) of section 47.
Suggestion:
Since
this is a clarificatory beneficial amendment, the same should be made
applicable from the date of the insertion of the section i.e. w.e.f.
1-10-2009.
11 Deduction of interest – section 80EE – clause 37
(a)
A new section 80-EE is proposed to be inserted providing for deduction
of Rs. 50,000 in respect of interest payable on loan borrowed from a
financial institution by an individual assessee for acquiring a
residential house.
One of the conditions for this deduction is that the value of the residential house property should not exceed Rs. 50 lakh.
Suggestion:
In
case of cities of Chennai, Delhi, Kolkata and Mumbai or within the area
of 25 km from the municipal limits of these cities, the limit on the
value of property should be Rs. 1 crore instead of Rs. 50 lakh. Further,
with a view to avoid possible dispute, in clause (iii) of sub-section
(3), instead of using the term ‘value of residential house property’ the
term ‘consideration for the residential house property’ may be used.
(b)
The proposed section provides that the amount of loan sanctioned should
not exceed Rs. 35 lakh. There is no reason for having this condition
for availing the deduction under this section. The financial
institutions have their own well set norms for sanctioning of the loans.
Suggestion:
The condition that the sanctioned loan should not exceed Rs. 35 lakh should be omitted from the proposed section.
12 Deduction for an eligible start-up – section 80-iac – Clause 41
A
new section 80-IAC is being introduced providing tax holiday to
eligible start-ups. The deduction is available only to companies. One of
the conditions for being an eligible start-up is that the total
turnover of its business does not exceed Rs. 25 crore in any of the
previous years beginning on or after 1st April 2016 and ending on the
31st March, 2021.
Suggestions:
(a) The
condition that the turnover of the assessee company should not exceed
Rs. 25 crore in any of the previous years specified in this section
should be omitted.
(b) If at all this condition is
to be retained, the assessee company should only become disentitled to
the deduction from the previous year commencing after the previous year
in which its turnover for the first time exceeds Rs. 25 crore. The
assessee company should get the deduction for all the previous years
including the previous year in which its turnover for the first time
exceeds Rs. 25 crore.
(c) The deduction should not
be restricted only to company assessees but should also be allowed to
partnership firms including a Limited Liability Partnership.
13 Deduction of profits from housing projects of affordable residential units – Section 80-iba – Clause 43
Section
80-IBA is proposed to be inserted to provide for hundred per cent
deduction of the profits of an assessee engaged in developing and
building housing projects approved by the Competent Authority after 1st
June, 2016 but on or before 31st March, 2019 subject to fulfilment of
prescribed conditions.
One of the proposed condition is that the area of the residential unit does not exceed the specified limit.
Suggestion:
a)
The desirability of the proposed deduction to the developers engaged in
building affordable residential units, should be reconsidered in the
light of the objective of the government to reduce the deductions and
exemptions, as the same will benefit the developers and the benefit may
not be passed on to the home buyers.
b) Necessary
clarificatory amendment regarding the sizes of the residential units of
30 square meters or 60 square meters, that the same are based on the
carpet area, should be made.
14 Deduction for additional employee cost – Section 80jjaa – Clause 44
(a)
Section 80JJAA is being substituted providing for deduction in respect
of additional employee cost. Second proviso to clause (i) to Explanation
in sub-section (2) provides that in the first year of a new business,
emoluments paid or payable to employees employed during the previous
year shall be deemed to be the `additional employee cost’. Accordingly,
while determining the additional employee cost total emoluments paid or
payable to all employees including those drawing more than Rs. 25,000
shall be considered.
Suggestion:
If the
above provision is unintended, then to avoid future litigation
appropriate modification may be made providing that in the first year of
a new business while computing emoluments paid or payable to employees
employed during the previous year, emoluments of employees referred to
in sub-clauses (a) to (d) of clause (ii) of the Explanation, shall not
be considered.
(b) Clause (a) of sub-section (2) provides
that no deduction shall be allowed if the business is formed by
splitting up, or the reconstruction, of an existing business or to the
business has been acquired by the assessee by way of transfer from any
other person or as a result of any business reorganisation (collectively
referred to as reorganisation or reorganised business). This indicates
that if a business has been split up or reconstructed or acquired or
reorganised in the past, (even distant past), the assessee will not be
entitled to deduction under this section. This seems to be unintended
and is unjustified.
Suggestion:
In case
of reorganisation of business, the assessee whose business comes into
existence due to the reorganisation should not be entitled to deduction
under this section for the year in which the reorganisation takes place.
In the subsequent years the assessee should be entitled to the
deduction based on additional employee cost as contemplated in the
Explanation to sub-section (2).
15 Tax on income of certain domestic companies – section 115BA – clause 49
The
proposed section 115BA provides for a concessional rate of tax of 25%,
only in case of a newly setup and registered domestic company on or
after 1st March, 2016, subject to fulfilment of prescribed conditions.
Suggestion:
a.
The concessional rate should be extended to all the companies whether
set up and registered before or after 1st March, 2016, which fulfil the
conditions laid down.
b. Further, the provision should be extended to all non-corporate entities which fulfil these conditions as well.
16 Additional tax on dividends from companies u/s 115bbda – Clause 50
New
section 115BBDA is proposed to be introduced levying 10% tax on
dividends in excess of Rs. 10 lakh received from `a domestic company’ by
certain assessees. Sub-section (1) uses the term ‘a domestic company’.
Suggestion:
If
it is intended that tax u/s 115BBDA is to be levied if the aggregate
dividends received from various domestic companies exceed Rs. 10 lakh,
then the proposed section should be appropriately modified in order to
avoid disputes and potential litigation.
17 Provisions relating to minimum alternate tax – Section 115jb – Clause 53
The Finance Bill 2016 has proposed to insert Explanation 4 to section 115JB.
As
per clause (ii) of the proposed Explanation 4, the provisions of
section 115JB would be applicable to foreign company that require to
seek registration under any law if it is resident of a non-treaty
country.
Section 386 of Companies Act, 2013 defines “place of
business” very broadly to mean a place which includes share transfer or
registration office. Therefore, as per provisions of Companies Act, 2013
any foreign company having any place of business shall have to register
with ROC. Thus, in case of non-treaty countries, any company having any
type of business presence in India would result in applicability of
provision of section 115JB.
Foreign companies now require
registration and need to comply with other requirements under the
Companies Act, 2013 even if they operate in India through agents. In
such cases, they would also get covered by clause (ii) of Explanation 4
to section 115JB above.
Suggestions:
A
clarification should be inserted that unless the assessee has a
permanent establishment in India, the provisions of section 115JB will
not be applicable. Simultaneously, `permanent establishment’ should be
exhaustively defined for this purpose.
In
addition, an exception can be made in cases of airlines, shipping
companies, etc. where even if there is a PE in India but if the income
of such assessee is exempt pursuant to the provisions of respective DTAA
, the provisions of section 115JB will not be applicable.
18 Tax on distribution of income by domestic company on buy-back of shares – Section 115qa – Clause 56
Section
115QA is proposed to be amended to provide that the provisions of this
section shall apply to any buy back of unlisted share undertaken by the
company in accordance with the provisions of the law relating to the
Companies and not necessarily restricted to section 77A of the Companies
Act, 1956. It is further proposed to provide that for the purpose of
computing distributed income, the amount received by the company in
respect of the shares being bought back shall be determined in the
prescribed manner.
Suggestion:
Suitable
amendments should be made for nonapplicability of the section in cases
where buyback of a company’s shares is financed out of share premium or
an issue of shares of a different category.
Provisions
of Chapter XII-DA should be made applicable only to non-resident
shareholders, as resident shareholders would, in any case, be subjected
to tax u/s 46A.
19 Special provisions relating to tax on
accreted income of certain trusts and institutions – chapter xii-eb –
Sections 115 td to 115 tf – Clause 60
The new Chapter XII-EB
proposed to be inserted by the Finance Bill, 2016 provides for levy of
tax on market value of assets of a charitable trust or institution under
certain circumstances.
While appreciating the need for making
provision for an `exit tax’ when a charitable entity ceases to be so,
the provisions of the new Chapter are draconian and will cause extreme
hardship in many cases, particularly those falling under the deeming
fiction of sub-section (3) of the new section 115TD. These are
enumerated below along with our suggestions.
(a) Section 2(15)
defines ‘charitable purpose’. This definition has been undergoing
changes repeatedly. There are a large number of entities which due to
the operation of the provisos to section 2(15), may not be eligible for
exemption u/s 11. These entities have not changed their activities and
they continue to be charitable under the general law. It is not fair and
justified that such entities are levied tax on the market value of
their assets.
Suggestion:
It is
therefore suggested that the deeming fictions of sub-section (3) should
be deleted. Alternatively, mere cancellation of registration u/s 12AA of
the Act should not trigger the provisions of Chapter XII-EB. If an
entity ceases to be a charitable entity for the purposes of the Act due
to the operation of proviso to section 2(15), such an entity should not
be charged tax on the market value of its assets as contemplated by
Chapter XII-EB, so long as it continues to apply its corpus and income
for charitable purposes as defined u/s. 2(15) without having regard to
the provisos to the said section.
(b) The new Chapter
XII-EB proposes that the charitable entity will have to pay tax on the
accreted income within 15 days from the date of cancellation of
registration u/s 12AA of the Act.
Cancellation of registration
u/s 12AA of the Act has become common in recent times. Invariably the
charitable entity prefers an appeal and often the order cancelling the
registration of the charitable entity is set aside and the registration
is restored. In such circumstances, the proposed provision requiring
such entity to pay tax under Chapter XII-EB within 15 days of the date
of cancellation of registration will put the entity to extreme hardship
and cause irreversible damage.
Suggestion
The
levy of tax under Chapter XII-EB should be postponed till the order
cancelling the registration becomes final, where such cancellation is
the subject matter of an appeal.
(c) Even in a case where tax on the accreted income is to be levied, a more reasonable period should be provided for.
Suggestion:
A period of six months may be permitted for payment of the tax on the accreted income.
(d)
Section 115TD(3) provides that when there is modification of objects of
a charitable entity, and the modified objects do not confirm to the
conditions of registration, and the entity has not applied for fresh
registration u/s 12AA within the previous year or the application for
the registration has been rejected, the entity will be deemed to have
been converted into any form not eligible for registration u/s 12AA.
Suggestions:
A reasonable period of one year should be permitted for the entity to make an application for registration u/s 12A/12AA .
Further,
if the entity has filed an appeal against the order rejecting its
application for registration u/s 12AA , the levy of tax should be
postponed till the order rejecting the application for registration
becomes final.
Presently, there is no provision in
the Act for seeking fresh registration u/s 12A/12AA on modification of
objects of the trust. In order to bring clarity, appropriate provisions
may be made for seeking fresh registration u/s 12A/12AA on modification
of objects of the trust.
(e) The new Chapter
provides that the principal officer, the trustee and the
trust/institution shall be liable to pay the tax on the accreted income.
Suggestion:
It should be clarified that the liability is only in the representative capacity and not in the personal capacity.
(f) It is not clear how the provisions of the new Chapter will be implemented.
Suggestion
Appropriate provisions should be made for assessment, appeal and stay in the new Chapter.
20 Persons having income exempt u/s 10 (38) required to file return u/s 139 – clause 65
Sixth
proviso to section 139(1) is proposed to be amended making it mandatory
for a person to file return of income if his total income without
giving effect to the provisions of section 10(38) exceeds the maximum
amount not chargeable to income tax.
Suggestion:
In
order to avoid potential litigation and unintended default by assessees
in filing the return, appropriate explanation should be inserted under
the proviso being amended to clarify that for this purpose, the capital
gains should be computed based on indexed cost of acquisition.
21 Adjustments to returned income – section 143 – clause 66
The
proposal to increase the scope of adjustments that can be made to the
returned income while processing the same u/s 143(1) is fraught with
difficulties. The insertion of sub-clauses (iv) and (vi) in particular
are highly objectionable as these would lead to unprecedented litigation
and hardship to assessees.
In the Form No. 3CD of the tax audit
report, the assessee reports several matters where there could be a
difference of opinion between the assessee and the tax auditor. Many
times due to early completion of tax audit and payment of various
section 43B dues or TDS payable before the due date of filing the
returns u/s 139(1), may also lead to differences. In addition, in some
cases, the issues may remain debatable and the tax auditor out of
abundant caution mentions the same in the tax audit report. However,
this cannot be made a subject matter of automatic adjustment to the
income u/s 143(1). The very objective of section 143(1) is to permit the
income-tax department to make adjustments on account of prima facie
incorrect claims and of arithmetical mistakes in the return.
When
a tax payer takes a particular stand based on judicial decisions or
interpretation of law or a legal opinion, the same cannot by any stretch
of imagination be placed in the same basket as prima facie
mistakes/incorrect claims.
Similarly, the proposal to add income
appearing in Form 26AS / 16 / 16A to the returned income if that income
has not been reported in the return, is also extremely unfair and
unwarranted. The issue of comparing the returned figures with the Form
26AS has already resulted in massive problems across the country for a
large number of tax payers. Now, if the income is also sought to be
adjusted in line with the Form 26AS then it will create unprecedented
chaos.
At present, once the CPC processes the returns, if there
is an issue of granting credit for TDS and such issue arises on account
of differences in the method of accounting followed by the deductor and
the deductee, the CPC transfers the file to the jurisdictional assessing
officer. In such cases, the tax payer is caught between the CPC and the
jurisdictional assessing officer. Despite running from pillar to post,
rectification of wrong demands takes months to get rectified and that
too after a lot of stress and tension for the concerned tax payer.
In
this back ground, adding to the tax payer’s problems would not be the
right thing to do and would create mistrust in the whole system. Suggestion:
The proposed sub clauses (iv) and (vi) be deleted. 22 Advance-tax – Section 211 – clause 87
The
due dates of payment of advance tax by a noncorporate assessee are
proposed to be brought in alignment with the due dates applicable to
corporate tax assessees i.e. non-corporate assessees are also required
to pay advance tax, 4 times in a year.
Suggestion:
The due dates for advance tax payments should be kept as per the original provisions for the noncorporate assessees.
23 Penalty – Section 270A – clause 97
Section
270A is proposed to be inserted w.e.f. A.Y. 2017-18 in order to
rationalise and bring objectivity, certainty and clarity in the penalty
provisions.
It is submitted that the present penalty provisions
u/s. 271 have been on the statute book for a fairly long time and the
law on penalty has by and large been settled with significant certainty.
The new concepts of “under-reporting” and “misreporting” for
levy of penalty are going to be matters of serious debate and
litigation.
Suggestions:
Instead of changing the
entire scheme of levy of penalty, suitable amendments could be made to
existing provisions, retaining the concepts of “furnishing of inaccurate
particulars of income” and “concealment of income”.
Alternatively, if the proposed provisions of section 270A are retained, the following points may be noted:
i.
There is no specific amendment in section 246A of the Act, providing
for right of appeal against any penalty order u/s 270A. In all fairness
and in the interest of justice, penalty order should be appealable.
ii.
Section 270A(3)(i)(b) provides that in a case where no return is
furnished, the amount of under reported income shall be (a) in case of a
company, firm or local authority, the entire amount of income assessed
and (b) in other cases, the difference between amount of income assessed
and the maximum amount not chargeable to tax. The provisions are too
harsh and drastic.
Suggestions: a) Specific right of appeal in section 246A of the Act should be provided by suitable amendment; and
b)
necessary amendments should be made in section 270A(3)(i)(b) to provide
for relief in cases having bonafide reasons for non-filing of returns
of income, where full / substantial portion of the taxes have been
deducted / paid.
c) For the sake of clarity, an Explanation may
be added to define, as to what would constitute a bona fide explanation
for the purposes of clause (b) of sub-section (6) of section 270A.
For
this purpose, ‘bona fide explanation’ should include claim under wrong
section(s), facts disclosed prior to issue of notice u/s. 143(2), agreed
addition to buy peace and / or end litigation and reliance on judicial
decisions/interpretation in case of conflicting decisions.
24 Equalisation Levy – Chapter viii – Clauses 160 to 177
Based
on the reading of Chapter VIII, it is understood that the Equalisation
levy is not a “tax” on income but a “levy”, therefore all other normal
provision of the Act will not apply, unless specifically mentioned in
Chapter VIII.
It is necessary to have specific mechanism for the purpose of collection of the Equalisation levy.
Further,
it also needs to be clarified whether section 147/ 263 can be invoked
for purpose of levy, as the provisions of clause 175 of the Finance
Bill, 2016, do not mention anything in this regard.
Suggestions:
A
clarification needs to be issued as to whether the Equalisation levy is
to be paid on the payments made for advertisement at combined cost in
both electronic media and print media, and on what amount.
Further,
clarification needs to be issued that levy is not applicable to
payments made for advertisement on international radio and television
networks.
An appeal also needs to be provided for, where an
Assessing officer takes a view that equalisation levy is chargeable,
while the assessee is of the view that he is not liable for such levy.
25 Income Declaration Scheme, 2016 – Clauses 178 to 196
The
Finance Bill, 2016 proposes to introduce The Income Declaration Scheme,
2016 (Declaration Scheme). We believe that notwithstanding the name,
the Declaration Scheme, in substance, is an Amnesty Scheme. One may
recall that the previous government had given assurances in the Supreme
Court of India that in future no scheme providing amnesty to tax evaders
shall be introduced.
Various provisions make the Declaration Scheme an Amnesty Scheme.
Therefore, in principle, we oppose the Income Declaration Scheme.
Presuming that the Declaration Scheme will be enacted along with the Finance Bill, 2016 our suggestions are as under:
(a)
Clause 194(c) provides for taxation of any income or an asset acquired
prior to the commencement of the Declaration Scheme (and in respect of
which no declaration has been made under the Declaration Scheme) in the
year in which a notice u/s 142 or 143(2) or 148 or 152A or 153C is
issued. By deeming provision, time of accrual of such income is
modified.
In effect, any undisclosed income of any past year
will be chargeable to tax in future year without any limitation as to
the time. Such a provision completely overrides the time-limit specified
in section 149.
Suggestion:
Clause 194(c) should be omitted. (b)
Appropriate clarifications by way of circulars and instructions be
issued well in time so that there is clarity about its implementation.
26 Shares of unlisted companies – period of holding for becoming long-term asset – para 127 of budget speech
The
Finance Minister in paragraph 127 of the Budget Speech had stated that
the period for getting an effect of long-term capital gain regime in
case of unlisted companies is proposed to be reduced from three years to
two years. However, the necessary amendment to this effect does not
appear in the Finance Bill, 2016.
Suggestion:
Section 2(42A) be amended to give effect to the proposal in the speech of the Honourable Finance Minister
