THE FINANCE ACT, 2016

The Finance Minister, Shri Arun Jaitley, presented his third Budget with the Finance Bill, 2016, in the Lok Sabha on 29th February, 2016. After some discussions, the Parliament has passed the Budget with some amendments. The President has given his assent to the Finance Act, 2016, on 14th May, 2016. There are in all 241 Sections in the Finance Act, 2016, which include 115 sections which deal with amendments in the Income tax Act, 1961. The Finance Minister has divided his tax proposals in nine categories such as (i) Relief to small tax payers (ii) Measures to boost growth and employment generation (iii) Incentivising domestic value addition to help Make in India (iv) Measures for moving towards a pensioned society (v) Measures for promoting affordable housing (vi) Additional resource mobilization for agriculture, rural economy and clean environment (vii) Reducing litigation and providing certainty in taxation (viii) Simplification and rationalization of taxation and (ix) Use of Technology for creating accountability.

1.1 It will be noticed that one of the objectives stated above is “Reducing Litigation and providing certainty in taxation.” In this context, Paragraphs 163 to 165 of the Budget Speech outline his “Dispute Resolution Scheme”.

1.2 One of the important features of this year’s Budget is that a “Income Declaration Scheme, 2016,” has been announced in Sections 181 to 199 of the Finance Act, 2016. .

1.3 In Para 187 of the Budget Speech he has stated that the Direct Tax Proposals will result in revenue loss of Rs.1,060 Cr., and Indirect Tax Proposals will yield additional revenue of Rs.20,670 Cr. Thus the net revenue gain from this year’s proposals will be of Rs.19,610 Cr.

1.4 In this article some of the important amendments made in the Income tax Act by the Finance Act, 2016, have been discussed. These amendments have only prospective effect.

2. Rates of taxes:

2.1 There are no changes in the tax slabs, rates of Income tax or rates of education cess for all categories of assesses, other than companies. As per the announcement made earlier, in this Budget a beginning to reduce the corporate rates in a phased manner has been made. In the case of an Individual, HUF, AOP and BOI whose total income is more than Rs. 1 crore, the surcharge has been increased from 12% to 15%. This has been done to tax the super rich Individuals, HUF etc. There is no change in rate of surcharge in other cases.

In the case of a Resident Individual having total income not exceeding Rs. 5 Lakh Rebate Upto Rs. 2,000/- or tax payable whichever is less is allowable upto A.Y. 2016- 17. This Rebate in now increased upto Rs. 5,000/- or tax payable, whichever is less, for A.Y. 2017-18.

2.2 The surcharge on income tax will be as under in A.Y. 2016-17 and 2017-18:

Note: The rate of surcharge on Dividend Distribution Tax u/s 115- 0, Tax payable on Buy back of Shares u/s 115-QA and Income Distribution tax payable by M.F u/s 115R is 12% as in earlier years.

The existing rate of 3% of Education Cess (including Secondary and Higher Secondary Education Cess) on Income tax and Surcharge will continue in A.Y. 2017-18.

2.3 In view of the above, the effective maximum marginal rate of tax
(including Surcharge and Education Cess) will be as under in A.Y. 2017 – 18:

2.4 I n the case of a Domestic Company, which is newly set up on or after 1.3.2016, engaged in the business of Manufacture or Production and Research in relation to, or distribution of articles manufactured or produced by it, the rate of Income tax for A.Y. 2017-18 will be 25% plus applicable surcharge and education cess. This will be subject to following conditions stated in new section 115 BA

(i) Such company shall not be entitled to claim deduction u/s 10AA, 32(1)(iia), 32 AC, 32AD, 33AB, 33ABA, 35(1)(ii), (iia), (iii), (2AA), 2(AB), 35AC, 35AD, 35CCC, 35CCD as well as under Chapter VIA Part C i.e. sections 80H, to 80RRB (excluding section 80 JJAA).

(ii) Such company will not be entitled to claim set off of loss carried forward from earlier years if the same is attributed to the above deductions. Such carried forward loss shall be deemed to have been allowed and will not be allowed in any subsequent year.

(iii) Depreciation u/s 32 {other than u/s 32(1)(iia)} shall be deducted in the manner as may be prescribed.

(iv) The above concessional rate u/s 115 BA will be available at the option of the assessee company. Such option is to be exercised before the due date for filing Return of Income for the first year after incorporation of the company. Further, such option once exercised, cannot be withdrawn by the company in any subsequent year.

2.5 A new section 115 BBDA has been inserted w.e.f. A.Y. 2017-18 (F.Y 2016-17). This section provides that in the case of any resident individual, HUF or a Firm (including LLP) if the total income for A.Y. 2017-18 and onwards includes Dividend from domestic company or companies, in excess of Rs. 10 Lakh, the dividend upto Rs 10 Lakh will be exempt u/s 10(34) but the excess over Rs 10 Lakh will be chargeable to tax at the rate of 10% plus applicable surcharge and education cess. It is also provided that no deduction in respect of any expenditure or allowance or set off of loss shall be allowed under any provision of the Income tax Act against such dividend.

2.6 Section 115JB is amended from A.Y:2017-18 to provide that in the case of a Company located in International Financial Services Centre and deriving its income solely in convertible Foreign Exchange, the MAT u/s 115JB shall be chargeable at the rate of 9% instead of 18.5%.

3. Tax deduction at source:

3.1 The Income tax Simplification Committee, under the Chairmanship of Justice R.V. Easwar, has suggested in its Interim Report that the provisions relating to tax deduction at source (TDS) should be simplified.

The committee has suggested higher threshold limits and lower rates for TDS in respect of payment u/s 193 to 194 LD. The Finance Minister has accepted this recommendation only partially and amended various sections of the Income tax Act for TDS w.e.f. 1.6.2016 as under:

(i) Revision in Threshold Limit for tds unde r variou s sections.

(ii) Revision in Rates of tds under various Sections

(iii) Provision for TDS under Section 194 K (Income in respect of Units) and section 194L (Payment of compensation on acquisition of capital Asset) deleted w.e.f. 1.6.2016.

3.2 The provisions for issue of certificates for lower or non-deduction of tax at source by an assessing officer u/s 197 have been extended with effect from 1st June, 2016, to cover income payable to a unit holder in respect of units of alternate investment funds (AIFs Category I or II), which is subject to TDS u/s 194LBB, and income payable to a resident investor in respect of investment in a securitization trust, which is subject to TDS u/s 194LBC.

3.3 The provision for non- deduction of TDS on issue of a declaration u/s 197A, has been extended to cover payments of rent, on which tax is deductible u/s 194-I, with effect from 1st June, 2016.

3.4 Section 206AA provides for higher rate of TDS at either the prescribed rate or at the rate of 20%, whichever is higher, if the payee does not furnish his Permanent Account Number to the payer. There has been litigation as to whether this provision applies to foreign companies and non-residents. With effect from 1st June, 2016, the provisions of this section will not apply to a foreign company or to a non-resident in respect of payment of interest on long-term bonds referred to in Section 194 LC or any other payment subject to prescribed conditions. The Finance Minister has announced that any payment to Non-Resident will not attract the higher rate of TDS (i.e 20%) u/s 206AA if any alternate document, as may be prescribed, is furnished.

3.5 TAX COLLECTION AT SOURCE (TCS ): Section 206C has been amended w.e.f. 1.6.2016 to provide as under:

(i) u/s 206C (1D), at present, tax is to be collected by seller of bullion or jewellery at 1% if the payment is made by the purchaser of bullion (exceeding Rs 2 Lakh) or Jewellery (exceeding Rs. 5 Lakh).

(ii) The above requirement of TCS is now enlarged from 1.6.2016 to the effect that the seller will have to collect tax @ 1% if purchase of any other goods or services for amount exceeding Rs 2,00,000/- is made and the purchaser / service receiver makes payment for the same in cash. It may be noted that this provision will not apply to payments by such class of buyers who comply with the conditions as may be prescribed. It is also provided that the above requirement of TCS will not apply where tax is required to be deducted at source by the payer under chapter XVII-B of the Income tax Act.

(iii) New clause (IF) added in this section provides that w.e.f. 1.6.2016 seller of a Motor Vehicle of the value exceeding 10 Lacs will have to collect from the buyer tax @ 1% of the sale consideration. This provision for TCS will apply even if payment for purchase of Motor vehicle is made by cheque.

(iv) The above provisions have been made to enable the Government to bring high value transactions in the tax net.

4. Exemptions and Deductions:

In order to give benefit to assessees certain amendments are made in the Income tax Act as under:

4.1 Section 10 – Income not included in total income: This section is amended from A.Y. 2017-18 (F.Y. 2016-17) as under:

(i) SECTION 10(12A) – This is a new provision. At present deduction is available for contribution made to National Pension Scheme (NPS) u/s 80 CCD. Withdrawal of such contribution along with the accumulated income from the NPS on account of closure or opting out of NPS is taxable in the year of withdrawal if deduction was claimed in the earlier years.

It is now provided that out of any such withdrawal from NPS, 40% of the amount will be exempt u/s 10(12A). However, the whole amount received by the nominee on death of the assessee under the circumstances referred to in section 80CCD (3) (a) shall be exempt from tax. Section 80CCD (3) is also amended for this purpose.

(ii) SECTION 10(13) – At present, any payment from an approved superannuation fund to an employee on his retirement is exempt from tax. The scope of this exemption is now extended by new subclause (v) to transfer of an amount to the account of the assessee under NPS as referred to in section 80CCD and notified by the Government.

(iii) SECTION 10(15) – At present, interest on Gold Deposit Bonds issued under Gold Deposit Scheme 1999 is exempt. It is now provides that interest on Deposit Certificates issued under the Gold Monetization Scheme, 2015, will also be exempt from tax.

A consequential amendment is made in section 2(14) that such Deposit Certificates issued under the above scheme will not be considered as a Capital Asset. Therefore, any gain on transfer of such Deposit Certificates will also be exempt from Capital Gains tax.

(iv) SECTION 10(23FC) – At present interest received by a Business Trust from a Special Purpose Vehicle is exempt from tax. It is now provided that Dividend received by such Trust from a Specified Domestic Company as referred to in the newly inserted clause (7) of section 115-0 will also be exempt from tax.

(v) SECTION 10(38) – This section grants exemption from tax in respect of long – term capital gain from transfer of equity share where STT is paid. It is now provided that in respect of long term capital gain arising from transfer of equity shares through a recognized Stock Exchange Located in International Financial Service Centre (IFSC), where consideration is received in Foreign Currency, the condition for payment of STT will not apply.

(vi) SECTION 10(48A) – This is a new provision. It is now provided that income of a Foreign Company on account of storage of Crude Oil in India and sale of such Crude Oil to any person resident in India will not be taxable. This is subject to terms and conditions of the agreement entered into with the Central Government.

(vii) SECTION 10(50) – This is a new provision. It provides that income arising from specified services as stated in chapter VIII (Sections 160 to 177) of the Finance Act, 2016, shall be exempt from tax. Chapter VIII deals with “Equalization Levy”. This provision will be applicable after the above Chapter VIII of the Finance Act, 2016 comes into force.

4.2 SECTION 10AA – DEDUCTION TO SEZ UNITS : This section grants 100% deduction to income of newly established units in SEZ (i.e eligible business) which begin activity of manufacture, production or rendering services on or after 1.4.2006. This is subject to conditions provided in section 10AA. Now a sun-set clause is added in this section whereby such Units which commence such eligible business on or after 1.4.2021 will not be able to claim deduction under section 10AA.

4.3 SECTION 17 – PERQUISITES: At present, u/s 17(2)(vii) contribution to approved Superannuation Fund by the employee upto Rs. 1 Lakh is exempt from tax. This limit is now increased to Rs.1.5 Lakh from A.Y. 2017 – 18.

4.4 SECTION 80EE – DEDUCTION FOR INTEREST ON LOAN FOR RESIDENTIAL HOUSE: The existing section 80EE granted deduction for interest on housing loan to a limited extent. This section is replaced w.e.f. A.Y. 2017-18 to provide for deduction upto Rs. 50,000/- in respect of interest on Housing Loan taken by an individual from the Financial Institution or Housing Finance Company if the following conditions are complied with.

(i) Loan should be sanctioned during 1.4.2016 to 31.3.2017.

(ii) Loan amount should not exceed Rs.35 Lakh and the value of the Residential House should not exceed Rs 50 Lakh.

(iii) The assessee should not own any other Residential House on the date of sanction of the Loan.

(iv) The above deduction can be claimed in A.Y. 2017- 18 and in subsequent years.

It may be noted that the above deduction can be claimed even if the Residential House is not for self occupation and is let out. Further, the above deduction can be claimed in addition to deduction of interest upto Rs. 30,000/- (Rs 2 Lakh in specified cases) allowable for interest on housing loan for self-occupied residential house property.

4.5 SECTION 80GG – DEDUCTION FOR RENT : At present, an assessee can claim deduction for expenditure incurred on Rent for Residential House occupied by himself if he is not in receipt of House Rent Allowance from his employer subject to certain conditions. This deduction is limited to Rs 2,000/- P.M. or 25% of total income or actual rent paid in excess of 10% of total income whichever is less. The above limit of Rs 2,000/- P.M. is now increased to Rs 5,000/- P.M. effective from A.Y. 2017-18.

4.6 SECTION 80-IA – DEDUCTION TO INFRASTRUCTURE UNDERTAKINGS: Section 80 – 1A(4) grants exemption to infrastructure undertakings subject to certain conditions. It is now provided that this exemption will not be available to an undertaking which starts the development or operation and maintenance of the infrastructure facility on or after 1.4.2017.

4.7 SECTION 80 – IA B – DEDUCTION TO INDUSTRIAL UNDERTAKING: By amendment of this section it is provided that the provisions of Section 80-IAB shall not apply to an assessee, being a Developer, where the development of SEZ begins on or after 1.4.2017.

4.8 SECTION 80 – IAC – THE INCENTIVES FOR START UPS:

(i) With a view to providing an impetus to start-ups and facilitate their growth in the initial phase of their business, this new section is inserted w.e.f. A.Y. 2017-18. It provides for 100% deduction of the profits and gains derived by an Eligible Start-UP (Company or LLP) from a business involving Innovation, Development, Deployment or Commercialization of new products, processes or services driven by technology or intellectual property. This deduction is available at the option of the assessee for any three consecutive assessment years out of five years starting from the date of incorporation.

(ii) Eligible start-up means a company or LLP incorporated between 1.4.2016 to 31.3.2019. The turnover of the business should be less than Rs 25 Crores in any of the years between 1.4.2016 to 31.3.2021. Further, such company / LLP should hold a certificate for eligible business from the Inter Ministerial Board of Certification.

(iii) It is necessary to ensure that such start-up is not formed by splitting up or reconstruction of a business already in existence or by transfer of machinery or plant previously used for any other purpose, subject to certain exceptions provided in the section.

(iv) With a view to encourage an Individual or HUF to invest in such a start-up company or LLP, section 50 GB has been amended to grant exemption from Capital Gain Tax if the capital gain on sale of Residential House is invested in such a company or LLP. Similarly, a new section 54 EE has been inserted to grant deduction upto Rs. 50 Lacs if investment is made in such a company or LLP out of capital gain arising on transfer of long term specified asset.

4.9 SECTION 80 – IB – DEDUCTION TO CERTAIN INDUSTRIAL UNDERTAKINGS:
The deduction granted to certain specified Industrial Undertakings stated in Section 80 – 1B(9)(ii),(iv) and (v) will be discontinued in respect of Industrial undertakings started on or after 1.4.2017.

4.10 SECTION 80 – IBA – DEDUCTION TO CERTAIN HOUSING PROJECTS

This is a new section which provides for 100% deduction in respect of profits and gains of eligible Housing Projects of Affordable Residential Units from A.Y. 2017-18. The section applies to assessees engaged in developing and building Housing Projects approved by the competent Authority after 1.6. 2016 but before 1.4.2019. This deduction is subject to following conditions:

(i) The project is completed within a period of three years from the date on which the building plan of such project is first approved and it shall be deemed to have been completed only when certificate of completion of project is obtained from the Competent Authority.

(ii) The built-up area of the shops and commercial establishments does not exceed 3% of the aggregate built up area.

(iii) If the project is located in Delhi, Mumbai, Chennai or Kolkata or within 25 km from the municipal limits of these cities:

(a) It is on a plot of land measuring not less than 1000 sq. meters

(b) The residential unit does not exceed 30 square meters and

(c) The project utilizes not less than 90% of the floor area ratio permissible in respect of the plot of land.

(iv) If the project is located in any other area:

(a) It is on a plot of land measuring not less than 2,000 sq. meters

(b) The residential unit does not exceed 60 square meters and

(c) The project utilizes not less than 80% of the floor area ratio permissible in respect of the plot of land.

(v) In both above cases the project is the only project on the land specified above.

(vi) The assessee maintains separate books of account.

(vii) If the housing project is not completed within the specified period of three years, deduction availed in the earlier years will be taxed in the year in which the period of completion expires. The definitions, of certain terms such as ‘housing project’, ’ built-up area’ etc. are also given in section 80-IBA(6)

(viii) The benefit under this section is not available to a person who executes the Housing Project as a works contract awarded by any other person (including any state or Central Government)

4.11 SECTION 80JJAA – INCENTIVE FOR EMPLOYMENT GENERATION:

At present, an assessee engaged in manufacture of goods in a factory can claim deduction of 30% of additional wages paid to new regular workmen for 3 assessment years. This deduction can be claimed in respect of additional wages paid to a workman employed for 300 days or more in the relevant year. Further, there should be an increase of at least 10% in the existing workforce employed on the last date of the preceding year. The existing section will apply in A.Y. 2016-17 and earlier years. New Section 80JJAA has been inserted w.e.f. AY 2017-18.

This new section applies to all assesses who are required to get their accounts audited u/s 44AB. The deduction allowable is 30% of additional employee cost for a period of 3 assessment years from the year in which such additional employment is provided. This deduction is subject to the following conditions:

(i) The business should not be formed by splitting up, or the reconstruction of an existing business.

(ii) The business should not be acquired by the assessee by way of transfer from any other business or as a result of any business reorganization.

(iii) Additional employee cost means total emoluments paid to additional employees employed during the year. However, 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, deduction will be allowed on that basis in such a case.

(iv) No deduction will be available in case of existing business, if there is no increase in number of employees during the year as compared to number of employees employed on the last day of the preceding year or the emoluments are paid otherwise than by an account payee cheque or account payee bank draft or by use of electronic clearing system.

(v) Additional employee would not include employee whose total emoluments are more than Rs. 25,000 per month or an employee whose entire contribution under Employees’ Pension Scheme notified in accordance with Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, is paid by the Government or if an employee has been employed for less than 240 days in a year or the employee does not participate in recognized provident fund.

(vi) Emoluments means all payments made to the regular employees. This does not include contribution to P.F., Pension Fund or other statutory funds. Similarly, it does not include lump-sum payable to employee on termination of service, Superannuation, Voluntary Retirement etc.

(vii) The assessee will have to furnish Audit Report from a Chartered Accountant in the prescribed form.

4.12 FOURTH SCHEDULE – PART A: Rule 8 of this Schedule is amended from A.Y:2017-18 to grant exemption to the employee if the entire balance standing to the credit of the employee in a recognized Provident Fund is transferred to his account in the National Pension Scheme referred to in Section 80CCD.

5. CHARITABLE TRUSTS:

5.1 A new chapter XII – EB (Sections 115 TD, 115 TE and 115TF) has been inserted in the Income tax Act effective from 1.6.2016. The provisions of these sections are very harsh and are likely to create great hardship to trustees of charitable trusts. In the Explanatory Memorandum to Finance Bill, 2016, it is explained that “there is no provision in the Income tax Act which ensure that the corpus and asset base of a trust accreted over a period of time, with promise of it being used for charitable purpose, continues to be utilized for charitable purposes. In the absence of a clear provision, it is always possible for charitable trusts to transfer assets to a non-charitable trust. In order to ensure that the intended purpose of exemption availed by the trust or institution is achieved, a specific provision in the Act is required for imposing a levy in the nature of an Exist Tax which is attracted when the charitable organization is converted into a non-charitable organization”. It appears that the stringent provisions in section 115TD to 115 TF have been inserted to achieve this objective. This is another blow to charitable trusts. Since these sections apply to all trusts and institutions registered u/s 12A/12AA which claim exemption u/s 10(23C) or 11, they will apply to all charitable or religious trusts claiming exemption u/s 11 and education institutions, hospitals etc., claiming exemption u/s 10(23C).

5.2 Broadly stated these sections provide as under:

(i) A trust or an institution shall be deemed to have been converted into any form not eligible for registration u/s 12AA in a previous year, if,

(a) The registration granted to it u/s 12AA has been cancelled; or

(b) It has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it has not applied for fresh registration u/s 12AA in the said previous year; or has filed application for fresh registration u/s 12AA but the said application has been rejected.

(ii) Under the Section 115TD, it has been provided that the accretion in income (accreted income) of the trust or institution will be taxable on

(a) Conversion of trust or institution into a form not eligible for registration u/s 12 AA, or

(b) On merger into an entity not having similar objects and registered u/s 12AA, or

(c) On non-distribution of assets on dissolution to any charitable institution registered u/s 12AA or approved u/s 10(23C) within a period of twelve months from end of month of dissolution. The accreted income will be the amount of aggregate of total assets as reduced by the liability as on the specified date.

(iii) The assets and the liability of the charitable organization which has been transferred to another charitable organization within specified time would be excluded while calculating the accreted income. Similarly, any asset which is directly acquired out of Agricultural Income of the Trust or institution will be excluded while computing accreted income. It is not clear whether Agricultural Land Settled in Trust or received by the Trust by way of Donation will be excluded from such computation.

(iv) Any asset acquired by the Trust or Institution during the period before registration is granted u/s 12A / 12AA and no benefit u/s 11 has been enjoyed during this period, will be excluded from the above computation of accreted income.

(v) The method of valuation of such assets / liability will be prescribed by Rules.

(vi) The accreted income will be taxable at the maximum marginal rate (i.e. 30% plus applicable surcharge and education cess) in addition to any income chargeable to tax in the hands of the entity. This tax will be the final tax for which no credit can be taken by the trust or institution or any other person, and like any other additional tax, it will be leviable even if the trust or institution does not have any other income chargeable to tax in the relevant previous year.

(vii) The principal officer or trustee of the trust has to deposit the above tax within 14 days of the due date as under:

(a) Date on which the time limit to file appeal to the Tribunal u/s 253 against order cancelling Registration u/s 12AA expires if no appeal is filed.

(b) If such appeal is filed but the Tribunal confirms such cancellation, the date on which Tribunal order is received.

(c) Date of merger of the trust with an entity which is not registered u/s 12A / 12 AA

(d) When the period of 12 months end from the date of dissolution of trust if the assets are not transferred to an entity registered u/s 12A / 12AA.

(viii) Section 115 TE provides that if there is delay in payment of the above Exist Tax, the person responsible for payment of such tax will have to pay interest at the rate of 1% P.M. or part of the month.

5.3 Section 115TF provides that the principal officer or any trustee of the trust will considered as assessee in default if the above tax and interest is not paid before the due date. In other words, they can be made personally responsible for payment of such tax and interest. It is also provided that the non-charitable entity with which the trust has merged or to whom the assets of the trust are transferred will also be liable to pay the above exist tax and interest. However, the liability of such an entity will be limited to the value of the assets of the trust transferred to such entity.

6. INCOME FROM HOUSE PROPERTY:

6.1 Under Section 24 (b) interest paid on loan taken on or after 1-4-1999 for acquiring or constructing a residential house for self occupation is allowed as deduction subject to the limit of Rs.2 Lakh. This deduction is available provided the acquisition or construction is completed within 3 years from the end of the financial year in which loan was taken. By amendment of this section this period is now extended to 5 years from A.Y. 2017-18.

6.2 Existing Sections 25A, 25AA and 25B dealing with taxation of unrealised rent are now consolidated into a new section 25A from A.Y. 2017-18. The new section provides that arrears of rent or amount of unrealised rent which is received by the assessee in subsequent years shall be chargeable to tax as income of the financial year in which such rent is received. This amount will be taxable in the year of receipt whether the assessee is owner of the property or not. The assessee will be entitled to claim deduction of 30% of such arrears of rent which is taxable on receipt basis.

7. INCOME FROM BUSINESS OR PROFESSION:

7.1 INCOME-SECTION 2(24)(XVIII ): The definition of “income” u/s 2(24) was widened by insertion of clause (xviii) last year. Under this definition any receipt from the Government or any authority, body or agency in the form of subsidy, grant etc., is considered as income. However, if any subsidy, grant etc., is required to be deducted from the cost of any asset under Explanation (10) of section 43(1) is not considered as income. Amendment in the section, effective from A.Y.2017-18, now provides that any subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or the State Government will not be considered as income. It may be noted that u/s 2(24) (xviii) no destinction is made between Government Grants of a capital nature and revenue grants. From the wording of the section it is not clear as to whether subsidy or grant received to set up any business or to complete a project will be exempt as held by the Supreme Court in the case of Sahney Steel and Press Works Ltd vs. CIT (228 ITR 253). Further, from the amendment made this year, it is not clear whether subsidy or grant by a State Government for the purpose of corpus of a trust or Institution established by the Government will be exempt.

7.2 NON-COMPETE FEES RECEIVABLE BY A PROFESSIONAL – SECTION 28(VA): At present a Noncompete Fees receivable in cash or kind is chargeable to tax in the case of a person carrying on a Business u/s 28(va). This section is amended w.e.f. A.Y. 2017-18 to extend this provision to a person carrying on a profession. Consequential amendment is also made in section 55 to treat cost of acquisition or cost of improvement as ‘NIL’ in the case of right to carry on any profession. In view of this, any amount received on account of transfer of right to carry on any profession will be taxable as capital gains.

7.3 ADDITIONAL DEPRECIATION – SECTION 32(1)(IIA ) : At present benefit of Additional Depreciation at 20% of actual cost of new plant and machinery is available to the assessee engaged in generation or generation and distribution of power. It is now provided that from A.Y. 2017-18 the benefit can be claimed also by an assessee engaged in Generation, Transmission or Distribution of power.

7.4 INVESTMENT ALLOWANCE – SECTION 32 AC : This section was amended by the Finance (No.2) Act, 2014 w.e.f. A.Y 2015-16. At present it provides for deduction of 15% of cost of new plant and machinery acquired and installed during the year if the total cost of such plant & machinery is more than Rs.25 crore. From reading the section it was not clear whether the benefit of the section can be claimed only if the plant or machinery is purchased and installed in the same year. By amendment of this section, effective from A.Y. 2016-17, it is now provided that even if the plant or machinery is acquired in one yare but installed in a subsequent year, the benefit of deduction can be claimed in the year of installation. Therefore, if the new plant or machinery is acquired in an earlier year but installed on or before 31.3.2017, deduction can be claimed in the year of installation.

7.5 WEIGHTED DEDUCTION FOR SPECIFIED PURPOSES:

In line with the Government policy for reduction of rates of taxes in a phased manner and reduction of incentives provided in the Income tax Act, section 35,35AC, 35AD, 35CCC and 35CCD have been amended w.e.f. A.Y 2018- 19 as under:

7.6 EXPENDITURE FOR OBTAINING RIGHT TO USE SPECTRUM – SECTION 35ABA: (i) This is a new section inserted w.e.f. A.Y. 2017-18. It provides for deduction for capital expenditure incurred for acquiring any right to use spectrum for telecommunication services. The actual amount paid will be allowed to be spread over the period of right to use the license and allowed as a deduction in each year. This deduction will be allowed starting from the year in which the spectrum fee is paid. If such fee is paid before the business to operate telecommunication services is started, deduction will be allowed from the year in which business commences. It is also provided that provisions of section 35ABB(2) to (8) relating to transfer of licence, amalgamation and demerger will apply to spectrum also.

(ii) It is also provided that if deduction is claimed and granted for part of the capital expenditure, as stated above, in any year, the same will be withdrawn in any subsequent year if there is failure to comply with any of the provisions of this section. Such withdrawal can be made by rectification of the earlier assessments u/s 154.

7.7 DEDUCTION FOR EXPENDITURE ON SPECIFIED BUSINESS – SECTION 35AD: (i) At present, deduction of 100% of capital expenditure is allowed in the case of an assessee engaged in certain

specified business listed in section 35AD(8). In respect of business listed in section 35AD (i),(ii),(v), (vii) and (viii) such deduction is allowed at 150% of the capital expenditure. From A.Y. 2018-19 such expenditure will be allowed at 100% only.

(ii) Further, the list of specified business in section 35AD(8) has been expanded. By this amendment, effective from A.Y. 2018-19, capital expenditure in the business of “Developing or Maintaining and Operating or Developing, Maintaining and Operating a new Infrastructure facility” which commences operation on or after 1.4.2017 will be entitled to the benefit u/s 35AD. This is subject to the condition that such business is owned by (i) an Indian Company or a consortium of such companies or by an authority or a board or corporation or any other body established or constituted under any Central or State Act and (ii) such entity has entered into an agreement with the Central or State Government or Local authority or any Statutory body Developing, Maintaining etc., of the new Infrastructure facility.

7.8 NBFC – DEDUCTION FOR PROVISION FOR DOUBTFUL DEBTS – SECTION 36(1),(VIIIA )
Deduction for provision for Bad and Doubtful Debts is allowed at present to Banks u/s 36(1)(viiia) subject to certain conditions. This benefit is now extended to a NBFC also. This amendment is effective from A.Y. 2017- 18. This deduction cannot exceed 5% of the total income computed before making deduction under this section and deduction under Chapter VI A.

7.9 DISALLOWANCE OF EQUALISATION LEVY – SECTION 40(a): This is a new provision which is effective from 1.6.2016. Chapter VIII of the Finance Act, 2016, provides for payment of Equalisation Levy on certain payments to Non-Residents for specified services. Now, section 40(a)(ib) provides that if this Levy is not deposited with the Government before the due date for filing Return of Income u/s 139(1), deduction for the payment to Non- Resident will not be allowed to the assessee. If the above Levy is deposited after the such due date for filing Return of Income, the deduction for the payment to Non-Resident will be allowed in the year of deposit of this Levy with the Government.

7.10 DEDUCTION ON ACTUAL PAYMENT – SECTION 43B: This section is amended w.e.f. A.Y. 2017- 18 to provide that any amount payable to Indian Railways for use of Railway Assets will be allowed only in the year in which actual payment is made. However, if such actual payment is made before the due date for filing the Return of Income u/s 139(1), for the year in which it was payable, deduction will be allowed in the year in which the amount was payable. This provision will apply to rent payable in premises of Indian Railways taken on rent or such similar transactions.

7.11 TAX AUDIT – SECTION 44AB: At present a person carrying a profession is required to get his accounts audited if his gross receipts exceed Rs.25 Lakh in any Financial Year. This limit is increased to Rs.50 Lakh from A.Y. 2017-18. In a case where the profits are not declared in accordance with provisions of section 44AD (Business) or 44ADA (Profession) the assessee will have to get the accounts audited u/s 44AB irrespective of the amount of turnover or gross receipts.

7.12 PRESUMPTIVE BASIS OF COMPUTING BUSINESS INCOME – SECTION 44AD:

(i) This section provides for computation of Business Income in the case of an eligible assessee engaged in eligible business at 8% of total turnover or gross receipts in any financial year. For this purpose the limit for turnover or gross receipts was Rs. 1 Cr. This has now been increased to Rs. 2 Cr., from A.Y. 2017-18.

(ii) Section 44AD (2) provides that in the case of a Firm / LLP declaring profit on presumptive basis, deduction for salary and interest paid by the Firm / LLP to its partners is allowable. This provision is deleted w.e.f. AY. 2017-18. Hence no such deduction will be allowed. It may be noted that the partner will have to pay tax on such salary or interest received from the Firm/LLP.

(iii) Section 44AD(4) is replaced by another section 44AD(4) from A.Y. 2017-18. It is now provided that any eligible person who carries on eligible business and declares profit at 8% or more of total turnover or gross receipts for any year in accordance with this section, but does not declare profit on such presumptive basis in any of the five subsequent years, shall not be eligible to claim the benefit of taxation on presumptive basis under this section for 5 subsequent assessment years. In view of this, such assessee will be required to maintain books as provided in section 44AA and get the accounts audited u/s 44AB.

7.13 PRESUMPTIVE BASIS OF COMPUTING INCOME FROM PROFESSION – SECTION 44ADA:

(i) This is a new provision which will come into force from A.Y. 2017-18. This provision will benefit resident professionals who carry on the profession on a small scale and the yearly gross receipts are less than Rs. 50 Lacs. Broadly stated the provisions of the new section 44ADA are as under:

a) The section is applicable to every resident assessee who is engaged in any profession covered by section 44AA(1) i.e. legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration or any other profession as is notified by the Board in the Official Gazette. The Explanatory Memorandum states that this section is applicable only to individuals, HUF and partnership firms (excluding LLPs). However the wording of the Section makes it clear that it applies to all resident assesses.

b) Presumptive profit shall be 50% of the total gross receipts or sum claimed to have been earned from such profession, whichever is higher.

c) Deductions under sections 30 to 38 shall be deemed to have been allowed and no further deduction under these sections will be allowed.

d) The written down value of any asset used for the purpose of profession shall be deemed to have been calculated as if the depreciation is claimed and allowed as a deduction.

e) The assessee is required to maintain books of account and also get them audited if he declares profit below 50% of the gross receipts.

(ii) It may be noted from the above that there is no provision in Section 44ADA for deduction of salary and interest paid by a Firm or LLP to its partners. Therefore, if a professional Firm/LLP offers 50% of its gross receipts for tax under this section, the partners will have to pay tax on salary and interest received by the partners.

(iii) It may be noted that Justice Easwar Committee has suggested in its report that taxation of income on presumptive basis is popular with small business entities as they are not required to maintain books or get their accounts audited. The committee has, therefore, suggested that this scheme should be extended to persons engaged in the profession. In para 5.1 of their report it is stated that “the committee recommends the introduction of a presumptive income scheme whereby income from profession will be estimated to be thirty three and one-third (33 1/3%) of the total receipts in the previous year. The benefit of this scheme will be restricted to professionals whose total receipts do not exceed one crore rupees during the financial year”. From the provisions of new section 44ADA it will be noticed that the above recommendation has been partly implemented.

(iv) A question for consideration is whether remuneration and interest on capital received by a partner of a firm or LLP engaged in any profession can be considered as income from the profession within the meaning of section 44 ADA. It is possible to take a view that this is income from profession as section 28(v) provides that “any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm” shall be chargeable under the head “Profits and gains of Business or Profession”. Even in the Income tax Return Form such Interest and Remuneration received by a partner from the firm is to be shown under the head profits and gains from business or profession. Therefore, if a professional has received total interest and remuneration of Rs.25 Lakh and Rs.15 lakh as share of profit from the professional firm in which he is a partner and he has no other income under the head profits and gains from business or profession, he can offer Rs.12.5 Lakh for tax u/s 44ADA.

7.14 INCOME FROM PATENTS – SECTION 115BBF:

This is a new section which provides for taxation of Royalty from Patents at a concessional rate of 10% from A.Y. 2017-18. The new section provides as under:

(i) If the total income of the eligible assessee includes any income by way of Royalty in respect of Patent developed and registered in India, tax on such Royalty shall be payable at the Rate of 10% plus applicable surcharge and education cess.

(ii) Such tax will be payable on the gross amount of Royalty. No expenditure incurred for this purpose shall be allowed against the Royalty Income or any other income.

(iii) For this purpose the Eligible assessee is defined to mean a person resident in India who is the true and first Inventor of the invention and whose name is entered on the Patent Register as a Patentee in accordance with the Patents Act. Further, a person being the true and first Inventor of the invention will be considered as an eligible assessee, where more than one persons are registered as Patentees under the Patents Act in respect of the Patent.

(iv) Explanation to the section defines the expressions Developed, Patent, Patentee, Patented Article, Royalty etc.

(v) The eligible assessee has to exercise option, if he wants to take benefit of this section, in the prescribed manner before the due date for filing Return of Income u/s 139(1) for the relevant year.

(vi) If the eligible assessee who has opted to claim the benefit of this section does not offer for taxation such Royalty income in accordance with this section, he will not be able to take benefit of this section in subsequent 5 assessment years.

(vii) The above Royalty Income shall not be included in the “Book Profit” computation u/s 115JB. Similarly, any expenditure relatable to Royalty income will not be deductible from such “Book Profit”.

7.15 CARRY FORWARD OF LOSS – SECTIONS 73A(2) AND 80: At present Section 73A (2) provides that carry forward of Loss incurred in any business specified in section 35AD(8)(C) is allowable for set-off against income of any specified business in subsequent year. Section 80 is amended w.e.f. A.Y. 2016-17 to provide that such carry forward of Loss u/s 73A(2) will be allowed only if the Return of Income for the year in which loss is incurred is filed before the due date u/s 139(1).

8. INCOME FROM OTHER SOURCES – SECTION 56(2)(vii):
Section 56(2)(vii) provides for levy of tax an Individual or HUF in respect of any asset received without consideration or for inadequate consideration. Second Proviso to this section provides for certain exceptions whereby the said section does not apply to certain transactions. The scope of this proviso is now extended w.e.f. A.Y. 2017-18 to receipt by individual or HUF of shares of-

(i) A successor Co-op. Bank in a business reorganization in lieu of shares of a predecessor co-op. Bank (Section 47(vicb).

(ii) A resulting company pursuant to a scheme of Demerger (Section 47(vid).

(iii) An amalgamated company pursuant to a scheme of amalgamation (Section 47 (vii).

9 CAPITAL GAINS:

9.1 DEFINITIONS – SECTION 2 (14) AND 2(42A):

(i) Section 2(14) defining “Capital Asset” is amended from A.Y. 2016-17 to state that Deposit Certificates issued under Gold Monetization Scheme, 2015, will not be considered as Capital Asset for fax purposes.

(ii) Section 2(42A) defines the term “Short-term Capital Asset”. This definition is amended from A.Y. 2017-18 to provided that shares (equity or preference) of a non-listed company will be treated as short-term capital asset if they are held for less than 24 Months. It may be noted that prior to 10.7.2014, this period was 12 months. It was increased to 36 months by the Finance (No.2) Act, 2014 w.e.f. 11.7.2014. Now, this period is reduced to 24 Months from 1.4.2016.

9.2 SOVEREIGN GOLD BONDS – SECTION 47 (VIIC ):
It is now provided from A.Y. 2017-18 that any gain made by an Individual on redemption of Sovereign Gold Bonds issued by RBI shall not be chargeable as capital gains.

9.3 CONVERSION OF A COMPANY INTO LLP – SECTION 47(XIII B):
The exemption from capital gains given to a private or a public unlisted company u/s 47 (xiiib) is subject to several conditions. One of the conditions, at present, is that the total sales, turnover or gross receipts in a business of the company in any of the three preceding years does not exceed Rs. 60 Lacs.

Instead of removing this condition or increasing the limit of turnover, a new condition is now added from A.Y. 2017- 18. It is now provided that total value of the assets, as appearing in the books of account of the company, in any of the three preceding years, does not exceed `5 Crores. This will prevent many small investment or property companies from converting themselves into LLP.

9.4 UNITS OF MUTUAL FUNDS – SECTION 47(XIX): Capital Gain arising on transfer of units in a consolidated plan of a M.F. Scheme in consideration of allotment of units in consolidated plan of that scheme will not be chargeable to tax from A.Y. 2017-18.

9.5 MODE OF COMPUTATION OF CAPITAL GAIN – SECTION 48: This section which deals with computation of capital gain is amended from A-Y 2017-18 as under:

(i) For computing long term capital gain on transfer of Sovereign Gold Bonds issued by RBI it will now be possible to consider indexed cost as cost of acquisition.

(ii) In the case of a non-resident assessee, for computing capital gain on redemption of Rupee Denominated Bond of an Indian company subscribed by him, the gain arising on account of appreciation of Rupee against a Foreign Currency shall be ignored.

9.6 COST OF CERTAIN ASSETS – SECTION 49: Section 49 provides for determination of cost of acquisition of certain Assets. By amendment of this section it is provided, from A.Y. 2017-18, that in respect of any asset declared under the “Income Declaration Scheme, 2016” Under Chapter IX of the Finance Act, 2016, the fair market value of the Asset as on 1.6.2016 shall be deemed to be the cost of acquisition for the purpose of computing capital gain on transfer of that asset.

9.7 FULL VALUE OF CONSIDERATION – SECTION 50C: This section is amended from A.Y.2017-18 to bring it in line with the provisions of section 43CA. This amendment is based on the recommendation of Justice R. Easwar Committee Report (Para 6.2). At present, Stamp Duty valuation as on the date of transfer of immovable property is compared with the consideration recorded in the transfer document. It is now provided that if the date of the agreement for sale and the date of actual transfer of the property is different, the stamp duty valuation on the date of Agreement for sale will be considered for the purpose of section. This is subject to the condition that the amount of the consideration or a part there of has been received by the seller by way of an account payee cheque or draft or by use of electronic clearing system through a bank on or before the date of the Agreement for sale.

9.8 EXEMPTION ON REINVESTMENT OF CAPITAL GAIN – SECTION 54 EE AND 54 GB: As discussed in Para 4.8 above, new section 54EE and amendment in section 54GB provides for exemption upto `50 Lacs if the capital gain on transfer of specified assets are invested in startup company or LLP. These provisions come into force from A.Y. 2017-18. Broadly stated these provisions are as under:

(i) Section 54EE Provides that if whole or part of capital gain arising from transfer of a long term capital asset (original asset) is invested within 6 months, from the date of such transfer, in a longterm Specified Asset, the assessee can claim exemption in respect of such capital gain. For this purpose the “Specified Asset” is defined to mean unit or units issued before 1.4.2109 by such Fund as may be notified by the Central Government. The Explanatory Memorandum to Finance Bill, 2016, states that it is proposed to establish a Fund of Funds to finance the start-ups. The following are certain conditions for claiming this exemption.

(a) Investment in long term specified asset should not exceed `50 lakh during a financial year. In case where the investment is made in two financial years, for the capital gains of the same year, the aggregate investment which qualifies for exemption from capital gain will not exceed Rs. 50 lakh.

(b) The long term specified asset is not transferred by the assessee for a period of three years from the date of its acquisition. The assessee does not take any loan or advance against the security of such long term specified asset. In a case where the assessee takes a loan or an advance against security of long term specified asset, it shall be deemed that the assessee has transferred the long term specified asset on the date of taking the loan or an advance.

(e) If the assessee, within a period of three years from the date of its acquisition, transfers that long term specified asset or takes a loan or an advance against security of such long term specified asset, the amount of capital gain which is allowed as exempt u/s 54EE will be charged to tax under the head “Capital Gains” as gain relating to long term capital asset of the previous year in which the long term capital asset was transferred.

(ii) Section 54GB, at present, grants exemption to an Individual or HUF in respect of long term capital gain arising on transfer of a Residential property (House or a Plot of Land) if the net consideration is utilized for subscription in equity shares of an eligible company. This provision will not apply to transfer of a residential property after 31.3.2017. By amendment of this section it is now provided that this exemption will be available to an Individual or HUF if net consideration on transfer of Residential property (Land, Building or both) is invested in an “Eligible Start Up” company or LLP. The term “Eligible Start-up” has been given the same meaning as in Explanation below section 80-IAC(4). (Refer Para 4.8 above). The above investment is to be made before the due date for filing the Return of Income. The above concession is not available if the transfer of Residential property is made after 31.3.2019. It may be noted that other conditions in existing section 54GB will apply to the above Investment also.

(iii) It may be noted that an Individual or HUF who is claiming exemption u/s 54 or 54F on transfer of a long term Capital Asset (including a Residential House) can claim deduction u/s 54EC (Investment in Bonds upto Rs. 50 Lakh) as well as u/s 54EE Investment in specified units (upto Rs. 50 Lakh) and u/s 54GB (Investment in eligible start up without any limit). If we read sections 54EC, 54EE and 54GB it will be noticed that no restriction is put in any of these sections that claim for deduction on reinvestment can be made under any one section only. Therefore, if an individual / HUF sells his Residential House, he can claim deduction u/s 54EC (upto Rs. 50 Lakh), u/s 54EE (up to Rs. 50 Lakh), u/s 54GB (without limit) as well as u/s 54 for purchase of another Residential House.

9.9 TAX ON SHORT -TERM CAPITAL GAIN – SECTION 111A: At present, this section provides for levy of tax on short-term Capital Gain at 15% from transfer of equity shares where STT is paid. By amendment of this section from A.Y. 2017-18 it is provided that in respect of short-term capital gain arising from transfer of equity shares through a Recognized Stock Exchange located in International Financial Service Centre (IFSC) where consideration is received in Foreign Currency, the condition for payment of STT will not apply.

9.10 TAX ON LONG – TERM CAPITA L GAIN – SECTION 112: At present, the tax on long – term capital gain on transfer of unlisted securities in the case of nonresident u/s 112 (1)(a) (iii) is chargeable at the rate of 10% if benefit of first and second proviso to section 48 is not taken. There was a doubt whether the word “Securities” include shares in a company. In order to clarify the position this section is amended from A.Y. 2017-18 to provide that long term Capital Gain from transfer of shares of a closely held company (whether public or private) shall be chargeable to tax at 10% if benefit of first and second proviso to section 48 is not claimed.

10. MINIMUM ALTERNATE TAX (MAT) – SECTION 115JB:

Applicability of MAT to foreign companies has been a burning issue. In line with the recommendations of the Justice A.P. Shah Committee, section 115JB is amended to provide that the provisions of section 115JB shall not be applicable to a foreign company if

(i) The assessee is a resident of a country or a specified territory with which India has an agreement referred to in section 90(1) or an agreement u/s 90A(1) and the assessee does not have a permanent establishment in India in accordance with the provisions of the relevant Agreement; or

(ii) The assessee is a resident of a country with which India does not have an agreement under the above referred sections and is not required to seek registration under any law for the time being in force relating to companies.

This amendment is made effective retrospectively from A.Y. 2001-02.

11. DIVIDEND DISTRIBUTION TAX (DDT) – SECTION 115-O:

(i) At present, under the specific taxation regime for business trusts, a tax pass through status is given to Real Estate Investment Trust (REITs) and Infrastructure Investment Trust (INVITS). However, a Special Purpose Vehicle, being a company, which is held by these business trusts, pays normal corporate tax and also suffers dividend distribution tax (DDT) while distributing the income to the business trusts being a shareholder.

(ii) It is now provided by amendment of section 115-0 w.e.f. 1.6.2016 that no DDT will be levied in respect of distribution of dividend by an SPV to the business trust. The exemption from levy of DDT will only be in the cases where the business trust holds 100% of the share capital of the SPV excluding the share capital other than that which is required to be held by any other person as part of any direction of the Government or any regulatory authority or specific requirement of any law to this effect or which is held by Government or Government bodies. The exemption from the levy of DDT will only be in respect of dividends paid out of current income after the date when the business trust acquires the shareholding of the SPV as referred to above. Such dividend received by the business trust and its investor will not be taxable in the hands of trust or investors as provided in the amended sections 10(23FC) & 10(23FD). The dividends paid out of accumulated and current profits upto this date will be liable for levy of DDT as and when any dividend out of these profits is distributed by the company either to the business trust or any other shareholder.

(iii) It is further provided in section 115-0(8) that no DDT will be levied on a company, being a unit located in an International Financial Services Centre, deriving income solely in convertible foreign exchange, for any assessment year on any amount of dividend declared, or paid by such company on or after 1 April, 2017 out of its current income, either in the hands of the company or the person receiving such dividend.

12. TAX ON BUY BACK OF SHARES:

(i) At present section 115QA of the Act provides that income distributed on account of buy back of unlisted shares by a company is subject to the levy of additional Income-tax at 20%. The distributed income has been defined in the section to mean the consideration paid by the company on buy back of shares as reduced by the amount which was received by the company, for issue of such shares. Buy-back has been defined to mean the purchase by a company of its own shares in accordance with the provisions of section 77A of the Companies Act, 1956.

(ii) It is now provided w.e.f. 1.6.2016 that section 115QA will apply to any buy back of unlisted shares undertaken by the company in accordance with the law in force relating to companies. Accordingly, it will also cover buy-back of shares under any of the provisions of the Companies Act, 1956 and the Companies Act, 2013. It is further provided that for the purpose of computing distributed income, the amount received by a company in respect of the shares being bought back shall be determined in the prescribed manner. These Rules may provide the manner of determination of the amount in various circumstances including shares being issued under tax neutral reorganizations and in different tranches as stated in the Explanatory Memorandum.

13. SECURITIZATION TRUSTS – CHAPTER XII EA :

(i) Chapter XII EA was added by the Finance Act, 2013, effective from A.Y. 2014-15. Under these provisions it was provided that: (a) A ny income of Securitisation Trust will be exempt u/s 10 (23DA), (b) Income received by the Investor any securitized debt instrument or securities issed by such trust will be exempt u/s 10(35A), and (c) The Trust was required to pay additional Income tax on distributed income u/s 115TA (25% in the case of Individual / HUF and 30% in case of others). There were other procedural provisions in sections 115TA to 115TC.

(ii) Section 115 TA is amended w.e.f 1.6.2016. New Section 115TCA has been inserted from A.Y. 2017-18. It is now provided that the current tax regime for Securitization Trust and its investors, will be discontinued for the distribution made by Securitisation Trust with effect from 1 June, 2016, and will be substituted by a new regime with effective from A.Y 2017-18. This effectively grants pass through status to the Securitisation Trust. The new regime will apply to a Securitisation Trust being an SPV defined under SEBI (Public Offer and Listing of Securitised Debt Instrument) Regulations, 2008 or SPV as defined in the guidelines on securitization of standard assets issued by RBI or a trust setup by a securitization company or a reconstruction company in accordance with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 or guidelines or directions issued by the RBI (SARFAE SI Act).

(iii) The income of Securitisation Trust will continue to be exempt section under 10(23DA) which is also amended to effectively define the term securitization. The income accrued or received from the Securitisation Trust will be taxable in the hands of investor in the same manner and to the same extent as it would have happened had the investor made investment directly in the underlying assets and not through the trust. Consequential amendment is made in section 10(35A). The payment made by Securitisation Trust will be subject to tax deduction at source u/s 194LBC at the rate of 25% in case of payment to resident investors who are individual or HUF and @ 30% in case of others. In case of payments to non-resident investors, the deduction of tax will be at rates in force. The facility for the investors to obtain lower or nil deduction of tax certificate will be available. The trust will also provide breakup regarding nature and proportion of its income to the investors and also to the prescribed income-tax authority.

14. TAXATION OF NON-RESIDENTS:

(i) PLACE OF EFFECTIVE MANAGEMENT (POEM) – SECTION 6:

(a) The concept of treating a foreign company as resident in India if its place of effective management is in India was introduced by the Finance Act, 2015 and was to become effective from Assessment Year 2016-17. Under this concept, foreign companies will be considered as resident in India if its POEM is in India. The Finance Minister has now recognized that before introducing this concept, its ramifications need to be analyzed in detail. Accordingly, the implementation of concept of POEM has been deferred by one year and the same will now be applicable from Assessment year 2017-18.

(b) A new section115JH is inserted to empower the Government to issue notification to provide detailed transition mechanism for companies incorporated outside India, which due to implementation of POEM, will be assessed for the first time as resident in India. The notification will be issued to bring clarity on issues relating to computation of income, treatment of unabsorbed depreciation, set off or carry forward of losses, applicability of transfer pricing provisions, etc., applicable to such foreign companies considered to be resident in India.

(ii) INCOME DEEMED TO ACCRUE OR ARISE IN INDIA – SECTION 9(1)(I)

A new clause has been inserted in Explanation 1, providing that no income shall be deemed to accrue or arise in India to a foreign company engaged in mining of diamonds, through or from activities confined to display of uncut and unassorted diamonds in any notified special zone. This amendment is effective from Assessment Year 2016-17.

(iii) FUND MANAGER’S ACTIVITIES – SECTION 9A:

(a) This section lays down the conditions under which a fund manager based in India does not constitute a business connection of the foreign investment fund. One of the conditions is that the fund is a resident of a country or a specified territory with which India has entered into a double taxation avoidance agreement. This condition is now modified effective from A.Y. 2017-18 by extending it to funds established, incorporated or registered in a notified specified territory.

(b) Another condition is that the fund should not carry on or control and manage, directly or indirectly, any business in India or from India. This condition is now modified to apply only to a fund carrying on, or controlling and managing, any business in India.

(iv) REFERENCE TO TRANSFER PRICING OFFICER (TPO) – SECTION 92CA : At present where a reference has been made by the A.O. to a TPO, the TPO has to pass the order at least 60 days prior to the date of limitation u/s 153/153 B for passing the assessment or reassessment order. Section 92CA has been amended w.e.f. 1.6.2016 to extend this period in cases where the period of limitation available to the TPO for passing the order is less than 60 days, to a period of 60 days, if the assessment proceedings were stayed by an order or injunction of any court, or a reference was made for exchange of information by the Competent Authority under a double taxation avoidance agreement.

(v) MAINTENANCE OF RECORDS – SECTION 92D: This section requires every person who has entered into an international transaction to keep and maintain such information and documents in respect thereof as may be prescribed. A requirement is now introduced for a constituent entity of an International Group to keep and maintain such information and documents in respect of an international group as may be prescribed, and to furnish such information and documents in such a manner, on or before the date, as may be prescribed. Failure to furnish such information and documents will attract a penalty of Rs. 5,00,000 u/s 271AA unless reasonable cause is shown u/s 273B.

15. REPORT RELATING TO INTERNATIONAL GROUP :

(i) Section 286 is a new section inserted from A.Y. 2017-18. The OECD in Action Plan 13 of the BEPS Project has recommended a standardized approach to transfer pricing documentation to be adopted by various Countries. Pursuant to this recommendation, this section is inserted to provide for a specific reporting system in respect of country- by country (CbC) reporting. This system is a three-tier structure with (i) a master file containing standardized information relevant for all members of an International Group; (ii) a local file referring specifically to material transactions of the local taxpayer; and (iii) a CbC report containing certain information relating to the global allocation of the International Group’s income and taxes paid together with certain indicators of the location of economic activity within the group.

(ii) This section provides that every Constituent Entity, resident in India if it is constituent of an International Group and every parent entity or the alternate reporting entity, resident in India, has to furnish report in the prescribed form to the prescribed authority before the due date for filing return of Income u/s 139(1). The manner in which report is to be submitted is provided in the section.

(iii) Penalties are prescribed in section 271GB for nonfurnishing of the information by an entity which is obligated to furnish as also for knowingly providing inaccurate information in the report.

16. EQUALIZATION LEVY:

Chapter VIII (Sections 163 to 180) of the Finance Act, 2016, provides for Equalization Levy on Non-Residents. This Chapter will come into force on the date to be notified by the Central Government. In order to overcome the challenges of typical direct tax issues relating to e-commerce i.e characterization of nature of payments, establishing a nexus between a taxable transaction, activity and a taxing jurisdiction and keeping in view the recommendations of OECD in respect of Action 1 – Addressing the Tax Challenges of Digital Economy, of the BEPS Project, this new chapter is inserted. The chapter is a complete code for charge of Equalisation Levy, its collection, recovery, furnishing statements, processing Statements, Rectification of Mistakes, charge of interest for delayed payment, penalty for non-compliance with the provisions, Appeals to CIT(A) and ITA Tribunal, Prosecution, Power of Government to frame Rules etc. The provisions for Equalisation Levy can be briefly stated as under:

(i) The Equalisation Levy is at 6% of the amount of consideration for specified services received or receivable b y a non-resident (not having a PE in India) from a resident carrying on a business or profession or from a non-resident having a PE in India (Payer).

(ii) The specified services are (a) Online advertisement; (b) Any provision for digital advertising space; (c) Any other facility or service for the purpose of online advertisement; and (d) Any other services as may be notified.

(iii) Simultaneously with the introduction of this chapter for Equalisation levy, section 10(50) has been inserted to provide exemption to income arising from the above-mentioned specified services chargeable to Equalisation Levy.

(iv) The payer is obliged to deduct the Equalisation Levy from the amount paid or payable to a nonresident in respect of such specified services at 6% if the aggregate amount of consideration for the same in a previous year exceeds Rs.1 lakh.

(v) In addition, section 40(a)(ib) is inserted to provide that the expenses incurred by a payer towards specified services chargeable to Equalisation Levy shall not be allowed as deduction in case of failure to deduct and deposit the same to the credit of Central Government before the due date as explained in Para 7.9 above.

(vi) This Chapter extends to the whole of India except the State of Jammu and Kashmir.

17. ASSESSMENTS AND REASSESSMENTS:

(i) JURISDICTION OF ASSESSING OFFICER – SECTION 124: This section is amended from 1.6.2016. It is now provided that u/s 124(3) no person will be entitled to call into question the jurisdiction of A.O. after the expiry of one month from the date on which notice u/s 153A(1) or 153C(2) is served or after completion of assessment whichever is earlier. This provision is in line with the existing provision in section 124(3) which applies to objection to jurisdiction of A.O. when return u/s 139 is filed or notice u/s 142(1) or 143(2) is issued.

(ii) POWER TO CALL FOR INFORMATION – SECTION 133C: This section is amended from 1.6.2016. It is now provided that when information or document is received in response to any notice u/s 133C(1) the prescribed authority can process the same and available outcome will be forwarded to A.O.

(iii) HEARING BY A.O. – SECTION 2 (23C): This clause is inserted from 1.6.2016 to provide that notices for hearing can be given by electronic mode and communication of data and Documents can be made by electronic mode.

(iv) FILING INCOME TAX RETURN – SECTION 139: At present an Individual, HUF, AOP and BOI is required to file return of income before the due date if the total income, without considering deductions under Chapter VI-A, exceeds the maximum amount which is not chargeable to tax. It is now provided in the sixth proviso to section 139 (1) that income from long term capital gains exempt u/s 10(38) shall also be added to the total income for determining the threshold limit for determining whether the assessee is required to file the return of income.

(v) BELATED FILING OF RETURN OF INCOME – SECTION 139(4): The existing section 139(4) is replaced by new section 139(4) from A.Y. 2017- 18. It is now provided that if an assessee has not furnished his Return of Income before due date u/s 139(1), he can file the same at any time before the end of the relevant assessment year or before completion of assessment whichever is earlier.

(vi) REVISED RETURN – SECTION 139(5): The existing Section 139(5) is replaced by new section 139(5) from A.Y. 2017-18. At present a revised return can be filed u/s 139(5), only if the return originally filed is before the due date u/s 139(1). Such a revised return can be filed before the expiry of one year from the end of the relevant assessment year or completion of assessment, whichever is earlier. It is now provided that a belated return filed pursuant to section 139(4), can also be similarly revised within the time limit given above.

(vii) DEFECTIVE RETURN – SECTION 139(9): This section is amended from A.Y. 2017 – 18. At present a return of income will be treated as defective if self-assessment tax and interest payable u/s 140A is not paid before the date of furnishing the return. Now clause (aa) of the Explanation to section 139(9) has been deleted and hence a return will now not be treated as defective merely because self-assessment tax and interest thereon is not paid before the date of furnishing the return.

(viii) ADJUSTMENT TO RETURNED INCOME – SECTION 143(1): This section is now amended from A.Y. 2017-18. The scope of adjustments that can be made at the time of processing the Return of Income u/s 143(1) has been expanded to cover the following items:

(a) Disallowance of loss claimed, if return for the year for which loss has been claimed was furnished beyond the due date specified in section 139(1).

(b) Disallowance of expenditure indicated in tax audit report but not considered in the Return of Income

(c) Disallowance of deduction claimed u/s 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or 80-IE, if the return has been filed beyond the due date specified in section 139(1).

(d) Addition of income due to mismatch in income as reflected in the return of income and as appearing in Form 26AS or Form 16A or Form 16.

The above adjustments will be made based on information available on the record of the tax department either physically or electronically. However, no adjustment will be made without intimating the assessee about such adjustment in writing or in electronic mode and giving him a time of 30 days to respond. The adjustment will be made only after considering the response received or after the lapse of 30 days in case no response is received.

(ix) PROCESSING OF RETURN OF INCOME – SECTION 143(ID): This section is amended w.e.f. A.Y. 2017-18. It is now provided that the processing of the Return of Income u/s 143(1) will not be necessary within one year if notice u/s 143(2) is issued. However, such Return of Income shall be processed u/s 143(1) before assessment order u/s 143(3) is passed.

(x) INCOME ESCAPING ASSESSMENT – SECTION 147: This section has been amended from 1.6.2016. New clause (ca) has been added in Explanation 2 to section 147. The amendment provides that income shall be deemed to have escaped assessment if, on the basis of the information received u/s 133C(2), it is noticed by the A.O that the income exceeds the maximum amount not chargeable to tax or where the assessee had understated the income or has claimed excessive loss, deduction, allowance or relief in the return.

(xi) LIMITATION FOR COMPLETING ASSESSMENT OR REASSESSMENT – SECTION 153
The existing section 153 has been replaced by a new section 153 from 1.6.2016. This new section provides as under:

(a) The time limit for completion of assessment has now been reduced as under:
• For order u/s 143 and section 144 – from the existing two years to twenty one months from the end of the assessment year in which the income was first assessable.
• For order u/s 147 – from the existing one year to nine months from the end of the financial year in which the notice u/s 148 was served.
• For giving effect to order passed u/s 254, 263, 264, setting aside or cancelling an assessment – from the existing one year to nine months from the end of the financial year in which the order is received or passed by the designated Commissioner.

(b) The period for completing the assessment shall be extended by one year where reference has been made to the Transfer pricing Officer u/s 92CA,

(c) At present, there is no time limit for giving effect to an order passed u/s 250 or 254 or 260 or 262 or 263 or 264. Now it is provided that action under the above section shall be completed within three months from the end of the month in which order is received or passed by the designated Commissioner. Additional time of six months may be granted to the Assessing Officer by the Principal Commissioner or the Commissioner, based on reasons submitted in writing, if the Commissioner is satisfied that the delay is for reasons beyond the control of the Assessing Officer.

(d) At present there is no time limit for completion of assessment, reassessment or re-computation in consequence of or to give effect to any finding or direction contained in an order under the above mentioned sections or in an order of any court in a proceeding otherwise than by way of appeal or reference under the Act. Now such order giving effect should be passed on or before the expiry of twelve months from the end of the month in which such order is received by the designated Commissioner.

(e) Similarly, in case of assessment made on a partner of a firm in consequence of an assessment made on the firm u/s 147, the time limit is now introduced. Accordingly, the assessment of the partner shall be completed within twelve months from the end of the month in which the assessment order in case of the firm is passed.

In calculating the above time limit, the time or the period referred to in Explanation 1 of section 153(9) shall be excluded.

(f) For cases pending on 1st June, 2016, the time limit for taking requisite action (in case of (c), (d) and (e) above will be 31st March, 2017 or twelve months from the end of the month in which such order is received, whichever is later.

(g) The existing Section 153 shall aply to any order of assessment, reassessment or recomputation made before 1/6/2016.

(xii) LIMITATION FOR COMPLETION OF ASSESSMENT IN SEARCH CASES – SECTION 153B:

The existing Section 153B is replaced by new Section 153B w.e.f. 1.6.2016. The old section 153B shall apply in relation to any order of assessment, reassessment or re-computation is made on or before 31.5.2016. The new section 153B provides for reduction in time limit for completion of assessment, reassessment etc., in case of a search u/s 153 A or 153C as under:

(a) In each assessment year falling within the six years referred to in section 153A(1)(b) or assessment year in which search is conducted u/s 132 or requisition is made u/s 132A – from two years to twenty one months from the end of the financial year in which the last of the authorization for search or requisition was executed:

(b) In case of other persons referred to in section 153C, to twenty one months (from the existing two years) from the end of the financial year in which the last of the authorization for search or requisition was executed or nine months (from the existing one year) from the end of the financial year in which the books of account or documents or assets seized or requisitioned are handed over u/s 153C to the Assessing Office having jurisdiction over such person, whichever is later.

(c) In case where reference is made to the Transfer Pricing Officer u/s 92CA, the period of limitation as given above will be extended by a period of twelve months.

(d) In calculating the above time limit, the time or the period referred to in Explanation 1 of section 153B(3) shall be excluded.

18. PAYMENT OF TAXES AND INTEREST:

18.1 ADVANCE TAX PAYMENT – SECTION 211: (i) The provisions of Section 211 have been amended from 1.6.2016. Now, all non-corporate assesses, who are liable to pay advance tax, will have to pay such tax in 4 installments as applicable to corporate assesses instead of 3 installments. The installments for advance tax payment are as follows:

(i) Eligible assesses referred to in section 44AD opting for computation of profits and gains of business on presumptive basis are required to pay the entire advance tax in one installment on or before 15th March of the financial year. No similar exception has been given for eligible professionals covered under presumptive taxation u/s 44ADA.

(ii) The provisions of section 234C in respect of interest payable for deferment of advance tax have been amended to bring them in line with the provisions of section 211 of the Act. Interest u/s 234C will be levied at 1% p.m. for 3 months on shortfall of advance tax paid as compared with the amount payable as per the above installments in case of all assesses (except the eligible assesses u/s 44AD). However, no interest will be levied if the advance tax paid is more than 12% (For 15th June instalment) and more than 36% (For 15th September instalment).

(iii) A new exception is now provided that interest u/s 234C will not be levied in case of assesses having income chargeable under the head ‘profits and Gains of business or Profession’ for the first time. These assesses will be required to pay the whole amount of tax payable in the remaining installments of advance tax which are due after they commence business or by 31st March of the financial year if no installments are due.

18.2 INTEREST ON REFUNDS – SECTION 244A:

(i) Section 244A granting interest on refunds to assesses has been amended w.e.f. 1.6.2016 to provide that in case where the return of income is filed after the due date as per section 139(1), then interest on refund out of TDS, TCS and advancetax will be granted only from the date of filing the return and not from 1st April of the assessment year.

(ii) It is further provided that an assessee will be entitled to interest on refund of self-assessment tax paid u/s 140A of the Act from the date of payment to tax or date of filing the return, whichever is later up to the date on which the refund is granted.

(iii) It is also provided that an assessee will be entitled to additional interest on refund arising on giving effect to an appellate / revisionary order which has been passed beyond a time limit of 3 months from the end of the month of receipt of the appellate / revisionary order by the Commissioner. It is further clarified that if an extension is granted by the Principal Commissioner / Commissioner for giving effect to the appellate/ revisionary order, then the additional interest will be granted from the expiry of the extended period. The Principal Commissioner / Commissioner may extend the period for giving effect to the appellate / revisionary order up to 6 months. The additional interest on such refunds will be calculated at the rate of 3% p.a. from the date following the date of expiry of the specified time limit upto the date of granting the refund. Effectively, the assessee will be entitled to interest in such cases at the rate of 9% p.a. against the normal rate of 6% p.a for delay in giving effect to an appellate order beyond the specified time limit.

18.3 RECOMMENDATION OF JUSTICE R. EASHWAR COMMITTEE: It may be noted that this committee had made two recommendations as under

(i) The tax payer should be allowed automatic stay on payment of 7.5% of disputed taxes till the first appeal is decided. In cases of High-Pitched assessments, it may be difficult for the assessee to pay even 7.5% of the disputed demand. In such cases he can approach the CIT(A) and request stay of the entire demand. No such amendment is made in the Act. However, CBDT has modified the Instruction No. 1914 of 21.3.1996 on 29.2.2016 directing assessing officers to grant stay till the disposed of first appeal on payment of 15% of disputed tax subject to certain conditions.

(ii) As regards interest on delayed refunds the committee has suggested that section 244A may be amended to provide that interest of 1% P.M. should be paid if the refund is delayed up to 3 months and interest at 1.5% P.M. should be paid if the delay is more than 3 months. It will be noticed that this recommendation is only partly accepted while amending section 244A.

19. APPEALS AND REVISION:

19.1 APPEAL BY DEPARTMENT – SECTION 253(2A): Section 253(2A) has been amended from 1.6.2016. Now, it will not be possible for the Department to file appeal before ITA Tribunal against the order passed pursuant to the directions of Dispute Resolution panel (DRP).

19.2 RECTIFICATION OF ORDER OF ITA TRIBUNA L – SECTION 254: At present the ITA Tribunal can rectify any mistake in its order which is apparent from the records within 4 years of the date of the order. This period is now reduced to 6 months from the end of the month in which the order is passed. This amendment is effective from 1.6.2016. Although it is not clarified in the Finance Act, 2016, it is presumed that this amendment will apply to orders passed on or after 1.6.2016.

19.3 SINGLE MEMBER CASES – SECTION 255(3): This section is amended from 1.6.2016 to provide that a Single Member Bench of ITA Tribunal may dispose of any case where assessed income does not exceed Rs. 50 Lacs. At present, this limit is Rs. 15 Lakh which has now been increased to Rs. 50 Lakh.

20. DISPUTED TAX SETTLEMENT SCHEME – SECTIONS 197 TO 208 OF THE FINANCE ACT, 2016:

20.1 The Finance Minister has, in his Budget speech on 29th February 2016, stated that the tax litigation in our country is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payer and administrative cost of the Government. He has also stated that there are over 3 Lac tax cases pending with the commissioner of Income tax (Appeals) with disputed amount of tax of about 5.5 Lac Crores. In order to reduce these appeals before the first appellate authority he has announced a new scheme called “ Dispute Resolution Scheme -2016” Two separate Schemes are announced in this Budget, one for settlement of disputed taxes under Income tax and wealth tax Act and the other for disputed taxes under Indirect Tax Laws.

20.2 In chapter X of the Finance Act, 2016, (Act), Sections 201 to 211 Provide for “The Direct Tax Dispute Resolution Scheme – 2016”. Similarly, Chapter XI (Sections 212 to 218) of the Act provides for “The Indirect Tax Dispute Resolution Scheme – 2016”.

20.3 THE SCHEME:

(i) The Direct Tax Dispute Resolution Scheme 2016 (Scheme) will come into force on 1st June, 2016. This scheme will enable all assesses whose assessments under the Income tax Act or the wealth tax have been completed for any assessment year and whose appeals are pending before the Commissioners of Income tax (Appeals) as on 29.2.2016 to settle the tax dispute. The scheme also applies to those assesses in whose case any disputed additions are made as a result of retrospective amendments made in the Income tax or wealth tax Act and whose appeals are pending before the CIT(A), ITA Tribunal, High Court, Supreme Court or before any other authority.

(ii) Section 202 of the Finance Act provides that the assessee who wants to settle the tax dispute pending before the concerned appellate authority as on 29.02.2016, can make a declaration in the prescribed Form on or after 01.06.2016 but before the date to be notified by the Central Government. In the case of an assessee in whose case the assessment or reassessment is made in the normal course and not due to any retrospective amendment, and the appeal is pending before CIT (A) as on 29.02.2016, the tax dispute can be settled as under:-

(a) If the disputed tax does not exceed `10 Lacs for the relevant assessment year, the assessee can settle the same on payment of such tax and interest due upto the date of assessment or reassessment.

(b) If the disputed tax exceeds ` 10 Lacs for the relevant assessment year, the dispute can be settled on payment of such tax with 25% of minimum penalty leviable and interest upto the date of assessment or reassessment. It is difficult to understand why minimum penalty is required to be paid when the disputed addition may not be for concealment or inaccurate furnishing of particulars of income.

(c) In the case of appeal against the levy of penalty, the assessee can settle the dispute by payment of 25% of minimum penalty leviable on the income as finally determined.

(iii) In a case where the disputed tax demand relates to addition made in the assessment or reassessment order made as a result of any retrospective amendment in the Income tax or wealth tax Act, the dispute can be settled at the level of any appellate proceedings (i.e. CIT(A), ITA Tribunal, High Court etc.) by payment of disputed tax. No interest or penalty will be payable in such a case.

20.4 PROCEDURE FOR DECLARATION:

(i) The declaration for settlement of disputed tax for which appeal is pending before CIT(A) is to be filed in the prescribed form with the particulars as may be prescribed to the Designated Authority. The Principal Commissioner will notify the Designated Authority who shall not be below the rank of commissioner of Income tax. Once this declaration is filed for settlement of a tax dispute for a particular year, the appeal pending before the CIT (A) for that year will be treated as withdrawn.

(ii) In the case where the tax dispute is in respect of any addition made as a result of retrospective amendment, the assessee can file the declaration in the prescribed form with the designated authority. The assessee will have to withdraw the pending appeal for that year before CIT (A), ITA Tribunal, High Court, Supreme Court or other Authority after obtaining leave of the Court or Authority whereever required. If any proceedings for the disputed tax are initiated for arbitration, conciliation or mediation or under an agreement entered into by India with any other country for protection of Investment or otherwise, the assessee will have to withdraw the same. Proof of withdrawal of such appeal or such other proceedings will have to be furnished by the assessee with the declaration. Further, the declarant will have to furnish an undertaking in the prescribed form waiving his right to seek or pursue any remedy or any claim for the disputed tax under any agreement.

(iii) It is also provided that if (a) any material particulars furnished by the declarant are found to be false at any stage, (b) the declarant violates any of the conditions of the scheme or (c) the declarant acts in a manner which is not in accordance with the undertaking given by him as stated above, the declaration made under the scheme will be considered as void. In this event all proceedings including appeals, will be deemed to be revived.

20.5 PAYMENT OF DISPUTED TAX:

(i) On receipt of the declaration from the assessee the Designated Authority will determine the amount payable by the declarant under the scheme within 60 days. He will have to issue a certificate in the prescribed form giving particulars of tax, interest, penalty etc., payable by the Declarant.

(ii) The Declarant will have to pay the amount determined by the Designated Authority within 30 days of the receipt of the Certificate. He will have to send the intimation about the payment and produce proof of payment of the above amount. Upon receipt of this intimation and proof of payment, the Designated Authority will have to pass an order that the declarant has paid the disputed tax under the scheme. Once this order is passed it will be conclusive about the settlement of disputed tax and such matter cannot be re-opened in any proceedings under the Income tax or Wealth tax Act or under any other law or agreement.

(iii) Once this order is passed, the Designated Authority shall grant immunity to the declarant as under:

(a) Immunity from instituting any proceedings for offence under the Income tax or Wealth tax Act.

(b) Immunity from imposition or waiver of any penalty or interest under the income tax or wealth tax Act. In other words, the difference between interest or penalty chargeable under the normal provisions of the Income tax or wealth tax Act and the interest or penalty charged under the scheme cannot be recovered from the declarant.

It is also provided that any amount of tax, interest or penalty paid under the Scheme will not be refundable under any circumstances.

20.6 WHO CAN MAKE A DECLARATION:

(i) Section 208 of the Finance Act provides that in the following cases declaration under the Scheme for settlement of disputed taxes cannot be made.

(a) In relation to assessment year for which assessment or reassessment under Section 153A or 153C of the Income tax Act or Section 37A or 37B of the Wealth tax Act is made.

(b) In relation to assessment year for which assessment or reassessment has been made after a survey has been conducted under section 133A of the Income tax Act or 38A of the Wealth tax Act and the disputed tax has a bearing on findings in such survey.

(c) In relation to assessment year in respect of which prosecution has been instituted on or before the date of making the declaration under the scheme.

(d) If the disputed tax relates to undisclosed income from any source located outside India or undisclosed asset located outside India.

(e) In relation to assessment year where assessment or reassessment is made on the basis of information received by the Government under the Agreements under section 90 or 90A of the Income tax Act.

(f) Declaration cannot be made by following persons.

• If an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

• If prosecution has been initiated under the Indian Penal Code, The Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985. The Prevention of Corruption Act, 1988 or for purposes of enforcement of any civil liability.

(g) Declaration cannot be made by a person who is notified u/s. 3 of the Special Court (Trial or Offences Relating to Transactions in Securities) Act, 1992.

20.7 GENERAL:

(i) The Act authorizes the Central Government to issue directions or orders to the authorities for the proper administration of the scheme. The Act also provides that if any difficulty arises in giving effect to any of the provisions of the scheme, the Central Government can pass an order to remove such difficulty. Such order cannot be passed after expiry of 2 years i.e after 31.5.2018. Central Government is also authorized to notify the Rules for carrying out the provisions of the scheme and also prescribe the Forms for making Declaration, for certificate to be granted by the Designated Authority and for such other matters for which the rules are required to be made under the scheme.

(ii) In 1998 similar attempt was made to reduce tax litigation through “Kar Vivad Samadhan Scheme” which was introduced by the Finance (No:2) Act, 1998. This year, similar attempt is made to reduce tax litigation through this Scheme. One objection that can be raised is with regard to levy of penalty when the disputed tax is more than Rs.10 Lakh. There is no logic in levying such a penalty. Even if the assessee is not successful in the appeal before CIT(A), his liability will be for payment of disputed tax and interest. Penalty is not automatic. The disputed addition or disallowance may be due to interpretation of some provision in the tax law for which no penalty is leviable. Therefore, in case where disputed tax is more than Rs.10 Lakh, the assessee will not like to take benefit of the scheme and to that extent litigation will not be reduced.

(iii) As stated earlier, section 202 of the Finance Act provides that declaration can be filed for settlement of disputed taxes only in respect of an appeal pending before CIT (A). There is no reason for restricting this benefit to appeal pending before the first appellate authority. This scheme should have been made applicable to appeals filed by the assessee before ITA Tribunal, High Court or the Supreme Court which are pending on 29.02.2016. If this provision had been extended to all such appeals, pending litigation before all such judicial authorities would have been reduced.

(iv) The provision in section 202 of the Finance Act relating to settlement of disputed taxes levied due to retrospective amendment in the Income tax and Wealth tax Act is very fair and reasonable. In such cases only tax is payable and no interest or penalty is payable. This provision is made with a view to settle the disputed taxes levied due to retrospective amendment made in section 9 by the Finance Act, 2012. This related to taxation as a result of acquisition of interest by a Non-Resident in a company owning assets in India. (Cases like VODAFONE, CAIRN and others). However, there are some other sections such as sections 14A, 37, 40 etc., where retrospective amendments have been made. It appears that it will be possible to take advantage of the scheme if appeals on these issues are pending before any Appellate Authority or Court as on 29.2.2016.

(v) It may be noted that last year the CBDT had made one attempt to reduce the tax litigation by issue of Circular No. 21/2015 dated 10/12/2015 whereby appeals filed by the Income tax Department where disputed taxes were below certain level were withdrawn with retrospective effect. This year the Government has issued this scheme whereby assesses can settle the demand for disputed taxes and thus reduce the tax litigation.

21. PENALTIES AND PROSECUTION:

21.1 Sections 98 to 110 of the Finance Act, 2016, make major amendments in Penalty provisions under the Income tax Act. In Para 166 of his Budget Speech the Finance Minister has explained the new Scheme for levy of penalty.

21.2 EXISTING PENALTY PROVISIONS FOR CONCEALMENT .

(i) At present, Section 271 of the Income tax Act (Act) provides for levy of penalty for concealment of income or for furnishing inaccurate particulars of income at the rate of 100% of tax which may extend to 300%. The Assessing Officer (AO) has discretion in the matter of levy of penalty. There are 8 Explanations in the Section to explain the circumstances under which a particular income will be considered as concealment of income or when the assessee will be deemed to have furnished inaccurate particulars of Income. Various clauses of this section have been considered and interpreted by the various High Courts and the Supreme Court in various judgements. The law relating to levy of penalty appeared to be more or less settled by now. How far these judgements will apply to the new Scheme for levy of penalty will depend on the manner in which officers administer the new provisions.

(ii) Recently, Income tax Simplification Committee (Justice Eashwar Committee) has submitted its Report. In para 26.1 of its Report the committee has considered the provisions of sections 271 and 273B and made certain suggestions. These suggestions have been made with a view to reduce tax litigation. If we consider the amendments made by the Finance Act, 2016, it will become evident that these suggestions are only partly implemented.

21.3 NEW SECTION 270A (UNDER REPORTING OF INCOME)

(i) It is now provided that existing Section 271 shall apply upto Assessment Year 2016-17. For A.Y. 2017-18 and onwards new sections 270A and 270AA have been added. The provisions of these sections are as under.

(ii) Section 270A authorizes an Assessing Officer, CIT (A), Commissioner or Principal Commissioner to levy penalty at the rate of 50% of tax in case where the assessee has “Under Reported” his income. In cases where the assessee has “Misreported” his income the penalty of 200% of tax will be levied. It may be noted that u/s 271, although the minimum penalty was 100% of tax and maximum penalty was 300% of tax, in most of the cases only minimum penalty of 100% was levied.

(iii) Section 270A(2) provides that the assessee will be considered to have “Under Reported” his income (a) If Income assessed is greater than income determined under section 143(1) (a) i.e Income as per Return of Income, or if Income assessed is greater than the maximum amount not chargeable to tax, if Return of Income is not filed by the assessee, (b) If Income assessed or deemed book profit u/s 115JB/115JC is greater than the income assessed or reassessed immediately before such assessment, (c) If Book Profit assessed u/s 115JB / 115 JC is greater than Book Profit determined u/s 143(1)(a) or Book Profit assessed u/s 115JB/115JC, if no return of income is filed by the assessee or (d) If Income assessed or reassessed has the effect of reducing loss declared or such loss is converted into income.

(iv) In all the above cases the difference between the income assessed or reassessed and the income computed u/s 143(1)(a) will be considered as Under Reported income and penalty at 50% of tax will be levied. If the loss declared by the assessee is reduced or converted into income the difference will be liable to penalty @ 50% of tax. The concept of income concealed or furnishing of inaccurate particulars of income, which existed u/s 271, is now given up under the new section 270A.

(v) In a case where Section 115JB / 115JC is applicable the amount of Under Reported income will be worked out by applying the formula given in the section. This can be explained by the following illustration.

In the above case Under Reported Income u/s 270A will be Rs. 3,00,000/- (Rs. 2,00,000+ Rs.1,00,000/-)

(vi) Section 270A(4) provides that where any addition was made in the computation of total income in any earlier year and no penalty was levied on such addition in that year, and the assessee contends that any receipt, deposit or investment made in a subsequent year has come out of such addition made in earlier year, the assessing officer can consider such receipt, deposit or investment as under reported income. This provision is on the same lines as existing Explanation (2) of Section 271.

(vii) Section 270A (6) provides that no penalty will be levied in respect of any Under Reported Income where (a) the assessee offers an explanation and the Income tax Authority is satisfied that the explanation is bona fide and all material facts have been disclosed, (b) Such Under Reported income is determined on the basis of an estimate, if the accounts are correct and complete but the method employed is such that the income cannot be properly deduced there from (c) The addition is on the basis of estimate and the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue and has included such amount in the computation of his income and disclosed all the facts material to the addition or disallowance, (d) Addition is made under Transfer pricing provisions but the assessee had maintained information and documents as prescribed under section 92D, declared the international transaction under Chapter X and disclosed all material facts relating to the transaction or (e) The undisclosed income is on account of a search operation and penalty is leviable under section 271 AAB.

21.4 NEW SECTION 270A (MISREPORTIN G OF INCOME):

(i) A s stated earlier, the penalty on Unreported Income in consequence of Misreporting of Income will be 200% of the tax on such Misreported Income. Section 270A (9) provides that the assessee will be considered to have Misreported his income due to (a) Misrepresentation or suppression of facts (b) Failure to record investments in the books of account (c) Claim of expenditure not substantiated by any evidence (d) Recording of any false entry in the books of account, (e) Failure to record any receipt in books of account having a bearing on total income or (f) Failure to report any International transaction or any transaction deemed to be an International transaction or any specified domestic transaction, to which provisions of Chapter X apply.

(ii) It may be noted that disputes may arise due to the wording of the above clauses in Section 270A(9). Clause (b) refers to Investments not recorded in books of account. In the case of an Individual or HUF it may so happen that certain genuine Investments may have been debited to personal Capital Account and may not appear separately in the books of account. If the assessee is declaring income from such Investments regularly, there is no reason to consider cost of Investments not recorded in books as Misreporting of Income. If the income from such Investment is declared, there is no Under Reporting much less Misreporting of Income. Moreover, when the Investment is debited to Capital Account it cannot be said that the same is not recorded in the books.

(iii) Similarly, clause (c) above states that expenditure claimed for which there is no evidence will be treated as Misreporting of Income. It is not clear as to what will be considered as an adequate evidence for this purpose. Disputes will arise on the question about adequacy of the evidence for this purpose.

(iv) Section 270A (10) provides that for the purpose of levy of penalty as a result of Under Reporting or Misreporting of income amount of tax on such income will be calculated on notional basis according to the Formula given in that Section.

(v) It is pertinent to note that there is no provision similar to Section 270A(6), as discussed in Para 21.3 (vii) above, whereby the assessee can offer an explanation about his bona fides for omission to disclose any amount of income which the tax authority wants to consider as Misreporting of Income . In other words, before the A.O. comes to the conclusion that there is misreporting of income on any of the grounds stated in Para (i) above, there is no provision to give an opportunity to the assessee to offer explanation as provided in section 270A(6). The assesses will have to litigate on such matters as absence of such a provision is against principles of the natural justice.

21.5 IMMUNITY FROM PENALTY AND PROSECUTION (SECTION 270AA ):

(i) New Section 270AA has been inserted in the Income tax Act w.e.f. assessment year 2017-18 to grant immunity from imposition of penalty and initiation of prosecution in certain circumstances. Under this section an assessee can make an application to the A.O. to grant immunity from imposition of penalty under Section 270A and initiation of prosecution proceedings under Section 276C. or 276CC. For this purpose the following conditions will have to be complied with by the assessee:-

(a) Tax and Interest payable as per the assessment order u/s 143(3) or reassessment order u/s 147 should be paid before the period specified in the Notice of Demand.

(b) No Appeal against the above order should be filed before CIT(A).

(c) The application for immunity should be filed within one month of the end of the month in which the above assessment order is received. This application is to be made in the prescribed form.

(ii) It may be noted that the power to grant immunity under this section is given to the AO only with reference to penalty leviable u/s 270A (7) @ 50% of Tax for Under Reporting of Income. If the addition or disallowance is made in the assessment or reassessment order on the ground of Misreporting of Income as explained u/s 270A(9) and where penalty is @ 200% of Tax, no such immunity u/s 270AA can be granted. To this extent this provision in section 270AA is very unfair.

(iii) After the A.O. receives the application for grant of immunity, he will have to pass an order accepting or rejecting the application within one month from the end of the month when such application is received. If he accepts the application, no penalty u/s 270A will be levied and no prosecution u/s 276C or 276CC will be initiated. If the A.O. wants to reject the application he will have to give an opportunity to the assessee of being heard. If the A.O. rejects the application, the assessee can file an appeal before CIT(A) against the assessment / reassessment order. For this purpose the time taken for making the application to the AO and the time taken by A.O. in passing the order for rejection of the application will be excluded in computing the period of limitation u/s 249 for filing appeal to CIT(A).

(iv) The order passed by the A.O. accepting or rejecting the application shall be treated as final. If the A.O. has accepted the application by his order u/s 270AA(4), no appeal before CIT(A) or revision application before CIT can be filed against the assessment or reassessment order.

(v) It may be noted that the A.O. is given discretion to accept or reject the application. This appears to be an absolute power given to the same officer who has passed the assessment order. There are no guidelines as to when the application can be rejected. There is no provision for appeal against the order rejecting the application for immunity. To this extent this provision is unfair.

(vi) As stated in (ii) above the above application for immunity can be filed only in respect of additions / disallowances made due to Under Reporting of Income where penalty is of 50% of Tax. No such application can be made if the additions/ disallowances are for Misreporting of Income where penalty is of 200% of Tax. There is no clarity in Section 270AA about a situation where in any assessment / reassessment order some additions / disallowances are for Under Reporting of Income and some additions / disallowances are for Misreporting of Income. Question arises whether the application for immunity u/s 270AA can be made in such a case for getting immunity. If so, whether such application will be for items added/ disallowed for Under Reported Income only and whether the assessee can file appeal to CIT(A) only with reference to items added / disallowed on the ground of Misreporting of Income. If this is the position, then a question will arise whether the assessee will have to revise the appeal petition later on in respect of addition / disallowance made for items of Under Reported Income if the application for immunity is rejected. If the intention of the Government is to reduce litigation and grant immunity from penalty and prosecution the benefit of Section 270 AA should have been given to all assessee where additions / disallowances are made for Under Reporting or Misreporting of Income.

21.6 PENALTY FOR FAILURE TO MAINTAIN INFORMATION AND DOCUMENTS (SECTION 271 AA ): This section has been amended w.e.f. A/Y: 2017-18 to provide that if the assessee fails to furnish the information and documents as required under Section 92D(4), the prescribed authority can levy penalty of Rs.5 Lakh. It may be noted that Under Section 92D(4) a constituent entity of an International Group is required to maintain certain information and documents in the prescribed manner and furnish the same to the prescribed authority before the due date as provided in that section.

21.7 PENALTY WHERE SEARCH HAS BEEN INITIATED (SECTION 271AA B):

Section 271AAB provides for levy of penalty in which search has been conducted on or after 1.7.2012. Specific rates are provided u/s 271AAB(1) (a),(b) and (c). Amendment made in this section, effective from A.Y. 2017-18, is in clause (c). Here the rate of minimum penalty is 30% and maximum penalty is 90% of the Undisclosed Income. This will now be a flat rate of 60% of Undisclosed Income from A.Y. 2017-18. Further, it is also provided that no penalty u/s 270 A shall be levied on undisclosed income where penalty u/s 271 AAB (1) is leviable.

21.8 PENALTY FOR FAILURE TO FURNISH REPORT U/S. 286 (NEW SECTION 271 GB): A new Section 286 has been added from A.Y 2017-18 providing for furnishing of report in respect of International Group. New 271 GB has been added effective from A.Y. 2017-18 to provide for penalty for non compliance of Section 286 as under.

(i) If any Reporting Entity referred to in section 286 fails to furnish report referred to in Section 286(2) before the due date, the Prescribed Authority can levy penalty at Rs.5,000/- per day if the delay in upto one month and at Rs.15,000/- per day if the failure continues beyond one month.

(ii) If any Reporting Entity fails to produce the information or documents within the period allowed u/s 286(6), the prescribed authority can levy penalty at Rs.5,000/- per every day when the default continues. If this default continues even after the above order levying penalty is passed, the prescribed authority can levy penalty at the rate of Rs.50,000/- per day if the default continues even after service of the first penalty orders.

(iii) If any Reporting Entity Knowingly furnishes inaccurate information in the Report required to be furnished u/s 286(2) the prescribed authority can levy penalty of Rs.5 Lakh.

21.9 PENALTY FOR FAILURE TO FURNISH INFORMATION, STATEMENTS ETC (SECTION 272A): Section 272 A provides for levy of penalty of Rs. 10,000/- for each failure or default to answer the questions raised by an Income tax Authority, refusal to sign any statement or failure to attend and give evidence or produce books or documents as required u/s 131(1). The scope of this section is now extended by amendment of the section from A.Y. 2017-18. It is now provided that penalty of Rs. 10,000/- for each default or failure to comply with a notice issued u/s 142(1), 143(2) or 142(2A) can be levied by the Income tax Authority.

21.10 POWER TO REDUCE OR WAIVE PENALTY IN CERTAIN CASES (SECTION 273A):

This section empowers the Principal Commissioner or the commissioner of Income tax to reduce or waive penalty levied u/s 271 of the Income tax Act. This power is extended to penalty levied u/s 270A also w.e.f. A.Y. 2017-18. Further, new subsection (4A) has been added in this section from 1/6/2016 to provide that the Principal Commissioner or Commissioner shall pass the order accepting or rejecting the application for waiver or reduction of penalty within a period of one year from the end of the month when application is made by the assessee. As regards all applications for waiver or reduction of penalty pending as on 1.6.2016, the Principal Commissioner or Commissioner shall pass the order accepting or rejecting the application on or before 31.5.2017. The Principal Commissioner or the Commissioner shall have to give hearing to the assessee before passing the above order.

21.11 POWER TO GRANT IMMUNITY FROM PENALTY BY PRINCIPAL COMMISSIONER OR COMMISSIONER (SECTION 273 AA ): This section has been amended w.e.f. 1.6.2016. As in section 273A, the Principal Commissioner or the Commissioner is now required to pass the order accepting or rejecting the application for grant of immunity from levy of penalty within one year from the end of the month in which the assessee has made the application for such immunity. As regards pending applications as on 1.6.2016, the Principal Commissioner or the Commissioner has to pass orders accepting or rejecting the application on or before 31.5.2017.

21.12 GENERAL:
(i) From the above discussion it is evident that the existing concept of levying penalty u/s 271 for concealment of income or furnishing of inaccurate particulars of income is now given up. New Section 270A, which will replace Section 271 from 1.4.2016, introduces a new concept of “Under Reporting of Income” and “Misreporting of Income”. Considering the way these two terms are explained in the new Section 270A, it appears that there will be a thin line of distinction between the two in respect some of the items of additions and disallowances. Since the penalty with respect to Under Reporting of Income is 50% and the penalty with respect of Misreporting of income is 200%, the A.O. will try to bring as many items of additions / disallowances under the head Misreporting of Income. Questions of interpretation will arise and tax litigation on this issue may increase.

(ii) As stated earlier, the recommendation of Justice Eshwar Committee has not been fully implemented while drafting the new Section 270A. The committee has specifically stated that no penalty should be levied where the A.O. takes a view which is different from the bona fide view adopted by the assessee on any issue involving the interpretation of any provision and is supported by any judicial ruling. It is unfortunate that this concept is not introduced in the new section 270A.

22. OTHER PROVISONS :

22.1 TAX ON DEEMED INCOME U/S 68 – SEC 115 BBE

Section 115 BBE is amended w.e.f. A.Y 2017-18. At present this section provides that deemed income u/s 68, 69, 69A, 69B, 69C and 69D is taxable at the rate of 30%. Further, no deduction for any expenditure or allowance relatable to such income is allowed. It is now provided that no set off of any loss shall be allowable from such deemed income u/s 68, 69, 69A to 69D.

22.2 ASSESSEE DEEMED TO BE IN DEFAULT – SECTION 220: Section 220 provides that an assessee shall be deemed to be in default if the taxes due are not paid. Interest is payable u/s 220(2) for the delay in payment of tax. If the assessee applies for waiver or reduction of interest to the Commissioner u/s 220(2A), the same can be waived or reduced. Section 220(2A) is now amended, effective from 1.6.2016, to provide that the commissioner should pass the order accepting or rejecting such application within a period of 12 months of the end of the month when application for waiver or reduction of interest is made. In respect of all pending applications, the order will have to be passed by the commissioner on or before 31.5.2017.

22.3 PROVISION TO GIVE BANK GUARANTEE – SECTION 281B:

(i) At present, the AO may provisionally attach an assessee’s property if he considers it necessary for protecting revenue’s interest during the pendency of assessment or reassessment proceedings. Section 281B is amended w.e.f. 1.6.2016.

(ii) Based on Justice Easwar Committee’s recommendation, this amendment provides that the assessee may provide bank guarantee of sufficient amount. In such a case the AO has to revoke the provisional attachment if the guarantee is for more than the fair market value of the property attached or it is sufficient to meet the revenue’s interest. The AO may refer to the Valuation Officer for valuing the property. The AO should pass an order revoking provisional attachment within 15 days from the date of receipt of the bank guarantee or within 45 days if reference is made to Valuation Officer. The AO may invoke the bank guarantee if the assessee fails to pay tax demand or if he fails to renew or furnish new bank guarantee at least 15 days prior to the expiry of the bank guarantee.

22.4 AUTHENTICATION OF NOTICE – SECTION 282A: To facilitate e-assessment, it has now been provided from 1.6.2016 that the notice and other documents issued by the department can be either in paper form or in electronic form. The detailed procedures for this purpose will be prescribed.

22.5 SECURITIES TRANSACTION TAX (STT ): Section 98 of the Finance (No.2) Act, 2004 has been amended w.e.f. 1.6.2016. The present rate of 0.017% STT on sale of option on securities, where option is not exercised, is increased to 0.05%. It is also provided that STT will not be payable on securities transactions entered into on a recognized Stock Exchange located in International Financial Service Centre.

23. THE INCOME DECLARATION SCHEME – 2016:

23.1 As stated by the Finance Minister in Para 159 to 161 of his Budget Speech, in Chapter IX (Sections 178 to 196) of the Finance Act, 2016, “The Income Declaration Scheme, 2016”, has been announced. This scheme is akin to a Voluntary Disclosure Scheme. The scheme will come into force on 1st June, 2016. The declaration for undisclosed domestic income or assets can be made in the prescribed form within 4 months i.e on or before 30th September, 2016. The tax at the rate of 30% of the disclosed income will be payable with surcharge called Krishi Kalyan Surcharge at 7.5% and penalty at 7.5%. Hence, total amount payable will be 45% of the income declared by the assessee under the scheme. This tax, surcharge and penalty will be payable within two months (i.e. on or before 30th November, 2016)

23.2 WHO CAN MAKE DECLARATION UNDER THE SCHEME:

Any Individual, HUF, AOP, BOI, Firm, LLP or company can make a declaration of undisclosed income or assets during the specified period (1.6.2016 to 30.09.2016). However, Section 193 of the Finance Act, Provides that the provisions of the Scheme shall not apply to following persons.

(i) Any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

(ii) Any person in respect of whom prosecution has been launched for an offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act 1967 and the Prevention of Corruption Act, 1988.

(iii) Any person who is notified u/s 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

(iv) The scheme is not applicable in relation to any undisclosed foreign income and asset which is chargeable to tax under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

(v) Any undisclosed income chargeable to tax under the Income tax Act for any previous year relevant to Assessment Year A. Y. 2016-17 or earlier years where (a) N otice u/s 142, 143(2), 148, 153A or 153C of the Income tax Act has been issued and the assessment for that year is pending (b) Search u/s 132 or requisition u/s 132A or survey u/s 133A of the Income tax Act has been made in the previous year and notices u/s 143(2), 153A or 153 C have not been issued and the time limit for issue of such notices has not expired and (c) Information has been received by the competent authority under an agreement entered into by the Government u/s 90 or 90A of the Income tax Act in respect of such undisclosed asset.

23.3 WHICH INCOME OR ASSETS CAN BE DECLARED:

Section 180 of the Act provides that every eligible person can make declaration under the Scheme in respect of the undisclosed income earned in any year prior to 1.4.2016. For this purpose income which can be disclosed will be as under.

(i) Income for which the person has failed to furnish return of income u/s 139 of the Income tax Act.

(ii) Income which the person has failed to disclose in the return filed before 1.6.2016.

(iii) Income which has escaped assessment by reason of the failure on the part of the person to furnish return of income or to disclose fully and truly all material facts.

(iv) Where such undisclosed income is held in the form of investment in any asset, the fair market value of such asset as at 1.6.2016 shall be deemed to be the undisclosed income. For the purpose of determination of Fair Market Value of such assets, CBDT has been authorized to prescribe the Rules.

(v) No deduction for any expenditure or allowance shall be allowed against the income which is disclosed under the Scheme.

23.4 MANNER OF DECLARATION:

(i) The declaration under the Scheme is to be made in the prescribed Form. The same is to be submitted to the Principal Commissioner of Income tax or the Commissioner of Income tax who is authorized to receive the same. The declaration is to be signed by the authorized person as provided in Section 183 of the Finance Act. A person who has made a declaration under the scheme cannot make another declaration of his income or income of any other person. If such second declaration is made it will be considered as void. It is also provided that if a declaration under the scheme has been made by misrepresentation or suppression of facts, such declaration shall be treated a void.

(ii) As stated earlier, the tax (including Surcharge and penalty) of 45% of the income declared is to be paid on or before 30.11.2016. The proof of such payment will have to be filed before the due date. If this payment is not made, the declaration will be considered as void. In this case, if any tax is deposited, the same will not be refunded. If the declaration is considered as void, the amount declared by the person will be deemed to be income of the declarant and will be added to the other income of the declarant and assessed under the Income tax Act. If the declarant has paid the tax, Surcharge and penalty due as per the declaration before the due date, the income so disclosed will not be added to the income of any year. There will be no scrutiny or enquiry regarding such income under the Income tax or the Wealth tax Act.

(iii) The declarant shall not be entitled to reopen any assessment or reassessment made under the Income tax or Wealth tax Act or claim any set off or relief in any appeal, reference or other proceedings in relation to such assessment or reassessment. In other words, declaration under the scheme shall not affect the finality of completed assessments.

23.5 IMMUNITY:

(i) The scheme provides for immunity from proceedings under other Acts as under:

(a) Provisions of Benami Transactions (Prohibition) Act, 1988, shall not apply in respect of the assets declared even if such assets exist in the name of ‘Binamidar’.

(b) No Wealth tax shall be payable under the Wealth tax Act in respect of any undisclosed cash, Bank Deposits, bullion, jewellery, investments or any other asset declared under the scheme.

(c) No prosecution will be launched against the declarant under the Scheme in respect of any income/asset declared under the Income tax or Wealth tax Act.

(iii) It is also provided that nothing contained in the declaration made under the Scheme shall be admissible as evidence against the declarant under any other law for the purpose of any proceedings relating to imposition of penalty or for the purposes of prosecution under the Income tax or Wealth tax Act.

(iv) It may be noted that no immunity is provided in the scheme from proceedings under the Foreign Exchange Management Act, Money Laundering Act, Indian Penal Code or any other Act.

23.6 GENERAL:

(i) Section 195 of the Finance Act provides that if any difficulty arises in giving effect to the provisions of the Scheme, the Central Government can pass an order to remove such difficulty. Such order cannot be passed after the expiry of 2 years i.e. after 31.5.2018. Section 196 of the Finance Act authorizes the Government to notify the Rules for carrying out the provisions of the scheme and also prescribe the Form for making the declaration under the scheme.

(ii) Last year an Amnesty Scheme under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, was announced. Under this Scheme it is reported that 644 persons declared income of about Rs.4,164 crore, and paid tax of about Rs.2,428.40 crore.

(iii) In the Finance Act, 2016 in order to give one time opportunity to persons to declare undisclosed domestic income and assets this disclosure scheme has been announced. It appears that under this Scheme the declarant will have to disclose income and specify the year in which it was earned. Further, there is a provision in the scheme that any person in whose case notice u/s 142(1), 143(2), 148, 153A or 153C is issued for any year, and assessment is pending, such person cannot declare undisclosed income of that year. This will be a great impediment in the success of the scheme. It appears that the scheme is announced by the Government with all good intentions. It will be advisable for the persons who have not complied with the provisions of the Income tax Act or the Wealth tax Act to come forward and take advantage of the scheme and buy peace.

24. TO SUM UP:

24.1 The Finance Minister has taken some steps towards his declared objective of granting relief to small tax payers, granting incentives for promotion of affordable housing, reducing tax litigation, affording onetime opportunity to declare undisclosed domestic income and assets etc. In some of the areas the efforts are half hearted and the assessees may not get full advantage from the provisions made in the Financial Act.

24.2 Justice Easwar Committee appointed to make recommendations for simplification of Income tax provisions has submitted its report. Some of the amendments made in the Income tax Act are based on these recommendations. It is rather unfortunate that these recommendations are only partly implemented in this Budget.

24.3 Last year the Government made an attempt to address the issue relating to undisclosed income and assets in Foreign Countries. A “Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015” was passed. This year the Finance Act contains “The Income Declaration Scheme, 2016”. Under this Scheme one time opportunity is given to those persons who have not declared their domestic income or assets in the past. 45% tax (including surcharge and penalty) is payable on such undisclosed income. There are some conditions in the scheme which may be difficult to comply with. CBDT has issued some clarifications on various issues. It is reported that the last year’s scheme for declaration of undisclosed Foreign Income and Assets did not get adequate response. Let us hope that the scheme announced this year for declaration of undisclosed domestic income and assets gets adequate response.

24.4 Another step taken by the Finance Minister relates to reduction in tax litigation. For this purpose “Dispute Resolution Scheme – 2016” has been announced. This scheme is similar to “Kar Vivad Samadhen Scheme”, which was introduced in 1998. This scheme is limited to settlement of tax disputes pending on 29.2.2016 before CIT (A). It does not cover tax disputes before ITA Tribunal, High Court or the Supreme Court. Here also the provision for payment of notional penalty @ 25% where disputed tax exceeds Rs. 10 Lakh will be an impediment in the success of the scheme. This Scheme covers Settlement of tax disputes due to retrospective amendments made in the Income tax Act. For such cases tax disputes pending before any appellate authority can be settled on payment of only disputed tax. Interest and penalty will be waived. It will be possible for assessees to settle tax disputes relating to retrospective amendments made in section 9, 14A, 37, 40, etc.

24.5 The introduction of a new chapter XII – EB (Section 115 TD to 115 TF) effective from 1.6.2016 to levy ‘Exit Tax’ on Charitable Trusts is a big blow on Charitable Trusts. In our country Charitable Trusts are working to supplement the work of the Government in the field of education, medical relief, eradication of poverty, relief during calamities such as drought, earthquake etc. For this reason, exemption is given to such charitable trusts: In recent years it is noticed that the provisions relating to the exemption to such trusts are being made more complicated. The attempt of the tax administration is to see how best this benefit to charitable trusts is denied. By levy of “Exit Tax” on cancellation of registration u/s 12AA is one such step. It is the general experience of such trusts that section 12AA Registration is being cancelled on some technical grounds and the trusts have to litigate on this issue. If, ‘Exit Tax’ is levied on cancellation of Registration u/s 12AA, the trustees of such trusts will be put to great hardship.

24.6 Another major amendment made this year is about change in the concept for levy of penalty. The concept of concealment of Income or furnishing of inaccurate particulars of income for levy of penalty is now given up. Now, penalty will be leviable if there is a difference between the assessed income and declared income. Such difference will be divided into two parts viz. “Under Reporting” and “Misreporting” of income. There is a thin line of distinction between the two. This new concept will invite litigation about interpretation whether there is “Under Reporting” where penalty is 50% of tax or “Misreporting” where penalty is 200% of tax. The old concept of concealment or furnishing of inaccurate particulars of income for levy of penalty has been interpreted in several judgments of the High Courts and the Supreme Court in last more than 6 decades. The law on the subject was well settled. This new concept of “Under Reporting” and “Misreporting” introduced this year will unsettle the settled law and assessees will have to face fresh litigation.

24.7 Welcome provision introduced this year on the recommendation of Justice Easwar Committee relates to extension of concept of presumptive taxation in cases of small professionals earning gross receipts not exceeding Rs. 50 Lakh. They will not be required to maintain accounts if they offer 50% of Gross Receipts as their income. Justice Easwar Committee had suggested limit of gross receipts at Rs. 1 Crore and presumptive income at 33 1/3%. This suggestion is only partly implemented. This provision will go a long way in resolving tax disputes in cases of small professionals.

24.8 Taking an overall view of the amendments made this year in the Income tax Act, one can compliment the Finance Minister for his sympathetic approach to the tax payers. Some of the amendments are really tax payer friendly as they grant relief to small tax payers. He has taken measures to promote affordable housing and to boost growth and employment generation.

24.9 While concluding his Budget Speech he has observed in Para 188 and 189 as under:

“188. This Budget is being presented amidst global and domestic headwinds. There are several challenges. We see them as opportunities. I have outlined the agenda of our Government to “Transform India” for the benefit of the farmers, the poor and the vulnerable.

“189. It is said that “Champions are made from something they have deep inside of them – a desire, a dream, a vision. We have a desire to provide socio-economic security to every Indian, especially the farmers, the poor, and the vulnerable; we have a dream to see a more prosperous India, and vision to “Transform India”.

Let us hope he is able to achieve his goal with the cooperation of all citizens of the country.