Month: June

1.1 The Finance Minister, Shri Arun Jaitley, presented his second budget in the Lok Sabha on 28th February, 2015. After some discussions, both the houses of Parliament have passed the Finance bill with some amendments in the Finance Bill, 2015, and the same has received presidential assent on 14th May, 2015. There are 80 sections in the Finance Act dealing with amendments in direct tax provisions.

1.2 In Paras 96 to 98 of his budget speech he has referred to certain steps which the Government proposes to take in the field of Indirect Taxes and Corporate Taxation, in the coming years. These are

(a) Expediting the process to legislate Goods and Services Tax (GST)
(b) Reduce the corporate tax to 25% over the next four years and phase out exemptions and incentives.

1.3 I n Para 99 of his budget speech he has enumerated the themes adopted by him for his tax proposals as under;

“99. While finalizing my tax proposals, I have adopted certain broad themes, which include;

A Measures to curb black money;
B Job creation through revival of growth and investment and promotion of domestic manufacturing and ‘Make in India’.
C Minimum government and maximum governance to improve the ease of doing business;
D Benefits to middle class taxpayers;
E Improving the quality of life and public health through Swachch Bharat initiatives; and
F Stand alone proposals to maximize benefits to the economy”

1.4 It may be noted that another major step in this year’s budget is about abolition of wealth tax from A.Y. 2016-17. The justification for this is given in Para 113 of the budget speech as under;

“113. My next proposal is regarding minimum government and maximum governance with focus on ease of doing business and simplification of Tax Procedures without compromising on tax revenues. The total wealth tax collection in the country was Rs. 1,008 Crore in 2013-14. Should a tax which leads to high cost of collection and a low yield be continued or should it be replaced with a low cost and higher yield tax? The rich and wealthy must pay more tax than the less affluent ones. I have therefore decided to abolish the wealth tax and replace it with an additional surcharge of 2% on the super-rich with a taxable income of over Rs. 1 Crore. This will lead to tax simplification and enable the Department to focus more on ensuring tax compliance and widening the tax base. As against a tax sacrifice of Rs. 1,008 Crore, through these measures the Department would be collecting about Rs. 9,000 Crore from the 2% additional surcharge. Further, to track the wealth held by individuals and entities, the information regarding the assets which are currently required to be furnished in wealth-tax return will be captured in the income tax returns. This will ensure that the abolition of wealth tax does not lead to escape of any income from the tax net”.

1.5 While concluding his budget speech, he has stated that the Direct Tax proposals will result in revenue loss of Rs. 8,315 Crore. As compared to this, his Indirect Tax proposals will yield estimated revenue of Rs. 23,383 Crore. Thus the net revenue gain will be about Rs. 15,068 Crore.

1.6 I n this article some of the important amendments made to the Income-tax Act by the Finance Act, 2015, have been discussed. It may be noted that the amendments, as in last year’s Finance Act, have only prospective effect i.e., will operate for assessment year 2016-17, unless specifically provided

2. Rates of Taxes

2.1 I n view of the changes in threshold limits made by the Finance (No.2) Act, 2014, the exemption limit for Individuals, HUF, AOP as well as the rates of tax remain unchanged.The rates of income tax in the case of corporate and non-corporate assessees in A.Y. 2015-16 and A.Y.: 2016-17 will be the same.

2.2 T herefore, in the case of an Individual, HUF, AOP, BOI etc., the rates of Income-tax for A.Y. 2015-16 and A.Y. 2016-17 will be as under:

Note: Rebate of Tax – A Resident Individual having total income not exceeding Rs. 5 lakh, will get Rebate upto Rs. 2,000/- or tax payable, whichever is less u/s. 87A.

2.3 A s stated earlier, due to abolition of wealth tax from A.Y. 2016-17, the rate of Surcharge on tax has been increased from 10% to 12% for Super Rich assessees. This increased surcharge will be charged as under from A.Y. 2016-17.

(i) I n the case of an Individual, HUF, AOP etc. the rate of surcharge on tax will be 12% if the total income of the assessee exceeds Rs.1 crore.
(ii) In the case of a firm, LLP, Co-operative Society and a Local Authority the rate of Surcharge on tax will be 12% if the total income exceeds Rs.1 crore.
(iii)In the case of a domestic company the rate of surcharge on tax will be as under:
(a) I f the total income exceeds Rs.1 crore but does not exceed Rs.10 crore the rate of surcharge will be 7%.
(b) I f the total income exceeds Rs.10 crore, the rate of surcharge will be 12%.
(iv) I n the case of a foreign company there is no increase in the rate of surcharge on tax. Hence, the existing rate which is 2% in respect of total income between Rs.1 crore and 10 crore and 5% in respect of total income exceeding Rs.10 crore will continue.
(v) T he rate of surcharge on Dividend Distribution Tax u/s. 115-0, Tax on Buy Back of shares u/s. 115 QA, Income Distribution Tax payable by Mutual Funds u/s. 115R, and Income Distribution Tax payable by Securitisation Trusts u/s. 115 TA will be 12%.

2.4 T he existing rate of 3% for Education Cess (including Secondary and Higher Secondary Education Cess) on Income tax and surcharge will continue in A.Y. 2016-17.

2.5 T he effective maximum marginal rate of tax (including Surcharge and Education Cess ) will be as under for A.Y. 2016 – 17.

3. Tax Deduction at Source:

3.1 Section 192: At present, the person responsible for paying salary has to depend upon the evidence and particulars furnished by the employee in respect of deduction, exemptions and set-off of loss claimed by the employee while deducting tax at source. There is no guidance available about the evidence or particulars to be collected. Therefore, s/s. (2D) is inserted from 1.6.2015 to provide that the person responsible for deduction of tax will have to get particulars, evidence etc. about the deduction claimed from the salary in the Form which will be prescribed in the Rules.

3.2 Section 192A: This is a new section inserted from 1.6.2015. In the case of an employee participating in a Recognised Provident Fund (RPF), the accumulated balance to his credit in his PF account is excluded from his total income if Rule 8 of Part A of Schedule IV is applicable. If this Rule does not apply, the trustees of RPF are required to deduct tax at source. The Trustees of P.F. sometimes find it difficult to determine the rate of tax for TDS. To resolve this issue, section 192A provides that, at the time of payment of the accumulated balance due to the employee, trustees shall deduct income-tax at the rate of ten per cent. If the employee fails to furnish his PAN to the trustees, tax shall be deducted at the maximum marginal rate. Tax is not deductible under this section where the aggregate amount of withdrawal is less than Rs. 30,000/- or where the employee furnishes a selfdeclaration in the prescribed Form 15G/15H that tax on his estimated total income would be nil.

3.3 Section 194A: This section has been amended from 1.6.2015. The effect of this amendment is as under:

(i)    A co-operative Bank will have to deduct tax at source from interest paid or payable on time deposit made by its member. This deduction is to be made if the amount of the interest exceeds Rs.10,000/-. however, no such deduction will be required to be made on interest paid or payable on time deposit by a co-operative society. Similarly, a primary agricultural society, a primary credit society, a Co-operative land mortgage bank, or a Co-operative land development bank will not be required to deduct tax at source from interest payment. the  amendment  to  section  194a(3)(v)  sets  at  rest  the controversy created by a recent decision of the Bombay high Court.

(ii)    Hitherto, there was no tdS from interest paid by a Bank  on  recurring  deposits.  now,  tax  will  be  required to be deducted by the bank in respect of interest on recurring deposit also.( amendment to explantion 1 of section 194 a).

(iii)    At present, the threshold limit of exemption from tdS provisions apply to interest credited or paid by a branch on an individual basis in the case of a bank, Co- operative bank or a public company engaged in long- term housing finance. It is now provided that the TDS provisions u/s. 194a with reference to interest credited or paid by such entities as a whole will apply if the entity has adopted core banking solutions. in other words, in such cases, total interest paid or payable by all branches will have to be considered for determining the threshold limit of exemption.

(iv)    Interest paid on compensation amount awarded by the motor accident Claim tribunal (MACT) shall now be liable to TDS u/s. 194a only at the time of payment of interest, if the aggregate amount of such payment during the financial year exceeds Rs. 50,000/-. Hence, as per the amended provision, there will be no withholding of tax at the time when such interest is credited.

3.4    Section  194C:   This  section  is  amended  from 1.6.2015. at present, payment to a transporter carrying on the business of plying, hiring, or leasing of goods carriages is not subject to TDS u/s. 194C if the transporter furnishes his Pan to the payer. Now, this exemption will be available only to such transporterwho owns ten or less goods carriages at any time during the previous year and also furnishes a declaration to that effect to the payer along with his Pan.

3.5    Section  194-I:   This  section  is  amended  from 1.6.2015. It is now provided that tax will not be deducted u/s. 194-I from rent paid or payable to a Business trust (real  estate  investment  trust)  in  respect  of  any  real estate asset as referred to in section 10(23fCa) owned directly by such business trust.

3.6    Section 194 LBA: This section is amended from 1.6.2015. Section 194LBA was inserted by the finance (no.2) act, 2014, w.e.f. 1.10.2014 to provide for deduction of tax @10% from income referred to in section 115ua (i.e.  interest  income  received  by  a  Business trust  from SPV)  distributed  to  a  resident  unit  holder.  in  the  case of  non-resident  unit  holder  the  rate  of  TDS  was  5% plus applicable Surcharge and education  Cess.  By an amendment of this section, the scope of this TDS provision is extended to income of Business trust from renting, leasing or letting out any real estate asset owned by it distributed to its unit holder. it is now provided that, in the case of a resident unit holder the rate of TDS will be 10% and in the case of a non-resident unit holder,  tax will be deductible at the applicable rate if the distribution of income is from income referred to in section 10 (23FCA) i.e., rental from the real estate asset.

3.7    Section 194 LBB: This is a new section inserted from1.6.2015. this section provides for deduction of tax @10% from income distributed to persons holding units issued by “investment fund” (refer section 115 uB) out of income other than that referred to in section 10(23fBB) (i.e. income of investment fund  other than income from business or profession).

3.8    Section  194  LD: This  section  was  inserted  by the finance act, 2013, w.e.f. 1.6.2013. under this section, tax is required to be deducted at concessional rate of 5% from interest payable to foreign institutional investors or Qualified Foreign Investors on Government Securities or rupees denominated Bonds of any indian Company. This concessional rate was applicable on interest payable during  the  period  1.6.2013  to  1.6.2015.  this  will  now continue in respect of interest payable till 1.7.2017.

3.9    Section  195:    This  section  is  amended  from 1.6.2015. Section 195(1) requires any person responsible for paying to a non-resident any interest or other sum chargeable under the provisions of this act  to  deduct tax from such payment. At  present,  such  person  has to furnish the information relating to payment of any sum in form 15Ca. now, section 195(6) is amended to provide for furnishing of information, whether or not such remittances are chargeable to tax, in such form as may be  prescribed.  this  will  cast  an  onerous  obligation  on payers. Section 271-I has been introduced to provide for a penalty of Rs.1,00,000/-, if the person required to furnish information under this section fails to furnish such information or furnishes inaccurate particulars. this is a new provision for levy of penalty.

3.10    Section   197A:      This   section   is   amended from1.6.2015 to provide as under:

(i)    Section 194da provides for deduction of tax at source at the rate of 2% from payments made under life insurance policy, which is chargeable to tax if the amount is rs. 1,00,000/- or more. it is now provided that tax shall not be deducted, if  the recipient of the payment on which tax is deductible furnishes to the payer a self-declaration in the prescribed form no.15G/15h declaring that the tax on his estimated total income for the relevant previous year would be nil.

(ii)    Similarly, as stated in Para 3.2 above, it is now provided that tax shall not be deducted u/s. 192a if a salaried employee withdrawing the accumulated balance from P.f. a/c gives a self-declaration in form no.15G/15h.

3.11    Section   203A:       This   section   is   amended from1.6.2015 to provide that the requirement of obtaining and quoting of TAN shall not apply to the persons as notified by the Central Government. This is in order to reduce the compliance burden for those individuals or huf who are not liable for audit u/s. 44aB or for one time transaction such as single transaction of acquisition of immovable property by an individual or huf, on which tax is deductible.

4.    Exemptions and Deductions:

In order to give certain benefits to middle class taxpayers and with a view to encourage savings and to promote health care among individual taxpayers, the following amendments are made in various sections of the income -tax act.

4.1    Section 80C: at present, section 80C (2) (vill) of the income-tax act provides that any subscription to   a scheme notified by the Central Government will be eligible for deduction in the case of an individual or huf. By Notification No.9/2015 dated 21-1-2015, a scheme for the welfare of the girl child under the SukanyaSarmiddhi Account Rules, 2014, has been notified. In view of this, amendment is made in section 80Cfrom1-4-2015. under this amendment any deposit by any individual, in the name of girl child of that individual or by legal guardian of the girl child as specified in the scheme will be eligible for deduction u/s. 80C within the overall limit of Rs.1.50 lakh as provided in that section. an amendment is also made to provide u/s. 10(11A) to grant exemption to the individual in respect of interest on the deposit under the above scheme or for the amount withdrawn from such deposit. Since this amendment comes into effect from
a.y. 2015 – 16 any such deposit made on or before 31-3- 2015 will be eligible for this deduction.

4.2    Section  80CCC:     This  section  provides  for deduction in the case of an individual in respect of contribution to any annuity Plan of LiC or any other insurer for receiving pension from the fund set up under a  pension  scheme  upto  Rs.1  lakh.    this  limit  is  now raised to Rs. 1.50 lakh froma.y. 2016-17. it may be noted that u/s. 80CCe an overall cap of Rs. 1.50 lakh for such deduction is provided for contribution u/s. 80C, 80CCC and 80CCd(1).  There is no amendment to raise this limit.

4.3    Section   80CCD:  this   section   provides   that an individual contributing to national Pension Scheme (NPS) can claim deduction upto 10% of salary, in the case of an employee or 10% of the gross total income in other cases subject to a cap of Rs.1 lakh u/s. 80CCD(1A). However, this deduction is subject to overall ceiling limit  of  Rs.1.50  lakh  u/s.  80CCe.    it  is  now  provided from A.Y. 2016-17 that the cap of Rs.1 lakh u/s. 80CCD(1A) be removed.

With a view to encourage individuals to contribute towards NPS, it is now provided, by insertion of section 80CCD(1B), that an additional deduction upto Rs.50,000/- will be allowed if the individual contributes to NPS.  this deduction will be allowed even if it exceeds 10% limit in respect of salary income (for employees) or gross total income  (for  others).  Further,  this  deduction  will  be  over and  above  the  ceiling  limit  of  Rs.1.50  lakh  provided u/s. 80CCe relating to deduction u/s. 80C, 80CCC and 80CCD(1). therefore, with proper planning of investments in PF, PPF, LIP, savings certificates etc. (section 80C), annuity Plan of LIC or other insurers (section 80CCC) and contribution to NPS (section 80CCD) an assessee can claim deduction upto Rs.2 lakh under these sections.

4.4    Section 80D: this section provides for deduction for premium paid for mediclaim policies for self, family members and Parents of the individual. Similarly, similar deduction for premium paid by huf for mediclaim polices of members of huf is allowed. the present limits for such deduction is Rs.15,000/- and for Senior Citizens it is Rs. 20,000/-.  these  limits  are  now  raised  from   A.Y.  2016- 17and a further provision is made for deduction of actual medical expenses under certain circumstances.  the new provisions are as under.

(i)    In view of continuous rise in the cost of medical expenditure, the limit of deduction is raised from Rs.15,000/-  to  Rs.  25,000/-  in  case  of  premium  for mediclaim policy for individual and his family members. Similarly, in the case of huf such deduction for premium on mediclaim policies for members of huf is also raised from Rs.15,000/- to Rs. 25,000/-. In the case of a Senior Citizen the deduction for premium on mediclaim policies is raised from Rs.20,000/- to Rs. 30,000/-.

(ii)    In the case of very Senior Citizens (i.e 80 years and above), it may not be possible to get a mediclaim policy and they cannot get benefit of the above deduction. therefore, as a welfare measure, it is now provided that deduction upto Rs.30,000/-   will be allowed for medical expenditure in respect of very senior citizens if no mediclaim policy is taken out.  The aggregate expenditure available for deduction in the case of an individual/huf  for premium on mediclaim policy and expenditure on medical expenditure for parent or family member who is a very senior citizen shall not exceed Rs. 30,000/-.

4.5    Section   80   DDB:This   section   provides   for deduction   for   expenditure   incurred   by   a   resident individual or huf for medical treatment of certain chronic and protracted diseases. It is provided that the expenditure in the case of individual should be in respect of medical treatment of himself or his dependant relative and in the case of huf it should for any member of HUF.   The  medical  treatment  should  be  for  a  disease specified in Rule 11DD and should be supported by a certificate from an authorised Doctor in a Govt. Hospital. at  present,  the  deduction  allowable  is  upto  Rs.  60,000 if the medical treatment is of a Senior Citizen and in other  cases  deduction  is  allowed  upto  Rs.  40,000/-. In view of the difficulties experienced in obtaining certificate from a specialised doctor in a Govt. Hospital, the section is now amended to provide that the assessee should obtain prescription from a specialized doctor as  may  be  prescribed.  further,  in  the  case  of  medical treatment of a very senior citizen the ceiling for deduction of   expenditure   is   now   raised   from   Rs.   60,000/-   to Rs. 80,000/- from A.Y. 2016-17.

4.6    Section  80DD:  This  section  provides  that  a resident individual or huf can claim deduction for (i) expenditure for medical treatment (including nursing), training and rehabilitation of a dependant relative suffering from specified disability or (ii) any amount paid to LIC or other insurer in respect of a scheme for the maintenance of a disabled dependant relative. At present, this deduction can be claimed upto Rs.50,000/- in the case of medical treatment for specified disability and upto rs.1 lakh in the case of medical treatment for severe disability as defined in the section. In view of rising costs of medical treatment, these limits have been raised, by amendment of this section, from A.Y. 2016-17 from Rs.50,000/- to Rs.75,000/- (for disability) and from Rs.1 lakh to Rs.1,25,000/- (for Severe disability).

4.7    Section 80U: this section provides for deduction of Rs.50,000/- in the case of a resident individual suffering from a specified Disability. If such individual is suffering from specified Severe Disability deduction of Rs.1 lakh is allowed. in view of rising costs of special needs of disabled persons, these limits are now raised from A.Y. 2016-17 from Rs. 50,000/- to Rs.75,000/- (for disability) and from Rs.1 lakh to Rs.1,25,000/- (for Severe disability).

4.8    Section 80G: this section provides for deduction of amounts contributed by way of donations to various institutions  set  up  for  charitable  purposes.  this  section has been amended as under:-
(i)    Two   funds,   namely,   “Swachh   Bharat   Kosh”   and “Clean  Ganga  fund”  have  been  established  by  the Central Government. With a view to encourage people to participate in this national effort, section 80G is amended from A.Y. 2015-16 to provide that deduction of 100% of the donation to any of these funds will be allowed. Since this amendment has been made from A.Y. 2015-16,  such donation made upto 31-3-2015 will be eligible for deduction under the amended section. it may be noted that such donation made by a company in pursuance of Corporate  Social  responsibility  (CSR)  expenditure  u/s. 135(5) of the Companies act, 2013, will not qualify for this deduction. it may be noted that section 10(23C) has been amended from A.Y. 2015-16 to provide that income of “Swachh Bharat Kosh” and “Clean Ganga fund” will be exempt from income tax.

(ii)    By another amendment to section 80G from a.y. 2016- 17  donation  made  to  “the  national  fund  for  control  of drug abuse” will now be eligible to 100% deduction.

4.9    Section 80 JJAA: This section is amended from A.Y. 2016-17. this section allows deduction to an indian Company deriving profit from manufacturing of goods in a factory. This benefit is now extended to non-corporate assessees  also.  The  quantum  of  deduction  allowed  is equal to 30% of additional wages paid to new regular workmen employed by the assessee in such factory in the previous year. this deduction can be claimed for 3 assessment years. At present, additional wages for this purpose has been defined to mean wages paid to new regular  workmen  in  excess  of  100  workmen.  This  limit is now reduced to 50. It is also clarified that the above benefit will not be granted where factory is acquired by way of transfer from any other person or as a result of any business reorganisation.

5.    Investment Fund:
a  new  Chapter XII – FB has been added in the income tax act from A.Y. 2016-17. Special provisions relating to  tax  on  income  of  “investment  funds”  and  income received from such funds are made in sections 115 UB, 10 (23 FBA) and 10 (23FFB) of the act.   In brief, these provisions are as under:

5.1    “Investment fund” means any fund established or incorporated in india in the form of a trust, Company, LLP or a body corporate which has been granted certificate of registration as a Category I or a Category II alternate investment fund (AIF) and is regulated under SEBI (AIF) regulations, 2012.

5.2    In order to rationalise the taxation of Category –i and Category-ii AIFS (i.e. investment funds) section 115uB  provides  for  a  special  tax  regime.  The  taxation of income of such investment funds and their investors shall be in accordance with the provisions applicable to such funds irrespective of whether they are set up as a trust, company, or LLP etc. the salient features of these provisions are as under:

(i)    Income of a person, being a unit holder of an investment fund, out of investments made by the investment fund shall be chargeable to income-tax in the same manner as if it was the income accruing or arising to, or received by, such unit holder.

(ii)    Income in the hands of investment fund, other than income from profits and gains of business, shall be exempt from tax. The income in the nature of profits and gains of business or profession shall be taxable in the case of investment fund.

(iii)    Income in the hands of investor which is of the same nature as income by way of profits and gain of business at investment fund level shall be exempt.

(iv)    Where any income, other than income which is taxable at investment fund level, is payable to a unit holder by an investment fund, the fund shall deduct income-tax at the rate of 10%.

(v)    The income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as if it had been received by, or had accrued or arisen to, the investment fund.

(vi)    If in any year there is a loss at the fund level either current loss or the loss which remained to be set off, the loss shall not be allowed to be passed through to the investors but would be carried over at fund level to be set off against income of the next year in accordance with the provisions of Chapter Vi of the income-tax act.

(vii)    The provisions of Chapter Xii-d (dividend distribution tax) or Chapter Xii-e (tax on distributed income) shall not apply to the income paid by an investment fund to its unit holders.

(viii)    The income received by the investment fund would be exempt from TDS requirement. this would be provided by issue of appropriate notification u/s. 197A(1F) of the act subsequently.

(ix)    It shall be mandatory for the investment fund to file its return of income.  The investment fund shall also provide to the prescribed income-tax authority and the investors, the details of various components of income, etc. for the purposes of the scheme.

6.    Business Trusts:

6.1    This  was  a  new  concept  introduced  by  the finance (no.2) act, 2014 w.e.f. A.Y. 2015-16.  new chapter XII FA (Section 115 UA) was inserted in the income-tax Act, w.e.f. 1.10.2014. The definition of the term “Business trust”  is  now  amended  in  section  2(13a)  from  a.y. 2016-17 to mean a trust registered as an “infrastructure investment trust” (inVitS) or a real estate investment trust” (reit), under the relevant SeBi regulations, the units of which are required to be listed on a recognised Stock exchange, in accordance with the SeBi regulations. in brief, at present the following is the taxation position of the trust.

Out any real estate asset owned directly by the reit, by granting exemption to the reit u/s. 10(23fCa) and taxing such income in the hands of the unit holder, by amending section 115ua(3) to provide that the distributed income, of the nature referred to in section 10(23fCa), received by a unit holder during the previous year shall be deemed to be the income of the unit holder and shall be charged to tax as his income of the previous year. Consequential amendments have been made in relation to tdS provisions in sections 1941 and 194LBa, which are effective from 1st june, 2015.

6.5    In view of the above amendments from A.Y. 2016- 17, the taxation structure of reit and its unit holders shall be as under:

(i)    Any income of reit by way of renting or leasing or letting out any real estate asset owned directly by such business trust shall be exempt;

(ii)    The distributed income or any part thereof, received by a unit holder from the reit, which is in the nature of income by way of renting or leasing or letting out any real estate asset owned directly by such reit, shall be deemed to be income of such unit holder and shall be charged to tax.
 
6.2    Section 47(xvii) Currently provides that the
 
(iii)    The reit shall effect tdS on rental income allowed to be passed through. in case of resident unit holder, tax shall be deducted @ 10%, and in case of distribution
 
Transfer of shares of a Special Purpose Vehicle (SPV) to a Business trust by a share holder (Sponsor) in exchange of units allotted by the trust to the share holder is not considered as a transfer for the purpose of capital gains in the hands of the share holder. Section 10(38) has now been amended to provide that the long term capital gain from transfer or such units will be exempt. Section 111a has also been amended to provide that short term capital gains arising on transfer of such units of a Business trust shall be charged to tax at the rate of fifteen per cent.

6.3    Therefore,   units   received   by   a   ‘Sponsor’  in exchange of shares of a SPV, are now at par with other units of a Business trust.  further, Stt is now chargeable on sale of unlisted units of a Business trust under an offer for Sale. therefore, Sale of such unit in an offer for sale will qualify for exemption u/s. 10(38) and the concessional rate of tax in respect of short term capital gains u/s. 111A.

6.4    reit has been granted pass through status also in respect of income by way of renting or leasing or letting
to non-resident unit holder, the tax shall be deducted at applicable rate.

(iv)    No deduction of tax at source shall be made u/s. 194- 1 of the act, where the income by way of rent is credited or paid to such business trust, in respect of any real estate asset held directly by such reit (Business trust)

7.    Charitable Trusts:

7.1    Section 2(15): The Definition of “charitable purpose” in the section has been amended from A/Y:2016- 17 as under:-

(i)    “yoga” is now recognised as a charitable purpose. hence any charitable trust for promotion of “yoga” can now claim exemption u/s. 11 to 13 of the income tax act.

(ii)    Under the existing provisions of section 2(15) if a charitable trust having “any other object of general public utility”, carries on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to the above for a consideration, will lose the exemption u/s. 11 if the total receipts from such activities is more than Rs. 25 lakh. By amendment of this section, it is now provided that such a trust will not lose its exemption if:

(a)    Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

(b)    The aggregate receipts from such activities, during the previous year, do not exceed 20% of the total receipts of the trust.

(c)    This  amendment  will  create  a  fresh  round  of litigation for charitable trusts. the limit of 20% will affect small charitable instituitions adversely.

7.2    Section 11 provides that a charitable trust should apply at least 85% of its income for charitable or religious purposes. if it is not possible to do so, it can apply the balance  of  unspent  amount  in  the  next  year.  for  this purpose, the trust can write a simple letter to a.o. before the due date for filing the return u/s. 139(1). It is now provided from a/y: 2016-17 that the trust can exercise such option only by filing the prescribed from before the due date for filing the return of income.

7.3    Section 11 also provides that if a trust is not able to apply 85% of the income or any part of the same it can apply for accumulation of such unspent amount for 5 years. For this purpose the trustees have to file an accumulation application in Form No.10. No specific time limit is fixed in the Act. The Supreme Court in CIT vs. Nagpur Hotel Owners Association (247ITR201) held that Form 10 can be filed at any time before completion of the assessment. now, by amendment of section 11 from A.Y. :2016-17, it is provided that form no.10 should be filed before due date for filing Return u/s. 139(1). By amendment of section 13 it is also provided that if the return  of  income  as  well  application  in  form  10  is  not filed before the due date provided in section 139(1), the benefit of accumulation will not be available.

7.4    A university or educational institution, hospital or other Institution which is wholly or substantially financed by the Government and which is exempt u/s. 10(23C) (iiiab) or (iiiac) is not required to mandatorily file its return of income. By amendment of section 139(4C), it is now provided that these entities will have to mandatorily file return of income from A.Y. 2016-17.

7.5    Section 10(23C)(vi) and (via) provides that educational institutions or hospital specified in section 10(23C)(iiiab) to (iiiae) have to  obtain  approval  from the prescribed authority. If this approval is denied there  is at present no specific  remedy.  Section  253(1)  is now amended from 1.6.2015 to provided that appeal to ITA Tribunal can be filed against any order for denying such approval.

8.    Income from business or profession:

8.1    Income: The definition of “Income” in section 2(24) has now been widened by insertion of clause (xviii) in section 2(24) from A.Y 2016-17. Under this definition, any receipt from the central or state Government or any authority, body or agency in the form of any assistance in the form of subsidy, grant, cash incentive, duty drawback, waiver, concession or reimbursement in cash or kind will be considered as income. however, if any subsidy, grant etc is required to be deducted from the cost of any asset under explanation (10) to section 43(1), the same will not be considered as income.

From the wording of the above definition it will be seen that no distinction has been made between Government Grants which are of a capital nature and which are in the nature  of  revenue  grant.  The  Supreme  Court  and  the various high Courts have held that subsidy received from Government as an incentive to set up an industry is a capital subsidy not liable to tax. In the case of Sahney Steel & Press Works Ltd vs. CIT (2281TR 253), the Supreme Court has held that subsidy given to set up the business or to complete a project will be considered as a Capital receipt not liable to tax. In view of the above amendment assessees will have to enter into fresh litigation about taxability of subsidy received from the Government.

8.2    Additional Depreciation : at present, additional depreciation of 20% is allowed in respect of new plant and machinery (other than ships and aircraft) installed  by an assessee engaged in the business of manufacture or production or in the business of generation as well   as generation and distribution of power u/s. 32(1) (iia). There was no clarity about deduction in the event of Plant & machinery installed and put to use for less than 180 days. By amendment of section 32(1) from A.Y. 2016-17  it is now provided that in such a case 10% of additional depreciation will be allowed in the year if the new plant & machinery is used for less than 180 days and the balance of 10% will be allowed in the subsequent year.

8.3    Backward Area Incentive: a special incentive is given by way of additional depreciation at the rate of 35% (instead of 20%) in respect of new plant & machinery (other than ships and aircraft) acquired and installed during  the  period  1.4.2015  to  31.3.2020. this  incentive will be available to new plant & machinery installed in  the notified backward area of Andhra Pradesh, Bihar, telangana  and  West  Bengal.  in  this  case  also,  if  the new plant and machinery is used for less than 180 days, 17.5% additional depreciation will be allowed in the first year and balance 17.5% additional depreciation will be allowed in the next year.

8.4    Investment Allowance: A new section 32 ad has been inserted from a.y. 2016 – 17 providing for deduction of one time investment allowance in respect of newly established undertaking for  manufacture or production in the notified backward areas of Andhra Pradesh, Bihar, telangana  and  West  Bengal.  This  deduction  will  be  at 15% of the actual cost of the new asset (other than office equipments, vehicles etc.) acquired and installed in the new undertaking during the period 1.4.2015 to 31.3.2020. this deduction is allowable in the year of installation of new plant and machinery and isin addition to depreciation (including additional depreciation) allowable u/s. 32 and investment allowance allowable u/s. 32AC. It is also provided that if the above plant and machinery is sold or transferred within 5 years from the date of installation, otherwise than in connection with amalgamation, demerger or business  re-organisation  (section  47  (xiii), (xiii b), or (xiv), the amount of deduction allowed u/s. 32ad shall be taxable as income of the year of sale or transfer.

8.5    Section 35(2AB): under this section a company can claim deduction of 200% of the expenditure on scientific research by way of in house research and development facility.  For this purpose, the company has to comply with certain formalities. One of the requirements is to get the accounts maintained for this research facility audited. This requirement is now modified from A.Y. 2016-17 and its is provided that the company should fulfill such conditions with regard to maintenance of accounts and audit and furnishing the reports as may be prescribed by the rule.

8.6    Section 36:  this section is amended from A.Y. 2016-17 as under

(i)    Section 36(1) (iii) provides for deduction of interest paid on funds borrowed for the purposes of business.
It is provided in this section that  interest  paid  in  respect of amount borrowed for acquisition of asset for extension of existing business shall not be allowed. By amendment  of  this  section  the  words  “for  extension  of existing business or profession” have now been deleted. the  effect  of  this  amendment  is  that  interest  paid  for acquisition of any asset for the business or profession from the date of purchase to the date it is put to use,   will not be allowed. it appears that this amendment is made to bring this provision in line with income Computation and disclosure Standard (ICDS IX) relating to “Borrowing Costs”.

(ii)    Section 36(1) (vii) dealing with allowance of Bad debits is also amended to provide that an amount of any debt or part thereof is considered as income under any ICDS issued u/s. 145(2) without recording in the  books of accounts, it will be possible to claim deduction for such amount in the year in which such debt becomes irrecoverable.  thus,  if  the  a.o.  makes  any  addition  in the computation of income from business under ICDS IV  dealing  with  “revenue  recognition”  and  no  entry  is made in the books of accounts, deduction u/s. 36(1) (vii) can be claimed in any subsequent year when the debt representing such amount becomes irrecoverable.

(iii)    Section 36(1)(xvii):  this provision  added in section 36(1) provides for deduction  of  expenditure  incurred  by a co-operative society engaged in the business of manufacturing of sugar for purchase of sugarcane at a price which is equal to or less than the price approved by the Government.

9.    Income computation and disclosure standards (ICDS):

9.1    Section 145 of the income-tax act (act) dealing with “method of accounting” was amended by the finance act, 1995, effective from a.y. 1997- 98. the concept of Tax Accounting Standards was introduced for the first time by this amendment. this section has been amended by the finance (no.2) act, 2014, effective from 1.4.2015.  By this amendment, the concept of computation of income from “Business or Profession” and “income from other Sources” are required to be computed in accordance with “income Computation and disclosure Standards” (ICDS) notified by the Central Government. In brief, section 145 is divided into three parts as under.

(i)    Income under the heads “income from Business or Profession” and “income from other sources” shall be
    computed in accordance with either (a) cash or (b) mercantile system of accounting regularly adopted by the assessee.

(ii)    The  Central  Government  shall  notify  ICDS  to  be followed by the assessee for computation of income from the above two sources.

 
(iii)    The assessing officer (A.O) can make a best judgment assessment u/s. 144 of the act by estimating the income if the provisions of section 145 are not complied with by the assessee.

9.2    On 25.1.1996, the Central Government notified two accounting Standards viz. (i) disclosure of accounting Polices and (ii) disclosure of Prior period and extra ordinary items and Changes in accounting Policies”. these  standards  were  required  to  be  followed  by  the assessee while maintaining its books of account.   These two standards were more or less on the same lines as AS-1 and AS-5 issued by the institute of Chartered accountants of  india  (ICAI).  Thereafter,  for  about  two  decades,  no information and make the adjustments while computing the taxable income from these two sources. If the required information is not furnished by the assessee, the A.O. can make the best judgment assessment u/s. 144 of the Act.
 
Accounting Standards were notified u/s. 145(2) of the Act.

9.3    CBDT has now notified 10 Accounting Standards u/s.  145(2)  on  31/3/2015.  this  Standards  are  called “income Computation and disclosure Standards” (iCdS). The notification u/s. 145(2) states that ICDS will have   to be followed by the assessee following mercantile system of accounting for the purpose of computing income chargeable to tax under the head “Profits and Gains of Business or Profession” and “income from other sources”. This Notification comes into force with effect from 1/4/2015 i.e. a/y:2016-17 (f.y:2015-16).

9.4    The Ten ICDS notified u/s. 145(2) of the Act and the corresponding aS issued by iCai and ind – aS as notified under the companies Act, 2013, are as under:

9.5    It may be noted that ICDS issued u/s 145(2) of the act only provide that income from Business/Profession or income from other sources should be computed in accordance  with  the  standards  ICDS.  Therefore,  the assessee will have to maintain its accounts in accordance with applicable AS issued by ICAI or IND – AS notified under the Companies act. if there is any difference between the accounting results and the requirements of applicable ICDS, the assessee will have to make adjustments while computing its taxable income from the above two sources while filing its Return of Income. If this is not done, the a.o. can call upon the assessee to furnish the required information     and    make     the     adjustments     while     computing the taxable income from these two sources. if the required information is not furnished by the assessee, the a.o. can make    the    best    judgment    assessment    u/s.    144    of    the    Act.

9.7    In the preamble of all the ten ICDS it is stated that in case of conflict between the provisions of the income tax act and ICDS, the provisions of the act shall prevail to that extent.  To take an example, if a provision for any tax, duty, cess or fee etc. is made and the same is in accordance with any ICDS, deduction will not be allowable unless actual payment is made as provided in section 43B of the act. Similar will be the position where provisions of section 40(a)(i) or 40 (a)(ia) are applicable.

10.    Minimum Alternate Tax (MAT)

During the last over a year there has been an extensive debate  aboutcertain  provisions  of  section  115JB  which levies tax on Book Profits. By amendment of this Section from A.Y. 2016-17, the Government has tried to deal with some of the issues in brief, these amendments are as under.

(i)    Income  accruing  or  arising  to  a  foreign  Company from (i) Capital Gains arising on transactions in securities or  (ii)  interest.   royalty  or  fees  for  technical  Services chargeable at the concessional rates specified in Chapter Xii, after deduction of expenses relatable to such income (i.e. net income), shall not form part of Book Profits u/s. 115  jB.  this  provision  will  apply  if  the  tax  payable  on such net income is less than the tax payable at the rate specified u/s. 115JB

(ii)    Share of a company in the income of aoP or Boi on which tax is payable u/s. 86, after deduction of expenditure relatable to such income, shall not be included in the computation of Book Profit u/s. 115JB. This will benefit companies which have entered into joint venture and income of the j.V. is taxed as AOP.

(iii)    Notional Gain or notional loss on transfer of capital asset,  being  shares  in  SPV  to  a  Business  trust,    in exchange of units allotted by such trust, as referred to in section 47 (xvii), shall not be considered in the computation of Book Profits u/s. 115JB. Similarly, notional gain or  loss resulting from any change in carrying amount of the said units or gain or loss on transfer of units referred to in section 47(xvii) will be excluded from the computation of Book Profits u/s. 115JB. It may be noted that certain adjustments, as provided in the amended section for computation of cost of shares or units, have to be made in computing the notional gain or loss on such transfer  of shares or units.

11.    Capital Gains:

11.1    Sections 2(42a), 47 and 49 have been amended from  a.y.  2016–17.  The  amendments  in  the  sections provide that consolidation of two or more similar schemes of mutual  funds  under  the  process  of  consolidation  of schemes of mutual funds in accordance with SEBI (mutual funds) regulations, 1996 will not be treated as a transfer.  the consolidation should be of similar schemes i.e. two or more schemes of an equity oriented fund or two or more schemes of a non-equity oriented fund. Consequently, section 2 (42A) and section 49 relating to the period of holding and cost of acquisition, respectively, have been amended to provide that the cost of acquisition of the units of the consolidated scheme shall be the cost of the units in the consolidating scheme and the period of holding of the units of the consolidated scheme shall include the period for which the units in the consolidating scheme were held by the assessee.

11.2    The provisions of section 49 have been amended from A.Y. 2016-17 to provide that the cost of acquisition of a capital asset acquired by a resulting company in      a scheme of demerger shall be the cost for which the demerged company acquired the  asset  as  increased by the cost of improvement incurred by the demerged company. Consequently, the period of holding of the capital asset by the demerged company will be considered in the hands of the resulting company u/s. 2 (42a).

11.3    Section 49 has been amended from A.Y. 2016-
17 to provide that cost of acquisition of shares of a company  acquired  by  a  non-resident  on  redemption  of Global  depository  receipts  (GDR)  referred  to  in  section 115AC (1)(b) shall be the price of the shares quoted on the recognised Stock exchange on the date on which request for such redemption is made. A consequential amendment is made in section 2(42A) to provide that the period of holding of such shares shall be reckoned from the date on which such request for redemption of Gdr is made.

12.    Domestic Transfer Pricing:

At present, section 92BA can be invoked only if the aggregate of transactions, to which the provision applies exceeds  Rs.5 Crore.  this limit is now increased to Rs. 20 Crore from a.y. 2016-17.

13.    Deferment of applicability of general anti-avoidance rule (GAAR):

Sections 95 to 102 (chapter X-a) dealing with provisions of Gaar were to come into force from a.y. 2016-17 (i.e. accounting year 1-4-2015 to 31-3-2016 and onwards). in order to accelerate the momentum in investment (Para 109 of the speech of the finance minister) the applicability of Gaar has been postponed to a.y. 2018 – 19 (i.e from accounting year 1.4.2017 to 31.3.2018 and onwards).

14.    Measures to curb black money:

14.1    One of the broad themes adopted by the finance  minister  in  the  finance  Bill  was  to  curb  black money. Provisions of the income-tax act 1961, were felt to be inadequate as regards to achieve this objective. In the opinion of the finance minister it required stringent measures, which he summarised in in Paras 103 to 105 of his budget speech.

14.2    To achieve the above objective, the Parliament has    passed  the  Black  money“  undisclosed  foreign income and assets (imposition of tax) act, 2015”.   this act has come into force from 1.4.2015 (A.Y. 2016-17). Suitable amendments are also made in Prevention of   money-   laundering  act,   2002,   foreign   exchange management act, 1999 and other relevant acts. Since the said act is an independent legislation, the same is being mentioned in this article and not analysed.

15.    Furnishing of returns, assessment and reassessment:

15.1    Section 139 has been amended from a.y. 2016- 17  to  provide  that  a  resident  (other  than  notordinarily resident in india) who is not required to furnish his return as his income is below taxable limit or for any other reasons will now be required to file his return of income mandatorily before the due date. this amended provision will apply if the assessee –

(i)    Holds, as beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside india or has signing authority in any account loaded outside india, or,

(ii)    Is a beneficiary of any asset (including any financial interest in any entity) located outside india.

It is also provided that if the assessee is a beneficiary of any asset located out of India, will not be required to file return under the above provision if income from such asset is includible in the income of the person referred to in (i) above under the provisions of the act.

15.2    In section 139, it is now provided that every “Investment Fund” shall file its return of income from A.Y. 2016-17.

15.3    In the form of return of income, from a.y. 2016- 17, the assessee will be required to give details of assets
of prescribed nature and value held by him as a beneficial owner or otherwise or as a beneficiary. This will mean that details  of  assets  of  a  trust  in  which  the  assessee  is  a beneficiary will have to be disclosed.

15.4    Section 151 is amended to provide that notice u/s. 148 can be issued by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, only after the sanction of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. In any other case, where Assessing Officer is below the rank of the Joint Commissioner, sanction of joint Commissioner is required.

16.    Appeals and Revision:

16.1    A new procedure for non-filling an appeal by the Commissioner before the income tax appellate tribunal (itat)tribunal against the order of the CIT (a) for avoiding multiple litigation has been introduced from 1.6.2015 in section 158 aa.

This Procedure is as under:

(i)    If a question of law decided by the CIT (a) is in favour of the assessee and the identical question of law is pending before the Supreme Court either by way of an appeal or by way of a Special Leave Petition in case of the same assessee for any other year and the Commissioner receives an acceptance from the assessee that the question of law is identical to the one which is pending before the Apex Court, he need not file before ITAT.

(ii)    On receipt of the acceptance from the assessee, the Assessing Officer will apply to the ITAT stating that an appeal against the order of CIT (a) on a question of law may be filed within 60 days of receipt of the order of the Supreme Court.

(iii)    If no acceptance is received from the assessee, the Commissioner will proceed to file an appeal before the ITAT.

(iv)    If the order of the CIT(a) is not in conformity with Supreme Court order, the Commissioner will file an appeal against the CIT(a)’s order, within 60 days of receipt of Supreme Court order.

It may be noted that similar facility is already given to the assessee in section 158A.

16.2    As stated earlier any order rejecting the application for approval of an educational institution or hospital u/s. 10(23C) can be challenged in appeal before ita tribunal from 1/6/2015.

16.3    A single member bench of the itat can now dispose of any case where the income assessed by the Assessing Officer does not exceed Rs.15 lakh. Earlier this limit was Rs. 5 lakh.  this amendment in section 255 from 1/6/2015.

16.4    At present, the CIT is empowered to revise u/s. 263 the order passed by the Assessing Officer, if it is erroneous and prejudicial to the interest of the revenue. The section does not provide for the meaning of the words ‘erroneous and prejudicial to the interest of the revenue’. Explanation 2 is added in section 263(1) from 1.6.2015  to provide that an order passed by the Assessing Officer shall be deemed to be erroneous and prejudicial to the interest of revenue, if in the opinion of the CIT:-

(i)    The  order  is  passed  without  making  inquiries  or verification which should have been made;

(ii)    The order is passed allowing any relief without inquiring into the claim;

(iii)    The order has not been made in accordance with any order, direction or instruction issued by the Board u/s. 119; or

(iv)    The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

From  the  above  explanation,  it  will  be  noticed  that  very wide powers are given to CIT to revise the order passed by A.O. the extent of enquiry or verification is a very subjective matter.  thus,  any assessment order passed by the A.O. will not become final for 2 years during which it can be revised by CIT on any of the above grounds. CIT may try to revise the order of A.O if A.O is not able to reopen the assessment u/s. 147 on some technical or other ground.

17.    Settlement Commission:

Chapter XIX-A deals with settlement of cases. Several amendments have been made in some of the sections in this Chapter from 1.6.2015. Consequential changes have also been made in a few other sections. The important amendments are as under:
(i)    For   an   assessee   to   approach   the   Settlement Commission u/s. 245a, it was necessary that a notice u/s. 148 was received for every assessment year for which the application was to be made. this provision is amended to provide that where a notice u/s. 148 is issued for any assessment year, the assessee can approach the Settlement Commission for other assessment years even if notice u/s. 148 for such other assessment years has not been issued if return of income for such other assessment years has been furnished u/s. 139 of the act or in response to notice u/s. 142 of the act.

(ii)    In Section 245A(b), the explanation is amended to provide that a proceeding for assessment or reassessment referred to in clause (i) or clause (iii) or clause (iiia) for any assessment year shall be deemed to have commenced from the date on which a return of income is furnished u/s. 139 or in response to notice u/s. 142 and concluded on the date on which the assessment is made or on the expiry of two years from the end of relevant assessment year, in a case where no assessment is made.

(iii)    The provision for time limit for rectification of an order assed by the Settlement Commission has been revised.

(iv)    Section 245h is amended to provide that while granting immunity to the applicant from prosecution, the Settlement Commission must record its reasons in writing.

(v)    245K is amended to ensure that in respect of an individual who has made an application to the Settlement Commission u/s. 245C, any entity controlled by such person is also barred from making an application to the Settlement Commission. Hitherto, only the concerned person was prevented from making another application to the Settlement Commission. Now, entities controlled by such a person will also be prevented. The situations when an entity will be considered to be controlled by the applicant are provided in the explanation inserted after section 245K(2).

(vi)    Section 132B is amended to allow the assets seized from an assessee u/s. 132 or requisitioned u/s. 132a to be adjusted against the liability arising on an application made to the Settlement Commission u/s. 245C.

Sub-section (2A) is inserted in section 234B to levy interest on the shortfall, if any, that may arise in the advance tax on account of an application made u/s. 245C. The interest would be calculated from the 1st april of the assessment year and ending on the date of making the application. Similarly, interest would also be payable on the additional shortfall, if any, arising on the basis of an order passed u/s. 245d for the period from 1st day of april of the assessment year and ending on the date of the order.

18.    Taxation of non-residents:

18.1    Section 6 of the income-tax act has been amended from A.Y. 2015–16 to provide that in the case  of an individual who is a citizen of india and a member of a crew of a foreign bound ship leaving india, the period of stay in india shall be determined as prescribed in the rules.  The  earlier  explanation  (now  renumbered  as explanation 1 applied only to indian Ship.

18.2    Section 6 has been further amended from a.y. 2016-17. Under the existing provisions, a company is said to be resident in india in any previous year, if:

a)    It is an indian company; or

b)    During that year, the control and management of its affairs is situated wholly in india.

Therefore, currently, a foreign company which is partially or wholly controlled abroad is to be regarded as non- resident in india. now section 6, has introduced the concept of ‘Place of effective management’ (Poem), in substitution of the existing provisions of requiring the control and management of affairs to be situated wholly india. In view of the above, provisions of this section has been amended to provide that a company shall be said to be resident in india in any previous year, if;

a)    It is an indian company; or

b)    Its place of effective management, in that year, is in india. (it may be noted that in the finance Bill, 2015, the proposal was to provide that the company will be resident in india if Poem is “at any time” in that year is in india.  the words “at any time” in india have been dropped while passing the finance act.)

Further, POEM has been defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance,  made.  this is a far reaching amendment as a number of indian Companies have foreign subsidiaries and what would be considered as POEM in such cases will be a subject matter of litigation. if any foreign company becomes resident in india, it will have to comply with the various provisions of the income-tax Act such as filing return of income, getting accounts audited u/s. 44aB, complying with tdS provisions etc.

18.3    Explanation 5 to section 9(1) provides that an asset being any share or interest in a foreign company or entity shall be deemed to have been situated in india if it derives, directly or indirectly, its value substantially from assets located in india.  The word “substantially”   in the explanation was not defined. In order to clarify the position, new explanation (6) is added from A.Y. 2016-17 to provide as under

(i)    If the value of assets (tangible on intangible) situated in india exceeds Rs.10 crore and represents at least 50% of the value of total assets of the foreign company as on valuation date (without deduction of any liabilities) it will be deemed that the interest in the foreign company is substantially from assets in india.

(ii)    the  valuation  date  shall  be  the  last  day  of  the accounting period preceding the date of transfer or the date of transfer in case the book value of assets on the date of transfer exceeds book value as on the last day of the accounting period by 15%.

(iii)    The taxation of gains arising on transfer of share or interest deriving directly or indirectly its value substantially from assets located in india will be on proportional basis and the method for determination of such proportion shall be  provided  in  the  rules. To  avoid  hardship  in  genuine cases, exemption is available in certain transfers subject to fulfillment of prescribed conditions.

Moreover, to keep a track of such offshore transactions, an obligation has been cast on the indian concern to furnish information in respect of off-shore transactions resulting into modification of its control or ownership structure. any non-compliance in this regards by the india concern would attract penalty of Rs.5 lakhs or 2% of transaction value, as the case may be.

18.4    At  present,  income  arising  to  foreign  Portfolio investors   (‘FPIS’)   from   transactions   in   securities   is treated as capital gains. however, the provisions of the act did notadequately address the apprehension of fund managers, resulting in a large number of offshore funds choosing to locate their investment managers outside india. therefore, new section 9a is inserted in the income tax act from A.Y.2016-17 for providing clarity on issues relating to business connection/permanent establishment and residential status of offshore funds. in order to facilitate location of fund managers of off-shore funds in India, this section now provides that, subject to fulfillment of certain conditions by the fund and the fund manager:

(i)    The tax liability in respect of income arising to the fund from investment in india would be neutral to the fact as to whether the investment is made directly by the fund or through engagement of fund manager located in india;

(ii)    Income of the fund from the investments outside india would not be taxable in india solely on the basis that the   fund   management   activity   in   respect   of   such investments have been undertaken through a fund manager located in india;

(iii)    In the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in india of the said fund;

(iv)    An eligible investment fund shall not be said to be resident in india merely because the eligible fund manager undertaking fund management activities on its behalf is located in India, subject to certain conditions.

(v)    The term “Eligible Investment Fund” is defined in section  9a(3)  and  the  term  “eligible  fund  manager”  is defined in section 9A(4).

Further,  every  eligible  investment  fund  shall,  in  respect of its activities in financial year, furnish within ninety days from the end of the financial year, a statement in the prescribed form to the prescribed income-tax authority containing information relating to the fulfillment of the conditions or any information or document which may be prescribed. In case of non-furnishing of the prescribed information  or  document  or  statement,  penalty  of  Rs.5 lakh shall be leviable on the fund.

18.5    Under the provisions of Securities Contracts (regulation) (Stock exchanges and Clearing Corporations) Regulations, 2012 (SECC) notified by SEBI, the Clearing Corporations are mandated to establish a fund, called Core  Settlement  Guarantee  fund  (Core  SGF)  for  each segment of each recognised stock exchange to guarantee the settlement of trades executed in respective segments of the exchange. under the existing provisions, income by way of contributions to the investor Protection fund set up by recognised stock exchanges in india, or by commodity exchanges in india or by a depository is exempt from taxation.  on  similar  lines,  the  income  of  the  Core  SGF arising from contribution received and investment made by the fund and from the penalties imposed by the Clearing Corporation subject to similar conditions as provided  in  case  of  investor  Protection  fund  set  up  by a recognised stock exchange or a commodity exchange or a depository will now be exempt u/s. 10(23ee) from A.Y. 2016-17.

However, where any amount standing to the credit of the fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified persons, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is shared.

The specified person for this purpose is defined to mean any recognised clearing corporation which establishes and maintains the Core Settlement Guarantee fund and the recognised stock exchange being the shareholder of such clearing corporation.

18.6    The  CBDT,  in  its  Circular  no.740  dated  17/4/1996 had clarified that branch of a foreign company in India is a separate entity for the purpose of taxation under the act and accordingly tdS provisions would apply along with separate taxation of interest paid to head office or other branches of the non-resident, which would be chargeable to tax in india.

Considering that there are several disputes on the issue which are pending and likely to arise in future, section 9 is amended form a.y. 2016-17 to provide that, in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in india of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside india shall be deemed to accrue or arise in india and shall be chargeable to tax   in addition to any income attributable to the permanent establishment in india and the permanent establishment in india shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the act relating to computation of total income, determination of tax and collection and recovery would apply. Accordingly, the PE in india shall be obligated to deduct tax at source on any interest payable to either the head office or any other branch or PE, etc. of the non-resident outside india. Further,  non-deduction  would  result  in  disallowance  of interest claimed as expenditure by the PE and may also attract levy of interest and penalty in accordance with relevant provisions of the act.

18.7    Section 115a (1)(b) has been amended from a.y. 2016-17  to  provide  that  the  rate  of  tax  on  royalty  or fees for technical Services received by a non-resident or a foreign Company shall now be 10% instead of 25%.

19.    Restrictions    about    Appointment Tax Auditors:

19.1    Assessees are, under various  provisions  of  the act, required to obtain and/or furnish  the  reports and certificates from an ‘accountant’. At present, the term “accountant” is defined in theExplanation below section 288(2) to mean a chartered accountant within the meaning of the Chartered accountants act, 1949. From 1.6.2015 this definition has been amended. The amended definition defines the term ‘accountant’ to mean a chartered accountant as defined in section 2(1)(b) of the Chartered accountants act, 1949 who holds a valid certificate of practice u/s. 6(1) of that Act. The definition specifically excludes the following chartered Accountants for purposes of Tax Audit and certification.

(1)    Where the assessee is a company – any person who is not eligible for appointment as an auditor of the said company in accordance with the provisions of section 141(3) of the Companies act, 2013;
(2)    Where the assessee is a person other than a company –

(i)    Where the assessee is an individual, firm or association of persons or hindu undivided family – the assessee himself or any partner of the firm, or member of the association or the family;
(ii)    Where the assessee is a trust or institution, any person referred to in clauses (a), (b), (c) and (cc) of section 13(3) of the act;

(iii)    Where the assessee is any person other  than  those referred to in (i) and (ii) above any person who is competent to verify the return u/s. 139 in accordance with the provisions of section 140;

(iv)    Any relative of any of the persons referred to in (i), (ii) and (iii) above;

(v)    An officer or employee of the assessee;

(vi)    An individual who is a partner, or who is in employment of an officer or employee of the assessee;

(vii)    An individual who himself or his relative or his partner

(a)    Is holding any security of or interest in, the assessee;

however, the relative may hold security or interest in the assessee of the face value up to Rs. 1,00,000/-.
(b)    Is indebted to the assessee;

however, the relative may be indebted to the assessee for an amount upto Rs.1,00,000/-.

(c)    Has given a guarantee or provided any security in connection with the indebtedness of any third party to the assessee;

However, the relative may give guarantee or provide any security in connection with the indebtedness of any third person to the assessee for an amount up to Rs.1,00,000/.

(viii)    Any person who, whether directly or indirectly, has business relationship with the assessee of such nature as may be prescribed;

(ix)    A person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction.

19.2    For this purpose, the term ‘relative’ in relation to an individual  is defined to mean (a) spouse of the individual;
(b) Brother or sister of the individual; (c) brother or sister of the spouse of the individual; (d) any lineal ascendant or descendant of the individual; (e) any lineal ascendant or descendant of the spouse of the individual; (f) spouse of the person referred to in clause (b), (c), (d) or (e) above; or
(g) Any lineal ascendant or descendant of a brother or sister of either the individual or of the spouse of the individual.

19.3    The above disqualification will apply only to professional assignment as tax auditor or assignment for Certification of financial statements for tax purposes. It may be noted that disqualification noted in Para 19.1 (2) above is on similar lines as provided in Section 141(3) of the Companies act, 2013. As the amended provisions come into force from 1.6.2015, many non-corporate assessees will have to change their tax auditors for auditing the accounts for the accounting year 2014-15 if the existing tax auditor is to be considered as disqualified under amended explanation as stated in Para 19.1 (2) above. It may be noted that the above disqualification does not apply to representation by a Chartered accountant before tax authorities.

19.4    Sub-section (4) of section 288 has been amended to provide that a person who has become insolvent or has been convicted by a court for an offence involving fraud, shall be disqualified to represent an assessee for a period of ten years from the date of conviction.

20.    Penalties :

20.1    Section 271: (i) under the  existing  provisions of this section penalty for concealment of income or furnishing inaccurate particulars of income is levied on the “amount of tax sought to be evaded”, which has been defined, inter alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income.

(ii)    There was no clarity on the computation of amount of tax sought to be evaded, where the concealment of income or furnishing inaccurate particulars of income occurred in the computation of income under the other provisions whereas the book profits u/s. 115JB remained unchanged.  further, in the case of CIT vs.  Nalwa Sons Investments Ltd. [327 ITR 543 (Del)], it was held that penalty u/s. 271(1)(c) cannot be levied in cases where the concealment of income occurred under the income computed under general provisions but the tax was paid under  the    provisions  of  sections  115JB,  where  there was no addition to the Book Profit. The SLP against the judgment of the Delhi High Court was dismissed by the Supreme Court.

(iii)    In order to deal with such cases, it is now provided from A.Y. 2016-17 that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to  be  evaded  under  the    provisions  of  section  115JB. However, if an addition on any issue is considered both under the general provisions and also u/s. 115JB, then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC.  Further, in a case where the provisions of section 115 JB are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB shall be ignored.

20.2    Sections 269SS/269T and 271D / 271E:
(i)    Sections  269SS  and  269t,    at  present,  prohibit acceptance  of  loan  or  deposit  in  excess  of  Rs.20,000/- by any person or repayment of loan or deposit in excess of Rs.20,000/- by any person in cash. The scope of both these sections has been enlarged by amendments in these sections from 1.6.2015. This amendment in section 269SS extends its scope to specified items. In brief, this section will also apply to any sum of money received or receivable as advance or otherwise in relation to an immovable property, whether or not the transfer takes place.   Similar   amendment   in   section   269T  prohibits repayment of advance in relation to transfer of an immovable property, whether or not the transfer takes place. With these amendments, any advance given or repaid in cash, where such advance exceeds Rs. 20,000/- in immovable property transactions will contravene the provisions of  Section 269SS or 269T.

(ii)    Section 271D and 271E levying penalty of a sum equivalent to the amount received or paid in cash in contravention     of     269SS  and  269T has  now  been extended to the above transactions relating to immovable properties from 1.6.2015.

20.3    Section 271 FAB: under new section 9A(5), an eligible investment fund is required to furnish a statement, information or document within the prescribed time. if this is not furnished, this new section inserted from A.Y. 2016- 17 provides for levy ofpenalty of Rs.5,00,000/-

20.4    Section 271 GA: new Section 285A provides for furnishing information/document by an indian Concern. if this is not done in accordance with the prescribed rules, penalty @ 2% of the value of the transaction as specified in the section can be levied under this new section from A.Y. 2016-17. in any other case of default u/s. 285 A, penalty of Rs.5,00,000/- can be levied.

20.5    Section   271   –   I   :   This   is   a   new   section inserted from 1.6.2015. It provides for levy of penalty of Rs.1,00,000/- if the information required u/s. 195 (6) is not furnished or inaccurate information is furnished.

20.6    Section  272A:   this  section  is  amended  from 1.6.2015. under the existing provisions, Government deductors/collectors are allowed to pay TDS / TCS through book  entry.    rules  30  and  rule  37CA  of  the  income- tax Rules required the Paying Officer to furnish Form 24G detailing the deduction / collection and adjustment. There are no penal consequences for non-furnishing of the said information.

With a view to enforce compliance for reporting of payment through book entry of TDS/TCS, sections 200 (2a) and section 206(3a) are inserted requiring furnishing of the prescribed information for TDS / TCS by the Government dedicators / collectors concerned. Section 272a has been suitably amended to extend levy of penalty of Rs. 100/- for every day of delay in filing the requisite statement under section 200(2a) and 206(3a) in respect of tdS / tCS which shall not exceed the amount of tax.

21.    Other Provisions

21.1    Interest payable u/s. 234B: in case of increase in the assessed income on reassessment u/s. 147 or 153A, currently interest u/s. 234B is chargeable from the date of the regular assessment up to the date of reassessment. Section 234B has now been amended from 1/6/2015to provide that such interest would be chargeable from 1st april of the relevant assessment year up to the date of reassessment on the additional tax liability.

21.2    Section  285A:  this  is  a  new  section  inserted from a.y. 2016-17. It is provided in this section that where any share of or interest in a foreign company or entity, derives directly or indirectly, its value substantially from assets located  in india (refer section 9(1)(i) explanation 5, the indian concern owning such assets shall furnish such information as may be prescribed within the prescribed time limit.

21.3    Wealth Tax Act: Section 3 of the wealth – tax has been amended. it is provided there in that net Wealth shall not be changed to wealth-tax with effect from a.y. 2016-17. Thus, assessees will have to file return of wealth tax in respect of net Wealth as at 31.3.2015 and no such return will be required to be filed from next year.

22.    To sum up:

22.1    From the above discussion it is evident that the finance  minister  has  lived  upto  his  promise  made  last year that all major amendments in the Income tax Act will be only prospective. This year one major step taken for tax reforms relates to Goods and Service tax (GST).  The necessary legislation, as a first step, is passed in the Lok Sabha. It is expected to be cleared in the Rajya Sabha during  the  year.  Let  us  hope  that  GSt  is  implemented from 1/4/2016 as promised by the Government.

22.2    In the last year’s Budget Speech an assurance was given that direct tax Code Bill, 2010, which lapsed, will be revived after consultation with the stakeholders. It is surprising that in this year’s budget speech the finance minister has stated in Para 129 of his Speech that now there is no need for revival of dtC.

In view of this, we will have to live with the present income-tax act with so many sections, sub-sections, clauses, provisos, explanations etc. and many different interpretations leading to unending litigation.

22.3    Another  important  step  taken  by  the  finance minister is to address the burning issue about Black money. he has listed steps taken and proposed to be taken in Para 103 of his Budget Speech. in order to tackle the  issue  relating  to  Black  money  stacked  in  foreign Countries  Black  money  “undisclosed  foreign  income and  assets  (imposition  of  tax)  act,  2015”,  has  been passed. Harsh penalty and prosecution provisions are made in this legislation. if this act was made applicable to persons holding foreign assets exceeding rs.1 crore small assesses would not have been put to any hardship.

22.4    The  finance  minister  has  tried  to  show  some sympathy so far as personal taxation is concerned. he has also given some benefit to the salaried employees by increasing the exemption limit for the transport allowance from   Rs.800/-   per   month   to   Rs.1,600/-   per   month. However, if we consider the other procedural provisions of the income-tax act, very wide powers are given to assessing officers and commissioners. This will be evident from the amendments relating to taxation of charitable trusts where compliance cost to trusts  will  increase  and the responsibility of trustees, who generally render honorary service, will increase. further, amendments in section 263 will give wide powers to Commissioners to revise the orders of the assessing officers. Thus, cases in which the assessments cannot be reopened by the assessing officers will be reopened through this route. again, the finance minister, while abolishing the Wealth tax  act,  has  stated  that  to  track  the  wealth  held  by individuals and entities, information regarding the assets which are currently required to be furnished in wealth tax return will be captured in the income tax return. This will show that compliance cost of getting valuation of assets, which were subject to wealth tax, will not reduce. Further, this information will have to be given by firms, AOP, etc. who were outside the wealth tax provision. Let us hope that this requirement of disclosing assets in the income tax return is introduced only in cases where the value of such assets exceed the specified limit and is restricted to only those who were otherwise liable to the wealth tax. If this is not done, all taxpayers, whether small or big, will have to get valuation of assets done for disclosing in the income tax return.

22.5    The concept of minimum alternative tax (mat) was introduced for the first time by the Finance Act, 1987 effective from A/Y:1988-89.  The finance minister at that time explained that many Companies were not paying any tax or paying nominal tax but were showing large profits in the published accounts and paying dividend to shareholders. This was because they were availing of tax incentives and reducing taxable profits as compared to book profits. For this reason, tax on Book Profits (MAT) was introduced. It was always understood that these provisions   (sections   115J,   115JA  or   115JB)   applied to domestic Companies. In last couple of years, the tax  department  has  started  applying  mat  provisions  to foreign Companies (in particular FIIS) although they are not required to prepare accounts under the Companies act,   1956.   in   view   of   the   loud   protest   by   foreign Companies, the finance act has made only halfhearted attempt   to   amend   section   115JB   from  A/Y :2016-17. Earlier year’s issues, involving huge tax demands which are under litigation, are now being considered by an expert Committee.   The ideal way of handling the issue was  to  declare  that  section  115JB  does  not  apply  to foreign Companies which have no P.E. in india.

22.6    One disturbing feature relates to notification issued u/s. 145(2) requiring assesses carrying on business or profession or having income from other sources to comply with “income Computation and disclosure Standards” (iCdS) from A/Y:2016-17. Since accounts are required to be prepared according to Accounting Standards notified by the Government under the Companies and ICDS notified u/s. 145(2) are different in some important areas there will be lot of confusion while  computing  taxable  income.     This  will  lead  to unending litigation.

22.7    Another area of concern is about the provisions relating  to  disclosure  of  foreign  income  and  foreign assets  in  the  return  of  income. These  provisions  also apply  to  residents  who  have  no  taxable  income.   This new provision read with the new legislation Black money “undisclosed foreign income and assets (imposition of tax) act, 2015” which has come into force from A/Y:2016-17 will create lot of confusion and hardships. Some asessees who are not aware of these provisions will suffer harsh penalty and prosecution proceedings.

22.8    The   finance   minister   has   assured   that   the amendments made in the act will not put small assesses to any hardship. While concluding his speech he has stated as under:-

“To conclude, it is no secret that expectations of this Budget have been high. . In this speech, I think I have clearly outlined not only what we are going to do immediately, but also a roadmap for the future.

I think I can genuinely stake, for our Government, a claim of intellectual honesty. We have been consistent in what we have said, and what we are doing. We are committed, to achieving what we have been voted to power for: Change, growth, jobs and genuine, effective upliftment of the poor and the under-privileged. This will be in the spirit of the Upanishad-inspired mantra:

(OM! May All Be Happy, May All Be Free From Illness, May All See What is Beneficial, May No One Suffer)”

Let us hope, the present Government is able to achieve its goal and make our life happier.