Tax instance increased. Basic exemption limit for individual, HUF, association of persons, body of individuals have been increased to Rs.1,10,000/- thereby giving a relief of Rs.1000/-. There is no change in the slab rates. If the income exceeds 10 lakhs rupees, surcharge would be leviable at a rate of 10% of such income-tax. Additional surcharge called the “Education Cess on Income-tax” continues at the rate of 2% of income-tax and surcharge. An additional surcharge called the “Secondary and Higher Education Cess on Income-tax” at the rate of 1% of income-tax and surcharge would be charged in all cases to provide or finance Secondary and Higher Education. It is new levy.

Rate of tax on firms and companies remain as before. No surcharge shall be leviable if total income is 1 crore rupees or less. If the income exceeds Rs.l crore, surcharge shall be calculated at the rate of 10% in the case of firms and two and half per cent of such income tax in the case of companies. Education cess and secondary and higher education cess on income- tax at 2% and 1 % respectively would be levied. Fringe Benefit Tax and Surcharge shall be levied at the existing rates on tax on Fringe Benefits, irrespective of the amount of Fringe Benefits.

Banking cash transaction tax continues except that there shall be no liability on cash withdrawals by the Central and State Government and if the amount does not exceed Rs.50,000/-.

Tax on distributed profits by a domestic company has been increased from 12 and half per cent to 15%. Where the income is distributed by a money market mutual fund or a liquid fund, such fund shall be liable to pay additional income-tax on such distributed income at the rate of 25%. The existing rates of tax on income distributed by a fund other than a monetary market mutual fund or a liquid fund shall remain the same.
Minimum alternate tax continues. Income to which any of the provisions of sec. 10A or sec. 10B would be liable to MAT.

Archeological collections, drawings, painting, sculptures or any work of art, though a personal effect, will attract capital gains tax. Deduction on investment arising from the transfer of a long-term capital asset u/ s. 54EC will not exceed 50 lakhs rupees in a financial year. Deduction u/s.36(1)(xii) would be available only to such institutions which are approved after examining their objects and purpose. Provision of sec. 80lA shall not apply to a person who executes a work contract entered into with the undertaking or enterprise referred to in the said section.

Tax deduction and collection at source

Provisions relating to tax deduction and collection at source are easy to administer and collection is automatic with the payment. Over years; such provisions have been expanded, strengthened and made stringent. Many changes have been proposed.

Tax shall be deductible on interest on 8% Savings (Taxable) Bonds 2006 if interest payable on such bonds exceeds Rs. 10,000 against existing at Rs. 5,000. Scope of provisions of sec.194C( 1) have been expanded and made applicable to payments made by individuals and HUF carrying on business or profession if such entity is liable to be audited u/s.44AB of the Act. However, no deduction need be made in respect of payments made to a contractor exclusively for personal purposes. Rate of TDS u/s.194H on commission and brokerage has been increased to 10% against existing at 5%. However, said provisions would be inapplicable on payments of commission or brokerage payable by Bharat Sanchar Nigam Ltd. or Mahanagar Telephone Nigam Ltd. to their public call office franchisees. Rate of deduction of tax at source on rent for the use of any machinery or plant or equipment u/s.1941 has been reduced to 10%. Rate of TDS u/s.194J by way of fees for professional service or fees for technical services has been enhanced to 10% against existing rate of 5%. Definition of the expression “Mining and Quarrying” u/s.206C has been proposed to be amended so as to exclude mining and quarrying of mineral oil. All these amendments will take effect from 1st June, 2007. Non-deduction attracts tax, interest, penalty and prosecution. Hence, it is advisable to deduct rather than desist and indulge in long drawn litigation. More than 90% collection is on account of the provisions relating to tax deductions and collections at source, advance tax and self assessment tax. Additional revenue generated on assessment is less than 10%.

Assessment and Penalty Provisions

The definition of Assessing Officer under clause (7 A) to sec. 2 would include Additional Commissioner and Additional Director as the case may be. Fund or institutions established for charitable purposes seeking exemption under sub-clauses (iv) and (v) of clause (23C) of sec. 10 would be exempt, if approved by prescribed authority. The pending applications would stand transferred to the prescribed authority. However, no time limit for such approval either under the said sub-clauses or sub­clause (vi) have been provided. There lay innumerable instances where such applications remain unattended, un-responded and non-rejected in 3 to 5 years. Time limit should have been provided.

Section 10AA is being amended so as to the tax benefit being available only for new units in special economic zones. It has been stated that the special economic zones are intended to promote new industry and new investment and not to facilitate migration of existing industries, to avail of tax concessions.

Provisions of sec 40A(3) are being again substituted by a disallowance of whole of the expenditure against existing at 20%. However, expenditure if incurred in one year and the payment is made in any subsequent year in violation of the said provisions, disallowance shall be in the year of payment. The basic limit of Rs. 20,000/ - has not been increased despite of high inflation over years. The Board has been empowered to prescribe circumstances to mitigate difficulties having regard to (i) the nature and extent of banking facilities available, (ii) business expediency considerations and (iii) other relevant factors. More or less old provisions have been revived.
Power to condone delay for registration u/ s.12A has been withdrawn. Provisions of sections 11 and 12 shall not apply where an application for registration has not been made before the 1st day of June, 2007 unless the application is made on or after the 1st day of June, 2007 in the prescribed form and in the prescribed manner. Where an application has been made on or after the 1st day of June, 2007, the provisions shall apply for the assessment year immediately following the financial year in which such application is made. The proposed provisions are harsh.

Time limit provided in sections 153 and 153B to make the audit of transfer price and the assessment in cases involving international transactions shall stand extended by 12 months and the transfer pricing officer shall determine the arm’s length price at least two months before the expiry of new statutory time limit. Sec. 92CA(4) is being amended requiring the Assessing Officer to compute the total income inconformity with the arm’s length price determined u/s.92CA(3) by the transfer pricing officer.

Inconformity with the view expressed by the Hon’ble Supreme Court in the case of Rajesh Kumar and Others (2006) 287 ITR 91 it has been proposed to provide prospectively that the A.O. shall grant reasonable opportunity of being heard. It has been further proposed that the expenses of and incidental to such audit (including the remuneration of the Chartered Accountant) shall be determined by the Chief Commissioner or Commissioner in accordance with the guidelines as may be prescribed and such expenses shall be paid by the Central Government.
Orders of assessment and reassessment in search cases shall have to be approved by the Joint Commissioner. Explanation 5 to sub-sec.(l) of sec. 271 would remain applicable only in a case where search u/s.132 was initiated before 1st June, 2007. A new Explanation 5A has been proposed to be inserted to provide that in specified circumstances it shall be deemed to have concealed particulars of income or furnished in accurate particulars of such income. The new Explanation 5A shall be applicable on search initiated on or after 1st June, 2007. A new sec. 271AAA has been proposed to be inserted in respect of search initiated on or after 1st June, 2007, whereby the assessee shall be liable to pay by way of penalty, in addition to tax, a sum computed at the rate of 10% of the undisclosed income of the specified previous year. However, provisions of this section shall not be applicable if the assessee (i) in a statement u/s. 132(4), in the course of the search, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiate the manner in which the undisclosed income was derived; and (iii) pays the tax, together with interest, if any, in respect of the undisclosed income. In such circumstances, no penalty u/s. 271 (1)(c) of the Act shall be leviable. The provisions of sec.274 of sec. 275 shall apply on the proposed new section. The undisclosed income has been defined to mean any income of the specified previous years represented either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search u/s.132, which has not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year or which has otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of the search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted. Specified previous years have been defined to mean the previous year (i) which has ended before the date of search, but the date of filing the return of income under sub-sec.(1) of sec. 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted. Appeal shall lie against the said order to the Commissioner (A). These amendments will apply in relation to assessment year 2007-08 and subsequent years in cases where search is initiated on or after 1st June, 2007.

The Supreme Court in P.R. Metrani vs. CIT (2006) 287 ITR 209 held that presumption u/ s.132(4A) does not extend to regular assessment; it is restricted to summary assessment only. New section 292C has been proposed to be inserted from 1-10-1975 to make such presumption applicable on regular assessment or reassessment. Many provisions have been proposed with retrospective effect. It is unfair and unethical.

PROVISIONS FOR SETTLEMENT REVISITED

The Legislature in its wisdom inserted Chapter XIX-A from 1-4-1976 to provide a high powered Commission, effective forum, to harassed tax-payers, to enable them to get finally determined/ settled tax liability with expedition, without long drawn litigation, on one single window and without going into the technicalities of law. However, due to strength of members being inadequate, non-co-operation of the income tax department, non submission of reports on time, a large number of cases remain pending for long years, with advantage to none. Revised Settlement Scheme has been proposed with a view to avoid delay in determining the tax liability of an assessee which is caused because of factors like duplication of proceedings, absence of statutory time frame for settling the case, and also with a view to streamline the proceedings before the Settlement Commission. Broad outlines are as follows;

1. After 31-5-2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer; i.e., not after completion of the assessment. However, no application would lie in respect of assessment or reassessment proceedings u/s. 148 or 153A or 254 or 263 or 264. Hence persons searched or proceeded for evaded assessment or assessment consequence to set aside by appeal by ITAT or revision by Commissioner, would not be entitled to avail the benefit of said provisions;

2. Minimum additional amount payable should exceed three lakhs. Receipt of deposit of such amount with interest should be submitted with the application, with copy of application to the Assessing Officer;

3. On receipt of application, the Commission shall issue notice to the applicant to show why the application should be admitted. Thereafter, within 14 days from the date of receipt of the application, the Settlement Commission shall pass an order for rejecting the application or allowing the application to be proceeded with. Complexity of the investigation involved in a case shall not be the criteria for admitting or rejecting the application. Further, where no order or rejection or admission of an application is passed within the aforesaid period, the application shall be deemed to have been allowed to be proceeded with;

4. (a) Applications pending on 1.6.2007 shall be deemed to have been allowed, if tax and interest is paid by 31-7-2007;
   
   (b) Payment time limit for other applications where no order u/s 245D(4) has been made has been fixed as 31-7-2007;

5. If an application made on or after 1st June, 2007 is allowed to be proceeded, the Settlement Commission shall issue a notice to the Commissioner within 30 days from the date on which the application was received. In case of applications referred to in (iv) (a) above, if the tax and interest has been paid before 31st July, 2007, such notice shall be issued to the Commissioner on or before the 7th day of August, 2007. The Commissioner shall send his report within 30 days from the date on which the communication from the Settlement Commission is received by him;

6. On receipt of the report of the Commissioner, the Settlement Commission shall hear the applicant and the Commissioner within fifteen days from the date of receipt of the report. Invalid application can be declared so, with copy to the applicant and the Commissioner. If the Commissioner does not send the report within the specified period, the Commission may proceed in the matter further without the report of the Commissioner;

7. In respect of applications made before 1-7-2007 and referred to hereinabove which are not declared invalid or as the case may be allowed to be further proceeded with, the Settlement Commission, if, is of the opinion to do so, may direct the Commissioner to make or cause to be made such further inquiry or investigation as it deems fit. The Commissioner shall submit his report within 90 days;

8. The Commission shall, after giving an opportunity to the Commissioner and to the applicant and considering the reports of the Commissioner and other material available with it, pass the settlement order on or before 31-3-2008 or within 9 months from the end of the month in which application was received by the Commission;

9. Immunity from prosecution shall be only under the I. T. & W.T. Act;

10. There shall be no power to reopen completed assessments;

11. The proceedings shall abate in specified circumstances and time taken would be excluded. Matter would stand restored to the A.O.

12. Settlement application shall be once during lifetime; and

13. Bench shall be presided by senior most member constituting the Bench.