Sections 245A to 245L in Chapter XIX-A of the Income-tax Act, 1961 deal with the functioning of the Income-tax Settlement Commission that was set up through the Taxation Laws (Amendment) Act, 1975, i.e. 1st April, 1976 on the recommendation of the Direct Taxes Enquiry Committee, 1971, popularly known as the Wanchoo Committee.

2. Finance Bill, 2015 has proposed wide range changes in its functioning reversing some of the very progressive and forward looking changes made by the present Finance Minister only six months ago in October, 2014 through the Finance (No. 2) Act, 2014. If passed into law, they will make the Commission an unattractive forum for prospective applicants.

Filing of tax return made obligatory for voluntary applicants

3. Finance Act, 2007 had dispensed with the requirement of filing a tax return by deleting proviso (i) to section 245C of the Act. Finance (No. 2) Act, 2014 had further widened the scope of settlement applications by including the proceedings for assessment or re-assessment u/s. 147 on issue of notices u/s. 148 for the relevant years by amending Explanation (i) to section 245A(b) of the Act. The result of this amendment was that the a taxpayer, including a foreign company which has not filed the tax return under the bona fide belief that such requirement was not applicable to it in view of the appropriate tax having been deducted at source by the payer of income, could voluntarily approach the Settlement Commission for regularisation of past non-compliance after getting the notices u/s. 148 issued from the concerned Assessing Officer by representing that it had taxable income for those years. The proposed substitution of said Explanation (i) requires notice u/s. 148 to be issued only for one year and for other assessment year/years for which a notice u/s. 148 has not been issued, the applicant can approach the Settlement Commission only “if the return of income for the other assessment year or years has been furnished u/s. 139 or in response to a notice u/s. 142 of the Act”. Thus, the scope of notice u/s. 148 has been restricted to only one year and for other years valid returns u/s. 139 or 142(1) would have been filed.

4. The amendment proposed to be made appears even contrary to the explanatory notes which appear to give the impression that this is a beneficial amendment to obviate the need for issue of notices u/s. 148 for all the years for which, the settlement application is proposed to be made. This will be evident from the following explanatory note from page 24 of the Memorandum explaining the provisions of Finance Bill, 2015:-

“The existing provision contained in clause (b) of section 245A of the Act defines a case for the purpose of Chapter XIX-A as any proceeding for assessment under this Act, of any person in respect of any assessment year or assessment years which may be pending before an Assessing Officer on the date on which an application under sub-section (1) of section 245C is made. The Explanation to the said clause provides for deemed commencement of proceedings under different situations. Clause (i) of the Explanation to clause (b) of section 245A provides that the proceeding for assessment or reassessment under section 147 of the Act is deemed to commence from the date of issue of notice under section 148 of the Act. It has been observed that issue relating to escapement of income is often involved in more than one assessment year. In such case the assessee becomes eligible to approach Settlement Commission only for the assessment year for which notice under section 148 has been issued. Therefore, to take the proceeding for all other assessment years where there is escapement, the assessee becomes eligible only after notice under section 148 has been issued for all such assessment years.

5. In order to obviate the need for issue of notice in all such assessment years for commencement of pendency, it is proposed to amend clause (i) of the said Explanation to provide that where a notice under section 148 is issued for any assessment year, the assessee can approach Settlement Commission for other assessment years as well even if notice under section 148 for such other assessment years has not been issued. However, a return of income for such other assessment years should have been furnished under section 139 of the Act or in response to notice under section 142 of the Act”. (Emphasis supplied).

6. The requirement of filing the return of income did not exist and the assessee could, after issue of a notice u/s. 148 of the Act, make a settlement application as in search cases, where also, an application to the Settlement Commission can be made after notices u/s. 153A or 153C are issued and without filing the returns of income before the AO. The proposed amendment would pose challenges in approaching the Settlement Commission. The voluntary returns u/s. 139 can be filed only up to a period of two years from the end of the financial year and the issue of notice u/s. 142(1) of the Act can be issued only before the expiry of the time limit for the completion of an assessment; the applicant can approach the Commission only for the year for which the notice u/s. 148 is issued because he will not be able to fulfil the legal requirement of filing the valid returns of income for other years except for two years for which time limit for completion of assessments u/s. 153 is available.

7. What is the need for insisting on the filing of valid tax returns is not understood. The settlement application is akin to the return of income as has been held by the Supreme Court in the case of Brij Lal v. CIT (2010) 328 ITR 477 (SC). The relevant extracts of that judgment are reproduced below:-

“14. As held hereinabove, under Section 245C(1) read with Section 245C(1)(B)(ii) and Section 245C(1)(C)(b), the additional amount of income-tax payable is to be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with the total income….”

8. Keeping in view the fact that the Commission is a one time opportunity for several thousands of non-filers, owing each more than ` 10 lakhs of tax in aggregate for all the years to the State, the objective of law should be enable a person to file the settlement application covering all the years for which income has been omitted or is understated without any procedural restrictions whatsoever as is the case in other countries notably USA and UK from which the Wanchoo Committee borrowed the concept of settlement of income-tax and wealth tax cases.

9. Besides, the settlement application, without insisting on filing the return of income, does not cause any prejudice to the Income-tax Department. A look at the application form in Form No 34B prescribed by Rules 44C and 44CA of the Income-tax Rules read with the legal requirement of disclosing true and full income for each year as per section 245C(1) of the Act would reveal that settlement application has to contain all the information as is required in the return of income like the computation of income according to the Income-tax Act, and the supporting documents like the Profit and Loss Account, Balance Sheet etc. A copy of the application is made available to the CIT and he is heard before its admission by the Commission.

Recommendations against filing of tax return

10. It is, therefore, suggested that clause (i) of the Explanation to clause (b) of section 245A, as it exists at present should be retained without any modification. The proposed clause needs to be modified to bring in two more categories of cases that existed before the amendments by Finance Act, 2007, namely:

(i) Completed assessments where under-reporting of income is admitted by the applicant similar to section 245E of the Act (before its becoming inoperative with effect from 1st June, 2007)

(ii) Cases pending in appeal before the CIT (Appeals) or revision as was the position in the definition of the case in section 245A(b) before 1st June, 2007. If the cases set aside by CIT or the ITAT can come before the Commission, why cannot they come earlier? Income-tax is an annual levy. It will be both in the interest of the Revenue and the taxpayer, if the final determination is made at the earliest possible time.

Anomaly in providing two year limit of completion of assessment

11. Another amendment that needs re-consideration is in clause (iv) of the Explanation to clause (b) of section 245A of the Act. At present, Explanation (iv) of section 245A(b) is a deeming provision stating that for any case not covered by clauses (i) to (iii) of the Explanation, the proceedings for assessment shall be deemed to be concluded when, the assessment is made. The objective is to enable the taxpayer to approach the Settlement Commission for the years till the assessment proceedings are pending. This is to encourage voluntary compliance. The proposed amendment requires that the settlement application can be filed “from the date on which the return of income for that assessment year is furnished u/s. 139 or in response to a notice served 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 the relevant assessment year, in case where no assessment is made”.

12. This amendment, apart from restricting the scope of the settlement application, creates an anomaly since the time limit for completion of an assessment involving transfer pricing adjustment, is not two years from the end of the relevant assessment year but is extended till the Dispute Resolution Panel decides the matter. In such cases, the Assessing Officer sends only a draft assessment order u/s. 144C and the settlement application can be filed for such a year till a reference to the Dispute Resolution Panel is decided.

13. Huge transfer pricing adjustments by the Transfer Pricing Officers have been one of the leading causes that have been responsible for causing great dissatisfaction amongst the taxpayers notably the non-resident taxpayers and foreign companies. Such disputes are so complex and complicated that in several cases, the assessments are set aside by the Tribunal u/s. 254 of the Act and remain pending thereafter for years together. Settlement Commission, which is statutorily required to make a final determination of income within a period of 18 months from the end of the month in which the settlement application is filed, would be a preferred forum for the taxpayers requiring finality and the Government should encourage the foreign companies and non-resident taxpayers, in particular, to approach the Commission.

14. The proposed amendment of restricting the jurisdiction of the Settlement Commission to “two years from the end of the relevant assessment year” needs to be relooked so as to remove the anomaly of the taxpayers in transfer pricing cases not able to approach the Commission.

Proposed amendment of section 245HA to provide for abatement

15. Vide clause 60 of the Finance Bill, 2015, clause (iiia) is proposed to be added to section 245HA(1) to provide that where a final order of settlement u/s. 245D(4) of the Act passed by the Settlement Commission does not provide for the terms of settlement, the settlement application filed by the taxpayer will abate. The consequences of abatement are specified in sub-sections (2) to (4) to section 245HA of the Act. The settlement application, on abatement, will go back to the Assessing Officer or any other income-tax authority before whom the proceeding was pending for the relevant year, at the time of making the application and that authority will deal with the assessment for that year in the normal course that may involve huge addition to the disclosed income, appeals, penalty and prosecution. It is indeed not understood as to the real objective of this amendment. Punishing the applicant for some omission of the Settlement Commission cannot be legally justified. In any case, of the 300 or 400 cases involving 1,200 to 1,500 assessments that are settled every year by the seven benches of the Commission, there may be very few cases where a high powered body like the Settlement Commission would omit to state the terms of settlement specified in section 245D(6) of the Act, namely, mentioning the demand by way of tax, penalty or interest, and grant of immunity from penalty and prosecution. In case, in any particular case, the terms of settlement are not mentioned, the omission can be rectified by the applicant or the revenue making a miscellaneous application to the Commission u/s. 245D(6A) of the Act and the Commission will be duty bound to rectify its order and provide for the terms of settlement. The proposed amendment does not, therefore, appear to serve any useful purpose and may be considered for deletion.

16. In fact, there is a need to clarify to providing that the applicant will be entitled to bring in to his account books the unrecorded disclosed income that is available with him at the time of admission of his application. The admission should be automatic. The applicant is prejudiced if his application is rejected since he pays the entire tax and interest before making the application.

17. To sum up, the present Finance Minister had made some very practical and useful amendments in his maiden budget enacted as Finance (No. 2) Act, 2014 and the applications to the Settlement Commission notably by foreign companies and their Indian subsidiaries had started increasing. That trend should have continued but for the proposed amendments discussed above. They need to be reconsidered for deleting them and make suitable changes as suggested above so as to encourage more and more voluntary compliance and voluntary payment of tax. Needless to add, there are about ` 6 lakhs crores of tax arrears and their size is increasing by about ` … in a fair and reasonable In the cases settled by the Commission there are hardly any tax arrears because the entire tax and interest is paid before making the settlement application on income which, by law, is required to be “true and full”.

18. If the objective of any good tax legislation is to collect revenue and not create disputed demand which remains uncollected for years on end, voluntary compliance needs to be encouraged. More and more errant persons should be enabled to avail of the one time in life opportunity, without any limitations and restrictions, of going to the Settlement Commission and to come back to the path of rectitude in their subsequent compliance with tax laws by getting their incomes settled in a fair and reasonable manner by Senior Chief Commissioners of Income-tax, which, as per section 245B (2) of the Act, are to “be appointed by the Central Government from amongst persons of integrity and outstanding ability, having special knowledge of, and, experience in, problems relating to the direct taxes and business accounts”.

S. R. Wadhwa,
Advocate

I. Revision of orders erroneous and prejudicial to the interests of revenue – Amendments proposed to section 263

1. Introduction

As per section 263 of the Income-tax Act, 1961 (the “Act”), the Commissioner (and the Principal Commissioner on or after 1st June, 2013) have revisionary powers in respect of orders passed by the Assessing Officer (AO) if the former considers the impugned order “erroneous in so far as it is prejudicial to the interests of the revenue”. The revisionary powers include passing of order enhancing or modifying or cancelling the assessment and directing a fresh assessment. For invoking the provisions of this section, two conditions need to be satisfied as held in the case of Malabar Industrial Co. Limited v. CIT [2000] 243 ITR 83 (SC). These two conditions are as follows: (i) order must be erroneous; and (ii) order must be prejudicial to interests of revenue.

Section 263 has been subject matter of much controversy as regards when an order can be said to be erroneous and whether such error has resulted in the order being prejudicial to the interests of the revenue.

2. Proposed amendment

Clause 65 of the Finance Bill, 2015 proposes to introduce a new Explanation to section 263(1) which provides as follows:

“Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,—

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

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

(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or

(d) 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.”

The reason for this amendment, as stated in the Memorandum explaining provisions of Finance Bill, 2015 (the “Memorandum”) is to provide clarity on the issue – [2015] 371 ITR (St.) 292, 342.

3. Analysis of amendment

Clause (a) of Explanation 2: This clause provides that section 263 can be invoked and an order can be revised if it is passed “without making inquiries or verification which should have been made”. Judicial opinion on whether lack of enquiry by AO alone constitutes sufficient cause for invoking revisionary powers under section 263 is divided. In CIT v. Vikas Polymers [2010] 194 Taxman 57 (Del.) (HC), the Delhi High Court held that mere lack of inquiry by the AO is not sufficient for revision under section 263. Similarly, in Institute of Chartered Accountants of India v. DIT [2011] 136 TTJ 548 (Del.) (Trib.), it was held that non-examination of an issue by AO does not, per se, make the assessment order prejudicial to interest of revenue for revision.

However, with the insertion of this clause (a), this position is now sought to be reversed and the Legislature seeks to affirm the ratio in Anil Kumar v. ACIT [2005] 147 Taxman 5 (Mag.) (Del.) (Trib.) that AO was not justified in accepting gifts without making further enquiry about creditworthiness of donors as well as source of funds making revision under section 263 justified.

The proposed amendment gives power to the Commissioner or the Principal Commissioner to sit in judgement over the adequacy of the enquiries or verification which the AO has made. In Salora International Ltd. v. Addtl. CIT [2005] 2 SOT 705 (Delhi) (Trib.), it was held that merely because from a perfectionist point of view, it is felt that some more enquiries and verifications could have been made by AO while making assessment/assessment order cannot be declared to be erroneous and prejudicial to interest of revenue. In my view, with effect from 1st June 2015, the ratio this decision may not be good.

An order allowing a particular deduction/claim of an assessee after verification of the AO may still be open to revision under section 263 if the Commissioner or the Principal Commissioner opines that verification which ought to have been made by the AO has not been so made. While the provisions of section 263 did not originally visualize substitution of judgement of the AO with that of the Commissioner as held in Antala Sanjaykumar Ravjibhai v. CIT [2012] 135 ITD 506 (Rajkot) (Trib.) and Manish Kumar v. CIT [2012] 134 ITD 27 (Indore) (Trib.), the new amendment, if enacted, would, in my view, have this effect.

For instance, an order under section 143(3) is to be passed by the AO “after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points, and after taking into account all relevant material which he has gathered”. But, even after doing so and after proper application of mind by the AO, the order cannot be said to be immune from revision as the scope of further enquiry/ verification may not, in many cases, be ruled out which may be a subjective matter. To my mind this clause would bestow on an administrative authority in exercise of revisionary oversight jurisdiction, powers usually vested in an appellate authority under appellate jurisdiction in a fiscal law.

Clause (b) of Explanation 2: As per this clause, an order shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, it is passed allowing any relief without inquiring into the claim.

In Bharat Overseas Bank Ltd. v. CIT [2013] 152 TTJ 546 (Chennai) (Trib.), it was held when the impugned order was silent on the claim made by assessee, and allowed such claim, without any discussion, such an order was erroneous and prejudicial to the interest of revenue. This decision is sought to be affirmed with clause (b).

It is important to note that the term “relief” has been used many times in the Act but not defined. Every deduction or exemption availed by an assessee would in a general sense be relief but whether the Legislature has sought to include the same under this clause (b) may be a debatable issue. This is because the term “relief” is used in contradistinction with the terms “exemption”, “deduction” etc. at various places in the Act. In my opinion, even if a view is taken that the term “relief” does not cover exemptions and deductions, non-verification of such relief may satisfy the requirements of clause (a), and hence, the impugned order may even otherwise be open to revision under section 263.

It is often seen that during scrutiny assessments, the AO calls for details regarding major items and passes an order based on his verification of these items while omitting the insignificant ones. After the amendment, in my view, even such orders may be revised by the Commissioner or the Principal Commissioner in so far as these unverified items.

This clause can be a major cause of litigation for assessees in whose cases assessment orders are revised under section 263 because no details were called for by the AO.

But, what is the position if the AO after calling for relevant details accepts the contention of the assessee but does not deal with the issue in the assessment order? This issue was considered by the Bombay High Court in Idea Cellular Ltd. v. DCIT & Ors. [2008] 301 ITR 407 (Bom.) (HC) and in CIT v. Fine Jewellery (India) Ltd, ITA No. 296 of 2013 dated 3rd February, 2015 wherein it was held that the fact that assessment order is silent on a point does not mean that there is no application of mind by AO if he has raised a query during the assessment proceedings and assessee has replied, and revision under section 263 was not permissible under these circumstances. In my view, this position continues to hold good even post the amendment.

Clause (c) of Explanation 2: As per this clause, any order which has not been made in accordance with any order, direction or instruction issued by the Board under section 119 can be subject matter of revision under section 263. It is settled law that the orders, directions and instructions issued by the Board are binding on the AO. Therefore, it is now proposed to be provided that orders of AO which are in violation of such orders, directions and instructions would be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue.

Under section 119, the Board may also issue directions etc. which are in favour of the assessee. One consequence of this amendment could be that failure to follow such directions which are favourable to the assessee could also satisfy the requirements of this section after the amendment takes effect. This is because vide the proposed Explanation 2, the Legislature seeks to widen the meaning of expression “erroneous in so far as it is prejudicial to the interests of the revenue” and does not make a distinction between direction etc. which are favourable to the assessee and the ones which are not.

The question that arises is whether the proposed amendment can be read in this manner and revision of orders under section 263 justified even in cases where the AO has passed an order ignoring a direction favourable to the assessee. In my view, the answer to this question would be no as such an interpretation would not satisfy condition (ii) mentioned in the Supreme Court decision of Malabar Industrial Co. Limited (supra).

Also, a situation may arise as to whether an order can be revised under this section if it is contrary to a Board direction but in line with a High Court or Supreme Court judgement. It is now settled that instructions or circulars which are contrary to the law declared by Supreme Court or High Court cannot override judicial declaration of law as was held in the case of Hindustan Aeronautics Limited v. CIT [2000] 243 ITR 808 (SC). Therefore, in my view, if the order of the AO is in accordance with the decision of High Court or the Supreme Court, then revision under section 263 should not be permissible notwithstanding that that order is contrary to a Board direction, instruction or order. This view has also been taken by the Calcutta High Court in the case of Bhartia Industries Ltd. v. CIT [2013] 353 ITR 486 (Cal.), and in my view, continues to be good law.

Clause (d) of Explanation 2: This clause proposes to give to the Commissioner or the Principal Commissioner the power to exercise revisionary power if an order has not been passed in accordance with any decision of the jurisdictional High Court or Supreme Court which is prejudicial to the assessee whether such decision is rendered in the case of the assessee or any other person.

This clause is applicable only when an order has been passed in ignorance of a Supreme Court decision or a jurisdictional High Court decision. The amendment does not seek to cover situations wherein the AO passes an order in ignorance of a non-jurisdictional High Court decision.

A question arises as to whether an order can be revised under section 263 if subsequent to the passing of such order, there is a contrary decision of the jurisdictional High Court or the Supreme Court on a particular issue. The assessee may contend that if a particular decision is not available for consideration of the AO, it is impossible for him to pass his order “in accordance with” such decision. However, in this regard, it is also important to note the decision in CIT v. Dr. K. Ramachandran [2004] 139 Taxman 320 (Mad.) (HC) wherein it was held that “record” would mean record which was available to the AO at the time of passing of assessment order, and would include records available with the Commissioner at time of passing of order under section 263. A similar view was taken in Star India Limited v. Addtl. CIT [2012] 14 ITR (T) 106 (Mum.). On the basis of these decisions, in my view, revision under section 263 may be permissible even if subsequent to the AO’s order, a Supreme Court decision or a jurisdictional High Court decision is rendered deviating from the position taken by the AO.

The amendment is proposed to take effect from 1st June, 2015 i.e. on or after this date, the Commissioner or the Principal Commissioner, as the case may be, would have the enhanced powers under this section subject to sub-section (2) and sub-section (3). In my view, this Explanation 2 should also apply to orders of AO which are passed before 1st June, 2015.

Though the intended reason for the new Explanation is to “provide clarity”, it has substantially enhanced the power vested in the Commissioner and Principal Commissioner under this section, and such enhanced powers, in my view, would lead to heightened litigation against the revision orders.

A corresponding amendment could also have been made in section 264 to expressly provide assessees the benefit of revision due to subsequent decisions of higher courts. However, the assessees should still be entitled to the same in light of the Gujarat High Court decision in Parshuram Pottery Works Co. Ltd. v. WTO [1975] 100 ITR 651 (Guj.) (HC).

II. Sanction before issuance of notice under section 148 – Substitution of section 151

1. Introduction

Under the existing provisions of section 151, the AO is required to obtain sanction before issuance of notice under section 148. The authority from which sanction is to be obtained depends on (i) whether scrutiny under section 143(3) or under section 147 has been made earlier or not, (ii) whether notice is proposed to be issued within or after four years from the end of relevant assessment year, and (iii) the rank of the AO proposing to issue notice.

2. Proposed amendment

The existing section 151 has been sought to be replaced by a new section 151 which provides that for issuance of notice under section 148 within a period of up to four years from the end of relevant assessment year, the approval of Joint Commissioner shall be required and that of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner if the issuance of notice under section 148 is beyond four years from the end of relevant assessment year.

3. Analysis of amendment

The new provisions introduced vide Clause 35 of the Finance Bill, 2015 seek to do away with two of the existing abovementioned three criteria. After the enactment of this section, the only criteria that would need to be considered, is the time within which the assessment is sought to be reopened under section 147. If the reassessment is proposed within four years, the approval of Joint Commissioner would be required and in other cases i.e. after four years, the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner shall be required.

The amended provision reverts to the position prevailing prior to 1st April 1989 where the competent authority for according approval for reopening of assessment depended only on the number of years elapsed from the assessment year sought to be reopened. That position was altered by the Direct Tax Laws (Amendment) Bill, 1987 – [1987] 168 ITR (St.) 301, 330 – and is now proposed to be done away with.

The reason for this amendment as stated in the Memorandum is to bring simplicity in the provision – [2015] 371 ITR (St.) 292, 340. However, one effect of this amendment is that, now sanction would be required even if the assessment is proposed to be reopened within a period of four years even when no assessment under section 143(3) or under section 147 had been made earlier. This is a marked change from the existing provision wherein no prior sanction is required if the assessment is sought to be reopened within four years and no assessment either under section 143(3) or under section 147 had been made for that year.

This amendment is proposed to take effect from 1st June, 2015.

Thus, if the sanction under section 151 is obtained and notice under section 148 is issued before this date, the existing provisions would govern the case. Similarly, for sanction obtained and notice under section 148 issued on or after this date, the substituted provisions would govern the case.

However, a question may arise as to the position wherein the sanction is obtained before 1st June, 2015 and notice under section 148 issued after this date. Take for instance the case of ABC Limited where no assessment either under section 143(3) or under section 147 is earlier made for Assessment Year 2009-10 and the AO proposes to reopen the assessment on 29th May, 2015 (last working day of that month). As per the existing provisions of section 151(2), the AO (lets assume the Assistant Commissioner) is required to obtain sanction of the Joint Commissioner before issuance of notice under section 148. Therefore, if the notice is issued on 29th May, 2015 itself, the notice would be valid (subject to satisfaction of other conditions such as “reason to believe” etc.) as sanction is duly obtained from the appropriate authority as on the relevant date.

Now one needs to analyse as to whether the reopening would be valid if after recording his reasons on 29th May, 2015 and sending the same to the Joint Commissioner for approval on the same day, the sanction is obtained on 1st June, 2015 and the AO issues the notice thereafter. In such a case, at the time of recording reasons and at the time of sending the case of approval, the proper authority for obtaining sanction was the Joint Commissioner. However, at the time of issuance of notice, due to amended provisions, the appropriate authority for obtaining sanction is changed to Principal Chief Commissioner/ Chief Commissioner/ Principal Commissioner/ Commissioner. Whether in such a case, the impugned notice can be said to be invalid for want of sanction from appropriate authority?

In this regard, it is important to note the wording of the proposed amendment:

“151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.”

Thus, with effect from 1st June, 2015, there is a provision in the statute which prohibits issuance of notice under section 148 without the sanction of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner after expiry of four years from the end of the relevant assessment year. The requirement of sanction is with respect of date of issuance of notice under section 148, and hence, in my view, the law as on such date should be considered for examining whether appropriate sanction has been obtained or not. Therefore, the impugned notice in the instant case should not be said to be valid.

Though this amendment is being brought in to bring in simplicity in matters of obtaining sanction for reopening cases and is for the benefit of the revenue, it also has the effect of protecting the assessee from needless harassment even in cases where detailed assessment has not been earlier made and reopening is proposed within four years by mandating the AO to obtain prior sanction even in such cases.

Rahul R. Sarda,
Advocate

Vide Finance Bill, 2015 certain amendments have been proposed in the provisions governing deduction of tax at source under the Income-tax Act. In this article an effort is being made to discuss amendments in TDS provisions, other than in section 195 of the Act.

Submitting evidence for claims to employer in prescribed form (section 192)

An employer while determining tax deductible under section 192 of the Act from salary income is authorised to allow certain deductions, exemptions or allowances or set-off of loss under the head “Income from house property”. There is no guidance or format prescribed at present as to the manner and nature of evidence/documents to be obtained from the employee in support of the claim. Sub-section (2D) is proposed to be inserted in section 192 of the Act to provide that the evidence or proof or particulars of the prescribed claims (including claim for set-off of loss) shall be obtained in the prescribed form and the manner. The amendment will be effective from 1st June, 2015.

Deduction of tax at source from payment of taxable accumulated balance in Provident Fund Account (section 192A)

Under section 10(12) of the Act read with Rule 8 of Part A of Schedule IV of the Act accumulated balance received by an employee from a recognised provident fund will be exempt if the employee has rendered continuous service of 5 years or more or has been terminated due to ill health, discontinuance of business etc. or has opted for transfer of balance to new employer’s recognised provident fund. Rule 9 has provided the manner for determining the tax payable on accumulated balance, if same is taxable. Trustees are liable to deduct tax at the time of making the payment. Section 192A is being inserted to provide that, notwithstanding anything contained in the Act, trustees will deduct tax at 10% of amount payable to employee, if the amount payable is Rs. 30,000/- or more. Tax will, however, be deductible at maximum marginal rate i.e. 30%, if Permanent Account Number is not given by the employee.

In regard to proposed provision following two points can be made:

(a) Presently trustees of a provident fund are liable to determine the tax payable / deductible as per Rule 9 of part A of Schedule IV of the Act. Section 192A is being inserted. It is not clear that if tax deductible as per Rule 9 is higher, whether trustees will be required to deduct tax as per Rule 9 or as per section192A of the Act.

(b) The procedure provided in Rule 9 for determination of tax payable is quite cumbersome and requires recomputation of tax liability for earlier years. This procedure should have been done away in the interest of simplicity.

Amendments in regard to deduction of tax from interest other than interest on securities (section 194A)

Following amendments are proposed in section 194A of the Act:-

(a) Under the existing provisions of section 194A(3)(i) amount of interest credited or paid on time deposits with a banking company or a co-operative society or on deposit with public company engaged in the business of housing finance is to be computed with reference to branch of the bank, society or company. In view of computerisation, it is proposed to amend the provision so as to provide that amount of interest will be determined with reference to bank, co-operative society or public company, where it has adopted core banking salutations. Time deposit will also include recurring deposit for fixed period.

(b) Under Clause (v) of sub-section (3) of section 194A of the Act income credited or paid by a co-operative society to its members is exempt from TDS. Since, co-operative societies engaged in banking business are at par with banks, same are being excluded and as a result tax will be deductible from interest paid to members by a co-operative society engaged in banking business, subject to other provisions.

(c) Under section 145A and section 56(2)(viii) of the Act interest received on compensation is chargeable to tax on receipt basis. Under clause (ix) of section 194A (3), however, reference was made to credit or payment of interest on compensation awarded by Motor Accidents Claim Tribunal. As per the clause tax is deductible if amount of interest is credited or paid of Rs. 50,000/- or more. By amending the clause it is being clarified that tax will not be deductible at the time of credit of interest. Tax will, accordingly, be deductible only at stage of payment of interest.

Deduction from Transport Contracts (section 194C)

Presently section 194C(6) provides that no deduction of tax is to be made from payments to contractors carrying on the business of plying, hiring or leasing of goods carriages on furnishing of Permanent Account Number. The aforesaid amendment was made vide Finance (No. 2) Act, 2009. Prior to above amendment exemption from deduction of tax at source was available only to a contractor, being an individual, who was owning not more than two goods carriages at any time during the previous year, on furnishing declaration in prescribed form. It is proposed vide the Finance Bill that the exemption from TDS will be available only to a contractor owning not more than ten goods carriages at any time during the previous year on furnishing a declaration along with Permanent Account Number. It has been stated that the intention had been to give exemption only to small transport operators as defined in section 44AE of the Act, whereas as per the language of sub-section (6) of section 194C of the Act tax is not being deducting from all transporters.

Deduction of tax at source from transport contracts had always been a difficult preposition for the reason that transportation business is mainly in unorganised sector. Individuals own transport carriages and driver bringing the material insist for cash payment to the full extent. Because of the difficulty that the Government was not able to collect tax on real income of transporters section 44AE was inserted in the Act providing for presumptive taxation scheme vide Finance Act, 1994. The condition of making payment by account payee cheque or bank draft for an amount exceeding Rs. 20,000/- provided in section 40A(3) of the Act had also been relaxed in case of payment to a transporter and payment in cash can be made up to Rs. 35,000/-.

The proposed amendment will require deduction of tax at source from payments made to transporters except in the cases where a declaration is given by the transporter that he is owning not more than 10 goods carriages at any time during the previous year and he furnishes his Permanent Account Number. The exemption is available also to persons engaged in the transport business while making payment to another transporter on receipt of declaration. The proposed amendment will give rise to difficulties to the assessees in compliance of the provision for following reasons:-

1. As per section 194C of the Act tax is required to be deducted at the time of making payment to the contractor. Declaration as envisaged can be given only after the end of the year. How a declaration can be given by the transporter in the beginning of the year that he will not be owning more than 10 goods carriage at any time during the year and same can be relied upon by deductor? If declaration is violated during the year, what will be the liability of the payer?

2. In most of the cases transportation arrangement is made with one transporter, whereas goods are transported by truck owned by another transporter. Transportation bill may be issued by one transporter, whereas payment is collected by the driver of another transporter. It will be difficult for the payer to decide, whose declaration is valid.

3. In most of the cases transportation charges have to be paid in cash to truck drivers. They do not accept the payment after deduction of tax at source. Driver will also not carry declaration of the owner. Even, if declaration is submitted by the driver, how the payer will satisfy himself that this is the declaration of the owner.

4. How the payer of transportation charges can ensure that declaration is correct and the owner is not owning more than 10 goods carriages. There is no way to verify the correctness of the declaration by the payer.

It is stated that purpose and intention of the amendment is appreciable, but acting upon the amended provision will be difficult proposition. This will cause undue hardship and harassment to payers of transportation charges.

No TDS from payment of rent to Real Estate Investment Trust

With a view to provide pass through benefit for rental income of Real Estate Investment Trust Section 10(23FCA) is being inserted in the Income-tax Act providing that any income of Real Estate Investment Trust by way of renting or leasing or letting out any real estate assets will be exempt from tax. As a corollary to aforesaid exemption provision of section 194-I has been amended to provide that any income paid by way of rent to Real Estate Investment Trust will be exempt from TDS under above section.

Deduction of tax at source from payment to unit holders to Real Estate Investment Trust

It is also proposed to amend provision of Section 194LBA of the Income-tax Act to provide for deduction of tax at source from payments made by REIT to unit holders on account of rental in case of residents at the rate of 10% and in case of non-residents at the rate applicable to them.

TDS on income paid by Investment Fund to Unit holders

Section 194LBB is proposed to be inserted in the Income-tax Act providing for TDS at the rate of 10% on income paid by the investment fund to unit holders of the nature referred to in section 10 (23FBB) of the Act, which is the income chargeable in the case of fund as business income. This amendment also is in corollary to the scheme of providing pass through benefit and benefit is available also to unit holders making investments through investment funds.

Extension of time limit for concessional deduction of tax from interest payable to foreign institutional investors or qualified foreign investors

Section 194LD provides for concessional rate of 5% in case of interest paid to foreign institutional investors or qualified foreign investors. The aforesaid relaxation was available upto 1-6-2015. The relaxation is being extended to 1-6-2017.

Submission of declaration forms for non-deduction of tax

Section 197A of the Act provides that on submitting declaration by the payee to the payer in Form No. 15G/15H to the effect that his income is not chargeable to tax, tax will not be deducted at source as is required vide various sections of the Income-tax Act. By way of amendment, it is being further provided that tax will not be deducted on furnishing the declaration in respect of tax deductible under section 192A from payment by Provident Fund Trust and from payments made under life insurance policy, which is chargeable under the Income-tax Act and on which tax is deductible under section 194DA of the Income-tax Act.

Filing of details by Government officers in respect of depositing tax

In case of Government departments the system for depositing TDS and TCS is that Drawing and Disbursing Officer advises the Pay and Accounts Officer or the Treasury Office to deposit a particular amount as TDS or TCS. The amount is deposited by transfer entry to the credit of Central Government. On deposit of tax the return is required to be filed by the DDO. In many cases intimation of deposit of tax is not given by Pay and Accounts Officer. As a result filing of return and allowing credit to deductees is delayed. It is being provided by inserting sub-section (2A) in the section 200 and sub-section (3A) in section 206C of the Act that in such cases the concerned officer shall deliver in the prescribed form particulars of such payments to the income tax authority and delay in giving details will entail penalty of Rs. 100 per day.

No requirement to obtain TAN in certain cases

By way of amendment in section 203A of the Act it is being provided that in the case of persons, to be notified, where payment in normally one time, like in case of purchase of immovable property, it will not be necessary to obtain Tax Deduction/Collection Account Number.

Correction in the return for tax collection at source

In the existing provision of section 206C of the Income-tax Act, there is no provision for correction of the return/statement filed by a person who is collecting tax at source under section 206C of the Act. It is being provided by inserting sub-section (3B) that the person will be entitled to correct the statement filed in respect of TCS.

Processing of statements of tax collected at source

As per the existing provisions of Income-tax Act returns filed for TDS are processed by the Department and difference, if any, in the amount deductible and actually deducted is raised as tax demand and penalty is also levied for delay in filing the returns. Similar provision is being made by inserting section 206CB in the Act in regard to processing of returns filed for tax collection at source under section 206C of the Income-tax Act. Intimation issued on processing determining demand or refund will also be rectifiable and appealable.

V. P. Gupta,
Advocate

Assessment of income of a person other than the person in whose case search has been initiated or books of account, other documents or assets have been requisitioned

1. Search assessment provisions are always surrounded by controversy. One can take the experience from the earlier Block Assessment scheme which had failed. Department action and zeal in expanding the scope and application of the provisions leads to this controversy.

2. Under the existing provisions where search is initiated or requisition is made after 31-5-2003 the provisions 153A to 153D are applicable. These provisions have an overriding effect over the provisions of sections 139, 147, 148, 149, 151 and 153 of the Act since these provisions are non obstante provisions. The assessment proceedings are initiated for six assessment years immediately preceding the year in which search u/s. 132 is initiated or requisition is made u/s. 132A. The provisions of section 153C are analogous to section 158BD of the Act. Therefore, decision of the Apex Court in the case of Manish Maheshwari 289 ITR 341 SC would also apply where assessment is to be made u/s. 153C. The precondition for invoking jurisdiction for issue of notice u/s. 153C is that the AO must “record satisfaction” as to the seized material belongs to the assessee.

3. Under existing provision where the Assessing Officer is satisfied that any books of account or documents seized or requisitioned belong to or belongs to any person, other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person for such jurisdictional Assessing Officer to complete the assessment.

Therefore, as per the existing provision if the books of account belong to the person searched but entry in such books reflect the undisclosed income of the third party then, the AO cannot assume jurisdiction u/s. 153C to assess such undisclosed income. The only course open to him would be to invoke the provisions of section 147 of the Act. This view is supported by the decision of Bangalore Bench of the Tribunal in the case of P. Shriniwas Naik (2008) 306 ITR 411 (Bang.). In this case, search was conducted at the premises of ‘R’ in the course of which certain books were seized. One of the books showed that assessee had advanced a loan to ‘R’. On that basis, section 153C was invoked and assessment was made in the hands of assessee. It was held by the Tribunal that section 153C could not be invoked as books seized did not belong to assessee.

4. Similarly in the case of Pepsi India Holdings Private Ltd v. ACIT (Delhi High Court) it was observed that S. 153C cannot be invoked unless the AO is satisfied for cogent reasons that the seized documents do not belong to the searched person. Finding of photocopies with the searched person does not mean they “belong” to the person holding the originals. The distinction between “belongs to” and “relates to” or “refers to” must be borne in mind by the AO. The Assessing Officers should not confuse the expression “belongs to” with the expressions “relates to” or “refers to”. A registered sale deed, for example, “belongs to” the purchaser of the property although it obviously “relates to” or “refers to” the vendor. In this example if the purchaser’s premises are searched and the registered sale deed is seized, it cannot be said that it “belongs to” the vendor just because his name is mentioned in the document. In the converse case if the vendor’s premises are searched and a copy of the sale deed is seized, it cannot be said that the said copy “belongs to” the purchaser just because it refers to him and he (the purchaser) holds the original sale deed. In this light, it is obvious that none of the three sets of documents – copies of preference shares, unsigned leaves of cheque books and the copy of the supply and loan agreement – can be said to “belong to” the petitioner.

5. Similar views have been expressed in the following decisions:

a) Tanvir Collections (P.) Ltd. v. Asst. CIT [2015] 54 taxmann.com 379 (Delhi) (Trib.)

b) Pepsi Foods (P.) Ltd. v. ACIT [2014] 367 ITR 112 (Delhi)(HC)

c) CIT v. Meghmani Organics Ltd. [2013] 40 taxmann.com 31 (Guj.)(HC)

6. Similarly in Sinhgad Technical Education Society v. ACIT (2011) 140 TTJ 233 (Pune)(Trib.) search & seizure action u/s. 132 was carried out in the case of Shri M. N. Navale, the President of the assessee’s Educational Society, in the course of which certain documents pertaining to the assessee were found. Based on the documents, the AO issued a notice u/s. 153C and made an assessment on the assessee. The assessee challenged the s. 153C proceedings on the ground that the mere finding of documents in the premises of the searched person was not sufficient if the documents were not “incriminating”.

The Tribunal held that though s. 153C confers jurisdiction if the AO is “satisfied” that “documents” seized belong to a person other than the person referred to in s. 153A so as to be able to assess that other person, the document must have prima facie incriminating information. The document seized must not only be a ‘speaking one’ but also be prima facie ‘incriminating one’ for attracting s.153C. If the impugned documents merely contain the notings of entries which are already recorded in the books of account or subjected to scrutiny of the AO in the past in regular assessment u/s. 143(3) of the Act, such document cannot be said to be containing the incriminating information so as to confer jurisdiction u/s. 153C.

Disputes have arisen as to the interpretation of the words “belongs to” in respect of a document. Existing section 153C could be invoked against such other person only when books of account, etc., belonged to him and not otherwise. As disputes had arisen as to the interpretation of the words “belongs to” the legislature brought the proposed amendment vide clause 36.

Under the proposed amendment, section 153C is to be amended to give the former Assessing Officer the power to hand over the books of account or documents to the jurisdictional Assessing Officer even if these pertains or pertain to, or any information contained therein, relates to the other person. Thus after the proposed amendment the dept. can issue 153C notice even if the document seized pertains or pertain to, or any information contained therein, relates to the other person. This amendment is proposed to take effect from the 1st day of June, 2015.

However, in my view, the grey area of whether the information contained in the seized documents is incriminating or not for attracting Section 153C still remains.

Certain accountants not to give reports/certificates

The Act contains several provisions (e.g. section 44AB, section 80-IA, section 92E, section 115JB, etc.) which mandate the taxpayers to furnish audit reports and certificates issued by an ‘accountant’ for ensuring correct reporting/computation of taxable income by the taxpayers. Explanation below section 288(2) of the Act defines an ‘accountant’ as a chartered accountant within the meaning of Chartered Accountants Act, 1949 (including a person eligible to be appointed as auditor under section 226(2) of the Companies Act, 1956, of the companies registered under any State).

The Comptroller and Auditor General of India (C&AG) published its report on “Appreciation of Third Party (Chartered Accountant) Certification in Assessment Proceedings” (No. 32 of 2014). In para 3.9 of the Report, it has been stated that the Chartered Accountants Act, 1949 debars an auditor to express his opinion on the financial statement of any business or any enterprise in which he, his relative, his firm or partner in the firm, has substantial interest. However, during the course of audit, it has been noticed that an auditor has furnished his report in Form 56F in respect of a closely held company in which the auditor’s brother was the managing director.

To ensure the independence of auditor, sub-section (3) of section 141 of the Companies Act, 2013 contains a list of certain persons who are not eligible for appointment as auditor. The audit/certification function under the Income-tax Act is mainly provided for protecting the interests of revenue. An auditor who is not independent cannot meaningfully discharge his function of protecting the interests of revenue.

Therefore, Clause 77 of the Bill seeks to amend section 288 of the Act to provide that an auditor who is not eligible to be appointed as auditor of a company as per the provisions of sub-section (3) of section 141 of the Companies Act, 2013 shall not be eligible for carrying out any audit or furnishing of any report/certificate under any provisions of the Act in respect of that company. On similar lines, ineligibility for carrying out any audit or furnishing of any report/certificate under any provisions of the Act in respect of non-company is also proposed to be provided.

It is proposed to revise the definition of ‘accountant’ in Explanation below section 288(2) of the Act on the lines of definition of ‘chartered accountant’ in the Companies Act, 2013. “Accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of practice under sub-section (1) of section 6 of that Act. It is further proposed to provide that the accountant shall not include the following persons (except for the purposes of representing an assessee under sub-section (1))—

(a) In case of an assessee, being a company, the person who is not eligible for appointment as an auditor of the said company in accordance with the provisions of sub-section (3) of section 141 of the Companies Act, 2013; or

(b) In any other case,

(i) The assessee himself or in case of the assessee, being a firm or association of persons or Hindu Undivided Family, any partner of the firm, or member of the association or the family;

(ii) In case of the assessee, being a trust or institution, any persons referred to in clauses (a), (b), (c) and (cc) of sub-section (3) of section 13;

(iii) In case of a person other than persons referred to in sub-clauses (i) and (ii), the person who is competent to verify the return under section 139 in accordance with the provisions of section 140;

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

(v) An officer or employee of the assessee;

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

(vii) An individual who, or his relative or partner is holding any security of or interest in the assessee.

It is also provided that the relative may hold security or interest in the assessee of the face value not exceeding one hundred thousand rupees; an individual who, or his relative or partner is indebted to the assessee. It is also provided that the relative may be indebted to the assessee for an amount not exceeding one hundred thousand rupees; an individual who, or his relative or partner has given a guarantee or provided any security in connection with the indebtedness of any third person to the assessee. It is also provided that the relative may give guarantee or provide any security in connection with the indebtedness of any third person to the assessee for an amount not exceeding one hundred thousand rupees;

(viii) A 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.

It is further proposed to amend sub-section (4) of the said section so as to provide that a person who has been convicted by a court of an offence involving fraud shall not be qualified to represent an assessee under sub-section (1) of the said section for a period of ten years from the date of conviction.

It is also proposed to insert an Explanation at the end of the said section so as to provide that the expression “relative” in relation to an individual means (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 a person referred to in clause (b), clause (c), clause (d) or clause (e); (g) any lineal descendant of a brother or sister of either the individual or of the spouse of the individual.

However, the Bill seeks to amend section 288 of the Income-tax Act relating to appearance by authorised representative. It is proposed to provide that the ineligibility for carrying out any audit or furnishing of any report/certificate in respect of an assessee shall not make an accountant ineligible for attending income-tax proceeding referred to in sub-section (1) of section 288 of the Act as authorised representative on behalf of that assessee. It is further proposed to provide that the person convicted by a court of an offence involving fraud shall not be eligible to act as authorised representative for a period of 10 years from the date of such conviction. These amendments will take effect from 1st June, 2015.

In my view the aforesaid amendment is in public interest at large.

Ajay R. Singh,
Advocate

Charitable Trust / Institution

Definition of Charitable Purpose

In Divya Yog Mandir Trust v. Jt. CIT (2013) 60 SOT 154 (URO) (Delhi)], the Tribunal held that any form of educational activity involving imparting of systematic training in order to develop the knowledge, skill, mind and character of students is to be regarded as “education” covered under section 2(15) of the Income-tax Act, 1961. In view of above, it can be concluded that imparting of Yoga training through well structured yoga shivir/camps fall under the category of imparting education which is, one of the charitable objects defined under section 2(15).

Now, the Finance Bill, 2015 proposes to amend the definition of section 2(15) of the Act as well as conditions for exemption under the one of the objects of the bill “Ease of doing business / dispute resolution”. Therefore, it is proposed to include “yoga” as a specific category in the definition of charitable purpose on the lines of education, to avoid any controversy due to international recognition granted to it by United Nation.

Advancement of any other object of general public utility

The present definition in section 2(15) was substituted by Finance Act, 2008 and the first proviso was added to state that the advancement of any other object of general public utility will cease to be a “charitable purpose” if it involves any “trade, commerce or business” and aggregate receipts from such activities exceed rupees twenty five lakh. Thus, the proviso is very widely worded and implies that even smallest commercial activity will render the entire organisation not charitable.

Now, to mitigate the impact of the above proviso, the bill proposes that as regards the advancement of any other object of general public utility is concerned, there is a need is to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organisation as part of actual carrying out of the primary purpose of the trust or institution.

It is, therefore, proposed to amend the definition of charitable purpose to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless –

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

(ii) The aggregate receipt from such activities, during the previous years, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year.

Accumulation of income u/s. 11(2)

Under the provisions of section 11 of the Act, the primary condition for grant of exemption to trust or institution in respect of income derived from property held under such trust is that the income derived from property held under trust should be applied for the charitable purpose of India. Where such income cannot be applied during the previous year, it has to be accumulated and applied for such purpose in accordance with various conditions provided in the section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the Assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes. If the accumulated income is not applied in accordance with these conditions, then such income is deemed to be taxable income of the trust or institution.

In CIT v. Nagpur Hotel Owners’ Association (2001) 247 ITR 201 (SC)] the Supreme Court held that, it is abundantly clear from the wording of section 11(2), that it is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No. 10 of the Income Tax Rules, 1962 i.e. for accumulation of income. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment.

To overcome, the above judgment, it is proposed to provide that, in order to remove the ambiguity regarding the period within which the assessee is required to file Form 10, and to ensure due compliance of the above conditions within time, it is proposed to amend the Act to provide that the said Form shall be filed before the due date of filing return of income specified under section 139 of the Act for the fund or institution. In case the Form 10 is not submitted before this date, then the benefit of accumulation would not be available and such income would be taxable at the applicable rate. Further, the benefit of accumulation would also not be available if return of income is not furnished before the due date of filing return of income

These amendments would help the Yoga Institution to claim the exemption under section 11 of the Act. Further, if Form 10 is submitted, for accumulation of income by charitable trust / institution, before due date of filing return of income, it would facilitate the revenue to process the return of income without waiting to seek the copy of Form 10. Thus, complying with the vision of the Prime Minister “maximum governance minimum Government”.

Additional Depreciation and Investment in new Plant or Machinery:

Another object of the Bill, is to boost the vision of Prime Minister, “Make in India”. Therefore it is propose to amend the Income-tax Act, 1961 as under:

i) Additional Investment Allowance

Manufacturing sector plays significant role in the economic growth of any region. Therefore, in order to encourage the setting up of industrial undertakings in the backward areas of the State of Andhra Pradesh and the State of Telangana, it is proposed to provide following income tax incentives:

It is proposed to insert a new section 32AD in the Act to provide for an additional investment allowance of an amount equal to 15% of the cost of new asset acquired and installed by an assessee, if:

(a) He sets up an undertaking or enterprise for manufacture or production of any article or thing on or after April 1, 2015 in any notified backward areas in the State of Telangana; and State of Andhra Pradesh; and

(b) The new assets are acquired and installed for the purposes of the said undertaking or enterprise during the period beginning from April 1, 2015 and ending on March 31, 2020.

This deduction shall be available over and above the existing deduction available under section 32AC of the Act. Accordingly, if an undertaking is set up in the notified backward areas in the State of Andhra Pradesh or Telegana by a company, it shall be eligible to claim deduction under the existing provisions of section 32AC of the Act as well as under the proposed section 32AD if it fulfils the conditions specified in the said section 32AC and conditions specified under the proposed section 32AD.

The phrase “new asset” has been defined as plant or machinery but does not include-

(i) Any plant or machinery which before its installation by the assessee was used either within or outside India by any other person:

(ii) Any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;

(iii) Any office appliance including computer or computer software;

(iv) Any vehicle;

(v) Any ship or aircraft; or

(vi) Any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

With a view to ensure that the manufacturing units which are set up availing this proposed incentive actually contribute to economic growth of these backward areas by carrying out the activity of manufacturing for a substantial period of time, it is also proposed to provide suitable safeguards for restricting the transfer of the plant or machinery for a period of 5 years. However, this restriction shall not apply to the amalgamating or demerged company or the predecessor in a case of amalgamation or demerger or business reorganisation but shall continue to apply to the amalgamated company or resulting company or successors, as the case may be

ii) Additional depreciation:

To incentivise investment in new plant or machinery, additional depreciation of 20% is allowed under the existing provisions of section 32(1)(iia) of the Act in respect of the cost of plant or machinery acquired and installed by certain assessee. This depreciation allowance is allowed over the above the deduction allowed for general depreciation under section 32(1)(ii) of the Act. In order to incentivise acquisition and installation of plant and machinery for setting up manufacturing units in the notified backward area in the State of Andhra Pradesh or the State of Telangana. It is proposed to allow higher additional depreciation at the rate of 35% (instead of 20%) in respect of the actual cost of new machinery or plant (other than a ship and aircraft) acquired and installed by a manufacturing undertaking or enterprise which is set up in the notified backward area of the State of Andhra Pradesh or the State of Telangana on or after of April 1, 2015. This higher additional depreciation shall be available in respect of acquisition and installation of any new machinery or plant for the purpose of the said undertaking or enterprise during the period beginning on April 1, 2015 and ending on March 31, 2020. The eligible machinery or plant for this purpose shall not include the machinery or plant which are currently not eligible for additional depreciation as per existing proviso to section 32(1)(iia) of the Act.

iii) Additional depreciation in succeeding year

It is also proposed to make consequential amendments in the second proviso to section 32(1) of the Act for applying the existing restriction of the allowance to the extent of 50% for assets used for the purpose of business or less than 180 days in the year of acquisition and installation. However, the balance 50% of the allowance is also proposed to be allowed in the immediately succeeding financial year.

Thus amendment would help in avoiding controversy. In DCIT v. Cosmo Films Ltd.(2012) 139 ITD 628 (Delhi) (Trib.) and ACIT v. SIL Investments Ltd. (2012) 73 DTR 233 (Delhi)(Trib.) decided in favour of the assessee and allowed to set off 50% additional depreciation in succeeding year, while in Brakers India Ltd v. DCIT(2013)96 DTR 281(Chennai)(Trib.) decided against the assessee.

Transaction not regarded as transfer

To overcome the judgment of the Supreme Court in Vodafone International Holdings B. V. v. UOI (2012)341 ITR 1(SC), Explanation 5 to section 9(1) was inserted by the Finance Act, 2012 with effect from April 1, 1962. The Explanation reads as under:

“For the removal of doubts it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives directly or indirectly, its value substantially from the assets located in India.”

To mitigate rigour of the above Explanation, the Finance Bill, 2015, proposes to insert section 9A to the Act. Simultaneously, it is also proposed to include following two clauses to section 47 of the Act.

(i) Any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if conditions provided therein;

(A) At least 25% of the share holders of the amalgamating foreign company continue to remain share holders of the amalgamated foreign company; and

(B) Such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated.

(ii) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in Explanation 5 to clause (i) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, if;

(a) The shareholders holding not less than 75% in value of the shares of demerged company continue to remain share holders of resulting foreign company; and

(b) Such transfer does not attract tax on capital gains in the country in which demerge foreign company is incorporated.

Consequential amendment is also proposed in respect of cost with reference to mode of acquisition.

Tax neutrality on merger of similar schemes of Mutual Funds

Securities and Exchange Board of India has been encouraging mutual funds to consolidate different schemes having similar features so as to have simple and fewer number of schemes. However, such mergers/consolidations are treated as transfer and capital gain are imposed on unit holders under the Income-tax Act.

In order to facilitate consolidation of such schemes of mutual funds in the interest of the investors, it is proposed to provide tax neutrality to unit holders upon consolidation or merger of mutual fund schemes provided that the consolidation is of two or more schemes of an equity oriented fund or two or more schemes of a fund other than equity oriented fund. It is further proposed that the cost of acquisition of the units of consolidated scheme shall be the cost of units in the consolidating scheme and period of holding of the units of the consolidated scheme shall include the period for which the units in consolidating schemes were held by the assessee. It is also proposed to define consolidating scheme of a mutual fund which merges under the process of consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and consolidated scheme as the scheme with which the consolidating scheme merges or which is formed as a result of such merger.

These amendments would help to achieve one of the objects of the bill “Ease of doing Business / Dispute resolution”.

Amendment of section 115JB

The Finance Minister Mr. Arun Jetley in his speech, while presenting the budget of 2015-16 in para 116 observed:

“In order to rationalise the MAT provisions for FIIs, profits corresponding to their income from capital gains on transactions in securities which are liable to tax at a lower rate, shall not be subject to MAT.”

Therefore, under “rationalisation measures” being one of the objects of the Bill, the provisions of section 115JB are proposed to be rationalised.

Vide Finance Act (No. 2), 2014 it was provided that any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 would be capital asset. Consequently, the income arising to a Foreign Institutional Investor from transactions in securities would always be in the nature of capital gains.

It is, therefore, proposed to amend the provisions of section 115JB so as to provide that income from transactions in securities (other than short term capital gains arising on transactions on which securities transaction tax is not chargeable) arising to a Foreign Institutional Investor, shall be excluded from the chargeability of MAT and the profit corresponding to such income shall be reduced from book profit. The expenditure if any, debited to profit and loss account corresponding to such income (which is being proposed to be excluded from the MAT liability) are also proposed to be added back to the book profit for the purpose of computation of MAT.

In view of the above,

A new clause (iic) is also proposed to be inserted in Explanation 1 so as to provide that the amount of income from transactions in securities, (other than short term capital gains arising on transactions on which securities transaction is not chargeable) accruing or arising to an assessee being a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1922 if any such amount is credited to the profit and loss account, shall be reduced from the book profit for the purpose of calculation of income tax payable under the section. Further by inserting a new clause (fb) in Explanation 1, it is proposed that the book profit shall be increased by the amount or amounts of expenditure relatable to the above income

A new clause (iib) is proposed to be inserted in Explanation 1 so as ato provide that the amount of income, being the share of income of an assessee on which no income tax is payable in accordance with the provisions of section 86, if any such amount is credited to the profit and loss account, shall be reduced from the book profit for the purpose of calculation of income tax payable under the section. Further by inserting a new clause (fa) in Explanation 1 it is proposed that the book profit shall be increased by the amount or amounts of expenditure relatable to the above income.

Section 86 of the Act provides that no income tax is payable on the share of a member of an AOP, in the income of the AOP in certain circumstances. However, under the present provisions, a company which is a member of an AOP is liable to MAT on such share also since such income is not excluded from the book profit while computing the MAT liability of the member. In the case of a partner of a firm, the share in the profits of the firm is exempt in the hands of the partner as per section 10(2A) of the Act and no MAT is payable by the partner on such profits.

In view of the above, it is proposed to amend the section 115JB so as to provide that the share of a member of an AOP, in the income of the AOP, on which no income tax is payable in accordance with the provisions of section 86 of the Act, should be excluded while computing the MAT liability of the member under 115JB of the Act. The expenditures, if any, debited to the profit and loss account, corresponding to such income (which is being proposed to be excluded from the MAT liability) are also proposed to be added back to the book profit for the purpose of computation of MAT.

Thus, long term capital gains and short term capital gains on which STT is paid by FIIs, would be excluded from MAT, but short term capital gains (other than STT paid) would be taxed in MAT at 18.5%. in the hands of FIIs. Further, the share of profit AOP in the hands of member is proposed to be excluded rightly as there is no provision to exclude the share of profit of AOP in the hands of member like section 10(2A), wherein the share of profit of the firm is excluded, in the hands of partner.

Tax on income received from Venture Capital Companies and Venture Capital Fund

The provisions of section 115U were introduced by the Finance Act, 2000 with effect from April 1,2001 with a view to provide incentive to venture capital. The section 115U provides that any income accruing or arising to or received by a person out of investment made in a venture capital company or venture capital fund shall be chargeable to tax if it were the income received by such person had he made the investments directly in venture capital undertaking. Similarly the income received by the person shall also be deemed to be of the same nature and bear the same proportion as if it had received by the venture capital company or venture capital fund.

Now the Finance Bill, 2015 seeks to insert a new Chapter XII–FB consisting of new section 115UB in the Income-tax Act, relating to tax on income of investment funds and income received from such funds.

Therefore, it is proposed to provide that existing pass through scheme contained in the provisions of section 10(23 FB) and section 115U shall not apply to such fund on or after April 1, 2016, however such investment fund to which new regime provided in section 10(23FBA) and section 115UB applies.

CA. H. N. Motiwalla

Section 11 of the Income-tax Act 1961 provides for exclusion of income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property;

Section 2(15) of the Income-tax Act 1961 defines charitable purposes as under:-

2(15) ‘charitable purpose’ includes relief of the poor, education, medical relief, preservation of environment (including water heads, forests and wildlife) and preservations of monuments or places of or objects of artistic or historical interest and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;”

Provided further that first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year

The present definition in section 2(15) was substituted by Finance Act 2008 with effect from 1-4-2009 and first proviso was added to state that the “advancement of any other object of general public utility” will cease to be a “charitable purposes” if it involves any trade commerce or business .Preservation of environment and preservation of monuments or places of historical or artistic interest have also be added to the definition implying that these are now taken out of the category of general public utility

Second proviso to section 2(15) added by Finance Act 2010 with effect from 1-4-2009 provides an exception to the application of first proviso if the turnover from the activity of trade, commerce or business does not exceed
Rs. 10 lakh in the previous year. The limit of Rs. 10 Lakh was increased to
Rs. 25 Lakh by the Finance Act 2011 with effect from 1-4-2012.

The Finance Minister in his Budget speech of 2008 had stated that the CBDT would issue guide lines to determine whether an entity is carrying on any activity in the nature of trade commerce or business and that Chamber of commerce and similar organisations would not be affected by the amendment. However no such guide lines were issued. Department has issued notices to several organizations resulting in unwarranted litigation.

Delhi High Court in the case of Institute of Chartered Accountants of India and Another v. Director General of Income-tax (Exemptions) and Others. [2012] 347 ITR 99 (Del.) held that

The first proviso to section 2(15) introduced with effect from April 1, 2009 applies only if an institution is engaged in advancement of any other object of general public utility and postulates that such an institute is not “charitable” if it is involved in carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce, or business.

It further held that the proviso is inapplicable for the entities engaged in the activities of (i) relief of the poor; (ii) education; (iii) medical relief; (iv) preservation of environment (including watersheds, forests and wildlife); (v) preservation of monuments or places or objects of artistic or historical importance

The constitutional validly of proviso to section 2(15) of the Income-tax Act 1961 was challenged in the Delhi High in the case of India Trade Promotion Organization vs. UOI (www.itatonline.org) The High Court vide judgment Dated January 22, 2015 Held that If the definition of “charitable purpose “in section 2(15) and section 10(23C) (iv) is construed literally, it is violative of the principles of equality & unconstitutional.

In order to uphold the Constitutional validity of the proviso to section 2(15) it was held that the proviso shall have to be read down;

I quote from the judgement “The expression “charitable purpose”, as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running foul of the principle of equality enshrined in Article 14 of the Constitution India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a ‘charitable purpose’. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes (Info Parks Kerala v. Deputy Commissioner of Income-tax (2010) 329 ITR 404 (Ker) and Andhra Pradesh State Seed Certification Agency v. Chief Commissioner of Income-tax-III, Hyderabad 256 CTR 380 (AP) dissented from) Finance Bill, 2015 proposes to amend section 2(15) as under:-

In section 2 of the Income-tax Act, with effect from the 1st day of April, 2016, —

(a)

(b) in clause (15),—

(i) after the word “education,”, the word “yoga,” shall be inserted;

(ii) for the first and the second provisos, the following proviso shall be substituted, namely:—

“Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless —

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

(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;”;

As is evident the Bill Proposes to include Yoga in the definition of Charitable purposes for purposes of section 11. The proposed amendment in clause (15) of section 2 of the Income-tax Act 1961 further provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless–– (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year

In my humble view the proposed amendment in the proviso to section 2(15) is likely to benefit non -profit organisations having substantial receipts but will adversely affect non-profit organisations of small magnitude

Examples – As per the proposed amendment a non-profit organisation with annual receipt of 500 Crs out of which 100 Crs may be from activities in the nature of trade, commerce or business will not lose the status of a Public charitable trust as receipts from the activities in the nature of trade commerce or business of the organisation do not exceed 20 % of the annual receipts of the previous year.

On the other hand a non-profit organisation with gross annual receipts of
Rs. 5 lakh will lose the status of the Public charitable trust if the receipts from the activities in the nature of trade commerce or business exceed 1 lakh in the previous year

Technically a non-profit organisation with petty receipt of Rs. 100 from an activity which may fall in the nature of trade commerce or business will also lose the status of public charitable trust if it does not have any other receipt in the previous year.

This, in my humble view, may not be the intention of the proposed legislation. Finance Minister may consider the consequence of the proposed amendment before pressing it for approval of the parliament

Suggestion: The limit of Rs. 25 lakh under the existing law may simply be enhanced to
Rs. 50 lakh or so Or Limit of Rs. 50 lakh (or any figure) or 20% of the receipts of the previous year whichever is higher “may be incorporated”

ITAT Bar Association/Bombay chartered Accountants Society may take up the matter with the Finance Minister.

Manzoor Ahmed Bakhshi
Advocate

NAMASTE INDIA

My beloved Members,

“India inspired creations, only for you”, said a Samsung Initiative ‘Ad’ titled –
“Namaste India”, published on the front page of Economic Times dated 16th March, 2015. It instantly attracted my attention and thought process the way they do business in our country. The Ad further continued,
“At Samsung, the world’s leading electronics company, innovation starts by listening carefully to what you need. For us there is no greater satisfaction than creating products that enhanced your life. And that is preciously why we ‘Make For India’.” This diagnosis of theirs touched my heart.

2. As we all know that Samsung Electronics, a Korean electronics major, by the end of 2016 proposes to surpass the US but behind China. Following statistics of their ‘Make For India’ initiative is quite illuminating for doing their focused business in India.

3. Who will say that the above Samsung Initiative established in India has not added growth to India’s economy and enriched the living standard of Indians using the above qualitatively excellent products? When I say so, please bear in mind that am simply bringing to your kind attention the mission of India’s growth is in their mind, of course, in the mutual interest of India and Korea. Incidentally, it may be stated that Mr. Hyunchil Hong, Samsung India President said,
“India’s Budget (2015-16) has acted as catalyst to its intention of ‘making for India’.” He further said, “we do have some specific products for online…… we are keeping a close eye the way e-commerce is growing.” Indeed, Samsung presented their views in the ‘Ad’ humbly and in a lovely manner to attract customers in India. We must therefore appreciate their business initiative and the process of their thinking.

4. To take forward our growth story Hon’ble PM will be starting a monthly conference call with State Chief Secretaries and Secretaries of Union Government starting March 25, 2015 for the speedy redressal of grievances, and monitoring and implementation of projects. The new governance programme has been named as
“Pragati” i.e. pro-active governance and timely implementation. This initiative of the PM shows how he is restless about the implementation of the growth of our motherland.

5. In the meantime, RBI report said –
“We are now looking at just 5% earnings growth in F.Y. 2015-16 compared to 15% growth estimate at the beginning of the year. While retail inflation accelerated to 5.37% in February, industrial production growth hit a three-month low in January 2015, the Government said in data released on March 12, 2015”. Simultaneously, Mr. Marc Faber, Global Investor & Publisher of the widely read – Gloom, Boom & Doom report said, “Indian markets may correct 10-20% this year (2015-16) as implementation of Government’s reforms programme
has been disappointing so far. I do not think the economy is growing
anywhere near 8%. It may be growing at 5%. But when I compare this
5% growth with 0% or 1% growth elsewhere in the world, 5% growth is
very good !.” Thus, he supported the views of the RBI.

6. Arising out of the GST Bill tabled in the Parliament, the trade and industry desires to have clarity on
“Supply Rules”, which is a barrier for GST roll out in as much as, because of the surge in e-commerce and electronic delivery of services, this aspect refers to rules that allocate the right to tax services between States. So far, it seems, importing dealer will get credit for goods and services supplied from another State. What is unclear is which State would have the right to tax different services. This is the backbone of GST, which will ensure the services are taxed at the right jurisdiction. Without supply rules, there is a possibility of certain services going out of tax net and some being taxed over again.

7. For a common man RTI is a good weapon to use for redressal of his grievances or bring the same to the notice of the Government and administration for improvement. But sadly, delays are weakening RTI. In March 2009, there were 6,917 appeals pending with the CIC and in March 2015, the number of such cases has gone upto 37,878. On top of that the Central Information Commission has been headless for 6 months now. For a common man, RTI route is treated as a mini Constitution, but, it appears that it is being neglected by the Union Government. How sad the scenario is!

8. Last but not the least, I appeal and invite our members including NEC members to participate in the National Tax Conference, Darjeeling, scheduled for 17th and 18th April, 2015. For details you may refer to AIFTP Times for March 2015 which is already in your hands.

With best wishes and regards,

J. D. Nankani
National President

Finance Bill, 2015 – Sincere attempt of the Hon’ble Finance Minister to present a growth oriented budget – Deserves appreciation – Notwithstanding, why is the Government hesitant to bring in accountability provision in tax laws?

In the NDA Government’s first full year budget, we highly appreciate the sincere attempt of the Hon’ble Finance Minister to present a budget which is both forward looking and growth oriented. We are also pleased to acknowledge that some of the recommendations of the Federation have been accepted by him. Important suggestions of ours which have been accepted are:

(1) S. 158AA – Procedure for appeal by revenue when an identical question of law is pending before Supreme Court.

(2) S. 253(1) – Orders passed by prescribed authority refusing to grant approval under sections 10(23C)(vi) and (via) being made appealable before the Tribunal.

(3) S. 253(3) – Single member of the Tribunal to dispose of cases where total income as computed by Assessing Officer does not exceed
Rs. 15 lakhs.

(4) Working towards achieving more certainty in tax law.

(5) Scrapping the proposal to enact the Direct Tax Code.

(6) Mandatory routing of advances of
Rs. 20,000/- or above through banking channels and prescribing quoting of PAN compulsory for transactions exceeding
Rs. 1 lakh.

(7) Adhering to the commitment of dispensing with retrospective amendments to the income tax law.

The Federation also welcomes the following provisions:

(a) Abolition of Wealth-tax, though late

(b) Measures to curb black money

(c) Various incentives to promote investments

(d) Postponement of General Anti–Avoidance Rule

(e) Proposal to set up exclusive commercial divisions in various courts in India.

At the same time, the Federation apprehends that the following amendments may lead to increased litigation:

(1) S. 263 – Revision of order without making enquiry or verification, in respect of order passed, allowing relief not in accordance with the Board or decision of court.

(2) S. 271(1) – Explanation 4: Tax sought to be evaded for purpose of levy of penalty for concealment of income under section 271(1)(iii), where concealment of income or furnishing inaccurate particulars of income occurs in computation of income under section 115JB, or 115JC.

In this issue, the learned authors have contributed articles on some of the important amendments proposed
vide Finance Bill, 2015, which may be useful to the readers and administration to understand the provisions.

Amendments to the fiscal laws each year is a regular feature. But, the Federation is of the opinion that whatever may be the law, unless the provision of accountability is introduced in the Act, honest tax payers will have to suffer at the sweet mercy of few adventurous tax officials, and, therefore, it is essential for the law makers as well as the Federation to focus the attention on this vital issue till such time the success is achieved in this behalf.

“The Law is good, if a
man use it lawfully” – 1 Timothy, 1:8

Recently, an assessee brought to our notice that the returned income was loss of
Rs. 2 crores, and the Assessing Officer, for reasons best known to him converted the loss into profit and assessed at
Rs. 4 crores by treating entire cost of purchase of machinery as income, sister concern’s sales added as the income of assessee.

One has to imagine the harassment meted out to the assessee by such unlawful actions of the Assessing Officer. This is mainly because albeit the entire addition is deleted by higher authorities, no question will be asked of the Assessing Officer concerned for making such illegal additions. So both gets escaped from the scrutiny on the ground that they being public servants their actions are honestly done. Therefore, it is high time, all concerned with this deeply rooted malady, must ponder over it and seek remedy in the matter. One will find a number of High Court judgments warning tax officials to follow the due process of law while rejecting stay applications, notwithstanding that the Apex Court as well as High Courts has prescribed guidelines on this issue. Sadly, some tax officials do not show any respect to the judgment of the higher courts and nothing happens to them. In such a disgusting scenario, we earnestly appeal to the Government to take drastic steps to bring accountability in tax administration and advise tax officials to follow the culture of tax service.

Dr. K. Shivaram
Editor-in-Chief