Launch of Employees’ Enrolment Campaign 2017

Employees’ Provident Fund Organisation (EPFO) has launched EMPLOYEES’ ENROLMET CAMPAIGN- 2017 from the
1st day of January, 2017 till the 31st day of March, 2017 to provide opportunity to all the employers covered or uncovered under EPF & MP Act, 1952 to voluntarily come forward and declare the details of all such olive employees, who were required or entitled to become member of EPF on or after the 1st day of April, 2009, but before the 1st day of January, 2017 and who could not be enrolled as member for any reasons. This campaign is currently available for Indian Nationals only. This benefit is not available to the employers of the establishments against whom, inquiries u/s.7A of the Act or paragraph 26B of the Act is going on.

The employer has to voluntarily make the declaration between
1st day of January, 2017 till the 31st day of March, 2017 in the prescribed
“Declaration form for Employees’ Enrolment Campaign, 2017” available on website www.epfindia.com for which the following incentives will be provided to him:

a) The employee’s share of contribution, if declared by the employer as not deducted, shall stand waived.

b) The damages to be paid by the employer in respect of the employees for whom declaration has been made under this campaign shall be at the rate of ₹ 1 (Re. One) Per Annum, however only simple interest @ 12% per annum has to be paid.

c) No Administrative charges for EPF Scheme, 1952 and EDLI Scheme, 1976 shall be collected from the employer in respect of the contribution made under the declaration.

d) The declaration made during the campaign shall be treated as bona fide, unless proved otherwise and no inspection for verification will be contemplated.

Further, once declaration is made the employer has to remit the dues within 15 days from the date of declaration, failing which the declaration made under this campaign will be deemed to have not been made. After the completion of the
process the employee will be getting all eligible benefits based on the contributions.

Tentative benefit comparison chart

Year

Dues (Both employee and employer share)

In the existing system

In the Enrolment campaign

Interest (7Q)

Damages (14B)

Admin. (Charges 1.1%)

Total

Dues only employees share (If not deducted employer share)

Interest (7Q)

Damages (14B)

Admin. Charges

Total

2009

100

96

100

1.1

297.10

50

48

*

0

98

2010

100

84

100

1.1

285.10

50

42

*

0

92

2011

100

72

100

1.1

273.10

50

36

*

0

86

2012

100

60

100

1.1

261.10

50

30

*

0

80

2013

100

48

100

1.1

249.10

50

24

*

0

74

2014

100

36

75

1.1

212.10

50

18

*

0

68

2015

100

24

50

0.85

174.85

50

12

*

0

62

2016

100

12

25

0.85

137.85

50

6

*

0

56

*Damages is levied as one rupee per annum

Declaration Form for Employees’ Enrolment Campaign, 2017

Return about the employees who were required or entitled to become members of the Fund for the period beginning the 1st day of April 2009 and ending the 31st day of December, 2016 but were not enrolled as members for any reason.

Name & Address of Factory/ Establishment ___________________________________

Code No. of Factory/Establishment

Sr. No.

Account No.

UAN

Name of the Employee

Father’s Name (Or Husband’s name in case of married women)

Date of Birth

Sex

Date of Eligibility for membership under EPF Scheme, 1952

Remarks (Previous Account No. & particulars of previous service, if any)

1

2

3

4

5

6

7

8

9

I hereby declare that the above-mentioned employees are alive on the date of making this declaration and they were required and entitled to become members of the fund from the dates indicated against their names but could not be enrolled as members. I further declare that Form—11 from each of the above-mentioned employees has been obtained duty signed or with thumb impression by the employee.

I hereby undertake that if the employee’s contribution for any month has been deducted from the wages of any of the above-mentioned employees, the same shall also be deposited by me along with interest thereon in accordance with the provisions of Employees’ Enrolment Campaign, 2017.

I also undertake to remit the contributions. Interest and damages payable in respect of the above mentioned employees in accordance with the Employees’ Enrolment Campaign, 2017.

Signature of the Employer or other Authorised

Official of the Factory/Establishment

Dated………………………….2017

FAQs on EPFO Amnesty Scheme

1)

What is Employees’ Enrolment Campaign, 2017?

This is a campaign to provide opportunity to the employers to voluntarily come forward and declare details of all such employees who were entitled for PF membership between 1-4-2009 and 31-12-2016 but could not be enrolled for any reason. The campaign aims to extend PF benefits to employees hitherto deprived of PF benefits.

2)

Who can be declared a member by the employer?

Under the Campaign only such an employee can be declared for membership —

i) Who is alive and

ii) Who furnished Form 11 to the employer and

iii) Who was required or entitled to become member of Employees’ Provident Fund on or after the 1st day of April, 2009 but before the 1st day of January, 2017 but could not be enrolled as member for any reason.

3)

Whether International Workers can be declared under the Campaign?

No. The incentives are available for enrolment of Indian Nationals only.

4)

What incentives are available to the employer?

The following incentives are available to the employer:

i) The employee’s share of contribution if declared by the employer as not deducted shall stand waived.

ii) The damages to be paid by the employer in respect of the employees for whom declaration has been made under this campaign shall be at the rate of Rupee 1 (one) per annum.

iii) No administrative charges shall be collected from the employer in respect of the contribution made under the declaration.

5)

Whether any inspection shall be done to confirm the genuineness of the declaration?

The declaration shall be treated bona fide unless proved otherwise and no inspection for verification is contemplated.

6)

Whether an employer against whom a complaint has been made by the employees is also eligible for making declaration?

Yes, however, the declaration shall be valid only in respect of employees who are alive and any only if no, proceedings under Section 7A of the Act or under paragraph 26B of the Employees’ Provident Funds Scheme, 1952 or under paragraph 8 of the Employees’ Pension Scheme, 1995 have been initiated against their establishment/employer to determine the eligibility for membership of such employees.

7)

What is the time limit for making the declaration?

The declaration should be made between 1-1-2017 and 31-12-2017.

8)

Who can make a declaration?

Any employer, whether already covered or yet to be covered, can make a declaration.

9)

Can an employer be forced to make a declaration?

No. The declarations are on voluntary basis.

10)

What is the time limit to for making the remittances onces a declaration has been made?

The time limit for making the remittances once a declaration has been made is 15 days from the date of declaration.

11)

What happens to the declaration if after making declaration the employer does not make remittance?

If the employer fails to pay within 15 days of the date of making the declaration, the dues, interest and damages payable by him in respect of the declaration made under this campaign, such declaration shall be deemed to have not been made under this Campaign.

12)

Whether damages will be levied later on the amount remitted?

No. Damages at the rate of ₹ 1 (one) per annum are to be remitted upfront while remitting contribution and interest.

13)

Whether interest payable is to be paid at compound interest rate or simple interest rate?

Only simple interest is to be paid at the rate of 12 per cent per annum.

14)

Whether any administrative charges are payable for EPF Scheme, 1952 or EDLI Scheme, 1976?

No

15)

Is there any restriction on the number of declarations that can be filed by an employer?

No. There is no restriction on the number of declarations that can be filed by an employer.

16)

Is there any restriction on the number of employees that can be enrolled under a single declaration?

No. There is no restriction on the number of employees that can be enrolled under a single declaration.

17)

Whether online facility is available for making the declaration?

Yes. Facility for making the declaration online is available. However, documentary declaration can also be filed with the concerned RO/SRO.

18)

How is the amount of contribution, interest and damages to be paid after making the declaration?

Contribution is to be remitted as a supplementary ECRs for every month of the past period enrolment till December, 2016. Simple interest at the rate of 12% per annum and damages at the rate of Rupee one per annum are also to be paid through a separate ECR.

19)

Whether it is necessary for the employer to take Form 11 from all the employees?

Yes. Duly filled in Form 11 should be obtained by the employer from all the employees being declared under the Campaign. A declaration to this effect is included in the Declaration Form to be signed by the employer. The declaration given in the Declaration Form may be accepted if it is duty filled in and signed by the employer.

20)

An employee working with the establishment has left and is not traceable? Whether such an employee can be enrolled under the declaration?

No. An employee can be declared under the Campaign only if he is alive on the date of making the declaration and Form 11 duly filled with signature or thumb impression of the employee has been obtained. Therefore, an employee who is not traceable cannot be declared under the Campaign.

21)

Whether such persons who were to be enrolled as member but died before
31-12-2016 can be enrolled as members under the Campaign?

No. An employee can be declared under the Campaign only if he is alive on the date of making the declaration.

22)

Whether an RPFC can deny the declaration saying that they have now decided to initiate inquiry under section 7A of EPF & MP Act, 1952 even though there was no such inquiry pending against the employer as on
31-12-2016?

Declaration made prior to initiation of inquiry under section 7A shall be legally valid and cannot be denied by the RPFC. Once a notice under section 7A of the Act is issued, declaration cannot be made.

23)

For the purpose of Employees’ Enrolment Campaign, 2017 when is an inquiry under section 7A of the Act treated as initiated?

For the purpose of Employees’ Enrolment Campaign, 2017 an inquiry under section 7A of the Act shall be treated to be initiated on service of notice of the inquiry under section 7A to the employer or his representative or at the office of the employer.

24)

An inquiry under section 7A of the Act has been initiated against the employer for the period from April, 2011 to March, 2014. Can such an employer make a declaration under the campaign?

A declaration can be made under the Campaign for the period for which no inquiry under section 7A has been initiated. Therefore, the employer can make a declaration for employees whose date of joining (the date on which the employee was entitled and required to become members of the fund) is either between 1-4-2009 and
31-3 -2011 or between 1-4-2014 and
31-12-2016. For instance, if the employer declares one employee, Mr. ‘A’ to have joined on 1-4-2010, the employer will get the benefits under the Campaign viz.

i) Waiver of employee’s share,

ii) Damages at the rate of Rupee one per year and

iii) No administrative charges,

In respect of Mr. ‘A’ only for the period for which the inquiry has not been initiated, i.e. for 1-4-2010 to 31-3-2011 and for 1-4-2014 to 31-12-2016.

25)

The establishment is having 7A inquiry going on in respect of hundred and ten employees. Whether the remaining employees, for whom no 7A proceeding is being conducted, can be declared and enrolled under the Campaign?

Yes.

26)

Whether interest of employees has been protected under the Campaign?

Yes. The employees will be getting all eligible benefits based on the contributions.

Courtesy: EPFO

1. Amendment in Customs Act — Authority for Advance Ruling under Customs

1.1 Advance Rulings cases are now proposed to be transferred to Income tax Advance Ruling Authorities1 as against the Central Excise, Customs & Service Tax Advance Ruling Authorities from the day the Finance Bill, 2017 receives assent from President. Consequently, following amendments are proposed:

1.1.1 All the proceedings pending with the erstwhile Authority on the day of enactment of Finance Bill, 2017 shall be transferred to the constituted authority.

1.1.2 The application fee for Advance Rulings is proposed to be increased to ₹ 10,000/- from existing ₹ 2,500/-.

1.1.3 This Advance Ruling shall be pronounced by the authority within 6 months instead of 90 days at present.

2. New requirement of providing of passenger information by conveyance departing from/arriving to India

2.1 Hitherto, if the vessel, aircraft or vehicle carries imported goods, the import manifest including passenger information is required to be provided to Customs Authorities. However, no information is required to be provided if the vessel, aircraft or vehicle carries only passengers. Now, it is proposed that the person in charge of any conveyance departing from/arriving to India will have to deliver the passenger and crew manifest and passenger name record information2. If such information is not delivered within prescribed time and proper officer is satisfied that there is no sufficient cause for delay, penalty up to ₹ 50,000/- may be levied.

3. Condition for filing of Bill of Entry upon arrival

3.1 Presently, Bill of Entry can be filed at any time after delivery of import manifest/import report. Further, an option to file advanced bill of entry is available provided the conveyance is expected to arrive within 30 days3.

3.2 Now, it is proposed that importer shall present Bill of Entry within 1 day (excluding holidays) of arrival of aircraft/vessel/vehicle carrying the goods at a customs station.

3.3 The advance Bill of Entry can be filed as earlier i.e., within 30 days before the expected arrival of aircraft/vessel/vehicle. Further, now, if the Bill of Entry is not presented within prescribed time limit and no sufficient cause is provided for such delay, late charges may be levied on importer.

4. Reduction in time limit for payment of import duty

4.1 Presently, if the importer fails to pay import duty within 2 days of date on which Bill of Entry is returned to him for payment or in case of deferred payment, as prescribed in rules then interest is charged4.

4.2 As per the proposed amendment, the importer shall pay import duty on the date of presentation of Bill of Entry in case of self-assessment or within 1 day from the date on which it is returned to him for payment. If the importer fails to pay the duty within above time limits, interest will be charged.

5. Storage of Goods in a public warehouse

5.1 Importers are allowed to warehouse goods by following specific procedures for a longer period5. However, sometimes, the importer does not wish to warehouse goods but due to certain circumstances, he is unable to clear goods for home consumption. In such cases, the importers are allowed to store goods at warehouses pending clearances for temporary period6 without following warehousing procedures.

5.2 This facility of storing the goods for temporary period pending clearance is now proposed to be extended even for the goods intended to be warehoused for longer period. Hence as per the proposal the goods can be temporarily stored in a warehouse before they can be transferred to warehouse specified under chapter IX by following due procedure.

6. Foreign Post Office & International Courier Terminal to be treated as Customs Station

6.1 Presently, notified7 Customs port, airport and land customs stations are treated as ‘Customs station’ for the purpose of clearance of goods for imports and exports. Now, it is proposed8 that International Courier Terminal and Foreign Post Office would also be treated as Customs stations.

6.2 The label or declaration on the post parcels are deemed to be an entry for imports/exports9. Now, it is proposed that all imports/exports through post would be cleared under an entry as per prescribed regulations. In other words, the label or declaration would not be considered as an entry10.

7. Changes in Declaration for Export of warehoused goods without payment of import duty

7.1 Presently, imported goods which have been kept in a warehouse without payment of import duty can be exported without payment of import duty if, inter alia, other documents, labels or declarations have been presented at the time of export.

7.2 As per the proposed amendment, submission of mere label or declaration will not suffice for export of goods without payment of duty. In such cases a form as may be prescribed needs to be presented.

8. Amendment in relation to procedures relating to the Settlement Commission

8.1 Presently, an importer, exporter or any other person may disclose additional Customs Duty liability and apply to the Settlement Commission subject to following conditions11:

8.1.1 The applicant has filed Bill of Entry, shipping bill etc. and SCN is issued

8.1.2 Additional Customs Duty accepted exceeds ₹ 3 lakhs and

8.1.3 Such additional Customs Duty is paid along with interest

8.2 Now, if such applicant’s case is settled or pending before the Settlement Commission and SCN is issued to any other person in relation to such case, such other person is also proposed to be allowed to make an application to Settlement Commission. However, such application can be made only if the SCN is pending before adjudicating authority.

8.3 Sub-section (3) of Section 127C has been proposed to be amended to empower the Settlement Commission to call for report and the relevant records from Principal Additional Director General of Revenue Intelligence or Additional Director General of Revenue Intelligence having jurisdiction, which is presently restricted to calling details from Principal Commissioner or Commissioner of Customs having jurisdiction.

8.4 Now, it is proposed12 that Settlement Commission, may within 3 months from the date of passing of the Order, amend the said order to rectify any error apparent on the face of records, either suo-motu or on such error brought to notice by Departmental authorities such as Principal Commissioner/Commissioner etc.

8.5 Further, it has been provided that, in case where such rectification results into enhancement of liability of assessee, then, opportunity of being heard shall be given to applicant first before passing such order.

8.6 The said changes are effective from the date of enactment of Finance Bill, 2017.

9. Amendments in Customs Tariff Act

9.1 Customs Duty (BCD/CVD/SAD) Imposed:

Sr. No.

Particulars

Existing Rate

New Rate

1

Other Aluminium Ores including laterite Export Duty (Effective rate of duty)
(Finance Bill, 2017 read with Notification No. 03/2017 dated 02nd February 2017)

NIL

15%

2

Populated Printed Circuit Boards (PCBs) for use in the manufacture of mobile phones SAD
(Notification No. 04/2017 dated 02nd February 2017)

NIL

2%

3

Silver medallion, silver coins having silver content not below 99.9%, semi manufactured form of silver and articles of silver CVD
(Notification No. 04/2017 dated 02nd February 2017)

NIL

12.5%

4

Co-polymer coated MS tapes/stainless steel tapes for use in manufacture of telecommunication grade optical fibres or optical fibre cables (subject to actual user condition)

BCD (subject to aforesaid condition)
(Notification No. 06/2017 dated 02nd February 2017)

NIL

10%

5

Reverse Osmosis (RO) membrane element for household type filters BCD (Effective rate of duty)
(Notification No. 06/2017 dated 02nd February 2017)

7.5%

10%

6

Cashew nut, roasted, salted or roasted and salted BCD

30%

45%

9.2 Customs duty (BCD/CVD/SAD) reduced:

Sr. No.

Particulars

Existing Rate

New Rate

1

Catalyst for use in the manufacture of cast components of Wind Operated Electricity Generator (Subject to Actual User Condition)
BCD
(Subject to aforesaid Condition)
(Finance Bill, 2017 read with Notification No. 04/2017 and 06/2017 dated 2nd February 2017)

7.5%

5%

2

Resin for use in the manufacture of cast components of Wind Operated Electricity
(Subject to Actual User Condition)
BCD (Subject to aforesaid Condition)

(Finance Bill, 2017 read with Notification No. 04/2017 and 06/2017 dated 2nd February 2017)

7.5%

5%

3

Liquefied Natural Gas (LNG)
BCD
(Notification No. 06/2017 dated 2nd February 2017)

5%

2.5%

4

Anthraquinone or 2-Ethyl Anthraquinone, for use in manufacture of Hydrogen Peroxide
(Subject to Actual User Condition)
BCD (subject to aforesaid condition)

(Notification No. 06/2017 dated 2nd February 2017)

7.5%

2.5%

5

Medium Quality Terephthalic Acid (MTA) and Qualified Terephthalic Acid (QTA)
BCD (Notification No. 06/2017 dated 2nd February 2017)

7.5%

5%

6

Wattle Extract BCD (Notification No. 06/2017 dated 2nd February 2017)

7.5%

2.5%

7

Myrobalan Fruit Extract BCD
(Notification No. 06/2017 dated 2nd February 2017)

7.5%

2.5%

8

Vinyl Polyethylene Glycol for use in manufacture of Poly Carboxylate Ether
(subject to actual user condition)
BCD (subject to aforesaid condition)

(Notification No. 06/2017 dated 2nd February 2017)

10%

7.5%

9

Monofilament Yarn (Subject to Condition that the imported goods are for use in monofilament long line system intended to be used for tuna fishing)
BCD
(subject to aforesaid condition)
(Notification No. 06/2017 dated 2nd February 2017)

7.5%

5%

10

Hot rolled coils for use in manufacture of welded tubes and pipes falling under heading 7305 or 7306 (subject to actual user condition)
BCD
(subject to aforesaid condition)
(Notification No. 06/2017 dated 2nd February 2017)

12.50%

10%

11

Magnesium Oxide (MgO) coated cold rolled steel coils for use in manufacture of cold rolled grain oriented steel (CRGO) (Subject to actual user condition)
BCD
(subject to aforesaid condition)
(Notification No. 06/2017 dated 2nd February 2017)

10%

5%

12

Clay 2 Powder (Alumax) for use in ceramic substrate for catalytic convertors (Subject to actual user condition)
BCD
(subject to aforesaid condition)
(Notification No. 06/2017 dated 2nd February 2017)

7.5%

5%

13

Ball screws for use in the manufacture of all types of CNC machine tools
BCD
(Notification No. 06/2017 dated 2nd February 2017)

7.5%

2.5%

14

Linear Motion Guides for use in the manufacture of all types of CNC machine tools
BCD
(Notification No. 06/2017 dated 2nd February 2017)

7.5%

2.5%

15

CNC Systems for use in the manufacture of all types of CNC machine tools
BCD
(Notification No. 06/2017 dated 2nd February 2017)

10%

2.5%

16

All items of machinery, including, instruments, apparatus and appliances, transmission equipment and auxiliary equipment (including those required for testing and quality control) and components, required for,-

(a) initial setting up of fuel cell based system for generation of power or for demonstration purposes; or

i) BCD (subject to aforesaid conditions)

ii) CVD (subject to aforesaid conditions)

(b) balance of systems operating on bio-gas or bio-methane or by-product hydrogen, when imported into India

i) BCD (subject to aforesaid conditions)

ii) CVD (subject to aforesaid conditions)

Conditions :

(1) The importer produces to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, a certificate indicating the quantity, description and specification of such items, from an officer not below the rank of a Deputy Secretary to the Government of India in the Ministry of New and Renewable Energy recommending grant of the exemption to the items as required for,-

(a) Initial setting up of fuel cell based system for generation of power or for demonstration purposes; or

(b) Balance of systems operating on bio-gas or bio-methane or by-product hydrogen; .

(2) The importer furnishes an undertaking to the Deputy Commissioner of Customs or the Assistant Commissioner of Customs, as the case may be, that such imported items shall be used for the purposes as specified above and, if the importer fails to comply with this condition, he shall be liable to pay, in respect of such items as is not proved to have been so used, an amount equal to the difference between the duty leviable on such items but for the exemption under this notification and that already paid at the time of importation

(Notification No. 05/2017 dated 2nd February 2017)

10%/ 7.5%

12.5%

10%/ 7.5%

12.5%

5%

6%

5%

6%

17

All parts for use in the manufacture of LED lights or fixtures including LED lamps

BCD & CVD (subject to aforesaid condition)

All inputs for use in the manufacture of LED Driver and MCPCB for LED lights or fixtures, including LED lamps, (subject to actual user condition)

BCD (subject to aforesaid condition)

(Notification No. 06/2017 dated 2nd February 2017)

Applicable
BCD / CVD

Applicable BCD

BCD — 5%
CVD — 6%
5%

9.3 Customs duty (BCD/CVD/SAD) reduced:

Sr. No.

Particulars

Existing Rate

New Rate

1

Catalyst for use in the manufacture of cast components of Wind Operated Electricity Generator (Subject to Actual User Condition)

CVD (subject to aforesaid condition)

SAD (subject to aforesaid condition)

(Finance Bill, 2017 read with Notification No. 04/2017 and 06/2017 dated 2nd February 2017)

12.50%

4%

NIL

NIL

2

Resin for use in the manufacture of cast components of Wind Operated Electricity (Subject to Actual User Condition)

CVD (subject to aforesaid condition)

SAD (subject to aforesaid condition)

(Finance Bill, 2017 read with Notification Nos. 04/2017 and 06/2017 dated 2nd February 2017)

12.50%

4%

NIL

NIL

3

O-Xylene
BCD
(Notification No. 06/2017 dated 2nd February 2017)

2.50%

NIL

4

Solar tempered glass or solar tempered (antireflective coated) glass for use in manufacture of solar cells/panels/modules
BCD
(Notification No. 06/2017 dated 2nd February, 2017)

5.00%

NIL

5

Nickel and articles thereof
BCD
(Notification No. 06/2017 dated 2nd February, 2017)

2.50%

NIL

6

(i) Micro ATMs
(ii) Fingerprint reader/scanner
(iii) Iris scanner
(iv) Parts and components for use in the manufacture of the goods mentioned at (i) to (iv) above.

5.00%

NIL

9.4 Other amendments

Sr. No.

Particulars

1

Notification No. 03/2017—Cus. dated 2-2-2017 has amended Notification No. 27/2011—Cus. dated 1-3-2011 which has prescribed Nil rate of export duty on “All goods, other than aluminium ores including laterite” for which tariff rate of 30% has been prescribed by the Finance Bill, 2017.

2

Notification No. 04/2017—Cus. dated 2-2-2017 has amended Notification No. 21/2012—Cus. dated 17-3-2012 which has levied SAD on Mobile Phones in spite of BCD and CVD being exempt for the aforesaid product.

3

Notification No. 06/2017—Cus. dated 2-2-2017 has amended the condition related to total value of goods imported from 3% to 5%. Of FOB Value”.

4

Notification No. 06/2017—Cus. dated 2-2-2017 has prescribed the conditions with respect to disposal of Exempted Imported Goods (Exempted vide Notiifcation No 12/2012) being disposed off by the Importer/Transferee and on disposal of such goods, duty shall be levied on the depreciated value of such goods as reduced by % points calculated by Straight Line Method of Depreciation for each quarter of year.

5

Notification No. 06/2017—Cus. dated 2-2-2017 has amended Notification No. 21/2012—Cus. dated 17-3-2012 imposing NIL Rate of BCD, CVD and SAD on goods imported through postal parcels, packets and letters, the CIF value of which is not more than one thousand rupees per consignment instead of NIL Rate of BCD imposed earlier on goods imported through postal parcels, packets and letters, the duty payable on which is not more than one hundred rupees.

9.5 Levy of countervailing duty on exempted subsidies

Under the current provisions13 exemption was provided from levy of countervailing duty on subsidies provided by countries on:

9.5.1 Research activities

9.5.2 Assistance provided to disadvantageous regions within territory of exporting country

9.5.3 Assistance provided to promote adaptation of existing facilities as per new environmental requirements.

Now, it is proposed14 to withdraw the above exemption and impose countervailing duty on those products that receive subsidies on the above account.

9.6 Re-grouping in Tariff

Sr. No.

Present Tariff Code

Present Description

Proposed Tariff Code

Proposed Description

1

3904 00

Poly (vinyl chloride), not mixed with any other substances

3904 10

Poly (vinyl chloride), not mixed with any other substances

3904 10 10

Binders for pigments

3904 10 10

Emulsion grade PVC resin/PVC Paste resin/PVC

3904 10 20

Suspension grade PVC resin

3904 10 90

Other

3904 10 90

Other

Other poly (vinyl chloride), mixed with other substances

2

3904 21

Non-plasticised

3904 00

Non-plasticised

3904 21 10

Poly (vinyl chloride) resins

3904 21 90

Other

3

3904 22

Plasticised

3904 22 00

Pasticised

3904 22 10

Poly (vinyl chloride) (PVC) Resins (emulsion grade)

3904 22 90

Other

4

3823 11 11

Crude

3823 11 10

Stearic Acid

3823 11 12

RBD

3823 11 19

Other

3823 11 90

Other Stearic acid or stearin

9.7 Reclassification of Chapter Heading with no change in rate of duty:

Sr. No.

Present Tariff Code

Present Tariff Description

Proposed Tariff Head

Proposed Tariff Description

1

1302 32 10

Guar Meal

1106 10 1015

Guar Meal

2

1302 32 20

Guargum refined spilt

1106 10 90

Others

9.8 Insertion of New Tariff in First Schedule to the Customs Tariff Act:

Sr. No.

Tariff Code proposed

Tariff Item Description

Unit

Standard Rate of Duty

Preferential Rate of Duty

1

1511 90 30

Refined bleached deodorized palm stearin

Kg.

100%

90%

9.9 Insertion of New Tariff in Second Schedule to the Customs Tariff Act:

Sl. No.

Tariff Code proposed

Tariff Item Description

Rate of duty

23C

2606 00 90

Other aluminium ores and concentrates

30%

9.10 Notes:

9.10.1. It is proposed to delete that tariff item 5402 59 10 and 5402 693 relating to Polypropylene filament yarn is being deleted.

9.10.2. Tariff heading 9804 is proposed to be amended to include “All dutiable goods imported for personal use” which was earlier restricted only to importation by post or air.

9.10.3. The blanket rates for import of goods by a passenger or a member of a crew as given under Tariff Heading 9803 and for goods imported for personal consumption under Tariff Heading 9804 shall not be applicable to alcoholic beverages and tobacco or tobacco manufactured products.

Abbreviations:

Name

Particulars

BCD

Basic Customs Duty

CVD

Countervailing Duty

SAD

Special Additional Duty

1 Constituted under Section 245-O of the Income-tax Act, 1961

2 Section 30A and Section 41A proposed to be inserted to Customs Act, 1962

3 Section 46(3) of Customs Act, 1962

4 Section 47(2) of Customs Act, 1962

5 Chapter IX of Customs Act, 1962

6 Section 49 of Customs Act, 1962

7 Section 7 of Customs Act, 1962

8 Clause 88(e) and (g) of Finance Bill, 2017

9 Section 82 of Customs Act, 1962

10 Clause 103 and 104 of Finance Bill, 2017

11 Section 127B of the Customs Act, 1962

12 Section 127C (5A) of Customs Act, 1962

13 Clause (c) of sub-section (3) of section 9 of Customs Tariff Act,1975.

14 Clause 108 of Finance Bill, 2017.

15 It is proposed under Tariff code 1106 10 -Of the dried leguminous vegetables of heading 0713

1. Amendment in Central Excise Act — Authority for advance ruling under Excise and Customs

1.1 At present, authority for advance ruling under Central Excise is the authority as referred as Advance Rulings (Central Excise, Customs & Service Tax) authority formed under the Customs Act.

1.2 Existing provision1 used to refer to the advance authority constituted under the Customs Act.

1.3 Now, the Custom Act has been amended wherein it has been prescribed that, advance ruling authority constituted2 under the Income -tax Act would be deemed to be advance ruling authority for Customs Act. And accordingly, even for Central Excise, the said Income Tax Advance Ruling Authority would become advance ruling authority.

1.4 A new Section3 is proposed to be inserted by virtue of which all pending applications before advance ruling authority under Central Excise & Customs authority will get transferred to the Advance Rulings authority constituted under the Income-tax Act. In view of this, advance ruling authority under Central Excise and Customs will cease to function.

1.5 For filing any application before advance authority, fees that needs to be paid has been prescribed4 under CEA. Presently, the same is ₹ 2,500/-. The said filing fees is proposed to be increased to ₹ 10,000/- .5

1.6 Further, presently it has been provided that, an advance ruling authority shall pronounce its ruling within 90 days from the date of receipt of application. Now, it is proposed that, the period should be increased from 90 days to 6 months.

1.7 The above changes are effective from the date of enactment of Finance Bill, 2017.

2. Person eligible for applying for settlement of disputes under Excise Act

2.1 New provision6 is proposed to be inserted which inter-alia provides that, even any person other than assessee, may also make an application in respect of a show cause notice issued to him in a case relating to an assessee which is settled or pending before Settlement Commission.

2.2 Presently, no provision is there for suo-motto rectification of order passed by Settlement Commission on account of any mistake apparent on the record.

2.3 A new provision7 is proposed to be inserted which provides that, Settlement Commission may, within 3 months from the date of passing of the Order, amend the said order to rectify any error apparent on the face of records, either suo-motu or on such error brought to notice by Departmental authorities such as Principal Commissioner/Commissioner etc.

2.4 Further, it has been provided that, in case where such rectification results into enhancement of liability of assessee, then, opportunity of being heard shall be given to applicant first before passing such order.

2.5 The said changes are effective from the date of enactment of Finance Bill, 2017

3. CENVAT credit Rules —Amendment for banking & financial institutions

3.1 Presently, every service provider providing exempted as well as non-exempted services has to reverse the CENVAT Credit on proportionate basis. Accordingly, banking companies and financial institutions including NBFCs8, are required to reverse proportionate CENVAT Credit following either of the below mentioned options9:

a) Pay an amount equal to 6% of exempted goods/7% of exempted services

b) Determine reversal of Credit on input and input services as per formula prescribed in Rule 6 (3A) of Cenvat Credit Rules.

c) Pay every month an amount equal to 50% of the total Credit availed.

Hitherto, interest or discount earned, were not included in the value10 i.e. in the turnover of exempted and taxable services for determining the ratio for proportionate reversal of CENVAT Credit.

3.2 Now, it has been provided that, with effect from 2nd February, 2017, such interest or discount would form part of the turnover of exempted service as well as total turnover for the purpose of reversal of CENVAT Credit of banking companies and financial institutions including NBFCs11.

4. CENVAT credit Rules — Laying of time limits for approval of transfer of CENVAT credit

4.1 Presently, in case of shift of factory of manufacturer or premise of output service provider to another place or transfer of business/factory on account of change in ownership or transfer of business/factory by way of sale, merger, amalgamation, lease to a joint venture, the manufacturer or output service provider is allowed to transfer the balance unutilised CENVAT credit subject to fulfilment of specific conditions12.

4.2 The transfer of credit was allowed only if, the inputs and capital goods which are lying in stock or are in processing are also transferred to the satisfaction of officer. However, no time limit was prescribed for the proper officer to approve such transfer.

4.3 Now, it has been provided that, the proper officer will have to approve such transfer of CENVAT credit within a period of 3 months from the date of application13.

4.4 The time limit of 3 months can be extended by additional period of 6 months by the Principal Commissioner or Commissioner of Central Excise on sufficient cause being shown and reasons to be recorded in writing.

5. Remission of duty

5.1 When goods have been lost or destroyed by natural causes or any other reasons, at any time before removal, Authorities may remit the duty payable on such goods, subject to certain conditions14. Based on the monetary criteria, different authorities may allow such remission, but no time limit was prescribed for granting such remission.

5.2 Now, the remission must be decided by the respective authorities within 3 months (further extendable by 6 months) from the date of receipt of such an application15.

6. Clarification for EOU

6.1 When goods are produced or manufactured by Export Oriented Units (EOU) and cleared to Domestic Tariff Area (DTA) are liable to excise duty which is equal to aggregate of duties of Customs leviable on like goods when imported to India16.

6.2 Section 5A of the Central Excise Act, 1944, states that unless specifically provided in a notification, no exemption therein shall apply to excisable goods which are procured or manufactured by an EOU and cleared to DTA.

6.3 If goods are produced and manufactured by EOU and cleared to DTA, then exemption which is normally available on procurements will not be available to EOUs.

6.4 Government has clarified that restriction on exemption notification for EOUs is only with respect to excisable goods produced or manufactured by an EOU and cleared to DTA and not with respect to procurement of inputs and raw materials. EOUs will also be eligible to import or procure raw materials/inputs at other concessional/Nil rate of BCD, excise duty/CVD or SAD, as the case may be, provided they fulfill all conditions for being eligible to such concessional or Nil duty.

7. Tariff amendments under Central Excise

7.1 Excise duty reduced

Sr. No.

Particulars

Existing Rate

New Rate

1

Parts/Raw material for use in the manufacture of Solar tempered glass for use in:

(a) Solar photovolt aic cells or modules;

(b) Solar power generating equipment or systems;

(c) Flat plate solar collectors;

(d) Solar photovoltaic module and panel for water pumping and other applications.

(Available up to 30th June, 2017)

12.50%

6%*

2

Solar tempered glass for use in the manufacture of solar photovoltaic module and panel for water pumping and other applications.

(Available up to 30th June, 2017)

12.50%

6%*

3

All items of machinery, including instruments, apparatus and appliances, transmission equipment and auxiliary equipment (including those required for testing and quality control) and components, required for,-

(a) Initial setting up of fuel cell based system for generation of power or for demonstration purposes; or

(b) Balance of systems operating on bio-gas or bio-metric or by-product hydrogen

(Available up to 30th June, 2017)

12.50%

6%*

*Subjected to specified conditions

7.2 Additional Excise Duty Enhanced

Sr. No.

Particulars

Existing Rate

New Rate

1

Pan Masala

6%

9%

2

Unmanufactured tobacco and tobacco refuse, bearing a brand name

4.2%

8.3%

3

Chewing tobacco

6%

12%

4

Jarda Scented tobacco

6%

12%

5

Pan masala containing tobacco ‘gutkha’

6%

12%

6

Non-filter not exceeding 65 mm

215

311

7

Non-filter exceeding 65 mm but not exceeding 70mm

370

541

8

Filter not exceeding 65 mm

215

311

9

Filter exceeding 65 mm but not exceeding 70 mm

260

386

10

Filter exceeding 70 mm but not exceeding 75 mm

370

541

11

Other

560

811

7.3 Excise Duty enhanced — Basic Rate

Tariff Item

Description

Basic Excise Duty rate

From

To

2402 90 10

Cigarettes of tobacco substitutes

₹ 3,755 per thousand

₹ 4,006 per thousand

2402 90 20

Cigarillos of tobacco substitutes

12.5% or ₹ 3,755 per thousand, whichever is higher

12.5% or ₹ 4,006 per Thousand, whichever is higher.

2402 90 90

Others of tobacco substitutes

12.5% or ₹ 3,755 per thousand, whichever is higher

12.5% or ₹ 4,006 per Thousand, whichever is higher.

2403 19 29

Handmade paper rolled biris

₹ 21 per thousand

₹ 28 per thousand

2403 19 29

Machine made paper rolled biris

₹ 21 per thousand

₹ 78 per thousand

Pan Masala and Pan Masala containing Tobacoo

(6% to 7%)

Chewing Tobacco (other than filter khaini)

(6% to 7%)

Jarda Scented Tobacco

(6% to 7%)

7.4 Excise Duty exempted

Tariff ID

Particulars

Existing Rate

New Rate

3815 90 00

Catalyst for use in the manufacture of cast components of Wind Operated Electricity Generator

(Available up to 30th June, 2017)

12.5%

Nil

3909 40 90

Resin for use in the manufacture of cast components of Wind Operated Electricity Generator

(Available up to 30th June, 2017)

12.5%

Nil

84 or 85

The following goods, namely :-

(i) Micro ATMs as per standards version 1.5.1;

(ii) Fingerprint reader / scanner;

(iii) Iris scanner;

(iv) Miniaturised POS card reader for mPOS (other than Mobile phone or Tablet Computer);

(v) Parts and components for use in the manufacture of the goods mentioned at (i) to (iv) above.

(Available up to 30th June, 2017)

12.5%

NIL

3101

Animal or vegetables fertilisers, whether or not mixed together or chemically treated; fertilisers produced by the mixing or chemical treatment of animal or vegetable products

1%

NIL

7.5 Excise Duty reduced

Sr. No.

Particulars

Existing Rate

New Rate

1

Integrated monocoque, vehicles

27%

12.5%

2

Membrane Sheet and Tricot / spacer for use in the manufacture of Reverse Osmosis (RO) membrane for household type filters

(Available up to 30th June, 2017)

12.5%

6%

7.6 Other amendments:

Sr. No.

Particulars

1

The exemption from excise duty given to Point of Sale (POS) Devices and all goods for manufacture of Point of Sale (POS) Devices shall be extended up to 30th June, 2017.

2

Subject to specified conditions, benefits of reduced rate of excise duty of 6% is extended to all parts used in the manufacture of LED lights or fixtures including LED lamps.

3

Dust and powder of natural precious or semi-precious stones; waste and scrap of precious metals or metals clad with precious metals, arising in course of manufacture of goods falling in Chapter 71 which were unconditionally exempted, will now be exempted subject to the condition that CENVAT credit of excise duty or CVD and SAD on inputs or capital goods or service tax on input services is not availed.

4

Strips, wires, sheets, plates and foils of silver which were unconditionally exempted, will now be exempted subject to the condition that CENVAT credit of excise duty or CVD and SAD on inputs or capital goods or service tax on input services is not availed.

5

Articles of silver jewellery, other than those studded with diamond, ruby, emerald or sapphire which were unconditionally exempted, will now be exempted subject to the condition that CENVAT credit of excise duty or CVD and SAD on inputs or capital goods or service tax on input services is not availed.

6

Silver coins of purity 99.9% and above, bearing a brand name when manufactured from silver on which appropriate duty of customs or excise has been paid, were unconditionally exempted, will now be exempted subject to the condition that CENVAT credit of excise duty or CVD and SAD on inputs or capital goods or service tax on input services is not availed.

Abbreviations:

Name

Particulars

CVD

Countervailing Duty

SAD

Special Additional Duty

CEA

Central Excise Act

NBFC

Non Banking Financial Company

BCD

Basic Customs Duty

1 Section 23A (e) of CEA (Central Excise Act, 1944)

2 Section 245O of Income-tax Act

3 Section 23I of CEA

4 Section 23C (3) of CEA

5 Section 23C(6) of CEA

6 Sub-section (5) to Section 32E of CEA

7 Sub-section (5A) of Section 32F of CEA

8 NBFC — Non Banking Financial Company.

9 Rule 6(3) of Cenvat Credit Rules, 2004

10 Value of service by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, is not includible

11 Amendment to Explanation 1(e) of Rule 6 (3)&(3A) of CENVAT Credit Rules, 2004 vide Notification No. 4/2017- CE(NT) dated 2nd February, 2017

12 Rule 10 of Cenvat Credit Rules, 2004

13 Notification No. 4/2017 — CE (NT) dated 2nd February, 2017

14 Rule 21 of Central Excise Rules, 2002

15 Notification No. 5/2017 — CE (NT) dated 2nd February, 2017

16 Section 3(1) of the Central Excise Act, 1944

1. Introduction

Union Finance Minister Shri Arun Jaitley, placed Union Budget for the year 2017-18 before Parliament on 1st February, 2017, instead of
28th February, 2017. No separate budget for Railways was placed by the Railway Minister and the Railway Budget stands merged with the General Budget, which have been claimed as an historic step. Classification of expenditure between plan and non-plan have been done away with. The Finance Bill, 2017 to give effect to the financial proposals of the Central Government for the Financial Year 2017-18 was introduced in Lok Sabha on 1st February, 2017. Though many amendments, insertions, and substitutions have been made in the existing Act, this article is restricted to the provisions relating to search, assessment and reassessment only.

2. Search Provisions

Existing section 132(1) of this Act requires the prescribed authority to record “reasons to believe” before issuing authorisation to the authorised officer to search and reasons in the situation detailed in clauses (a) or (b) or (c) of the said section. Recording of reasons is not an idle formality. There must be live link and rational and reasonable connection, between the information and the satisfaction. On challenge it is justiciable and in case there is no information on which a reasonable person well instructed in law could form the belef, action is liable to be quashed. Assessees used to apply for copy of authorisation, copy of reasons recorded with material and information in possession for recording such reasons. The Revenue used to deny the copy or the inspection on the plea it is an administrative act and informer/ information is in secrecy and cannot be disclosed.

2.1 In CIT v. Smt. Chitra Devi (2009) 313 I.T.R. 174 (Raj.), it was held that on challenge of invalidity of the search before the tax authorities or the Appellate Tribunal the Revenue is bound to produce the search authorisation and relevant record for perusal of the Income Tax Appellate Tribunal and on failure to do so, search could be held as bad and assessment proceedings quashed. SLP was dismissed by the Supreme Court. In CIT v. Smt. Umesh Goel (2016) 387 I.T.R. 575 (Raj.) it was found that on challenge to validity of the search and reasons recorded, the CIT(A) called for Form No. 45, warrant. It was perused and found that there is no specific warrant of authorisation against the assessee and hence search being invalid proceedings for assessment are bad.

2.2 In order to avoid such challenge, it is proposed to insert an Explanation after the fourth proviso to the said sub-section (1) so as to provide that the “reason to believe” recorded by the prescribed authority shall not be disclosed to any person or any authority or the Appellate Tribunal. This amendment will take effect retrospectively from the date of commencement of the Act i.e., 1st April, 1962. Now the assessee would not be able to call for copy of recorded reasons, nor to inspect or to require the assessing authority or appellate authority or the Income Tax Appellate Tribunal to call for the records, peruse the “reasons recorded”, to entertain objection as to invalidity of the search so conducted and seizure effected. Challenge to the validity of the search and its consequence would not be entertained by the tax authorities and Appellate Tribunal.

2.3 In my view the challenge to the validity of the search, non-existence of “reason to believe”, non-existence of material information to entertain, the belief, absence of conditions precedent which are sinequanon for issuance of authorisation for search and seizure can continue to be challenged under Articles 226 and 227 of our Constitution, by way of a suitable writ. On challenge and on
prima facie satisfaction, the writ court would be competent to direct the Revenue to produce the record and after production to peruse, to furnish copy, to provide copy to the petitioner and to consider issue of lack of jurisdiction and invalidity of the action. The forbidden authorities are appellate, the Income Tax Appellate Tribunal and the person searched or any other person, other than the High Court or the Supreme Court in challenge under Article 32 of the Constitution. Right to challenge as on an action u/s. 148 of the Act by way of a writ remains open. All judicial precedents for the expression “reason to believe” for section 147 would be to the aid of the petitioner.

2.3.1 In New Kashmir and Oriental Transport Co. (P.) Ltd. v. CIT (1973) 92 I.T.R. 334 (Allahabad), as early as on 7-9-1972, it was held that when a challenge is thrown to the validity of search in a writ petition, the petitioner is entitled to inspect the record of the proceedings and to obtain copies of the orders passed in those proceedings, as Rule 12 framed under section 132 (14) requires, the reasons shall be recorded. In
M. D. Overseas Ltd. v. DGIT (2011) 333 ITR 407 (Allahabad), it observed. “The Court, in an appropriate case, can order the Department to indicate the contents or nature of information/ material and reasons to believe authorising the search (without disclosing the source of information) to the aggrieved person. The question of relevancy of information/material and reasons to believe is to be judged after hearing the aggrieved person. The question of their relevancy is not to be decided without assistance of the aggrieved person. This is subject to any valid claim of privilege under sections 123 and 124 of the Evidence Act, 1872.” It directed for disclosure of the information.

2.3.2 In Visa Comtrade Ltd. v. VOI (2011) 338 ITR 343 (Orissa) it was held “Before taking action under section 132 the competent authority must assure and reassure about the truthfulness and correctness of the information. A search under section 132 is a serious invasion into the privacy of the citizen. Therefore, section 132(1) has to be strictly construed and the information of the person or reason to believe by the authorising officer must be apparent from the note recorded by him”. It also observed “Formation of opinion on the basis of reason to believe that a particular property/asset has not been disclosed or would not be disclosed so that the action under
section 132 would be taken, is not an empty formality.”

2.3.3 Recently on 13-5-2015 in DGIT v. Spacewood Furnishers Pvt. Ltd. and Others (2015) 374 I.T.R. 595 (S.C.)
observed “The necessity of recording of reasons for issue of a warrant of authorization for search under section 132 of the Income-tax Act, 1961, so as to ensure accountability and responsibility in the decision-making process acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, this, by itself, would not confer in the assessee a right of inspection of the documents or to communication of the reasons for the belief at the stage of issuing of the authorisation. Any such view would be counter-productive of the entire exercise contemplated by section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee. While reasons in support of the “reasonable belief” contemplated by section 132 must be recorded, there is no provision requiring the reasons recorded prior to authorising the search to be disclosed or communicated to the person against whom the warrant of authorisation is issued.”

2.4 The proposed Explanation is to do away with the claim of an assessee to challenge validity of the search on non-recording of valid reasons. However, as explained earlier the inherent right to challenge the validity and jurisdiction for issuance of the authorisation to search exists, could not be done away with and could not be closed. It would be open to an assessee to challenge the search and subsequent action by an appropriate writ, before the High Court. The Hon’ble Court would be entitled to call for the records, peruse and provide copy or permit inspection, as it may deem fit and proper.

2.5 Similar Explanation has been proposed to be inserted w.e.f. 1-10-1975, in the said sub-section (1A) of section 132 so as to declare that “reason to suspect” shall not be disclosed to any person or an authority or the Appellate Tribunal. However, as analysed herein before the right of the Courts and High Courts remain as hithertofore.

2.6 It has also been proposed to insert sections (9B), (9C), (9D) in existing section 132, to attach provisionally any property belonging to the assessee with the prior approval of Principal Director General or Director General or Principal Director or Director. This power is conferred for the purpose of protecting the interest of Revenue. Reasons shall have to be recorded and provisional attachment order shall have to be issued in writing with the prior approval of the specified authority. Such order would be operative for six months from the date of the order. Power has also been conferred on the authorised officer to refer valuation of a property to the valuation officer in the manner provided u/s. 142A of the Act. The valuation officer to provide the valuation report in six months. The proposed provisions are similar to existing section 281-B of the Act.

2.7 It has been further proposed to amend existing Explanation to section 132 so as to apply the provisions of existing section 153B, time limit for completion of assessment, with respect to “execution of an authorisation for search” for the purposes of the existing section (9A) and proposed new sections (9B — Provisional Attachment) and section (9D — Valuation). These amendments will take effect from 1-4-2017 i.e., are prospective.

2.8 On the same lines as under section 132 (1)and 132(1A) it has been proposed to insert an Explanation to the said sub-section, so as to declare that the reason to believe for making the requisition shall not be disclosed to any person or any authority or the Appellate Tribunal. But it can be called for by the Court or the High Court as discussed hereinabove. This amendment has been proposed to be operative from 1-10-1975.

3. Return, assessment and reassessment

Existing sub-section (4C) of section 139 mandates filing of returns by certain entities which are exempt u/s. 10. It is proposed to provide that — (1) Fund established for the welfare of employees u/s. 10 (23AAA), Investor Protection Fund u/s. 10(23 EC or Clause 23 (ED); Core Settlement Guarantee Fund u/s. 10(23 EE) and Board or Authority u/s, 10(29A) shall also be mandatorily required to furnish the return of income.

3.1 Section 139(5) regarding filing of revised return is proposed to be amended whereby time for furnishing revised return shall be up to the end of the relevant assessment year or before completion of assessment whichever is earlier. Existing period of one year from the end of the relevant assessment year is reduced. Both these amendments would be from 1-4-2018 and shall apply to the Assessment Year 2018-19 and subsequent years

3.2 Section 234F has been proposed to be inserted whereby late fee of ₹ 5,000/- or ₹ 10,000/- as the case may be shall be payable if return for the Assessment Year 2018-19 and onwards is filed not on the due date but before 31st December or after 31st December, as the case may be. However whose total income does not exceed ₹ 5 lakh quantum of fee would be ₹ 1,000/-. It shall be payable along with tax and interest on self-assessment u/s. 140A of the Act. Such fee payable shall also be considered while processing of return u/s. 143(1) of the Act.

3.3 Section 143(1D) (as substituted by section 68 of the Finance Act, 2016) has been proposed to be substituted whereby it shall not be necessary to do processing u/s. 143(1), where a notice for scrutiny has been issued u/s. 143(2). It shall be for the Assessment Year 2017-18 and onwards.

3.4 Existing section 153 of the Act provides for time limit for completion of assessment, reassessment and recomputation. Time limit proposed for regular assessment u/s. 143 or 144 is being reduced to 18 months from existing 21 months for the Assessment Year 2018-19 and 12 months for the Assessment Year 2019-20 and onwards.

3.5 Similarly for an assessment, reassessment or recomputation u/s. 147, if notice u/s. 148 is served on or after 1-4-2019, time limit for completion of assessment shall be 12 months from the end of the financial year in which notice was served.

3.6 Time limit for making fresh assessment pursuance to an order of the Tribunal u/s. 254 or revision u/s. 263 or 264 shall be 12 months from the end of the financial year in which order is received or passed.

3.7 From existing third proviso to Explanation 1 of section 153, the reference to section 153B has been proposed to be omitted. All these amendments will take effect from 1-4-2017.

3.8 It is proposed to amend existing sub-section (5) of section 153. Where an order u/s. 250 or 254 or 260 or 262 or 263 or 264 requires verification of any document or other person or granting on opportunity of being heard, the time limit relating to fresh assessment shall be as that in amended section 153(3).

3.9 Section 153(9) has been proposed to be amended to provide that where a notice under Section 142(1) or 143(2) or 148 has been issued prior to 1-6-2016 and assessment or reassessment has not been completed by the due date due to exclusion of time referred to in Explanation I, such act shall be completed in accordance with the provisions existing before the substitution of the said section by the Finance Act, 2016 meaning thereby under the old section. These amendments will take effect from 1-6-2016.

4. Special Agreement in search or requisition cases.

During the last five years there is thrust on searches and its expeditious assessments, to enable to collect additional revenue and to curb unaccounted for assets, transactions, black money and corruption, which is flagrantly prevalent in all the fields. Section 197(c) of the Finance Act, 2016, provided that where any income has accrued, arisen or received or any asset has been acquired out of such income prior to commencement of the Income Declaration Scheme, 2016, and no declaration in respect of such evaded income is made, then such income shall be deemed of the year in which a notice under section 142(1) or 143(2) or 148 or 153 A or 153C of the Act is issued by the Assessing Officer and it shall be taxed in such year. It was noticed that such section is unconstitutional and action would be void. However, the Central Board of Direct Taxes clarified that the Finance Act, 2016, being later on point of time would prevail over the provisions of the Income-tax Act. It is not correct interpretation of law. Good sense have prevailed and the said section 197(c) stand omitted. We are happy it is better to correct the mistake rather then to harass the taxpayers with long drawn litigation. We have been told that some enlightened super active assessing authorities issued notices under the said provision. Such notices shall have to be withdrawn as a face saving. This amendment is w.e.f. 1st June, 2016.

4.1 Section 153A provides in case of search under section 132 and requisition under section 132A for issuance of notice to furnish the return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. Now it is proposed to extend the said six years up to ten assessment years relevant to the previous year in which search is conducted or requisition is made in the following circumstances:

(i) If the Assessing Officer has in his possession books of account or other document or evidence which reveal, the escaped income is likely to be fifty lakhs or more in ten years;

(ii) Such escaped income is represented in the form of asset including immovable property being land or building or both, shares and securities, deposits in bank account loans and advances and it relates to the said ten years ;

(iii) Search is initiated or requisition is made on or after 1-4-2017. Consequent amendments have been proposed to the provisos of section 153A. It is also proposed to insert Explanation to define the expression “relevant assessment year”, to mean an assessment year preceding the previous year of search or requisition which falls beyond six assessment years, but not later than ten assessment years, from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made. Explanation 2 explains the word “asset” as noted earlier. Applicability of this provision from 1-4-2017 shows the intention of the Government to give one more final chance to avail of “Pradhan Mantri Garib Kalyan Yojana, 2016”, which is open up to 31-3-2017.

4.2 Section 153B is proposed to amend time limit for completion of six assessments under section 153A within 21 months from the end of the financial year in which the last of the authorisation for search or requisition was executed. Hence time limit for searches conducted up to 31-2-2017 shall remain as it exists earlier. However for the search and seizure cases conducted on or after 1-4-2017 the time limit for making an assessment shall be reduced from 21 months to 18 months. It is also proposed to reduce the time limit for completion of assessment in case of such searches from
1-4-2019 and onwards to 12 months

4.3 In case of third party assessment under section 153C the time limit for completion of assessment shall be same as that of the person searched or 12 months from the end of the financial year in which books of account or documents or assets seized or requisition are handed over to the said Assessing Officer, whichever is later.

4.4 It is also proposed to insert a proviso to the Explanation to the said section, that where a proceeding before the Settlement Commission abates under section 245HA, the period of limitation shall not be less than one year after exclusion of the period taken in the settlement proceedings under section 245HA(4) of the Act.

4.5 As a saving measure, in respect of a notice under section 153A or 153C, issued prior to 1-6-2016, and assessment is pending, such assessment shall be completed in accordance with the provision of this section as it stood before its substitution from 1-6-2016. Second proviso to section 153C has been proposed to be amended, so as to provide a reference to the relevant assessment year as referred in the Explanation to section 153 A (1) i.e., instead of six years — not to exceed ten years. All these amendments shall be operative from 1-6-2017.

5. Conclusion

The extension of period to 10 years in search cases as against six years in other cases cannot be said to be discriminatory or unconstitutional. Separate classification of person searched and found possessed with specified assets and without the specified assets, can be claimed to be reasonable classification and two identifiable categories. Reduction in period for completion of assessments and reassessments is welcome. If would expedite revenue collection and also expeditious end of lis with the Revenue. However, it is desirable to change mindset of assessing and appellate authorities so as to make assessment in accordance with law and not hanky-panky or on surmises or suspicions or conjectures. Let the taxpayers and the tax collectors have introspection and both to do their duty as a civilized citizen of this Great country of India.

I. Background

Levy of income tax on book profits has its origin in US law on zero tax companies. In the Income-tax Act, 1961 (the Act) was introduced in substitution of Section 80 VVA by the Finance Act, 1987 by insertion of Section 115 J with effect from A.Y. 1988-89. The said section provided that where the total income of a company as computed under the Act in respect of any accounting year is less than thirty per cent of its book profit, the total income of the company chargeable to tax shall be deemed to be an amount equal to thirty per cent of such book profit. Book Profit Tax was abandoned with effect from A.Y. 1990-91 by the Finance Act, 1990. However, this tax was reintroduced with a new name, Minimum Alternate Tax (MAT) with effect from A.Y. 1997-98 under Section 115 JA. However, as a result of representations from various professional bodies against MAT, which had earlier promoted dropping of book profits tax, the Government brought in credit for MAT paid under section 115 JAA against regular tax with effect from 1-4-1998 that is A.Y. 1998-99, the second year of MAT. But the availing of credit under section 115 JAA was short — lived. The Finance Act, 2000 came out with the new MAT provisions dropping section 115 JAA and substituting section 115 JA by section 115 JB with effect from A.Y. 2001-02. But, the tax credit already earned under section 115 JAA was permitted against regular tax payable even after substitution of section 115 JA by section 115 JB, but MAT tax paid under section 115 JB did not merit any credit.

It may, therefore, be seen, that there were three different versions of tax on book profits, all at different points of time under Chapter XIIB i.e. under section 115J, section 115JA and section 115 JB.

II. Present MAT provisions

Section 115JB of the Act provides for a Minimum Alternate Tax (MAT) on companies. Under the original provisions of this section, a company was required to pay at least 7.5% of its book profit as corporate tax. In case, the tax liability of a company under regular provisions was more than this amount, the provisions of MAT did not apply and the company was required to pay corporate tax as per the regular scheme.

Thereafter, Finance Act, 2005 provided that the income tax payable on the total income as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after 1st April, 2007, is less than ten per cent of its book profit, such book profit shall be deemed to be the total income of the company assessee and the tax payable for the relevant previous year shall be ten per cent of such book profit. The said percentage was raised from time-to-time and presently it is eighteen and one-half per cent. Section 115 JB inter alia provides that in case of company assessees, the profit and loss account for the relevant previous year shall be prepared as per the provisions of Part—2 of the Schedule—VI of the Companies Act, 1956 and while preparing the annual accounts including profit and loss account, the accounting policies, accounting standards and methods and rates adopted for calculating depreciation shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956. Explanation — 1 to this section defines “book profit” as meaning net profit as shown in the profit and loss account for the relevant previous year which to be increased or reduced as per the items specified in Explanation — 1.

III. Proposed Amendments to Section 115JB by the Finance Bill, 2017

In the present Finance Bill of 2017 section 115JB of the Act is proposed to be amended by clause 47 of the Bill. The amendment is proposed so as to align the provisions of section 115JB for the company preparing financial statements in accordance with the provisions of Indian Accounting Standards and to update the provisions of the Companies Act, 1956 referred to in the said section in accordance with the provision of the Companies Act, 2013 which has replaced earlier Companies Act, 1956. The Indian Accounting Standards are required to be adopted by certain companies from Financial Year 2016-17 mandatorily. The proposed amendments will be operative from
A.Y. 2017-18. The memorandum explaining the proposed amendments to Section 115JB is stated as under :

“Central Government notified the Indian Accounting Standards (Ind-AS) which are converged with International Financial Reporting Standards (IFRS) and prescribed the Companies (Indian Accounting Standards) Rules, 2015 which laid down a roadmap for implementation of this Ind-AS.

Globally, different approaches have been adopted to deal with the tax issues arising from adoption of IFRS. For ensuring horizontal equity across the companies irrespective of the fact that whether they follow Ind-AS or the existing Indian GAAP, the Central Government has issued Income Computation and Disclosure Standards (ICDS) for computation of taxable income for specified heads of income.

As the book profit based on Ind-AS compliant financial statement is likely to be different from the book profit based on existing Indian GAAP, the Central Board of Direct Taxes (CBDT) constituted a committee in June, 2015 for suggestion the framework for computation of minimum alternate tax (MAT) liability under section 115 JB for Ind-AS compliant in the year of adoption and thereafter.

The Committee submitted first interim report on 18th March, 2016 which was placed in public domain by the CBDT for wider public consultations. The Committee submitted the second interim report on 5th August, 2016 which was also placed in public domain. The comments / suggestions received in respect of the first and second interim report were examined by the Committee. After taking into account all the suggestions / comments received, the Committee submitted its final report on 22nd December, 2016.

In view of the above, it is proposed to amend section 115 JB so as to provide the framework for computation of book profit for Ind-AS compliant companies in the year of adoption and thereafter. Thereafter, the memorandum reproduces the salient features of the said proposed framework. The said salient features are considered hereafter in this write-up.

IV. Applicable provisions of the Companies Act, 2013

As per Section 129 of Companies Act, 2013 the financial statements of the companies shall be in such form or forms as may be provided for different class or classes of companies as
per Schedule — III. Schedule — III has two divisions:

Division — 1 is applicable for a company whose financial statements are required to comply with the companies (Accounting Standards) Rules, 2006. The said rules are applicable to small and medium sized companies as defined by Rule — 2 (1) (f) of the said Rules. The Central Government has prescribed Accounting Standards 1 to 7 and 9 to 29 as recommended by the Institute of Chartered Accountants of India which are to be complied with by the small and medium sized companies.

Division — 2 of the said Schedule — III is applicable for a company whose Financial Statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015. The classes of companies which have obligation to comply with Indian Accounting Standards are specified under Rule — 4 of the said Rules. The amendments proposed in Section 115 JB is applicable to the said companies which prepare statement of profit & loss account as per Part — II of Division — 2 to Schedule — III of the Companies Act, 2013 and adopt Indian Accounting Standards for the first time. In order to understand the implications of the proposed amendments it will be necessary to have a look at the following paras of general instructions given for preparation of statement of profit & loss account.

1. XX

2. The Statement of Profit and Loss shall include :

(1) Profit or Loss for the period;

(2) Other Comprehensive Income for the period.

The sum of (1) and (2) above is “Total Comprehensive Income.”

3. Revenue from operations shall disclose separately in the notes

(a) Sale of products (including Excise Duty);

(b) Sale of services; and

(c) Other operating revenues

4. Finance Costs : Finance costs shall be classified as —

(a) Interest;

(b) Dividend on redeemable preference shares;

(c) Exchange differences regarded as an adjustment to borrowing costs; and

(d) Other borrowing costs (specify nature).

5. Other income : Other income shall be classified as —

(a) Interest Income;

(b) Dividend Income; and

(c) Other non-operating income (net of expenses directly attributable to such income)

6. Other Comprehensive Income shall be classified into —

A. Items that will not be reclassified to profit or loss

(i) Changes in revaluation surplus;

(ii) Remeasurement of the defined benefit plans;

(iii) Equity Instruments through Other Comprehensive Income;

(iv) Fair value changes relating to own credit risk of financial liabilities designated at fair value through profit and loss.

(v) Others (specify nature).

7. XX

8. XX

The statement of profit & loss account as per Part II below the line is as under:

Particulars

Note No.

Figures for the current reporting period

Figures for the previous reporting period

XIII

Profit / (loss) for the period (IX + XII)

XIV

Other Comprehensive Income

A. (i) Items that will not be reclassified to profit or loss.

(ii) Income tax relating to items that will not be reclassified to profit or loss.

B. (i) Items that will be reclassified to profit
or loss.

(ii) Income tax relating to items that will be reclassified to profit or loss.

XV

Total Comprehensive Income for the period (XIII + XIV) (comprising of Profit (Loss) and Other Comprehensive Income for the period).

The proposed amendments to section 115 JB have been made on the basis of final report of the Committee. It may be noted that before switching over to Ind-AS financial statements for first time, the companies used to follow Indian GAAP financial statements. On first time adoption of Ind-AS, the companies are required to record the difference between the Ind-AS and GAAP directly in retained earnings and reserves as on the date of switching over to Ind-AS. Further, Other Comprehensive Income would also include items of valuation differences would never be re-classified to profit or loss. The Committee observed that many of these items of differences which never be re-classified to the statement of profit and loss A/c and hence they would be excluded in computation of book profits for the purpose of 115JB of the Act. Thus the amendments have been made to rope in such items in calculating book profit as per section 115JB.

V. First time Adoption of Ind-AS — 101

The salient features of this standard are stated as under:

1. Objective

The objective of this Indian Accounting Standard (Ind-AS) is to ensure that an entity’s first Ind-AS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(a) Is transparent for users and comparable over all periods presented;

(b) Provides a suitable starting point for accounting in accordance with Ind-AS; and

(c) Can be generated at a cost that does not exceed the benefits.

2. Scope

An entity shall apply this Ind-AS in:

(a) Its first Ind-AS financial statements and

(b) Each interim financial report, if any, that it presents in accordance with Ind-AS 34 Interim Financial Reporting for part of the period covered by its first Ind-AS financial statements.

An entity’s first Ind-AS financial statements are the first annual financial statements in which the entity adopts Ind-ASs, in accordance with Ind-AS notified under the Companies Act, 2013 and makes an explicit and unreserved statement in those financial statements of compliance with Ind-ASs.

3. Recognition and measurement of opening Ind-AS Balance Sheet

An entity shall prepare and present an opening Ind-AS Balance Sheet at the date of transition to Ind-ASs. This is the starting point for its accounting in accordance with Ind-ASs.

4. Accounting policies

An entity shall use the same accounting policies in its opening Ind-AS Balance Sheet and throughout all periods presented in its first Ind-AS financial statements. Those accounting policies shall comply with each Ind-AS effective at the end of its first Ind-AS reporting period barring certain exceptions.

5. Exceptions to the retrospective application of other Ind-ASs

This Indian Accounting Standard prohibits retrospective application of some aspects of other Ind-ASs.

6. Exemptions from other Ind-ASs

An entity may elect to use one or more of the exemptions contained in the standard.

7. Explanation of transition to Ind-ASs

An entity shall explain how the transition from previous GAAP to Ind-ASs affected its reported Balance Sheet, financial performance and cash flows.

8. Reconciliation

The entity’s first Ind-AS financial statements shall give detailed reconciliation between the previous GAAP and Ind-AS in respect of various items.

9. Use of fair value as deemed cost

If the entity uses fair value in its opening Ind- AS Balance Sheet as deemed cost for any item of property, the detailed particulars are required to be furnished with regard to each item as per previous GAAP and opening Ind-AS Balance Sheet.

VI. Framework for Computation of Book Profit for Ind-AS Compliance Companies

The Committee has submitted a framework for computation of book profit for Ind-AS compliance companies in the year of adoption and thereafter.

The main features of the frame-work are as under:

A. MAT on Ind-AS compliant financial statement

i. No further adjustments to the net profits before other comprehensive income of Ind-AS compliant companies, other than those already specified under section 115JB of the Act shall be made.

ii. The other comprehensive income includes certain items that will permanently be recorded in reserves and hence never be re-classified to the statement of profit and loss included in the computation of book profits. These items shall be included in book profits for MAT purposes at the point of time as specified below —

Sr. No.

Items

Point of Time

1

Changes in revaluation surplus of Property, Plant or Equipment (PPE) and intangible assets (Ind-AS 16 and Ind-AS 38)

To be included in book profits at the time of realisation / disposal / retirement or otherwise transferred

2

Gains and losses from investments in equity instruments designated at fair value through other comprehensive income (Ind-AS 109)

To be included in book profits at the time of realisation / disposal / retirement or otherwise transferred

3

Remeasurement of defined benefit plans (Ind-AS 19)

To be included in book profits every year as the remeasurements gains and losses arises

4

Any other item

To be included in book profits every year as the gains and losses arise

iii. Appendix A of Ind-AS 10 provides that any distributions of non-cash assets to shareholders (for example, in a demerger) shall be accounted for at fair value. The difference between the carrying value of the assets and the fair value is recorded in the profit and loss account. Correspondingly, the reserves are debited at fair value to record the distribution as a ‘deemed dividend’ for the shareholders. As there is a corresponding adjustment in retained earnings, this difference arising on demerger shall be excluded from the book profits. However, in the case of a resulting company, where the property and the liabilities of the undertaking or undertakings being received by it are recorded at values different from values appearing in the books of account of the demerged company immediately before the demerger, any change in such value shall be ignored for the purpose of computing of book profit of the resulting company.

B. MAT on first time adoption

i. The adjustment arising on account of transition to Ind-AS from existing Indian GAAP is required to be recorded directly in Other Equity at the date of transition to Ind-AS. Several of these items would subsequently never be reclassified to the statement of profit and loss / included in the computation of book profits. Accordingly, the following treatment is proposed:

(a) Those adjustments recorded in other comprehensive income and which would subsequently be reclassified to the profit and loss, shall be included in book profits in the year in which these are reclassified to the profit and loss;

(b) Those adjustments recorded in other comprehensive income and which would never be subsequently reclassified to the profit and loss shall be included in book profits as specified hereunder —

Sr. No.

Items

Point of Time

1

Changes in revaluation surplus of PPE and intangible assets (Ind-AS 16 and Ind-AS 38)

To be included in book profits at the time of realisation / disposal / retirement or otherwise transferred

2

Gains and losses from investments in equity instruments designated at fair value through other comprehensive income (Ind-AS 109)

To be included in book profits at the time of realisation / disposal / retirement or otherwise transferred

3

Remeasurement of defined benefit plans (Ind-AS 19)

To be included in book profits equally over a period of five years starting from the year of first time adoption of Ind-AS

4

Any other item

To be included in book profits equally over a period of five years starting from the year of first time adoption of Ind-AS

(c) All other adjustment recorded in Reserves and Surplus (excluding Capital Reserves and Securities Premium Reserve) as referred to in Division-II of Schedule III of Companies Act, 2013 and which would otherwise never subsequently be reclassified to the profit and loss account, shall be included in the book profits, equally over a period of five years starting from the year of first time adoption of Ind-AS subject to the following —

a. PPE and intangible assets at fair value as deemed cost

An entity may use fair value in its opening Ind-AS Balance Sheet as deemed cost for an item of PPE or an intangible asset as mentioned in paragraphs D5 and D7 of Ind-AS 101. In such cases the treatment shall be as under:

• The existing provisions for computation of book profits under section 115JB of the Act provide that in case of revaluation of assets, any impact on account of such revaluation shall be ignored for the purposes of computation of book profits. Further, the adjustments in retained earnings on first time adoption with respect to items of PPE and Intangible assets shall be ignored for the purpose of computation of book profits.

• Depreciation shall be computed ignoring the amount of aforesaid retained earnings adjustment.

• Similarly, gain / loss or realisation / disposal / retirement of such assets shall be computed ignoring the aforesaid retained earnings adjustment.

b. Investments in subsidiaries, joint ventures and associates at fair value as deemed cost

An entity may use fair value in its opening Ind-AS Balance Sheet as deemed cost for investment in a subsidiary, joint venture or associate in its separate financial statements as mentioned in paragraph D15 of Ind-AS 101. In such cases retained earnings adjustment shall be included in the book profit at the time of realisation of such investment.

c. Cumulative translation differences

• An entity may elect a choice whereby the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to Ind-AS. Further, the gain or loss on a subsequent disposal of any foreign operation shall exclude translation differences that arose before the date of transition to Ind-AS and shall include only the translation differences after the date of transition.

• In such cases, to ensure that such Cumulative translation differences on the date of transition which have been transferred to retained earnings, are taken into account, these shall be included in the book profits at the time of disposal foreign operations as mentioned in paragraph 48 of Ind-AS 21.

ii. All other adjustments to retained earnings at the time of transition (including for example, Decommissioning Liability, Asset retirement obligations, Foreign Exchange Capitalisation / Decapitalisation, Borrowing Costs Adjustments, etc.) shall be included in book profits, equally over a period of five years starting from the year of first time adoption of Ind-AS.

iii. Section 115JB of the Act already provides for adjustments on account of deferred tax and its provision. Any deferred tax adjustments recorded in Reserves and Surplus on account of transition to Ind-AS shall also be ignored.

C. Reference year for first time adoption adjustments

In the first year of adoption of Ind-AS, the companies would prepare Ind-AS financial statement for reporting year with a comparative financial statement for immediately preceding year. AS per Ind-AS 101, a company would make all Ind-AS adjustments on the opening date of the comparative financial year. The entity is also required to present an equity reconciliation between previous Indian GAAP and Ind-AS amounts, both on the opening date of preceding year as well as on the closing date of the preceding year. It is proposed that for the purposes of computation of book profits of the year of adoption and the proposed adjustments, the amounts adjusted as of the opening date of the first year of adoption shall be considered. For example, companies which adopt Ind-AS with effect from 1st April, 2016 are required to prepare their financial statements for the year 2016-17 as per requirements of Ind-AS. Such companies are also required to prepare an opening balance sheet as of 1st April, 2015 and restate the financial statements for the comparative period 2015-16. In such a case, the first time adoption adjustments as of 31st March, 2016 shall be considered for computation of MAT liability for previous year 2016-17 (Assessment Year 2017-18) and thereafter. Further, in this case, the period of five years proposed above shall be previous years 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21.

VII. Proposed Amendments to Section 115 JB

As stated above, Para 6 of General Instructions for Preparation of Statement of Profit and Loss requires classification of Other Comprehensive Income into items that will not be re-classified to profit or loss and items that will be re — classified to profit or loss. Keeping this in mind, in Section 115JB, new sub-sections (2A), (2B) and (2C) are proposed to be inserted after sub-section (2). The discussion on the said sub — sections are as under:

1. Sub-section (2A) states that for a company whose financial statements are drawn up in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015, the book profit as computed in accordance with Explanation 1 to sub- section (2) shall be further.

(a) Increased by all amounts credited to other comprehensive income in the statement of profit and loss under the head “Items that will not be re- classified to profit or loss”;

(b) Decreased by all amounts debited to other comprehensive income in the statement of profit and loss under the head “Items that will not be re- classified to profit or loss”;

(c) Increased by amounts or aggregate of the amounts debited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger in accordance with Appendix A of the Indian Accounting Standards 10;

(d) Decreased by all amounts or aggregate of the amounts credited to the statement of profit and loss on distribution of non-cash assets to shareholders in a demerger in accordance with Appendix A of the Indian Accounting Standards 10;

The first proviso to sub-section (2A) states that nothing contained in clause (a) or clause (b) shall apply to the amount credited or debited to other comprehensive income under the head “Items that will not be re — classified to profit or loss” in respect of —

(i) Revaluation surplus for assets in accordance with the Indian Accounting Standards 16 and Indian Accounting Standards 38; or

(ii) Gains or losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with the Indian Accounting Standards 109:

The second proviso to sub — section (2A) states that the book profit of the previous year in which the asset or investment referred to in the first proviso is retired, disposed, realised or otherwise transferred shall be increased or decreased, as the case may be, by the amount of the aggregate of the amounts referred to in the first proviso for the previous year or any of the preceding previous years and relatable to such asset or investment.

2. Sub-section (2B) states that in demerger, in the case of a resulting company, the property and the liabilities of the undertaking or undertakings being received by it are recorded at values different from values appearing in the books of account of the demerged company immediately before the demerger, any change in such value shall be ignored for the purpose of computation of book profit of the resulting company under this section.

3. Sub-section (2C) states that for a company referred to in sub-section (2A), the book profit of the year of convergence and each of the following four previous years, shall be further increased or decreased, as the case may be, by one — fifth of the transition amount;

The first proviso to sub-section (2C) states that the book profit of the previous year in which the asset or investment referred to in sub-clauses (B) to (E) of clause (iii) of the Explanation is retired, disposed, realised or otherwise transferred shall be increased or decreased, as the case may be, by the amount of the aggregate of the amounts referred to in the said sub-clause relatable to such asset or investment:

The second proviso to sub-section (2C) states that the book profit of the previous year in which the foreign operation referred to in sub -clauses (F) of clause (iii) of the Explanation is disposed or otherwise transferred, shall be increased or decreased, as the case may be, by the amount of the aggregate of the amounts referred to in the said sub-clause relatable to such foreign operations.

Explanation (iii) defines ‘transition amount’ to mean — amount or aggregate of the amounts adjusted in other equity on the convergence date but not including the following :

(A) Amount or aggregate of the amounts adjusted in the other comprehensive income on the convergence date which shall be subsequently re-classified to the profit and loss;

(B) Revaluation surplus for assets in accordance with the Indian Accounting Standards 16 and Indian Accounting Standards 38 adjusted on the convergence date;

(C) Gains or losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with the Indian Accounting Standards 109 adjusted on the convergence date;

(D) Adjustments relating to items of property, plant and equipment and intangible assets recorded at fair value as deemed cost in accordance with paragraphs D5 and D7 of the Indian Accounting Standards 101 on the convergence date;

(E) Adjustments relating to investments in subsidiaries, joint ventures and associates recorded at fair value as deemed cost in accordance with paragraph D15 of the Indian Accounting Standards 101 on the convergence date; and

(F) Adjustments relating to cumulative translation differences of a foreign operation in accordance with paragraph D13 of the Indian Accounting Standards 101 on the convergence date.

VIII. Summary and Conclusion

1. Under section 145(2) of the Act, the Central Government has notified income computation and disclosure standards. These standards are more or less similar to the current Indian GAAP, but they are not the same. Due to conflicts between the two, the litigation has increased. The switching over to Ind-AS would also give rise to litigation as there is no alignment between the CG notified standards and Ind-AS. The main provisions
of the proposed amendments are analysed as under :

Sr. No.

Items

Point of Time

Remarks

1.

Changes in revaluation, surplus of Property, Plant or Equipment (PPE) and Intangible assets

To be included in book profits at the time of realisation / disposal / retirement or otherwise transferred

The company assessee will have MAT liability only when the assets are disposed of / sold etc.

2.

Gains and losses from investments in equity instruments designated at fair value through other comprehensive income

To be included in book profits at the time of realisation / disposal / retirement or otherwise transferred

The company assessee will have MAT liability only when the assets are disposed of / sold etc.

3.

Remeasurement of defined benefit plans

To be included in book profits every year as the remeasurements gains and losses arise

The company assessee will not face the burden of MAT liability in one year as the same will be spread over

4.

Any other item

To be included in book profits every year as the gains and losses arise

The company assessee will not face the burden of MAT liability in one year as the same will be spread over

2. It may be noted that the company assessees can reduce their tax liability under MAT if they choose right FTA options.

3. The proposed amendments are ambiguous and are not properly worded as a result of which the company assessees would face an uphill task of arriving at book profit and computing their MAT liability which would give lever to assessing authorities to make upward revision of book profit.

4. No write-up on the Finance Bill can ever be completed without paying tribute to late. Mr. N. A. Palkhiwala. I take liberty to quote the following passages from the “Preface to the Eight Edition” (1990) of Kanga & Palkhiwala’s “The Law and Practice of Income Tax”.

“Today the Income-tax Act, 1961, is a national disgrace. There is no other instance in Indian jurisprudence of an Act mutilated by more than 3,300 amendments in less than thirty years. Simple provisions like sections 11 to 13 (which deal with exemption of the income of charitable trusts) have suffered no less than fifty amendments.

The tragedy of India is the tragedy of waste — waste of national time, energy and manpower. Tens of millions of man -hours, crammed with intelligence and knowledge — of taxgatherers, taxpayers and tax advisers — are squandered every year in grappling with the torrential spate of mindless amendments. The feverish activity achieves no more good than a fever.

The Finance Ministry has become almost pathological in its “change mania”. A stable fiscal policy is to a nation what a stable family life is to an individual. But stability is anathema to the North Block.

It has become normal to have amendments to Income Tax Rules more than half a dozen times in a single year. Various Forms are changed overnight. Can this country, where crores of school children and adults have to go without writing paper, afford the luxury of throwing away millions of pages of printed Forms which are consigned to the scrap heap so non-chalantly?”

The proposed amendments could have been made simpler. However one has to wait and watch as to which amendments would become part of the Act and after being incorporated in the Act how they are implemented and interpreted in future.

Introduction

The provisions of sections 11 and 12 of the Income-tax Act, 1961 (“the Act”) provide for exemption to trusts/institutions in respect of income derived from the property held under trust and voluntary contributions received with a specific direction that the same shall form part of the corpus of the trust or institution. This exemption is subject to fulfilment of prescribed conditions.

One of the conditions is that the income derived from property held under trust should be applied for the charitable purposes, and where such income cannot be applied during the previous year, it may be accumulated and invested in the modes prescribed and applied for such purposes in subsequent years as prescribed. It also provides that, if the accumulated income is not applied in accordance with the conditions provided in the said section within the specified time, then such income is deemed to be taxable income of the trust or the institution. Section 12AA provides for registration of the trust or institution which entitles them to get the benefit of sections 11 and 12. It also provides the circumstances under which the registration can be cancelled. Section 13 of the Act provides the circumstances under which exemption under sections 11 or 12 in respect of whole or part of income can be denied to the trust or institution.

The Finance Bill, 2017 has proposed various amendments to the existing provisions of sections 11 and 12 of the Act which amendments are explained hereunder:

1. Restriction on exemption in case of corpus donation by exempt entities to other exempt entities

As per the existing provisions of the Act, donations made by a trust to any other trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, except those made out of accumulated income, are considered as application of income for the purposes of its objects. Similarly, donations made by entities exempted under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 to any trust or institution registered under section 12AA, except those made out of accumulated income, are also considered as application of income for the purposes of its objects.

Donation given by these exempt entities to another exempt entity, with specific direction that it shall form part of corpus, though considered as application of income in the hands of donor trust but is not considered as income of the recipient trust.

Allowing the corpus donations as an application of income was leading to indefinite accumulation of funds through other trusts without there being actual applications.

To keep in check this practice which was being adopted by some charitable institutions, the Finance Bill, 2017 has proposed to insert a new Explanation to section 11 of the Act to provide that any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1) of section 11, being contributions with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income.

It is also proposed to insert a similar proviso in clause (23C) of section 10 so as to provide similar restriction in respect of any amount credited or paid out of their income.

2. Fresh application within 30 days of modification of objects

The provisions of section 12AA of the Act contain provisions relating to registration of a trust for availing benefit under sections 11 and 12 of the Act. It also provides that the Principal Commissioner of Income-tax or the Commissioner of Income-tax may cancel the registration on being satisfied that the activities are not genuine or are not being carried out in accordance with its objects subsequent to the grant of registration. Presently, there are no provisions which enable trusts/institutions to apply and obtain a fresh registration in cases where there are modification in the objects after grant of registration.

The Finance Bill, 2017 proposes to amend section 12A of the Act so as to provide that where a trust/institution which has been granted registration under section 12AA or under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996] and, subsequently the trust/institution adopts or undertakes modifications in its objects which do not conform to the conditions of registration, the trust/institution shall be required to obtain fresh registration. The application for fresh registration has to be made in the prescribed manner within 30 days of adoption or modification of its objects.

3. Filing of return of income for availing exemption

Presently, entities registered under section 12AA of the Act are required to file its return of income under section 139(4A) of the Act, if their income without giving effect to sections 11 and 12 of the Act exceeds the basic exemption limit. There was no clarity as to whether return of income is to be filed within the time limit of section 139 of the Act or otherwise.

The Finance Bill, 2017 proposes to amend the provisions of section 12A of the Act so as to provide an additional condition of filing the return of income within the prescribed time limit u/s. 139(1).

4. Extension of the power to survey

Existing provision pertaining to places where survey can be undertaken are proposed to be expanded. The Finance Bill, 2017 proposes to provide that the income-tax authorities can enter into place where charitable activities are carried on for the purpose of carrying out survey.

Strength does not come from physical capacity. It comes from an indomitable will.

— Mahatma Gandhi

Whatever you do will be insignificant, but it is very important that you do it.

— Mahatma Gandhi

1. The Finance Bill, 2017 seeks to amend 73 sections of the Income-tax Act, 1961 (the “Act”) and insert 12 new sections including substitution of one section. The thrust of the direct tax proposals in this Budget is on growth stimulation, relief to middle class, affordable housing, curbing black money, promoting digital economy, transparency of political funding and simplification of tax administration.

I. Profits from business

2. Clauses 13 to 19 of the Finance Bill, 2017 proposes amendments to the provisions pertaining to profits from business/ profession.

(a) Amendment to Section 35AD

3. Section 35AD of the Act provides for investment linked deduction on the amount of capital expenditure incurred wholly or exclusively for the purposes of business during the previous year for a specified business except capital expenditure incurred for acquisition of any land or goodwill or financial instrument. Section 35AD was introduced by Finance Act, 2009 with a view to creating rural infrastructure and environment friendly alternate means of transportation for bulk goods.

4. This Section 35AD is sought to be amended to provide that any expenditure in respect of which payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, no deduction shall be allowed in respect of such expenditure. This amendment is sought to be made applicable with effect from 1st April, 2018 i.e. for financial year 2017-18 onwards and should be applicable in respect of payments made on or after 1st April, 2017.

5. Clause (f) of sub-section (8) of Section 35AD already prohibits deduction of capital expenditure incurred on the acquisition of any land or goodwill or financial instrument. Suitable amendment has been proposed therein to deny deduction in respect of payments otherwise than through the permissible medium i.e. account payee cheque/ draft or electronically if it exceeds ten thousand rupees. After the amendment, expenditure in respect of which payments to one person in one day is made in cash would not be eligible for deduction under this Section. This is a positive amendment in furtherance of Government’s efforts of making our economy less cash-reliant. However, no exception has been carved out from this proposed amendment and expediency or urgency are not provided as grounds for departure from it.

6. While the Act already contains provisions in the form of Section 40A(3) and Section 40A(3A) to disallow revenue expenditure above a certain threshold in respect of which cash payments are made, this is the first such attempt to penalise cash payments even in respect of capital expenditure by way of disallowance. It is important to note that Rule 6DD of the Income-tax Rules, 1962 (the “Rules”) provide for exceptions to Section 40A(3) and Section 40A(3A) and lists circumstances in which cash payments are allowed as deduction despite being beyond the threshold limit. Since now even capital expenditure is sought to be covered for prohibition of cash payments, the provisions of Rule 6DD should have been made applicable to capital expenditure as well. However, the same has not been done. This may result in hardship for assessees even in genuine cases. It is suggested that the exceptions provided under Rule 6DD should be applicable to all cash payments, whether towards revenue expenditure or capital expenditure.

7. While payments made through National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS) can be regarded as payments through “use of electronic clearing system through a bank account”, a question arises whether expenditure in respect of which payment is made through credit card can be disallowed. Payments through credit cards are neither payments through account payee cheques/drafts nor can they be said to be through “use of electronic clearing system through a bank account”. Credit card bills are capable of settlement either by cash or through banking transactions. In my view, if an assessee incurs expenditure in respect of which he/she makes payment through credit card and subsequently settles the credit card bill through account payee cheque/draft or electronically, this should be sufficient for not attracting disallowance under Section 35AD. However, if the assessee settles the credit card bill in respect of payment for expenditure referred to in Section 35AD, in my view, deduction should not be allowed to such assessee in respect of such expenditure. The mischief sought to be remedied by the amendment is the use of cash for payments. If the assessee settles the credit card bill otherwise than through cash payment, it should be in line with the legislative intention, and hence, should not attract disallowance under the provisions of the amended provisions.

(b) Amendment to Section 36

8. As per the existing provisions of Section 36(1)(viia)(a) of the Act, a scheduled bank (not being a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, can claim deduction of 7.5% of total income (computed before making any deduction under that clause and Chapter VIA) in respect of provision for bad and doubtful debts.

9. In order to strengthen the financial position of these entities, Clause 14 proposes to amend the said sub-clause to enhance the present limit from 7.5% to 8.5% of the amount of the total income (computed before making any deduction under that clause and Chapter VIA).

10. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years and would enable these entities to reduce their tax liabilities and boost banking sector.

(c) Amendment to Section 40A

11. Clause 15 of the Finance Bill, 2017 seeks to make three amendments to Section 40A. While the first pertains to disallowance of excessive and unreasonable expenditure, the other two pertain to the Government’s efforts in moving towards less-cash economy.

12. In so far as the first amendment in Section 40A is concerned, the same is a consequential to the amendment in Section 92BA of the Act. As per the existing provisions, expenditure in respect of which payment is made to persons referred to in Section 40A(2)(b) are covered under the definition of specified domestic transactions. Furthermore, as per existing Section 40A(2)(b), in respect of such specified domestic transactions which are at arm’s length price as defined in clause (ii) of Section 92F, no disallowance is required to be made under Section 40A(2)(b). Now, in order to reduce the compliance burden of taxpayers, it is proposed to provide that expenditure in respect of which payment has been made by the assessee to a person referred to in under Section 40A(2)(b) are to be excluded from the scope of Section 92BA of the Act. Amendment has been proposed to Section 92BA to omit clause (i) as per which expenditure in respect of which payment has been made or is to be made to a person referred to in Section 40A(2)(b) of the Act was includible as specified domestic transactions. Therefore, as a consequential amendment, the benefit currently available under Section 40A(2)(b) i.e. no disallowance in respect of specified domestic transactions if they are at arm’s length is proposed to be withdrawn by limiting the same to assessment year commencing on or before the 1st day of April, 2016.

13. The existing sub-section (3) of Section 40A of the Act bar deduction of expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft exceeds twenty thousand rupees. Similarly, sub-section (3A) provides that where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure, and in a subsequent year, the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of that subsequent year if the payment or aggregate of payments made to a person in a day exceeds twenty thousand rupees. The proposed amendment reduces this limit to ten thousand rupees and permits deduction if payment is made through electronic clearing system through a bank account.

14. Of late, payments banks and mobile wallets have emerged as a modern and convenient tool for making payments especially utility bills. It is not uncommon for a utility bill to exceed ten thousand rupees. In such a case, a question can arise whether payment of utility bills (and other expenditure) through payments banks and mobile wallets can be regarded as payment through “use of electronic clearing system through a bank account”. In this regard, it is important to note that amounts can be transferred in payments banks accounts and mobile wallets only through bank accounts. In other words, cash cannot be deposited directly in payments banks accounts and mobile wallets. In fact, the Government itself is promoting payments through payments banks and mobile wallets in its efforts of moving towards less-cash economy. Therefore, payments through media such as these should not attract disallowance under Section 40A(3)/(3A) of the Act.

15. An exception already exists in Section 40A(3A) in respect of payments for plying, hiring or leasing carriages in respect of which the limit is thirty-five thousand rupees instead of twenty thousand rupees. This limit has not been changed and payments up to thirty-five thousand rupees for plying, hiring or leasing carriages continue to be allowable as deduction.

16. Rule 6DD of the Rules which provides for exceptions to Section 40A(3) and Section 40A(3A) and lists circumstances in which cash payments are allowed as deduction despite being beyond the threshold limit would continue to be applicable to the revised limits.

17. Furthermore, sub-section (4) of Section 40A provides that no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner where any payment in respect of any expenditure has been made by an account payee cheque drawn on a bank or account payee bank draft. This benefit to the payer has been extended even for payments through use of electronic clearing system through a bank account.

(d) Amendment to Section 43

18. Sub-section (1) of Section 43 of the Act defines “actual cost”. By the amendment of Finance Bill, 2017, second proviso has been proposed to be inserted in sub-section (1) to provide that expenditure for acquisition of any asset or part thereof in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost.

19. As stated earlier, the Finance Bill, 2017 is the first attempt to penalise cash payments even in respect of capital expenditure. In
Kanshi Ram Madan Lal v. ITO [1983] 3 ITD 290 (Delhi), the Delhi bench of the Income-tax Appellate Tribunal (the “Tribunal”) held that Section 40A(3) of the Act was not attracted to capital expenditure, and hence, depreciation on capital assets purchased in cash could not be disallowed. However, as a result of this proposed amendment, this position is set to change. The exclusion of cash payments in computing “actual cost” as per Section 43(1) pursuant to this amendment should nullify this Delhi Tribunal decision. This is because depreciation is available on “written down value” defined under Section 43(6) of the Act. “Written down value” being derivable from “actual cost” would also, as a corollary, exclude such cash payments. Therefore, this amendment would have the effect of disallowing depreciation in respect of assets for which payments have been made in cash..

20. A consequential amendment to definition of actual cost of asset in case of withdrawal of deduction in terms of sub-section (7B) of Section 35AD is provided by inserting a proviso in Explanation 13 to Section 43(1). The amendment provides that where any capital asset in respect of which deduction allowed under Section 35AD is deemed to be the income of the assessee in accordance with the provisions of sub-section (7B) of Section 35AD, the actual cost to the assessee shall be the actual cost to the assessee, as reduced by an amount equal to the amount of depreciation calculated at the rate in force that would have been allowable had the asset been used for the purposes of business since the date of its acquisition.

21. The amendments to Section 43 of the Act will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

(e) Amendment to Section 43B

22. As per clause 17 of the Finance Bill, 2017, it is proposed to amend Section 43B of the Act to provide that any sum payable by the assessee as interest on any loan or advances from a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank shall be allowed as deduction if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year. This is as per matching principle since the interest income on bad or doubtful debts is chargeable to tax on receipt basis, therefore, even the interest payable on such bad or doubtful debts need to be allowed on actual payment.

23. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

(f) Amendment to Section 43D

24. The existing provisions of section 43D of the Act provides that interest income in relation to certain categories of bad or doubtful debts received by certain institutions or banks or corporations or companies, shall be chargeable to tax in the previous year in which it is credited to its profit and loss account for that year or actually received, whichever is earlier. This provision is an exception to the accrual system of accounting which is regularly followed by such assessees for computation of total income. The benefit of this provision is presently available to scheduled banks, public financial institutions, State financial corporations, State industrial investment corporations and certain public companies like housing finance companies. With a view to provide a level playing field to co-operative banks vis-à-vis scheduled banks and to rationalise the scope of the section 43D, by clause 18 of the Finance Bill, 2017, it is proposed to amend Section 43D of the Act so as to extend this benefit to co-operative banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank as well.

25. This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years.

(g) Amendment to Section 44AA

26. Section 44AA of the Act deals with maintenance of books of account by assessees engaged in any business or profession. In order to reduce the compliance burden, it is proposed to amend the provisions of Section 44AA to increase monetary limits of income and total sales/turn over/gross receipts specified for maintenance of books of account from one lakh twenty thousand rupees to two lakh fifty thousand rupees and from ten lakh rupees to twenty-five lakh rupees, respectively in the case of individuals and Hindu undivided family carrying on business or profession. The same limits are also proposed for business or profession newly set up. It is important to note that the new limits are applicable only for individuals and Hindu undivided family and not to other classes of assessees to whom the old limits continue to apply.

27. These limits were last revised in the year 1998, and considering inflation, it was high time that these limits were revised. The limit of two lakh fifty thousand rupees below which books of account are not required to be maintained is now in line with the basic exemption limit.

28. This amendment is proposed in clause 19 of the Finance Bill, 2017 and will take effect from 1st April, 2018, and will accordingly apply in relation to the assessment year 2018-19 and subsequent years.

II. Presumptive Tax

29. The provisions pertaining to presumptive taxation of businesses are contained in Section 44AD of the Act while those pertaining to professionals are contained in Section 44ADA of the Act. No amendment is proposed to presumptive tax scheme for professionals in Finance Bill, 2017. However, in case of presumptive tax for businesses, by press release dated 19th December, 2016, it was declared that in respect of amount of total turnover or gross receipts received through banking channel/ digital means, a rate of 6% instead of 8% shall be deemed to be profit. This measure was taken in order to achieve the Government’s mission of moving towards a less cash economy and to incentivise small traders/ businesses to proactively accept payments by digital means.

30. Legislative changes have been proposed to Section 44AD of the Act by Clause 21 of the Finance Bill, 2017 wherein the amendment to the above effect has been introduced. This proposed amendment when enacted will have the effect of reducing the tax liability of small and medium businesses by 25% in respect of turnover which is received by non-cash means. This benefit will be applicable for transactions undertaken in the current financial year 2016-17 also and for subsequent years.

31. This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

III. Tax audits

32. The provisions regarding liability to get the books of account audited are contained in Section 44AB of the Act. Till the enactment of Finance Act, 2015, the limit on sales/ turnover/gross receipts below which assessees engaged in business or profession were not required to get their books of account audited was one crore rupees. This limit remained unchanged in Finance Act, 2016. However, by Finance Act, 2016, the limit for audit for assessees opting for presumptive taxation scheme under Section 44AD of the Act was raised to two crore rupees. However, this higher threshold for non-audit of accounts had been given only to assessees opting for presumptive taxation scheme under Section 44AD of the Act. This was clarified by press release dated 20th June, 2016 as well.

33. In view of the above, by clause 20 of the Finance Bill, 2017, it is proposed to amend Section 44AB to exclude the eligible person, who declares profits for the previous year in accordance with the provisions of sub-section (1) of Section 44AD and his total sales, total turnover or gross receipts, as the case may be, in business does not exceed two crore rupees in such previous year, from requirement of audit of books of account under section 44AB. This is expected to reduce the compliance burden of the small tax payers and facilitate the ease of doing business. This amendment will apply in relation to the assessment year 2017-18 and subsequent years.

34. The Budget proposals in respect of profits from business or profession, presumptive tax, tax audits are largely towards curbing black money and promoting digital economy. The Government deserves congratulations for its sustained efforts in moving the economy towards a less-cash one through focused legislation in this regard.

Section Amendment Proposed
194-IB

Under existing provisions of section 194-I of the Act tax is deductible at source from payment of rent. Individuals and HUFs other than those liable for tax audit are not required to deduct tax under this section. A New section 194-IB is being inserted to provide for deduction of tax at source @ 5%. Tax is required to be deducted in the last month of the year or last month of the tenancy period if the property is being vacated. In case payee is not having PAN and provisions of section 206AA of the Act are applicable, amount of tax deductible shall not exceed the amount of rent payable in the last month of the previous year or in the last month of the tenancy. The deductor will not be required to comply with the provisions of section 203A of the Act regarding obtaining of TAN. The amendment will take effect from 1-6-2017.

194-IC In respect of joint venture agreements it is being provided by way of amendment in section 45(5A) of the Act that capital gain in case of individuals and HUFs will be chargeable in the year in which the project completion certificate is obtained in respect of the project. In the case of joint venture agreements, apart from sharing of constructed area in certain cases the payment is also made by the developer in cash or way of cheque. It is being provided by inserting a new section 194-IC that tax will be deductible @ 10% from the amount paid by the developer under the agreement.
194J Tax is deductible under section 194J of the Act @ 10% in respect of payments made on account of professional and technical services. It is being provided that in case of a payee engaged only in the business of operation of call centre tax will be deductible @ 2%.
194LA U/s. 194LA tax is deductible @ 10% from payment of compensation on acquisition of immovable property, other than agriculture land. In terms of provisions of “Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Re-settlement Act, 2013”, compensation payable on acquisition of land is not chargeable to tax. Pursuant to specific provision in this regard in above Act, a proviso is being inserted in section 194LA to provide that in case of compensation payable under the above Act tax will not be deductible at source.
194LC U/s. 194LC of Income-tax Act, tax is deductible at the concessional rate of 5% from interest payable to Non-Resident on borrowings made by specified companies in foreign currency from sources outside India by way of loan and on long-term bonds, including long-term infrastructure bonds. The provision is applicable only if the borrowings have been made before 1-7-2017. The period is proposed to be extended to 1-7-2020. The concession, henceforth, will also be applicable on interest payable on Rupee denominated bonds.
194LD Provisions similar to section 194LC are contained in provisions of section 194LD in relation to interest payable to Foreign Institutional Investors or Qualified Foreign Investors at concessional rate of 5%. In this section also, qualifying period for payment of interest at concessional rate is being extended from 1-7-2017 to 1-7-2020.
197A Provisions of section 197A are being amended by inserting sections 194D in it so as to grant exemption from deduction of tax at source from payment of insurance commission by insurance companies exceeding ₹ 15,000/- per financial year on furnishing of self declaration by payee in form 15G and 15H to the effect that no tax is payable by him on the basis of his estimated income.
204 As per provisions of section 195(6) of the Income-tax Act a person making payment to Non-Resident is required to furnish details relating to payment irrespective of the fact whether payment is chargeable to tax or not. Particulars are to be furnished in Form Nos. 15CA, 15CB and 15CC. Section 204 of the Act is being amended to insert a clause that “the person responsible for paying to a Non-Resident” would mean the payer himself or if the payer is a company, the company itself including the principal officer thereof.

206C

Section 206C provides for collection of tax at source while receiving sale consideration in the cases specified therein. Following amendments are being made in provisions of section 206C of the Act.

(i) Section provides for collection of tax at source @ 1% in a case where sale consideration in case of jewellery exceeds ₹ 5 lakhs. By way of insertion of a new section 269ST in the Act, it is being provided that no person shall receive sale consideration in excess of ₹ 3 lakh failing which penalty will be leviable equal to amount of sale consideration. In view of provisions of section 269ST, provision under section 206C regarding sale consideration exceeding ₹ 5 lakh in case of jewellery has become redundant and, therefore, amendments are being made to delete the reference to sale consideration received in cash in case of jewellery.

(ii) Sub-section (IF) of section 206C provides for collection of tax at source @ 1% in case of sale of motor vehicle of the value exceeding ₹ 10 lakh. In order to provide exemption from above provision to Central Government, State Government, High Commissions, local authorities and public sector companies engaged in the business of carrying passengers, amendment is being made in provisions of sub-section (IF) of section 206C of the Act to provide that provisions of this section will not apply in above cases.

206CC

Section 206AA of the Income-tax Act provides for deduction of tax at source at a higher rate in case payee is not having PAN. Similar provision is being made in regard to collection of tax at source u/s. 206C of the Act by inserting a new section 206CC. The aforesaid section provides that :-

(i) The person paying any sum on which tax is collectible u/s. 206C of the Act has to furnish PAN to the person selling the goods. In case PAN is not furnished, tax will be collected at the rate twice of the rate specified in above section or @ 5% whichever is higher.

(ii) As per provisions of section 206C(IA), tax is not required to be collected in respect of sale of certain goods in case a declaration is furnished to the effect that these goods shall be used for the purpose of manufacturing and not for trading purpose. It is being provided that such declaration shall be invalid unless PAN is given in the declaration. In case of invalid declaration tax will be collectible at the rate as mentioned above, considering the case as if PAN has not been furnished.

(iii) In terms of sub-section (9) of 206C a certificate can be obtained from the A.O. for collection of tax at source at the lower rate. It is being provided that such certificate shall not be issued unless PAN has been given in the application made for such certificate to the A.O.

(iv) It is also being provided that in case PAN submitted is invalid or does not belong to the collectee, it shall be deemed that collectee has not furnished the PAN and tax will be collected accordingly.

(v) It is also being clarified that provisions of this section shall not apply to a Non- Resident who is not having permanent establishment in India.

244A

In certain circumstances the tax deductor is also entitled to claim refund of tax deducted and deposited with the Government. Section 244A of the Act which provides for grant of interest on refund allowable to an assessee has no provision in regard to grant of interest in case refund has become allowable to the tax deductor. It is being provided that interest will also be allowed on grant of refund to tax deductor pursuant to his claim or as per the appellate order.

Arun Jaitley, the Finance Minister has proposed some changes which will help to boost ailing Housing Sector in our country due to lack of demand and also cash crunch after demonetisation. The proposals for promoting Real Estate Sector are analysed here.

1. Amendment of Section 80-IBA to promote Affordable Housing

The existing provisions of Section 80-IBA provides for 100% deduction in respect of the profits and gains derived from developing and building certain housing projects subject to specified conditions. The conditions specified, inter alia, include the limit of 30 square metres for the built-up area of residential unit in respect of project located in the Chennai, Delhi, Kolkata and Mumbai. However with the amendments made in this Budget the specified area to be considered will be carpet area and not the built up area. Further the restriction of area of 30 Sq. Metres also applied to places within 25 kms from the municipal limits of these four metropolitan cities. With the amendments, the flat to be constructed up to 60 Sq. Metres of carpet area in places outside a metropolitan city. Further, it is also provided that in order to be eligible to claim deductions, the project shall be allowed to be completed within a period of 5 years instead of existing 3 years. The amended provisions will take effect from FY 2017-18 (assessment year 2018-19). The amendment is welcome measure and will help in providing shelter at affordable price to needy people including those in rural areas and the business community in housing sector will be able to save on income tax due to benefit of tax free income of such projects.

2. Relaxed provisions for computation of capital gains in case of joint development agreement

Under the existing provisions of section 45, capital gain is chargeable to tax in the year in which transfer takes place except in certain cases. The definition of ‘transfer’,
inter alia, includes any arrangement or transaction where any rights are handed over in execution of part performance of contract, even though the legal title has not been transferred. In such a scenario, execution of Joint Development Agreement (JDA) between the owner of immovable property and the developer triggers the capital gains tax liability in the hands of the owner in the year in which the possession of immovable property is handed over to the developer for development of a project. With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, the FM has proposed to insert section 45(5A) to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall be chargeable to income tax as income of the year in which the certificate of completion for the whole or part of the project is issued by the Municipal Corporation or competent authority.

It has been further proposed to provide that the stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received by the Land owner in pursuance of signing of the JDA, if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the land. However, the benefit of this proposed changes shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. In such a situation, the capital gains as determined under general provisions of the Income-tax Act shall be deemed to be the income of the previous year in which such transfer took place and shall be computed as per provisions of the Act without taking into account the proposed amended provisions.

Section 49 is also proposed to be amended so as to provide that the cost of acquisition of the share in the project being land or building or both, in the hands of the land owner shall be the amount which is deemed as full value of consideration under the proposed provision. The amended provisions will take effect from FY 2017-18 (Assessment Year 2018-19). The FM has also proposed to insert a new section 194-IC in the Income-tax Act so as to provide that in case any monetary consideration is payable on or after 1st April, 2016 under the JDA, TDS at the rate of 10 per cent shall be deductible from such payment.

The taxation in case of JDA was an area of litigation and big dispute. The amendment will help in putting a curtain on such uncertainty and reduce the litigation.

3. Relaxation in deemed Notional Rent

Considering the business exigencies in case of real estate developers, the FM has also proposed to amend section 23 for the manner of determination of annual value of house property and to provide that where the house property consisting of any building and land appurtenant thereto and the flats are held as stock-in-trade and the property or any part of the property is not let during the year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil. This amendment is also practical and will eliminate the bona fide problem of promoters to some extent and will take effect from FY 2017-18 and will apply to assessment year 2018-19. It would have been better not to charge tax on deemed rent on flats held as stock-in-trade.

4. Base year for computation of capital gains

The FM has proposed to amend section 55 of the Act so as to provide that the cost of acquisition of an asset acquired before 1-4-2001 shall be allowed to be taken as fair market value as on 1st April, 2001 and the cost of improvement shall include only those capital expenses which are incurred after 1-4-2001. It will replace the existing date of 1st April, 1981. The amended base year will apply in respect of long term capital gains arising in FY 2017-18. It may be noted that for cost of acquisition of the asset the assessee has been allowed an option of either to take the fair market value of the asset as on 1-4-2001 or the actual cost of the asset as cost of acquisition. As the base year for computation of capital gains has become more than three decades old, assessees are facing genuine difficulties in computing the capital gains in respect of a capital asset, especially immovable property acquired before 1-4-1981 due to non-availability of relevant information for computation of fair market value of such asset as on 1-4-1981. Consequently the benefit of cost inflation index may be claimed at the discretion of the taxpayer on the basis of fair market value as on 1st April, 2001 (instead of actual cost in case property was acquired prior thereto). The measure is a step in right direction and will help in ease of doing business.

5. Promoting investment in immovable property

The existing provision of the Income-tax Act provide that to qualify for long-term asset, an assessee is required to hold the asset for more than 36 months subject to certain exceptions, for example, the holding period of 24 months has been specified for unlisted shares. With a view to promote the real-estate sector and to make it more attractive for investment, the FM has proposed to amend section 2(42A) of the Income tax Act so as to reduce the period of holding from the existing 36 months to 24 months in case of immovable property, to qualify as long-term capital asset.

This amendment is a welcome measure and will apply to transactions taking place during FY 2017-18.

6. Expanding the scope of long-term bonds under 54EC

The existing provision of section 54EC provides that capital gain to the extent of ₹ 50 lakhs arising from the transfer of a long-term capital asset shall be exempt if the assessee invests the whole or any part of capital gains in certain specified bonds, within the specified time. Currently, investment in bond issued by the National Highways Authority of India or by the Rural Electrification Corporation Limited is eligible for exemption under section 54EC.

In order to widen the scope of the section for sectors which may raise fund by issue of bonds eligible for exemption, the FM has proposed to amend section 54EC so as to provide that investment in any bond redeemable after three years which has been notified by the Central Government in this behalf shall also be eligible for exemption with effect from 1st April, 2017.

INDIRECT TRANSFER PROVISIONS

Proposed Amendment

Vide clause 4 of The Finance Bill, 2017 (for short “Bill”) Explanation 5A has been proposed to be inserted after Explanation 5 in clause (i) of section 9(1) (for short ‘Explanation 5’) with retrospective effect from 1st day of April, 2012. Proposed Explanation 5A reads as under:

“Explanation 5A — For the removal of doubts, it is hereby clarified that nothing contained in Explanation 5 shall apply to an asset or capital asset mentioned therein, which is held by a non-resident by way of investment, directly or indirectly, in a foreign institutional investor as referred to in clause (a) of the Explanation to section 115AD and registered as Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992.”

Introduction

Section 115AD specifies different rates of tax in respect of income of Foreign Institutional Investors (FIIs) from securities or capital gains arising from their transfer. Clause (a) of Explanation to Section 115AD defines expression “Foreign Institutional Investor” being such investor as the Central Government may, by notification in the Official Gazette specify in this behalf.

Accordingly, with retrospective effect from 1st day of April, 2012 the Foreign Institutional Investor, as referred to in clause (a) of the Explanation to section 115AD and who is also registered as Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992, has been proposed to be exempted from the applicability of Explanation 5 in clause (i) of section 9(1).

This amendment has been made retrospectively w.e.f. 1-4-2012 and applicable to A.Y. 2012-13 and subsequent years.

Legislative History of the Provision

To understand the importance and impact of such proposed amendment, it would be necessary to refer to the legislative history of the Explanation 5. This Explanation was added to clause (i) of section 9(1) along with Explanation 4 by the Finance Act, 2012 w.r.e.f. 1st day of April, 1962. Section 9 in Chapter II of The Income Tax Act 1961 (Act) specifies the incidences of income deemed to accrue or arise in India. Explanation 4 was added to this section to clarify the expression ‘through’ which shall mean and include and shall be deemed to have always meant and included ‘by means of’, ‘in consequence of’ or by ‘reason of’. At the same time Explanation 5 clarifies 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.

After insertion of Explanations 4 and 5 to section 9(1)(i) w.r.e.f 1-4-1962, number of representations were received by the CBDT expressing the apprehensions about the applicability of the Explanation to the transactions not resulting in any transfer, directly or indirectly of assets situated in India. It has been pointed out that such an extended application of the provisions of the Explanation may result in taxation of dividend income declared by a foreign company outside India. This may cause unintended double taxation and would be contrary to the generally accepted principles of source rule as well as the object and purpose of the amendment made by the Finance Act, 2012. To remove such doubts the CBDT has issued Circular No. 4/2015 dated 26-3-2015 and clarified that “Declaration of dividend by such a foreign company outside India does not have the effect of transfer of any underlying assets located in India. It is therefore, clarified that the dividends declared and paid by a foreign company outside India in respect of shares which derive their value substantially from assets situated in India would not be deemed to be income accruing or arising in India by virtue of the provisions of Explanation 5 to section 9(I)(i) of the Act.”

Thereafter, Explanations 6 and 7 are inserted in section 9(1)(i) by the Finance Act, 2015, w.e.f. 1-4-2016. The scope of these Explanations on ‘Notes on clauses’ in the Finance Bill, 2015 as under:

Clause 5 of the Bill seeks to amend section 9 of the Income-tax Act relating to income deemed to accrue or arise in India.

Clause (i) of sub-section (1) of the aforesaid section provides a set of circumstances in which income accruing or arising, directly or indirectly, is taxable in India. Explanation 5 to the said clause provides that an asset or 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.

It is proposed to amend the said clause (i) by insertion of Explanation 6 to provide that the share or interest shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if, on the specified date, the value of such assets is more than ten crore rupees and represents at least fifty per cent of the value of all the assets owned by the company or entity, as the case may be. The definition of value of assets and the specified date is also proposed to be provided in the said Explanation.

It is further proposed to insert Explanation 7 in the said clause (i) so as to provide that the income shall not accrue or arise to a non-resident in case of transfer of any share or interest referred to in Explanation 5, unless——

(a) He along with its associate enterprises,——

(i) Neither holds the right of management or control;

(ii) Nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital, in the foreign company or entity directly holding the Indian assets (direct holding company);

(b) He along with its associate enterprises, in case of the transfer of shares or interest in a foreign entity which does not hold the Indian assets directly ——

(i) Neither holds the right of management or control in relation to such company, as the case may be, or the entity.

Discussion

Section 9(1)(i) describes that any income accruing or arising whether directly or indirectly; a) through or from any business connection in India, or b) through or from any property in India, or c) through or from any asset or source of income in India, or d) through the transfer of a capital asset situated in India, is deemed to accrue or arise in India. Several Explanations are added to explain this clause of section 9. Explanations 4 and 5, as mentioned earlier, were added by the Finance Act, 2102.

Hon’ble Delhi High Court in the case of DIT v. Copal Research Ltd. 371 ITR 114 (Del.) has considered the scope of Explantion 4 and 5 to section 9(1)(i) of the Act. The reference can be made to the following observations:

“It is trite law that a legal fiction must be restricted to the purpose for which it was enacted. The object of Explanation 5 was not to extend the scope of section 9(1)(i) of the Act to income, which had no territorial nexus with India, but to tax income that had a nexus with India, irrespective of whether the same was reflected in a sale of an asset situated outside India. Viewed from this standpoint there would be no justification to read Explanation 5 to provide recourse to section 9(1)(i) for taxing income which arises from transfer of assets overseas and which do not derive bulk of their value from assets in India. In this view, the expression “substantially” occurring in Explanation 5 would necessarily have to be read as synonymous to “principally”, “mainly” or at least “majority”. Explanation 5 having been stated to be clarificatory must be read restrictively and at best to cover situations where in substance the assets in India are transacted by transacting in shares of overseas holding companies and not to transactions where assets situated overseas are transacted which also derive some value on account of assets situated in India. In our view, there can be no recourse to Explanation 5 to enlarge the scope of Section 9(1) of the Act so as to cast the net of tax on gains or income that may arise from transfer of an

asset situated outside India, which derives bulk of its value from assets outside India.”

Their lordships also observed that “by virtue of Section 9(1)(i) of the Act all income arising from transfer of a capital assets situated in India would be deemed to accrue or arise in India and would thus be exigible to tax under the Act. A share of a company incorporated outside India is not an asset which is situated in India and, but for Explanation 5 to Section 9(1)(i) of the Act, the gains arising out of any transaction of sale and purchase of a share of an overseas company between non-residents would not be taxable in India. This would be true even if the entire value of the shares of an overseas company was derived from the value of assets situated in India. This issue arose in the case of
Vodafone International Holdings BV v. Union of India [2012] 341 ITR 1/204 Taxman 408/17 taxmann.com 202 (SC) and the Supreme Court held that the transaction of sale and purchase of a share of an overseas company between two non-residents would fall outside the ambit of Section 9(1)(i) of the Act.”

The above decision has been challenged by the Department in SLP filed before Apex Court which has been admitted. The legal battle on this issue will be going on until set at rest by the Apex Court.

Conclusion

Not going into much detail and restricting the discussion to the subject, it may be mentioned that by proposed insertion of Explanation 5A after Explanation 5 to Section 9(1)(i), an attempt has been made to bring certainty to some extent to the incidence of tax in the hands of Foreign Institutional Investors (of the categories specified in proposed Explanation 5A) with retrospective effect from A.Y. 2012-13 onwards which is a welcome move and augment foreign investment in India.

DOMESTIC TRANSACTIONS

Inroduction

Section 92BA was introduced by section 36 of the Finance Act, 2012, w.e.f. 1-4-2013 in order to give an exhaustive meaning of the expression “specified domestic transaction” as appearing in sections 92, 92C, 92D and 92E of the Act. It inter alia provides that any expenditure in respect of which payment has been made by the assessee to certain “Specified Persons” u/s. 42A(2)(b) is covered within the ambit of specified domestic transactions.

With the efflux of time it was noticed that the related parties to whom such payments are made by the entities, which were under obligation to comply with the transfer pricing provisions, were also bearing maximum marginal rate of tax. Section 92BA was brought to the statute with an objective to introduce anti-domestic tax avoidance regulations extending the scope of India transfer pricing regime and such step was in accordance with the decision of the Hon’ble Supreme Court in the case of
Glaxo Smithkline Asia (P.) Ltd. [2010] 236 CTR 113 (SC).

These provisions were introduced with a minimum compliance of threshold limit of ₹ 5 crore. It was noticed by the authorities that assessee’s have faced a lot of administrative and compliance burden and therefore, the said limit of ₹ 5 crore was enhanced to ₹ 20 crore by the Finance Act, 2016 w.e.f. 1-4-2016 and the proposed amendment by the Finance Bill, 2017 is in furtherance of reducing the over burdened compliance obligations of the entities falling under these provisions.

Thus, in order to relieve the entities falling within this category from over-burdened compliance, an amendment has been proposed by introduction clauses 15 and 41 in the Finance Bill, 2017 which provides that expenditure in respect of which payment has been made by the assessee to a person referred to in u/s. 40A(2)(b) are to be excluded from the scope of section 92BA of the Act. Accordingly, it is proposed in the Finance Bill, 2017 to omit clause (i) in section 92BA which reads as under:-

(i) Any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A;

Consequential amendment has also been proposed to be made in the proviso to clause (a) in sub-section (2) of section 40A of the Act. These amendments will take effect from 1-4-2017 and would be applicable in relation to Assessment Year 20017-18.

Conclusion

It is a welcome amendment as it has relieved the domestic assessees from the great burden of compliance and reporting of the transactions which, from the past experience, have largely been found to be tax neutral. However, the other clauses of section 92BA of the Act remain ineffective particularly in relation to the entities where any of them is claiming deductions/exemption. So, without losing any revenue, the amendment has been made to reduce the burden of compliance.

 

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— Mahatma Gandhi

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