Introduction

Even though God rules in the affairs of men, yet the earth is not God’s jurisdiction. It is man’s jurisdiction. This quote is apt to set the tone to this piece relating to “jurisdiction” of the “proper officer” of DRI. It is a much debated question. However, in my humble opinion, a self inflicted injury by the Government. The true reason for this debate is the sheer arrogance of the bureaucracy in creating red tapes, class distinctions amongst officers and defining boundaries which do not per se exist.

Officer of DRI is “proper officer” or not is a vexed question of law. The issue is one relating to jurisdiction. The Courts have taken one view. However, the parliament seems to think otherwise and has since brought about series of retrospective amendments. The Finance Bill, 2022 is yet another attempt. Before we proceed to analyze the proposed amendments, let us, briefly, dive into the development of the law on this issue.

Syed Ali’s Case

The Hon’ble Apex Court in Commissioner vs. Syed Ali1 held that a demand notice can only be issued by the so called ‘proper officer’ who had the jurisdiction to assess the goods at the time when the same were being imported and cleared and not any other officer. In order to overcome this ruling, in 2011, the Legislature brought an amendment in the said Act by way of an Explanation to section 28(11) of the Customs Act, which gave all Customs Officers, en masse, power to issue show cause notices.

The said Explanation was, yet again, a matter of challenge before the Delhi High Court. The Delhi High Court in Mangali Impex v. Union of India2, clarified that the validating amendment brought in 2011 will apply prospectively and not retrospectively. SLP against the said judgment is pending before the Apex Court.

Canon India Pvt Ltd’s case

In March, 2021, a three-judge bench of the Apex Court in Canon India Pvt Ltd v. Commissioner of Customs3 followed its earlier decision in Syed Ali supra and held that that an officer of the DRI is not a “proper officer” to issue Show Cause Notices or raise a customs duty demand against importers. It is the officer who had undertaken the original assessment of imports or his successor, who would be the “proper officer” to issue Show Cause Notices and demand customs duty. In the words of the Hon’ble Apex Court:

“Where the statute confers the same power to perform an act on different officers, as in this case, the two officers, especially when they belong to different departments, cannot exercise their powers in the same case. Where one officer has exercised his powers of assessment, the power to order re-assessment must also be exercised by the same officer or his successor and not by another officer of another department though he is designated to be an officer of the same rank. In our view, this would result into an anarchical and unruly operation of a statute which is not contemplated by any canon of construction of statute.”

The Apex Court, further, went on to hold that the Notification No. 40/2012-Cus. (N.T.) relied by the Revenue department was ‘ill-founded’. The notification was issued under Section 2(34) of the said Act which merely defines a ‘proper officer’ and does not confer any powers on any authority to entrust any functions to officers. Also, if it was intended that officers of the DRI should be entrusted with functions of the Customs officers, it was vital that the Government should have done so in exercise of its power under Section 6 of the said Act. A review petition filed by the Revenue against the said judgment is pending before the Supreme Court.

In Unik Traders v. Additional CC4, the Madras High Court followed the above law expounded by the Hon’ble Supreme Court. Following this, the Bombay High Court, Madras High Court and Karnataka High Court have quashed Show Cause Notices issued by DRI officers saying that though review is pending before the Apex Court, it will not act as a bar from following the Apex Court judgment in the Canon India case.

However, recently, the Apex Court has admitted SLP filed by Revenue against judgment of the High Court in Godrej And Boyce Manufacturing Company Ltd v. UoI5. The Revenue contended that review petition is moved on the ground that Explanation to Section 28 (11) was not noticed by the three judge Bench in Canon India case. Thus, the controversy is still far from over.

Finance Bill, 2022

However, in the mean time, the Finance Bill, 2022 has proposed the following amendments:

Section 2: The assignment of functions to an officer of Customs by the Board or the Principal Commissioner shall be governed by the proposed Section 5(1A) and (1B) of the Customs Act.

Section 3: DRI6, Audit and Preventive Officers, etc. will be included as ‘Proper Officers’ under the said Act.

Section 5: Sub-section 1A and 1B shall be inserted to Section 5 to empower the Principal Commissioner of Customs or Commissioner of Customs to explicitly provide powers and functions of assignment of functions to the officers of Customs. It has been provided that two or more officers of customs can concurrently exercise powers and functions.

Section 14: The Board to specify the additional obligations of the importer whose value is not being declared correctly, the criteria of selection of such goods, and the checks in respect of such goods.

Section 110AA: When an original function has been duly executed by the officer of customs and subsequently, an inquiry, investigation, audit has been initiated by any other officer of customs, then, the officer, who originally exercised the functions shall have the sole authority to exercise further action like reassessment, adjudications, etc.

The Bill seeks to expand the scope of the definition of the term ‘proper officer’ under Section 2(34) of the said Act to expressly allow assignment of functions to an officer of Customs by CBIC7 or the Principal Commissioner of Customs or the Commissioner of Customs. Further, sub-section (1A) and (1B) of Section 5 proposes to empower the CBIC or the Principal Commissioner/Commissioner of Customs to assign functions to Custom officers. Section 3 proposes to include officers of DRI and Customs Audit/Preventive wing as ‘proper officers’ to empower them to investigate/enquire and issue Show Cause Notices.

Clause 96 of the Bill also seeks to retrospectively validate any action taken or duties performed by officers of DRI or Customs before the enactment of the Bill, notwithstanding the decisions of the Courts, Tribunals or Authorities. Any proceeding arising out of action taken under the clause and pending on the date of commencement of the Finance Act will be disposed of under the amended provisions. This retrospective amendment may have an overriding effect on the outcome of pending SCNs/Petitions/ Appeals, where the jurisdiction of the DRI officer is under challenge.

From the above amendments, it can be easily discerned that the Parliament seems to bestow all powers under the Customs Act on the officers of DRI. The said attempts are clearly an attempt to nullify the judgment of the Apex Court in the Canon India case.

Retrospective Amendment

Though the power of the Legislature to amend retrospectively undoubtedly cannot be questioned, we must refer to the observations of the Apex Court in Commissioner of Income Tax v. Essar Teleholdings Ltd.8, whereby it was held that the legislature cannot scrap out any judgment of the court by giving a retrospective amendment of the concerned law as this will confer excessive power on the hands of a particular organ of the government suppressing the other two. Therefore, the question whether the retrospective amendment being constitutionally legitimate or not remains a question as this kind of amendment has received partial legitimacy and not a complete one which thus keeps it under observation. Thus, the above proposed amendments would have to pass the test of judicial scrutiny.

However, the moot question remains i.e. assuming the retrospective amendment is valid, whether the proposed amendments nullify the ruling of the Apex Court in Canon India case. In other words, the lacuna pointed out by the Apex Court, has it been cured? I think not. The essence of the Apex Court judgment was that the “reassessment” can be done by the same officer who had done the original assessment. This aspect of the matter seems to have been lost sight of.

The other question that arises is whether Clause 96 would revive the dead? The answer is in the negative. All show cause notices which have been quashed and all appeals which have been allowed setting aside assessment orders will not and cannot stand revived, unless there is a challenge to those orders. Else, those orders have become final and binding. By a retrospective amendment, statutory orders cannot be annulled.

Closing remarks

A retrospective amendment is the most powerful tool in the hands of the legislature. However, in recent times, it is only intended to overrule judgments of courts than to iron out creases in the law. It is a sign of a bad loser. However, the Government seems to suggest that heads I win, tails you lose.

 

1. 2011 (265) ELT 17 (SC)

2. 2016 (335) ELT 605 (Del)

3. 2021-TIOL-123-SC-CUS-LB

4. TS-548-HC-2021(MAD)-CUST

5. CWP No.19871 of 2020

6. Directorate of Revenue Intelligence

7. Central Board Indirect Taxes and Customs

8. (2018) 3 SCC 253

In this Article pertaining to Finance Bill 2022 as presented with the National Budget 2022- 23 in Parliament on 1st Feb. 2022, we have endeavored to provide the comprehensive analysis with critical examination of each of the 14 proposed amendment in GST law through Clause 99 to 113 of the Finance Bill, 2022 as well as 9 proposed amendments in the existing GST Notifications through Clause 114 to 123 along with my brief comments explaining the effect of the proposals for better and quick understanding.

The proposals for amendments in CGST Act or IGST Act or UTGST Act if adopted in the same shape by the Parliament than they can be implemented after the Hon’ble President of India grants his assent i.e. on the date of its enactment, in accordance to the empowering Notifications issued by the Government in coordination with all the State Governments for corresponding amendment in respective SGST Acts. Thus, we need to keep a watch on the effectivity date as per the respective Notification for the amendments made through the prospective Finance Act 2022. Further, the retrospective effectivity for the existing Notifications as proposed through Clause 114 & 115 relating to CGST, Clause 118 &121 relating to IGST and Clause 122 and 123 relating to UTGST of Finance Bill 2022 will come into effect on the date of its enactment.

The main emphasis of proposed amendments in GST law are based on the previous recommendations of the GST Council so as to align the legal provisions in the Act with the aim to improve the system of filing Returns primarily in consonance with presently adopted interim return filing system of GSTR-1 and GSTR-3B which was actually implemented in the initial period but as per the understanding of GST Council the Tax- Payers are now well conversed with and feel comfortable by this interim system. Few improvements has been provided with an objective to make it more trade friendly on one side and on the other side to make it further robust so that only the valid claim of ITC could be availed as automatically offered on the ‘Common Portal’ based on the timely declarations made by the tax-payers; the accurate compliance has been made much more significant and stringent.

Trade-friendly amendments has been proposed in Section 49 for allowing transfer of excess cash available in the Electronic Cash Ledger ensuring better availability of liquid cash for the dealers having multiple registrations in different states as well as another very reasonable amendment with retrospective effect from 1st July, 2017 is proposed in Section 50 (3) for levy of interest at the reduced rate of 18% and that too only on that portion of amount actually utilised from the Electronic Cash Ledger.

Another trade facilitation measure has been taken by proposing amendments in Section 16(4), 34(2), 37(3), 39(9) and 52(6) which prescribes similarity in time period till 30th November of the succeeding year for required compliance by the above referred Sections. The last date of respective compliance have been de-linked from the date of filing of the return. It will help in making the compliance timeline static, single and synchronised across various Sections of the Act as well as it will provide additional time to the taxpayers for issuance of credit notes or for availing ITC or rectification of errors in GSTR-1/ GSTR-3B/ GSTR-8 thus making compliance little easier.

Now, we may one by one take each of the proposed amendment in CGST Act through the Finance Bill 2022.

Amendment by Clause 99 of Finance Bill 2022 in Section 16 of CGST Act, 2017 through Finance Bill, 2022 – Claim of ITC

Through introduction and insertion of new Clause (ba) an additional condition for availment of ITC u/s 16(2) has been introduced which is further against the ‘principal of seamless credit’ as strongly propagated in the beginning by this Government, now ITC can be availed only if the same is not restricted in auto-populated GSTR-2B as communicated to the registered person under newly introduced Section 38. Here, it is important to keep in mind that newly envisaged GSTR-2B shall provide eligible and ineligible Input Tax Credit for each month similar to GSTR-2A, but ITC in GSTR-2B remains constant or unchanged for some specified period of time. Through introduction of this clause a situation may arise that claim of ITC by the taxpayer may be restricted even when the ITC is otherwise legally eligible according to unique or specific facts and documentation but the same may be restricted by the Common Portal in auto- generated GSTR-2B based on the digital logic generally applied in the software as there is no opportunity of application of law by human brain to the specific facts and circumstances of the unique transection.

Combined reading of newly inserted clause (ba) of subsection (2) of Section 16 with clause (aa) of the same subsection (2) of Section 16 which was made applicable w.e.f. 1st January, 2022 gives the total effect of new restrictions on ITC, thus it is an interplay of multiple clauses as well as multiple sections of the CGST Act under which the amount of ITC is closely scrutinised as per conditions and restrictions provided therein. This will certainly be an ambiguous and difficult proposition to be followed by the taxpayers for a valid claim of ITC. This may not only lead to enormous litigation but will make the life of genuine taxpayer very difficult and complicated.

Further, it is good that through amendment in section 16(4) the time-limit to avail ITC u/s 16(4) has now been extended to earlier of the two events of either till the date of filing of the Annual Return as per Section 39 or 30th November of subsequent year instead of the previously prescribed date upto 20th October (prescribed date of filing September return) of the subsequent year.

Amendment by Clause 100 of Finance Bill 2022 in Section 29(2)(b)/(c) – Cancellation of GST Registration of Composition Dealer & Other Dealers due to continuous Non-filing of Returns by defaulting Registered Dealers

Through this amendment in Clause (a) the Composition Tax-Payer’s Registration can be cancelled if they have not filed their GSTR- 4 Return for the Financial Year beyond 3 months from the due date, thus Govt will wait and allow only for three mounts to file the return by Composition Dealer otherwise his Registration may be cancelled. This provision will bring discipline amongst small tax-payer paying GST under Composition Scheme u/s 10 of CGST Act.

By proposed amendment in Clause (b) the powers have been taken by the Government to prescribe the time period of the continuous default by all other normal category of dealers other than composition dealers for cancellation of their GST Registration. This provision may create confusion because of the possible frequent changes in the prescribed period as the leverage is available with the Government instead of the prerogative of the Parliament. The Central Government is taking more and more powers under the law without further required to approach the Parliament, resulting in centralised and concentrated powers to administer the GST law in its own hands by issuing Notifications as and when the Government deem fit.

Amendment by Clause 101 of Finance Bill 2022 in Section 34 – Time Period for Issue of Credit Notes pertaining to a Financial Year now extended till 30th November of subsequent Financial Year

Through this amendment, now the Credit Notes in respect of supply made in a financial year can be issued by 30th November of the subsequent financial year, currently this was allowed till 20th October which is the prescribed limitation for filing of monthly return of September, thus effectively the taxpayers shall have 40 more days for making this compliance.

This provision has extended the time limit to issue ‘credit notes’ and make amendments through ‘credit notes’ pertaining to any outward supply in a previous financial year which can now be made till 30th November of next financial year as well as rectification pertaining to outward liability of the previous year can also be done up to 30th November of the subsequent year, which is a welcome step to keep sometime (30 days) in between before filing of the Annual Return, this will make the compliance little easier. It is to be clarified that ‘commercial credit note’ without effecting the GST can be issued beyond this date also.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 – Furnishing details of Outward Supplies – Extension of Time Period for making Rectifications in Returns for a FY till 30th November of subsequent FY

Through this proposed amendment in sub-section (1) of Section 37 any rectification of error in outward supplies, invoices, debit notes, credit notes and revised invoices to be reported in GSTR-1/ GSTR-3B is now permitted till 30th November of the subsequent financial year, it was currently allowed till 20th October which is the prescribed limitation for filing of monthly return of September, thus effectively the taxpayers shall have 40 more days for making this compliance. The powers of prescribing the procedure and making the rule has been taken by the Government.

The effect of this proposal could both be good and bad, good because the taxpayer have got opportunity to make the declarations till 30th November of the subsequent financial year and bad because unless the error is corrected by the outward supplier, the inward supplier shall not get the corresponding benefit of ITC and the amount of ITC could not be fixed and validated. This may create problems for the inward supplier, he may have to wait and pursue for earliest possible rectification of the error in the declarations made by the outward supplier.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 –Furnishing details of Outward Supplies-Ease of Doing Business as Regular Engagement all through the Month in Filing of GST Returns is Not Required

Through this proposed amendment the Proviso 1 of Sub-Section (1) of Section 37 and Sub-Section (2) of Section 37 has to be omitted, effectuating the removal of the requirement of confirming the ‘inward supply transaction’ in the earlier prescribed GSTR-2A by the ‘inward supplier’ between 15th and 17th day of the succeeding month as appearing in the auto-populated GSTR-2A based on GSTR-1 of the outward supplier. This will do away with the requirement of two-way digital communication as earlier envisaged in the procedure for filing of monthly GST Returns. The responsibility of the outward supplier for declaring the supply transactions correctly within the prescribed time has increased, the amount of ITC available shall become static for the inward supplier. This provision shall certainly be a positive action for ease of doing business for the registered dealer (inward supplier) as there is no requirement of regular engagement in the system of filing, confirming and then lastly depositing the due tax every month in accordance to the prescribed GST returns.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 – the Scope of Rectification of any Error or Omission is Enhanced as well as Extension of Time Period for making Rectifications in Returns for a FY till 30th November of next FY

Through this amendment the scope of rectification of any error or omission has been enhanced which was earlier confined to the errors or omissions of ‘unmatched transactions’ under Section 42 or 43, this amendment is also necessary as the provisions of Section 42 and 43 have been omitted.

The time-period for rectification of error or omission has been extended by 40 days from 20th October (prescribed date of filing September return) to 30th November of the subsequent year, thus making the compliance little easier.

Amendment by Clause 102 of Finance Bill 2022 in Section 37 – Furnishing details of Outward Supplies – Timely Compliance for all Previous Tax Periods is Essentially Required for a Fully Compliant Dealer

Through this proposed amendment no outward supply could be filed in GSTR-1/ GSTR-3B for the current tax period until the outward supply or due amount of tax for all the previous tax periods has been duly reported in GSTR–1/GSTR-3B. The relaxation in such strict conditions can be granted by the Government under special conditions and restrictions for specified class of registered dealers.

The proposed amendments in Section 37 as discussed in 4 previous sub-topics has also been made with aim to alien the existing legal provisions {Section 39 (10) and Rule 59 (6) as applicable for GSTR-3B} relating to system of filing the returns as well as to provide for a tax period-wise sequential filing of GSTR-1/ GSTR-3B to make the smooth system of GST return filing in accordance to the prescribed time limit which is very essential element of successful implementation of GST.

This will also remove the earlier requirement of continuous/repeated communication between the inward and outward supplier after filing the data in GSTR-1 for verification of outward supply as reported by outward supplier and the inward supply as received/recorded by inward supplier. The GST Council after many rounds of discussion is trying to make the system of GST return filing little easier for the taxpayer but actual benefit could be assessed once this new system on GSTN platform is digitally implemented.

Substitution of fresh Section 38 by Clause 103 of Finance Bill 2022 – Claim of ITC to be made as per auto- generated GSTR-2B, old provisions completely deleted in place of which new provision substituted – ITC could be availed by the recipient on the basis of communication based on furnishing of details by outward supplier

Under the new system of GST return filing and reporting of the supply transactions, Sub section (1) seeks to provide for prescribing outward supplies furnished by a registered person in GSTR-1 and also such other supplies as may be prescribed in such form and manner, within prescribed time, subject to conditions and restrictions for communication of details of inward supplies and input tax credit available to the recipient by means of an auto-generated statement GSTR-2B and to do away with earlier required two-way communication process in return filing. This is a step for ease of doing business with an aim to provide comfort and safety on one hand to the inward supplier but on the other hand to make the system more robust for allowing/availability of ITC in accordance to the conditions and restrictions and that too after close monitoring in accordance to the procedure which may be prescribed by making Rules which shall also provide better clarity on this very important issue of availment of ITC.

Substitution of fresh Section 38 by Clause 103 of Finance Bill 2022 – Claim of ITC to be made as per GSTR-2B – Six additional restrictions for availing ITC has been prescribed making life of inward supplier much more difficult

This provision is very damaging and against the basic spirit of GST law viz seamless availability of input tax credit in the chain of transactions till the goods or services are finally consumed in the economy. These additional 6 restrictions shall certainly result in the ‘cascading effect’ of tax on tax in the chain of transactions. The restrictions for availing the benefit of ITC in brief are:-

1. Within specified initial period of taking registration by a new registered dealer and invoices which were issued earlier (within 30 days) to the grant of new registration;

2. A registered dealer has short paid or defaulted in payment of tax for a specified period or the supplier failed to file the GSTR-1 return;

3. The output tax payable by the registered dealer as per GSTR-1 exceeds the output tax paid as per GSTR-3B by a specified percentage;

4. The registered dealer, during specified period availed credit of an amount that exceeds the credit that can be availed till the specified percentage i.e. if the supplier has defaulted in compulsorily cash payment of tax under Rule 86A/86B;

5. The registered dealer who has defaulted in discharging tax liability in accordance with Section 49(12);

6. On account of the details being furnished under Section 37(1) by such other class of persons as may be prescribed.

Fresh insertion of these six clauses of Sub- section (2) provides for the details of inward supplies and nature of transactions in respect of which input tax credit may be availed and the details of supplies on which input tax credit cannot be availed by the recipient, as communicated in auto generated statement.

In times to come the inward supplier i.e. the buyer of the goods or recipient of service needs to be much more vigilant in choosing the outward supplier, even though self- policing mechanism has been tried to be put in place which will make the business difficult for a non-compliant vendor but maintaining distance and not performing any transaction with a non-compliant supplier shall be the basic responsibility of the inward supplier. Self-Regulation shall be the key for ease of doing business in the era of GST.

By these proposed amendments, it seems that the Government thinks that the administrative machinery of GST officers is failing in its duty for ensuring proper compliance by a registered dealer for the outward supply, that is why the burden is being tried to be shifted by these provisions on to another dealer who is just doing business without any legal power under GST law to exercise over the outward supplier who has made default in spite of the fact that the inward supplier is absolutely genuine and innocent. The Government or its officers cannot the absolved from their legal duty as entrusted on them under the GST law, a businessman (inward supplier) cannot himself enforce the law on an independent dealer (outward supplier).

Why the primary burden which is legally casted upon the ‘outward supplier ’ in the scheme of GST law is being shifted onto the ‘inward supplier ’ during the chain of transactions? Why should a genuine and innocent ‘inward supplier’ be responsible for the default of the ‘outward supplier’ who is a registered dealer under the control of the jurisdictional/proper officer having authority to monitor and collect tax under the GST law?

This shall certainly become the most controversial and litigated provision of GST law as these amendments are nothing but extension to controversial provision of existing Section 16 (c) which provides that the inward supplier can only get the benefit of ITC when the outward supplier had already deposited the tax. The GST Council rather than shifting the burden onto the ‘inward supplier’ shall use their authority of law through its officers all across the country so that the ‘outward supplier’ who is primary liable for payment of GST should comply the law in its true spirit, this will make a conducive atmosphere of business which will flourish the economy. The present provisions of the GST law seems to be in-sufficient to check the fake registrations and consequent fraudulent chain of transactions to befool the genuine and innocent registered dealers; the consequent loss of revenue and the faith in the attribute of self-policing in GST is fast diminishing. The Government and its administrative machinery must take concrete measures to catch hold-of the real beneficiary to the evasive tactics of the fraudulent business instead of unreasonably and unjustifiably harassing the genuine registered dealers. The officers must truthfully apply their mind to distinguish between genuine and fraudulent dealers rather than just the collection of revenue loss, unless the administrators identify the real beneficiary as already provided in the GST law this tendency of fraudulent transaction and failed billing will not stop.

Amendment by Clause 104 of Finance Bill 2022 in Section 39 – Furnishing of Return

The proposed amendment in subsection (5) ensures that the non-resident taxable person should file its return within 13 days of the close of the previous month instead of 20 days as earlier provided to synchronise the date with GSTR-2B.

The purpose of substitution of first proviso to subsection (7) has been mentioned in the memorandum of the Finance Bill: “It further seeks to substitute the first proviso to sub- section (7) so as to provide an option to the persons furnishing return under proviso to sub-section (1) to pay either the self-assessed tax or an amount that may be prescribed.”

However, the language of this proviso does not provide any ‘option’ to the registered person but is making it mandatory through the use of word ‘shall‘ for the requirement to deposit the ‘amount determined‘, clause (b) of this proviso does not speak about the payment of ‘due amount of tax‘ in lieu of the amount referred to in clause (a). There is in clear difference in the ‘amount determined‘ and ‘amount due’ as distinctively used in this substituted proviso.

Amendment by Clause 104 of Finance Bill 2022 in Section 39 – Furnishing of Return

The amendment in subsection (9) ensures that this provision should be independent of section 37 and section 38 which makes this provision for ‘suo-moto correction/ rectification’ in the return practically possible, usable and friendly to the dealers who had by mistake filed their return with some incorrect particulars or some omission has happened.

The amendment in the proviso is to coincide with the same time period as provided in other similar provisions for rectification of errors or omissions in the Returns by 30th November of the succeeding year

Amendment by Clause 104 of Finance Bill 2022 in Section 39 – Furnishing of the return

As per the earlier provisions of subsection (10) no Return could be furnished for the current tax period until the Return for all the previous tax periods have been furnished.

Through this amendment /insertion no outward supply could be filed in GSTR-1/ GSTR-3B for the current tax period until the outward supply has been reported in GSTR–1 for all the previous tax periods.

The relaxation in such strict conditions can be granted by the Government under special conditions and restrictions for specified class of registered dealers. This provision has made it discretionary for the government machinery to favourably allow any dealer or class of dealers with the relaxation, which is against the principal of transparency & equity in the provisions of GST law. This may create confusion and unnecessary representation before the Government.

Amendment by Clause 105 of Finance Bill 2022 in Section 41 – Old provisions of provisional acceptance of ITC completely substituted

Through this amendment Section 41 of the CGST Act is being substituted so as to do away with the concept of “claim” of ITC on a “provisional” basis and to provide for availment of self-assessed input tax credit.

Here again due to this conceptual change the inward supplier has been made responsible for the default of the outward supplier even inspite of the fact that the inward supplier is absolutely genuine and innocent. The reversal of availed ITC has been required in the circumstances when the outward supplier has defaulted in making the timely payment of tax which is not in the control of the inward supplier. Why the burden of interest for delayed deposit be on the inward supplier for availment of such ITC which have been duly reflected in the Tax Invoice issued by a registered dealer-outward supplier? Why not the Government machinery be robust enough that the outward supplier must comply the law and the burden casted upon him for payment of the due amount of GST we fulfilled by outward supplier?

Omission of Section 42, 43 and 43A by Clause 106 of Finance Bill 2022 – Provisions pertaining to Matching, Reversal and Reclaiming of ITC

Through this amendment Legislature intends to omit Section 42 of the Central Goods and Services Tax Act relating to matching, reversal and reclaiming of input tax credit so as to do away with the concept of “claim” of eligible input tax credit on a “provisional” basis and subsequent matching, reversals and reclaim of such credit.

It further seeks to omit Section 43 relating to matching, reversal and reclaim of reduction in output tax liability so as to do away with two-way communication process in return filing as discussed in detail in the above paragraphs.

It also seeks to omit section 43A which earlier provided Procedure for furnishing Returns and availing ITC.

These amendments in the shape of omission of these three sections of the GST law is to remove the unnecessary provisions for the reason of insertion of new provisions (Section 38) as well as here and there prescribing new system of filing and verification of GST returns.

Amendment by Clause 107 of Finance Bill 2022 in Section 47 pertaining to levy of late fee

Through this amendment legislature intends to provide for levy of late fee for delayed filing of GSTR-8 for TCS return also under section 52 and to remove reference of section 38 as now there is no requirement under the new provisions introduced in the Finance Bill 2022 of furnishing details of inward supplies by the registered person under the said section 38. This is to keep harmony among the different provisions which have been newly introduced.

Amendment by Clause 108 of Finance Bill 2022 in Section 48 pertaining to GST Practitioners

With an aim to actually understand the effect of this simple amendment in subsection (2) of section 48, we need to understand the real purpose of existing Section 48 which provides that a registered dealer can authorise the ‘GST Practitioner’ only for the specified functions as prescribed in the specified sections of the GST law. Now as per clause 108 of Finance Bill 2022 after omission of the words ‘the details of inward supplies under section 38′, the GST practitioner cannot be authorised by the registered person for the purpose of newly introduced provisions of section 38 which certainly curtails the scope of work and consequent responsibility for a ‘GST Practitioner ’. In my opinion, it actually means that the GST practitioner of a registered dealer shall now not be entitled to receive the communication on behalf of the registered person comprising of the details of inward supplies and the availability of input tax credit for any tax period. The effect of this amendment is far-reaching as the responsibility of verification & regulation of the communication of inward supply and available ITC shall now solely rests with the registered person itself.

Amendment by Clause 109 of Finance Bill 2022 in Section 49 pertaining to payment of tax, interest, penalty and other amounts

Proposed amendment in sub-section (4) of section 49 of the CGST Act provide for prescribing restrictions for utilizing the amount available in the electronic credit ledger.

These amendments are introduced as now there is no requirement of the reference of omitted provisions after insertion of new subsections and provisions introduced in the Finance Bill 2022. This is to keep harmony among the different provisions which have been newly introduced.

Amendment by Clause 109 of Finance Bill 2022 in Section 49 pertaining to payment of tax, interest, penalty and other amounts

Being the highlight of this Finance Bill 2022, it is an important and trade friendly proposal which seeks to amend sub-section (10) so as to allow transfer of amount available in electronic cash ledger under the CGST or IGST of a registered person to the electronic cash ledger under CGST or IGST of a distinct person under same PAN which is registered under GST in another state. This will be treated as claim of refund through RFD-01 after following the procedure prescribed under Section 54.

This proposal has met a long-standing demand of trade and industry, now a registered person having excess amount available in the electronic cash ledger can transfer such excess amount to the electronic cash ledger of a ‘distinct person as defined in the provisions of GST law’ who is registered person in another State. It will entitle the registered person to use excess amount without it being lying unutilised in his electronic cash ledger, this will result a better control on cash flow and increase the liquidity of the registered dealer under the same PAN.

It also seeks to insert Sub-Section (12) so as to provide for prescribing the maximum proportion of output tax liability which may be discharged through the ‘electronic credit ledger ’. This proposal has been placed to validate Rule 86 B which was a big legal question under challenge before the Hon’ble High Courts, the Government had removed this deficiency from the GST law.

It has been clarified by the senior officers of CBIC that the genuine taxpayers who are un-intentionally facing the adverse effect of Rule 86B may utilise the option to make an application before the Commissioner vested with the powers to waive such condition of deposit through Electronic Cash Ledger in spite of the available ITC in Electronic Credit Ledger. The effect of Notification No. 94/2020 CT dated 22nd December, 2021 which had made this provision mandatory w.e.f. 1/1/2022 needs to be analysed in the light of the amended provisions.

This provision shall certainly create confusions and will be a great hindrance in seamless availability of input tax credit through the chain of transactions which is not only the commitment of the Government but also one of the main elements of introduction of GST as assured by the Government in the Parliament.

It is important to note that nothing has been mentioned in the memorandum for introduction of this provision in the GST law which certainly creates doubt about the real purpose and aim of the Revenue Department. If the GST Council empowers the Government to only allow any specified proportion of output tax liability to be adjusted from the input tax credit available with the registered person, then the Government may use such power for its advantage at its WILL consequently detrimental to the trade and industry which will certainly adversely affect the economy of the country.

Amendment by Clause 110 of Finance Bill 2022 in Section 50 pertaining to Interest on delayed payment of tax

Another highlight of this Finance Bill 2022 is being achieved through this amendment whereby a new sub-section is to be substituted for erstwhile sub-section (3) of section 50 of the CGST Act with a retrospective effect from 1st July, 2017, so as to provide for levy of interest only on that portion of input tax credit which was wrongly availed and utilised. Earlier, it was not necessary for imposition of interest on that portion of ITC which has not been actually utilised for payment of outward tax liability by a taxpayer, only wrong or invalid ‘claim or availment of ITC’ in Electronic Credit Ledger was enough for attracting the liability of interest even in spite of the fact that the amount has not been utilised. Now, the twin conditions of availment and utilisation of ITC is necessary for imposition of interest.

If any taxpayer has already deposited the interest under protest due to pressure of demand of interest made under the erst-while provision of Section 50(3), then such taxpayer may now claim refund of the differential amount of interest paid under protest by him through filing of refund application, as this provision has been placed on statute since beginning of GST.

Amendment by Clause 111 of Finance Bill 2022 in Section 52 pertaining to Collection of Tax at Source (TCS)

Through this proposal it is sought to amend proviso to sub-section (6) of section 52 of the Central Goods and Services Tax Act providing the provisions relating to TCS, so as to provide for 30th day of November following the end of the financial year, or the date of furnishing of the relevant annual statement of TCS, whichever is earlier, as the last date upto which the rectification of errors shall be allowed in the TCS statement furnished under sub-section (4).

Amendment in Section 16(4), 34(2), 37(3), 39(9) and 52(6) Provided Same Time Period for Compliance to maintain Similarity

It will help in making the compliance timeline synchronised across various sections of the Act as well as it will provide additional time to the taxpayers for rectification of errors in GSTR-1/ GSTR-3B/ GSTR-8 or for availing ITC etc making compliance little easier.

Amendment by Clause 112 of Finance Bill 2022 in Section 54 – Refund of Tax

As per the amended proviso to subsection (1) now any taxpayer i.e. ISD or TDS or TCS or Non-Resident Taxable Person, Composition Dealer or Casual Taxable Dealer can also file refund application for excess deposit of cash in cash ledger maintained on Common Portal in the prescribed form. The transfer of excess amount to another registered dealer as provided recently in Section 49(10) shall also be governed under this provision.

As per the amended subsection (2) now UN or Embassy having UIN registrations can also file refund application for ITC before expiry of 2 years from the last date of the quarter in which inward supply was received, earlier they could file refund application within 6 months only.

As per the amended subsection (10) now the scope of the said sub-section has been extended to all types of refund claims consequent to which the GST officer can exercise its powers to withhold the refund unless all the requirements are fulfilled by the claimant of the refund.

As per the new insert sub-clause (ba) in Explanation the relevant date has been provided as a clarification for filing refund claim in respect of supplies made to a Special Economic Zone developer or a Special Economic Zone unit.

Amendment by Clause 113 of Finance Bill 2022 in Section 168 pertaining to issuance of instructions or directions Through this amendment Legislature seeks to omit Sub-Section (2) of Section 168 of the Central Goods and Services Tax Act so as to remove reference to Section 38 therefrom.

Since Subsection (2) of Section 38 provides for the auto-generated statement of Input Tax Credit available to the recipient of goods or services on the basis of the declarations made by outward suppliers, so there was no need of maintaining the reference of subsection (2) of section 38 in the present provisions of section 168 which relates to the powers of Central Board of Indirect Taxes and Customs for issuing an Order, Instructions or Directions.

Amendment by Clause 114 of Finance Bill 2022 of Notification issued under Section 146 – Common Portal

Through this amendment Legislature sought to amend notification number G.S.R. 58(E), dated the 23rd January,2018 to notify www.gst. gov.in, retrospectively, with effect from 22nd June, 2017 i.e. from the very beginning, as the ‘Common Goods and Services Tax Electronic Portal’, for all functions provided under Central Goods and Services Tax Rules, 2017, save as otherwise provided in the Notification issued vide number G.S.R. 925 (E), dated the 13th December, 2019

Amendment of Notification issued under Sub- Sections (1) and of Section 50, Sub-Section (12) of Section 54 and Section 56 as applicable in CGST, IGST & UTGST Acts by Clause 115 for CGST, 118 for IGST & 121 for UTGST of Finance Bill 2022

Through this amendment Legislature sought to amend Notification number G.S.R. 661(E), dated the 28th June, 2017 for CGST and Notification No. G.S.R. 698(E), dated the 28th June, 2017 for IGST as well as under UTGST Act, so as to notify rate of interest under sub- section (3) of section 50 of the Central Goods and Services Tax Act as 18%, retrospectively, with effect from the 1st day of July, 2017.

If any taxpayer has deposited any amount of excess interest under protest due to pressure of demand made under the erst- while provision of Section 50(3), then such taxpayer may now claim refund of at-least the differential amount of interest of 6% through filing of refund application, as the notified applicable rate of interest is 18% from 1st July 2017 i.e. since beginning of GST instead of 24% as the highest limit mentioned in the erstwhile provision of Section 50 subsection (3).

Retrospective exemption from, or levy or collection of Central Tax in certain cases – Unintended waste generated during the production of fish meal by Clause 116 for CGST, 119 for IGST & 122 for UTGST of Finance Bill 2022

Through this amendment Legislature seeks to provide retrospective exemption from central tax in respect of supply of unintended waste generated during the production of fish meal (falling under heading 2301), except for fish oil, during the period from the 1st day of July 2017 upto the 30th day of September 2019 (both days inclusive).

It further seeks to provide that no refund shall be made of the said tax which has already been collected.

Retrospective effect to Notification issued under sub-section (2) of section 7 by Clause 117 for CGST Act, Clause 120 for IGST Act Clause 123 for UTGST Act of Finance Bill 2022

This proposal seeks to give retrospective effect to the Notification number G.S.R. 746(E), dated the 30th September, 2019 for CGST Act & Notification number G.S.R. 745(E), dated the 30th September,2019 for IGST Act with effect from the 1st day of July, 2017.

The effect of this Notification is that the ‘Service by way of grant of alcoholic liquor license against the consideration or license fee or application fee (by way of whatever name it is called by the State Governments) has been declared as an activity which is neither supply of goods nor of services’ vide earlier Notification No. 25/2019-CT (R) dated 30th September, 2019. This Notification shall now be applicable from the retrospective effect w.e.f. 1st July, 2017. It means that the specified service for grant of alcoholic liquor license by the state government shall not be liable to tax under GST since very beginning. The analogy for granting the exemption is reasonable and in line with the provisions of the GST law, liquor as such is not covered under GST as yet, so the license fee taken by the State Government for allowing the license to manufacture or sale of liquor being a directly related activity should also be exempt from GST.

It further seeks to provide that no refund shall be made of the Central Tax or Integrated Tax or Union Territory Tax which has already been collected.

Conclusion

The proposals for amendment as presented before the Parliament in the Finance Bill 2022 are of far-reaching effects as the system of filing of GST returns is going to be changed so as to make it not only easier but at the same time to check the evasion of tax by unscrupulous dealers who are not properly and completely declaring the supply transactions. Some of the proposals needs through discussion in the Parliament as they effect the very philosophy at the root of GST, the hindrance and restrictions with more and more conditions imposed in the way of availment of Input Tax Credit shall adversely affect the dream of ‘seamless credit all through the chain of supply transactions’ in the newly introduced regime of GST. Further, the measures which shall be necessary for application of this proposed law will certainly have ‘cascading effect of tax on tax’ in the economy which needs to be fully eradicated by implementation of a near ideal GST. It is surprising to note that Hon’ble Finance Minister has not uttered a single word in the Parliament during her Budget Speech on 1st February, 2022 about these far-reaching proposals for amendment in the GST law through the Finance Bill 2022, we the stakeholders expect a purposeful discussion on the proposals before they be adopted for amendments. Hopefully the Parliament may not approve all the proposals in the same shape and form, just on the basis of the recommendations of GST Council, the taxpayers have full faith in the Parliament that the proposals shall only be adopted after proper application of mind and detailed discussion on every aspect of each such proposal as deliberated in this article.

Abstract

The Finance Bill 2022 (Bill) 440 ITR 59 (St) proposed several amendments pertaining to penalties, prosecution and recovery of taxes, inter alia. This article aims at addressing the amendments pertaining to rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Income-tax Act, 1961 (Act) (Clause 73, 74 & 75), section 272A of the Act relating to penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. (Clause 78), section 179 of the Act relating to Liabilities of Directors (Clause 55), section 13 of the Act relating to cases where section 11 of the Act does not apply (Clause 76), Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act (Clause 77, 79, 80, 82 and 83), and section 276CC of the Act relating to failure to furnish returns of income (Clause 81).

This Article is relevant to Lawyers, Charter Accountants, Tax Practitioners, Income- tax Authorities and Taxpayers. The Article segregates the amendments proposed in the Bill vis-à-vis the Act pertaining to penalties, prosecution and recovery of taxes into six categories and explains the existing law, the proposed amendment, the reason for the proposed amendment and the effective date for the amended provision.

Table of Contents

Abstract

1. Introduction

2. Proposed amendments in the Bill

   1. Rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act.

   2. Section 272A of the Act relating to Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

   3. Section 179 of the Act relating to Liabilities of Directors

   4. Section 13 of the Act relating to cases where section 11 of the Act does not apply.

   5. Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act.

   6. Section 276CC of the Act relating to failure to furnish returns of income

3. Dénouement

1. Introduction

After almost two years of the Nationwide pandemic and the subsequent lockdown, the stakeholders had a high expectation from the Budget 2022. Relatively, this budget had fewer substantial amendments. However, several amendments have been proposed vis-à-vis penalties, prosecution and recovery of taxes under the scheme of Income-tax Act, 1961 viz. amendments pertaining to rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act (Clause 73, 74 & 75), section 272A of the Act relating to penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc. (Clause 78), section 179 of the Act relating to Liabilities of Directors (Clause 55), section 13 of the Act relating to cases where section 11 of the Act does not apply (Clause 76), Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act (Clause 77, 79, 80, 82 and 83), and section 276CC of the Act relating to failure to furnish returns of income (Clause 81). The Article segregates the said amendments into six categories and explains the existing law, the proposed amendment, the reason for the proposed amendment and the effective date for the amended provision.

2. Proposed amendments in the Bill

1. Rationalization of the provisions of sections 271AAB, 271AAC and 271AAD of the Act. [Clause 73, 74 & 75]

Sections 271AAB, 271AAC and 271AAD of the Act under Chapter XXI contain provisions which give powers to the Ld. Assessing Officer to levy penalty in cases involving undisclosed income in cases where search has been initiated under section 132 of the Act or otherwise, or for false entry etc. in books of account.

Section 271AAB of the Act relates to penalty where search has been initiated, section 271AAC of the Act relates to penalty in respect of certain income i.e., where the income determined includes, any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D of the Act, and section 271AAD of the Act relating to penalty for false entry, etc. in books of account, enables the Ld. Assessing Officer to levy penalty in cases where, during any proceeding, it is found that in the books of account maintained by any person there is a false entry or an omission of any entry which is relevant for computation of total income of such person, to evade tax liability.

As per Chapter XXI of the Act which deals with penalties, Commissioner (Appeals) has concomitant powers with Assessing Officer to levy penalty in eligible cases under section 270A, section 271, section 271A, section 271AA, section 271G, section 271J of the Act which deal with deliberate concealment, non-disclosure and omission by an assessee to evade tax.

As sections 271AAB, 271AAC, 271AAD of the Act penalise actions pertaining to undisclosed income, unexplained credits or expenditures, or deliberate falsification or omission in books of accounts; in order to improve deterrence against non-compliance among tax payers, it is proposed to amend the sections 271AAB, 271AAC and 271AAD of the Act by enabling the Commissioner (Appeals) to levy penalty under these sections to the along with Assessing Officer.

The said amendment will be effective from April 01, 2022

2. Section 272A of the Act relating to Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

Section 272A of the Act provides for penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections etc.

At present, the amount of penalty for failures listed section 272A (2) of the Act is one hundred rupees for every day during which the failure continues.

Section 272A of the Act was introduced to ensures compliance with various obligations under the scheme of Income-tax Act by penalising non-compliance and acting as a deterrent. However, the penalty of one hundred rupees had been commented upon by the CAG in their report as being too low and does not have an adequate deterrence value.

Therefore, it is proposed to increase the amount of penalty for failures listed section 272A (2) of the Act to five hundred rupees from the existing sum of one hundred rupees.

This amendment will take effect from April 01, 2022.

3. Section 179 of the Act relating to Liabilities of Directors

Section 179 of the Act contains provisions which enables Income tax authorities to recover tax due from a private company from its directors, under certain circumstances where such tax cannot be recovered from the company itself. The section makes each director of the private company jointly and severally liable for the payment of such tax with certain conditions. However, the title of the section inadvertently refers to the liability of directors of private company in liquidation.

The Hon’ble High Court of Allahabad in the case of Roop Chandra Sharma v. DCIT [1998] 229 ITR 570 (All)(HC) held that there is nothing in sub-section (1) of section 179 of the Act to indicate that it refers to a private company which is under liquidation. Therefore, directors of a private company though not under liquidation, may be liable for dues outstanding against company.

Au contraire, the Hon’ble Supreme Court in the case of S. Hardip Singh v. ITO [1979] 118 ITR 57 (SC) held that there are three stages when a company goes into liquidation, namely, (i) the commencement of the winding-up of the company; (ii) the continuation of the proceeding or the steps for winding-up; and
(iii) the final winding-up and dissolution of the company. If all the three stages were completed before the Act came into force on and from April 01, 1962, obviously section 179 of the Act will not be attracted. However, the section will be attracted if any one or more of the three events occurred after the commencement of the Act even though the first or the first and second events had happened earlier.

To avoid any confusion and to give legislative backing to the case of Roop Chandra Sharma (Supra) which was also the intention of the legislature that the liability of directors of a private company under this section is not conditional upon the company being in liquidation and the section makes no reference to liquidation. Therefore, to make the title of the section uniform with its provisions, it is proposed to amend the title of the section to “Liability of directors of private company”.

Further, Explanation to the section clarifies that the expression “tax due” in the section includes penalty, interest of any other sum payable under the Act. In order to avoid unnecessary litigation and to provide further clarity, it is also proposed to insert the word “fees” in the scope of the expression “tax due” under Explanation to the section.

Thus, fees such as compounding fee, appeal fee et cetera can be recovered from the directors of the defaulting company.

This amendment will take effect from April 01, 2022.

4. Section 13 of the Act relating to cases where section 11 of the Act does not apply.

Under section 13 of the Act, trusts or institution under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. In order to discourage such misuse of the funds of the trust or institution by specified persons, it is proposed to insert a new section 271AAE in the Act to provide for penalty on trusts or institution under both the regimes which is equal to amount of income applied by such trust or institution for the benefit of specified person where the violation is noticed for the first time during any previous year and twice the amount of such income where the violation is notice again in any subsequent year.

The proposed section seeks to operate without prejudice to any other provision of chapter XXI. Thus, if any penalty is leviable under any of the other provisions of this chapter, in addition to the proposed penalty, that penalty would also be applicable.

The proposed new section seeks to provide that, if during any proceeding under the Act, it is found that a person, being any trust or institution under the first or the second regime, has violated the provisions of twenty-first proviso to of section 10(23C) of the Act or of section 13(1)(c) of the Act, as the case may be, the Ld. Assessing Officer may direct that such person shall pay by way of penalty:

• A sum equal to the aggregate amount of income applied, directly or indirectly, by such person, for the benefit of any person referred to in section 13(3) of the Act where the violation is noticed for the first time during any previous year; and

• A sum equal to two hundred percent of the aggregate amount of income of such person applied, directly or indirectly, by such person, for the benefit of any person referred to in section 13(3) of the Act, where violation is noticed again in any subsequent previous year.

The proposed tax rate for such excessive payments is at the rate of 30 per cent under section 115 BBI of the Act. Therefore, the first violation will result in payment of 30 per cent of the excessive payment as tax under section 115BBI of the Act and 100 per cent of the excessive payment under 271AAE of the Act. Subsequently the penalty will increase to 200 per cent of the excessive payment. Further such excessive benefits i.e., payments not applied for the objects of the trust can result into cancellation of the registration of the Trust. Therefore, the intention of the legislature to strictly penalise such excessive payments are evident.

However, a new issue would arise as what amounts to unreasonable and excessive benefit. The Hon’ble Gujrat High Court in the case of Shree Kamdar Education Trust v. ITO [2016] 74 taxmann.com 253 (Gujarat) held that mere payment of lease rent or interest on borrowed funds to trustees, without there being any element of such payments being excessive or unreasonable, would not disentitle assessee exemption under section 13(1)(c) of the Act.

The Hon’ble High Court of Bombay in the case of CIT v. Sri Balaji Society [2019] 101 taxmann. com 52 (Bombay) held that in order to invoke provisions of section 13(2)(c) of the Act, it is essential to prove that amount paid to person referred to in sub-section (3) of section 13 of the Act is in excess of what may be reasonably paid for services rendered.

The Hon’ble Madras High Court in the case of CIT v. Angels Educational Trust [2021] 129 taxmann.com 305 (Madras) held that where Commissioner had not brought on record any material to show that assessee educational trust was motivated by earning profit and that trustees had applied monies of trust for their personal benefit or for any other purpose other than education, mere excess of income over expenditure for four financial years by itself was not a reason to hold that assessee-trust was not engaged in charitable activities so as to deny it registration under section 12AA of the Act.

Similarly, the Hon’ble Income-tax Appellate Tribunal – Delhi Bench in the case of Career Launcher Education Foundation v. ITO [2020] 116 taxmann.com 493 (Delhi – Trib.) held that merely because there is a payment to a related party by a trust, it cannot be inferred that there is ‘benefit’ to that specified person and to ascertain benefit one has to arrive and ascertain market value of services rendered by that person and if payment is found in excess of market value, then only it can be said that there is a benefit ensuring to specified person; unless this exercise is carried out, it is not possible to ascertain as to whether there is any violation of provision of section 13(1)(c) of the Act.

Therefore, in light of a catena of judicial pronouncements it can be observed that the primary onus is upon the Ld. Assessing Officer to establish what amounts to being excessive or unreasonable.

These amendments will take effect from April 01, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years.

5. Alignment of the provisions relating to Offences and Prosecutions under Chapter XXII of the Act.

Sections 269UC/UE/UL of the Act along with other provisions of Chapter XX-C have been made inapplicable with effect from July 01, 2002. Section 269UP was introduced vide Finance Act, 2002 providing that the provisions of the Chapter shall not apply to, or in relation to, the transfer of any immovable property effected on or after July 01, 2002. Consequently, prosecution provisions under section 276AB are not relevant, as launching prosecution against offences committed more than twenty years ago, that is prior to 2002 would be beyond reasonable time.

Since such cases involve transfer of immovable property, it is not improbable that prosecution cases launched previously while the relevant provisions were still in effect might be ongoing. Therefore, in order to take those cases to logical conclusion without any interpretational issue arising on applicability of the section or otherwise, it is proposed to amend section 276AB of the Act to align it with the provisions of the Act that have been made inapplicable, by providing a sunset clause.

Hence, it is proposed that no fresh prosecution proceeding shall be initiated under section 276AB of the Act on or after April 01, 2022.

Section 276B of the Act provides for prosecution for a term ranging from three months to seven years with fine for failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B. Under this section, a person shall be punishable for failure to a) deduct the tax as required under the provisions of Chapter XVII-B which deals with deduction of tax at source, or b) to pay the tax, as required by or under–– (i) sub-section (2) of section 115-O or (ii) the second proviso to section 194B.

Section 194B of the Act was amended vide Finance Act 1999 with effect April 01, 2000 by which the first proviso to the section was omitted and the section currently has only one proviso. Therefore, to avoid ambiguity among the sections 276B and 194B of the Act, it is proposed to substitute the sub-clause (ii) of clause (b) of section 276B of the Act with “proviso to section 194B”. Similar amendment is proposed in Section 271C of the Act.

Further sections 278A and 278AA of the Act are related to punishment with prosecution against persons for failure to pay tax to the credit of Central Government under Chapter XVIIB for tax deducted at source. However, similar provisions for offence with respect to tax collected at source under Chapter XVII-BB, providing for punishment with prosecution against persons failing to pay tax collected at source is not there under sections 278A and 278AA of the Act. Therefore, it is proposed to include section 276BB of the Act under sections 278A and 278AA of the Act owing to the similar nature of offences that are punishable under section 276B and section 276BB of the Act.

These amendments will take effect from April 01, 2022.

6. Section 276CC of the Act relating to failure to furnish returns of income

The Finance Bill 2022 has proposed a new beneficial provision i.e., section 139(8A) of the Act for filing an updated return beyond the due date for a revised/belated return. This has been introduced with a view to avoid unnecessary litigation and give the assessee a chance to avoid a dispute. A new section i.e., 140B of the Act has been proposed to provide for the tax required to be paid for opting to file a return under the proposed provisions i.e., section 139(8A) of the Act.

As per these provisions, where a return is updated before completion of period of twelve months from the end of the relevant assessment year, the taxpayer would have to pay an additional tax of 25 per cent along with interest. However, if such return is furnished after the expiry of twelve months from the end of the relevant assessment year but before completion of the period of twenty- four months from the end of the relevant assessment year, the additional tax payable shall be fifty per cent of aggregate of tax and interest payable.

Now, section 276CC of the Act relates to failure to furnish returns of income. The proviso to the said section, inter alia, provides that a person shall not be proceeded against under the said section, for failure to furnish the return of income in due time, if a return is furnished by such person before the expiry of the assessment year or the tax payable by such person, not being a company, on the total income determined on regular assessment does not exceed rupees ten thousand.

To harmonise these provisions, a consequential amendment is proposed to be carried out in section 276CC of the Act, to provide that a person shall not be proceeded against under the said section for failure to furnish in due time the return of income under section 139 (1) of the Act, if such a person has furnished return under section 139(8A) of the Act for the relevant assessment year.

3. Dénouement

Most of the amendments pertaining to penalty and prosecution relate to rationalising of provisions and consequential amendments. The proposed amendments seem to well drafted and with a clear intention to make the statute water tight. The proposed amendment pertaining to recovery i.e., section 179 of the Act widens the scope of tax dues to even include fees thereby not leaving any form of Government dues out of the scope recovery. The proposed Penalty on benefits given by a Charitable Trust to its trustees or specified persons is a welcoming provision as it will be a deterrent on such malicious payments.

1. Introduction

GIFT City is being developed as a global financial and IT Services hub, a first of its kind in India, designed to be at par or above with globally benchmarked financial centres. GIFT’s Master Plan facilitates Multi Services Special Economic Zone (SEZ) with International Financial Services Centre (IFSC) status, Domestic Finance Centre and the associated Social infrastructure. “GIFT SEZ Limited” has been formed by Gujarat International Finance Tec-City Company Limited (GIFTCL) for the development of Multi Services SEZ at Gandhinagar with the prime focus being the development of IFSC and allied activities in SEZ.

The purpose of setting up the GIFT City is to develop a world-class smart city that becomes a global financial hub with the development of an IFSC. GIFT City is a central business hub with state-of-the-art infrastructure and first of its kind operational smart city in India. GIFT City is home to domestic and international, financial services and IT/ ITES sectors.

It is the intention of the City to attract the offshore service provider/s who are employed by the Indian multinationals, Overseas Offices of the Indian Residents or their Branches and the International Players who has an appetite for such Services. Also in few cases International Regulator’s compliance will also be accepted. A complete treatment available to these service seekers will be established in Gift City under the legal and the regulatory framework.

Thus if one is engaged in the financial Sector then such a unit in the Gift City will also require approval under the regulator ’ s guideline as applicable in their case and if it is engaged in to information Technology Services then they will be subjected to SEZ regulations only.

To bolster activities in IFSC and to promote it as a global financial hub, additional measures have been introduced which should make the IFSC proposition further attractive.

2.1 Tax proposals

1. Amendment to Section 10 ( 4 E): Currently, exemption is provided to non- residents from income from transfer of non-deliverable forward contracts entered into with an offshore banking unit. It is now proposed to extend the exemption under the said clause to non-residents on transfer of offshore derivative instruments or over- the-counter derivatives entered into with an Offshore Banking Unit of an IFSC, referred to in subsection (1A) of section 80LA

2. Amendment to Section 10(4F): Similar to exemption from income from royalty or interest on account of aircraft leasing as currently available, it is now proposed to extend the exemption to income earned by a non-resident in the nature of royalty or interest on account of lease of ship from IFSC unit as referred to in sub- section (1A) of Section 80LA, if the unit has commenced its operations on or before the 31st March, 2024. It is also proposed to define “ship” to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof.

3. Proposed insertion of new clause (4G) in Section 10 : This clause proposes to provide exemption to any income received by a non- resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any IFSC, referred to in subsection (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India

   Sec 80 LA is the main provision according the benefits to the unit in Gift City, the tax exemption for 10 consecutive financial years out of 15 years as selected by the Unit Holder.

4. Amendment to Section 80LA(2)(d): In addition to the income arising from the transfer of an asset being an aircraft, income arising from transfer of ships which was leased by an IFSC unit is proposed to be exempted subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024.

5. Amendment to the Explanation to clause (viib) of Section 56: Presently, specified fund means Category I or Category II AIF which is regulated under the SEBI (AIF) Regulations, 2012. With the setting up of the IFSCA, it is now proposed to provide that specified fund shall also include Category I or a Category II AIF which is regulated under the International Financial Services Centres Authority Act, 2019.

2.2 Other key announcements in FM’s speech during Budget 2022 presentation

1. World- class foreign universities and institutions will be allowed in the GIFT City to offer courses in Financial Management, Fin Tech, Science, Technology, Engineering and Mathematics free from domestic regulations, except those by IFSCA to facilitate availability of high- end human resources for financial services and technology. Presently, a large number of Indian students seek education abroad thereby utilizing precious foreign exchange. Availability of world class universities in GIFT City may instead help such students to access quality education from within India and also lead to the development of a large pool of qualified academicians imparting knowledge in India.

2. An International Arbitration Centre will be set up in the GIFT City for timely settlement of disputes under international jurisprudence. The centre could be on the lines of the Singapore International Arbitration Centre, or the London Commercial Arbitration Centre. Currently, a large number of arbitration cases involving Indian entities or businesses are adjudicated in Singapore, London or similar which could instead utilize the services of the proposed International Arbitration Centre. This development would also usher in world-class legal services in India and improve India’s image as provider of best-in-class arbitration services.

3. Services for global capital for sustainable & climate finance in the country will be facilitated in the GIFT City. This is going to provide further thrust for ‘Green Finance’ at the IFSC. Climate finance refers to local, national or transnational financing, drawn from public, private and alternative sources of financing, which seeks to support mitigation and adaptation actions that will address climate change. Major financial resources and large-scale investments are required to significantly reduce emissions. To address this need, the Budget announces the Government’s intention to facilitate the presence in IFSC of global players in ‘green’ projects and climate finance.

3. Conclusion

It is a herculean task to attract International Service Providers who are serving Indian Business Houses abroad. The task therefore requires modifications to the existing policy framework to adjust to the flexibility accorded by the overseas regime where International Service Providers are operating. It is also intended to allow Indian Business Houses in IT Sector and Financial Service Providers to operate in an Internationally flexible regime to provide them the level playing field. It is an effort first to attract all and one where Indian needs such services and then make that available to Indian Players.

In time to come the regulatory regime may be made flexible for each sector in a manner that International Service Provider has the same legal and regulatory regime as they are used to it in another competitive jurisdiction and in few sector even compliances to International regulator may be considered as sufficient to operate from Gift city.

The Finance Minister Ms. Nirmala Sitharaman presented the Union Budget for the year 2022-2023 on 1st February, 2022. It is attempted to make this article interesting by a fiction of assumed doctor’s prescription for the two patients, namely, Mr. TDS and Mr. TCS (who are twin brothers).

A. Assumed Doctor’s prescription for the patient’s name namely Mr.TDS & Mr.TCS (Twin Brothers)

Case sheet:

1. NAME OF THE DOCTOR:  Nirmala Sitharaman, Finance Minister, New Delhi

2. PATIENTS’ NAMES:  TDS & Mr. TCS (Twin Brothers) alias Assessee in default/ Assessee in default (Names … deliberately WITHHELD as it involves deduction at source).

3. APPOINTMENT DATE AND TIME: Patients met the doctor on the appointed date, namely 01.02.2022 at 11:00 AM via television.

B. HISTORY OF THE PATIENTS: The Budget for the year 2022-23 continues the vision drawn in the Budget of 2021-22 with a few changes in the Finance Bill covering issues of not only taxation but inter alia introduced a scheme for taxation of virtual digital assets.

C. FOCUS: This article focusses on the various provisions of Finance Bill, 2022 relating to provisions on TDS and TCS which seek to amend the Income Tax Act,
1961. The legislative intent is manifest as the Government is attempting to widen the tax base and revenue mobilization. This Government aims to make in India concept, ease of doing business and trying to introduce faceless assessments at all levels. This Government also has made the general public use digital wallets such as BHIM, GPay, Paytm, etc which has gained the confidence of common man. At the same time, the public is generously making use of e-commerce transactions which delivers goods at the doorsteps without anyone knowing the origin of the goods, from an unknown packer, unknown agent delivers goods at your door steps seeking your appreciation of good ratings etc. At the same time, the liability to deduct tax at source is not felt in respect of each of the transactions. Once the number is put in its place, the volume which goes scot free from the TDS obligations is mindboggling. Sudden entry by start-up companies into the stock market also makes one wonder the volume of each transaction which may or may not involve virtual assets, also raises an eyebrow as to why and how the transactions are to be traced, identified and locate the incidents of taxation at every point of time either through the mechanism of tax deduction at source or tax collection at source, as the case may be. These two tax collectors (TDS and TCS) act as agents for the Government and the monies collected goes to the coffers directly of the Government. But what is shocking is that the penal and prosecution provisions are not fastened on any particular so called violator of the respective obligations suggested in the budget proposals by the Finance Minister in this budget. An attempt is made to illustrate some of the provisions in the chart below, which is only illustrative, which are as under:

Sl. No.	Proposed Amendment	Purpose
1.	Amendment of Section 194-IA Effective from 1st April, 2022	It is proposed to amend Section 194-IA of the Act to deduct TDS at the rate of one per cent of such sum paid or credited as consideration or the stamp duty value of such property, whichever is higher. However, no tax is to be deducted if the consideration paid and the stamp duty value of such property are both less than fifty lakh rupees. This will not apply to agricultural land.
2.	Amendment of Sections 206AB and 206CCA Effective from 1st April, 2022	In order to ensure that all the persons in whose case significant amount of tax has been deducted do furnish their return of income, it is proposed to reduce two years requirement to one year by amending sections 206AB and 206CCA of the Act. In section 194- IA, 194-IB, and 194-M of the Act, Section 206AB will not apply in relation to transactions on which tax is to be deducted under these Sections. However, the onus is on the payer.
3.	Insertion of Section 194R Effective from 1st July, 2022	In order to ensure that benefits or perquisites get reported, Section 194R is proposed to be inserted requiring the person responsible for providing a resident any benefit or perquisite to deduct tax in respect of such benefit or perquisite at the rate of ten per cent of the value or aggregate of value of such benefit or perquisite. Rs.20,000/- is the threshold per year. This provision will not apply to individuals or HUF, whose gross turnover is less than one crore, for professionals less than fifty lakhs during preceding financial year.
4.	Insertion of Section 115BBH Effective from 1st April, 2023	To provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the income- tax payable shall be the aggregate of the amount of income-tax calculated on income of transfer of any virtual digital asset at the rate of 30%. No deduction in respect of any expenditure other than cost of acquisition or allowance or set off of loss shall be allowed. No set off/carry forward of any loss arising from transfer of virtual digital asset shall be allowed. With effect from AY 2023-24 and subsequent years of assessment.
5.	Insertion of Section 194S Effective from 1st July, 2022	In order to widen the tax base from transactions of virtual digital asset, deduction of tax on payment for transfer of virtual digital asset to a resident at the rate of one percent of such sum.

In this context, attention is invited to the other relevant provisions such as Sections 43CA and 50C of the Act; Clause (f) of the Explanation to clause (vii) of sub-section (2) of section 56; Sections 192, 192A, 194B, 194BB, 194LBC or 194N of the Act; Section 194-IA, 194-IB and 194M of the Act; Section 194S of the Act; Explanation to clause (x) of sub-section (2) of section 56 of the Act; Clause (47A) proposed to be inserted to section 2 of the Act defines Virtual Digital Asset and also Non fungible token or any other token of similar nature or any other digital assets as may be notified by the Central Government are also roped in. Gift of virtual digital asset is also hit through explanation to Section 56(2)(x). If one goes through this basket containing these provisions narrated, it will be clear that the Government is making an attempt to translate its legislative intent by some mechanism, working of it has to be tested over a period of time to see if these provisions do not hurt the sentiment of market, public at large, regulators and the common man. In taxing statutes, the social conditions are sometime not given due weightage. The intricate language used in taxing jurisprudence is always a matter of debates and any person hurt by a narrow interpretation will be struck down as unconstitutional if it violates the provisions of the Article 265 of the Constitution of India.

D. Fresh Challenges on Mr. TDS and Mr. TCS: With the proposal to bring in the above amendments through the Finance Bill, 2022 to the Income Tax Act, there comes a few challenges of its own. The ambit of Tax Deducted at Source has certainly been widened by the Government with several changes proposed in the Bill. However, with these changes, especially pertaining to virtual digital assets, there appears a few problems or questions left unanswered by the Government. The Government has classified crypto currency under the asset class and not a legal tender. By not imposing a complete ban on its trading, the Government has proposed to levy tax on gains made through trade of virtual digital asset and also proposed deduction of tax on payment for transfer of crypto currency. In case of transfer of crypto currency, or a virtual digital asset for that matter, a TDS of 1% is levied. The trading of crypto currency occurs on crypto exchanges, where the seller may not be known to the purchaser. In such a scenario, the Deductor who is required to deduct tax would not be able to fulfil the requirement of issuing a TDS certificate by the TDS Deductor to the deductee, the failure of which attracts penalty, which is now proposed to be increased under Section 272A(2) from one hundred rupees to five hundred rupees. The Budget seems to complicate the issue by introducing the TDS obligations of unknown trader, unknown buyer and unknown seller. There could be cases where cash transaction may be generated directly or indirectly through the unknown agent handling crypto currency which may or may not be tracked or traced through cloud accounting or ERPs and the players are left in the lurch which might give some sort of extra hand to the tax authorities to locate certain transferors and transferees who are/were involved in the transaction either remotely or through some circuitous route either under a design or unintendedly involving themselves, through datamining or artificial intelligence. A classic example is where suddenly you will find in income tax portal where they mention some transactions which are/ were never done by you but SMS are sent by the Tax authorities causing a panic and results in total discomfort in locating the veracity of those data. Also the portal maintained by tax authorities do not match with PAN numbers, Aadhaar numbers, which remain uncorrected for reasons best known to stakeholders. Overall, the current Budget 2022 is a no-frill budget that focuses primarily on widening the tax base. A rather simple comparison in the crypto currency scenario is to the scenario of the stock exchange. Owing to the clear regulations and the presence of a regulator (namely the Securities Exchange Board of India), there exist clearcut obligations on all relevant stakeholders including buyers, sellers, exchanges while buying or selling quoted stocks. The additional challenge posed by such inclusion of TDS provisions in relation to digital assets is therefore a shot in the dark that may potentially cause more harm than intended given that there is no regulation existing as on date to identify corresponding obligations of stakeholders.

E. PATIENTS’ COMPLAINTS: The recent provisions are highly draconian and not user friendly to the patients’, both Resident and Non-resident persons who are similarly placed along with that of the patients, and the disease they are going through are one and the same. This disease is aggravated due to the announcement made in the Budget 2022-23 on 01.02.2022, which forced the patients to approach the doctor after the first appointment through this article written in this journal.

F. CLINICAL ANALYSIS: To widen and deepen the tax base a few changes have been proposed for deduction and collection of tax at source, considering the representations made already and to be made after hearing all the stakeholders including the patients who are before the doctor. However, the remedy does not match the evil effected by the disease.

G. FIRST AID: Provision for public investment for economic recovery and Government trying to give enough cash savings to meet the unexpected inflation caused by COVID-19 Omicron and the prevalent pandemic all over India and is also a global phenomenon which seems to go unending and comes in waves as the day grows and does not die like the sunset on each day. Considering the statistics produced by Governmental agencies, the spike in virus, suffering by the public on health grounds and in some cases resulting in deaths causes chaotic day to day living and the man on the road suffers the most due to lack of medical facilities bearing in mind the totality of the population of our country. The first aid given here is only temporary. The patients TDS and TCS are spared only to certain extent and with regard to other matters continued in the past are not in any way made comfortable for running the economy.

H. DATA RELATED THE BIRTH OF NEW PROVISIONS: The doctor FM notices the reasons to make a new TDS and TCS provisions as per the clauses 56 to 63, in order to strengthen the DNA of the intention of the parliament to give effect to ease of doing business and the salutary principles envisaged in the finance bill as a preamble to the introduction of new amendments.

I. COMPLICATIONS: Headache, migraine, harassment, Virtual Digital Asset Taxation – a new variant is found in the absence of adjustability to suit the convenience of the existing set up of our business carried on in our country, the role played by e-commerce and the e-portals of tax department causing several glitches noticed by public at large which debate is going on for past nine months and the Government came heavily on the out-source entity to regularise the same in order to make it user friendly and without any glitches, hurdles on the technical front.

J. PENALTY AND PROSECUTION: The patient is suffering under the Damocles’ sword of penalty and prosecution provisions already contained in Tax statutes and aggravated by the content of the Finance Bill 2022 and the highhandedness of handling such dictatorial attitude to force TDS and TCS and the like persons to go through the rigour of strict implementation of laws which violates the right to life and liberty of the said individuals like Mr. TDS and Mr. TCS. The principles laid down by the Constitutional Bench of the Hon’ble Supreme Court of India in Justice Puttuswamy vs. Union of India, (2017) 10 SCC 1 which ensures right to privacy as part of the fundamental rights of every citizen of this country. This principle is pressed into service, every law, be it general law or fiscal law, should fulfil the test of right to privacy read with right to life and right to peaceful living as per the fundamental rights chapter and directive principles of state policy. In fact, the Madurai Bench of the Madras High Court has also observed that right to laughter and humour should also be made part of the fundamental rights, in the lighter vein. Based on this background, where the Parliament brings legislation to increase in penalty for default in issuance of TDS certificate after the prescribed timelines by the deductor, results in more injustice and causes chaotic situations in the ongoing pandemic times. Failure to deduct or collect tax as the case maybe or failure to pay the same to the credit of the Central Government, interest at a specified rate is payable, which had been the case in the past, continues to cause harassment to the patients like Mr. TDS and Mr. TCS, the Government has now added a more fire to fire in the burning fire causing more discomfort in the polluted atmosphere in the comfortable carrying on of business, trade or commerce in this country. In case of continuous failure, the interest is payable in accordance with the order made by the Assessing Officer, also add more woe and sorrow and adds to the discomfort already experience by Mr. TDS and Mr. TCS.

K. HOLISTIC VIEW OF THE PATIENTS’ CONDITIONS FOR THE NEXT TREATMENT:

Mr. TDS and Mr. TCS are well advised to go to specialist of tax advocates, chartered accountants and check their past records and ensure that all transactions are accounted properly so that no day to day infringement of any procedural provisions relating to tax deduction at source/tax collection at source are ignored. The patients are further advised periodically to visit their demigods, namely, their tax consultants to ensure that feedback is given on month on month basis so that there is no wrong that was committed by expiry of timelines to comply the substantive provisions of law both going hand in hand with that of the procedural provisions to insulate themselves from the disease of tax default and they should change their alias name, from that of tax defaulters to that of tax compliers, so that the tax authorities will receive them with fruits and bouquet as an outgoing patient from the fold of the doctor namely the Finance Minister. To maintain high standards of profession, the necessary Doctor’s fee has been paid by the citizens at large as contributions to the exchequer towards tax which is not a pie more not a pie less as held by the Madras High Court in CIT vs. India Express (Madurai) Pvt. Ltd., [(1983) 104 ITR 705 (Madras) by stating that Income tax cases are not akin to a lis but involves only adjustment of proper tax liability as per the Income Tax Act, 1961.

It is too tempting to quote Justice Patanjali Shastri in Dubash’s executors vs. CIT (1951) 19 ITR 182, 189 (SC): “The income tax act directs its attention primarily to the person who receives the income, profits or gains rather than to the ownership or enjoyment thereof….. It is also worthy of note that in several instances persons who have no proprietary or other right in the income charged to tax are made liable to pay the tax for no other reason than the convenience of assessment and collection.” In conclusion the amendments to TDS and TCS is aimed at convenience of assessment and collection and not meant to reduce the rigour of complicated procedural and substantive impact of the stated provisions in the budget relating to tax deduction at source. We only say bid farewell to Mr. TDS and Mr. TCS. Please go home and try to catch some sleep if you can till end of March by the time the Finance Bill becomes the Finance Act. All the very best.

The Finance Bill 2022 has sought to unsettle various settled positions of law by proposing amendments in various clauses which have an impact of overruling decisions of the Supreme Court, High Court and various other tribunal judgements.

A] Amendment’s proposed in Section 40(a)(ii) of the Act

Background

Section 40 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) provides various expenses which shall not be deductible in computing the income chargeable under the head ‘Profits and gains of business or profession’. Section 40(a)(ii) specifically delves into the aspect of tax payable not being eligible to be claimed as an expense. However, there is no straight jacket formula which has been provided to the definition of ‘tax’ within the contours of section 40. The term ‘tax’ has been referred to in various sections of the Act but for the purposes of section 40, the term tax is not bequeathed with any definite boundaries.

Issues

A by-product of the abovementioned ambiguity is that of extensive litigation pertaining to the legal lacuna of whether Education Cess is deemed as tax or is it eligible to be claimed as an expense under section 40(a)(ii) of the Act.

Settled position before the amendment

The Rajasthan High Court in Chambal Fertilizers and Chemicals Ltd v. JCIT [(2019) 107 taxmann.com 484] held that education cess could not be disallowed under the provisions of section 40(a)(ii) of the Act and reliance was placed on the CBDT Circular No. F. No. 91/58/66-ITJ(19) dated 18-5-1967 where the word ‘cess’ had been deleted from the section and noted that only taxes paid were to be disallowed.

The Bombay High Court in Sesa Goa Limited v. JCIT [(2020) 423 ITR 426] held that education cess and higher and secondary education cess was allowable as a deduction.

As a result of the exclusion of ‘cess’ from the ambit of section 40 of the Act, there arose a catena of litigation with respect to assessee’s claiming the deductibility of education cess whilst computing the income chargeable under the head “Profits and gains of business or profession”. Various assessee’s raised additional grounds before the CIT(A) and tribunal to claim the deductibility of education cess based on the decision of these two High Courts.

Various tribunal judgements had allowed the deduction of education cess in Sicpa India Pvt Ltd (ITA No. 704/Kol/2015), Philips India Limited (ITA No. 2612/Kol/2019), Atlas Copco India Ltd (ITA No. 736/Pun/2011), Bajaj Allianz General Insurance Company Limited (ITA No. 1111/Pun/2017), ITC Ltd (ITA No. 685/Kol/2014) and Tata Steel Limited (ITA No. 5616/Mum/2012) to name a few.

However, the Kolkata tribunal in Kanoria Chemicals & industries Ltd (ITA No. 2184/ Kol/2018) held that education cess is not deductible and held education cess to be an additional surcharge relying on the judgement of K. Srinivasan (83 ITR 346)(SC)

Proposed Amendment

The Finance Bill, 2022 proposes to amend section 40(a) of the Act by inserting Explanation 3 to clarify that for the purpose of this sub-clause, the term ‘tax’ shall include and shall always deemed to have included any surcharge or cess by whatever name called, on such tax.

As there is abundance of contrary literature on the aspect of the definition of ‘tax’ being inclusive or exclusive of cess and in order to address the ambiguity and reduce the litigation, the Government, clarified that the Bombay High Court, Rajasthan High Court and various tribunal rulings have not taken cognizance of the decision of the Supreme Court in K. Shrinivasan (supra) and are not in lines with the interpretation of the legislature. Accordingly, to avoid further misinterpretation, an Explanation is proposed to be added retrospectively to section 40(a)
(ii) of the Act clarifying that the term ‘tax’ shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax.

Further, the amendment is made retrospective from April 1, 2005 to make it clear that this will apply in relation to AY 2005-06 and subsequent years irrespective of the CBDT Circular dated 18 May, 1967.

Impact

The decisions of the Rajasthan High Court, Bombay High Court and various tribunals will stand overruled by the proposed amendment.

B] Amendment and clarification on allowability of expenditure (section 37)

Background

Explanation 1 to section 37 of the Act provides that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law would not be deemed to have been incurred for the purpose of business or profession and no deduction would be allowed in respect of such expenditure.

Issues

Whether freebies given to doctors / medical practitioners was allowable as a deduction under section 37 of the Act as these payments were made in violation of MCI regulations and whether they would fall within Explanation 1 to section 37 of the Act.

Further, the CBDT vide Circular No. 5/2012 dated 1-8-2012, sought to clarify that providing the abovementioned benefits to medical practitioners and associates is deemed to be illegal and therefore, would attract the provisions of Explanation 1 to Section 37(1) of the Act. Thus, disallowance was directed to be made in the hands of such pharmaceutical companies or allied health sector industries or other assessee which have provided the aforesaid benefits to the doctors / medical practitioner and claimed the same as a deductible expense.

This circular was challenged in Himachal Pradesh High Court in the case of Confederation of Indian Pharmaceutical Industry Vs Central Board of Direct Taxes [(2013) 335 ITR 388 (HP)], in which the Hon’ble High Court rejected the petition and held that –

“The regulation of the Medical Council prohibiting medical practitioners from availing of freebies is a very salutary regulation which is in the interest of the patients and the public. This Court is not oblivious to the increasing complaints that the medical practitioners do not prescribe generic medicines and prescribe branded medicines only in lieu of the gifts and other freebies granted to them by some particular pharmaceutical industries. Once this has been prohibited by the Medical Council under the powers vested in it, s. 37(1) comes into play. The Petitioner’s contention that the circular goes beyond the section is not acceptable. In case the assessing authorities are not properly understanding the circular then the remedy lies for each individual assessee to file an appeal but the circular which is totally in line with s. 37(1) cannot be said to be illegal. If the assessee satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the medical council then it may legitimately claim a deduction, but it is for the assessee to satisfy the AO that the expense is not in violation of the Medical Council Regulations.”

Settled position before the amendment

The Mumbai, Delhi and Chennai Tribunal in a series of judgements had allowed a deduction under section 37 in respect of freebies given to doctors. The Tribunal held that MCI Regulations, 2002 provided limitation / curbs / prohibition only for medical practitioners and not for pharmaceutical companies. Further, the CBDT Circular which created a burden or liability or imposed a new kind of imparity could not be reckoned retrospectively. Hence, expenses in the nature of sales and business promotion, advertisements and free samples given were allowed as a deduction.

The decisions where these payments were allowed as a deduction under section 37 of the Act are as under:-

• Eli Lily & Co (India) Pvt. Ltd. (Del trib)

• Dupen Laboratories Pvt Ltd. (Mum trib)

• UCB India Pvt. Ltd. (Mum trib)

• PHL Pharma P. Ltd. (163 ITD 10)(Mum trib)

• Aristo Pharmaceuticals Pvt. Ltd. (Mum trib)

• Solvey Pharma India Ltd. (Mum trib)

• Pfizer Limited (Mum trib)

• ICARUS Health Care Pvt. Ltd. (Chennai trib)

• Cipla Limited (Mum trib)

• Medley Pharmaceuticals Ltd (118 taxmann.com 44)(Mum trib)

In light of the proposed amendment, all these rulings will be overruled and reference to the Special Bench in Macleods Pharmaceuticals Ltd (192 ITD 513)(Mum trib) may not be necessary.

The position adopted in Kap Scan and Diagnostic Centre Pvt. Ltd. (344 ITR 476) (P&H), Liva Healthcare Limited (ITA No. 4791 of 2014)(Mum trib) and Ochao laboratories Ltd where the deduction under section 37 of the Act has been denied for expenses will be confirmed by the proposed amendment.

Proposed Amendment

Finance Bill, 2022 proposes to amend section 37 by inserting Explanation 3 to clarify that the expression “expenditure incurred by an assessee for any purpose which is an offence, or which is prohibited by law” under Explanation 1 to section 37. As per clause (i) to Explanation 3, the aforementioned expression shall include an expenditure for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India.

This amendment is proposed to come into effect from April 1, 2022 and will accordingly apply in relation to AY 2022-23 and subsequent AYs.

As per clause (ii) to Explanation 3, the aforementioned expression shall include and shall be deemed to have always included the expenditure incurred by an assessee to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person.

The Memorandum explaining the Finance Bill, 2022 referred to the ruling of the Mumbai tribunal in Macleods Pharmaceuticals Ltd where after discussing the provisions of the law, the tribunal recommended constitution of a larger bench to consider the issue of deduction on freebies to medical practitioners under section 37 of the Act and opined that the co-ordinate bench’s decision of PHL Pharma did not reflect the correct legal position and did not consider that the deduction was hit by Regulations, 2002 of Indian Medical Council Act, 1956.

Impact

The proposed amendments applies prospectively and hence assessee’s may place reliance on the favourable rulings where deduction had been allowed under section 37 of the Act in the past. The amendment seeks to promote healthy competition and cultivation of a market space wherein an even playing field is provided to pharmaceutical products irrespective of the behemoth companies promoting them.

C] Disallowance under section 14A of the Act

Background / Issues

Whether the disallowance under section 14A of the Act arose on non accrual / non receipt of exempt income.

Settled position before the amendment

Various decisions of the Madras High Court, Delhi High Court and Punjab High Court have held that there can be no applicability of section 14A of the Act where exempt income has not been earned during the year. Further, the Delhi High Court in Cheminvest Limited held that there could be no disallowance under section 14A of the Act in respect of interest expenditure attributable for making strategic investments absent earning any exempt income therefrom.

The decisions which held that no disallowance can be made under section 14A where no exempt income has been earned are as under:-

• Cheminvest Limited (378 ITR 33)(Del HC)

• Holcim India (P) Ltd (Del HC)

• Lakhani Marketing Incl (P&H HC)

• McDonalds India Pvt. Ltd. (Del HC)

Further, SLPs have been dismissed in the following judgements on the same proposition are as under:-

• Chettinad Logistics (P) Ltd

• Oil Industry Development Board

• GVK Project and Technical Services Ltd

Proposed Amendment

The Finance Bill, 2022 proposes to amend section 14A(1) of the Act to include a non- obstante clause in respect of other provisions of the Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary in the Act.

Impact

The proposed amendment would set at naught the settled principle that there can be no disallowance under section 14A of the Act where no exempt income has been earned.

However, with dividends now being taxable the scope of exempt income earned would be narrow and apply only in few circumstances.

D] Validity of proceeding against predecessor (Section 170A(2A)

Background

Section 170 of the Act governs the taxation procedure of companies which are subject to reorganization / succession. Though section 170 provides for assessment in cases of succession otherwise than by death, in practice once an entity starts the process of reorganization by filing an application with the adjudicating authority or any High Court, the period of time involved in coming to a conclusion with respect to such reorganization is found to be a long-drawn process and is not time-bound. During the pendency of the court proceedings, the income tax proceedings and assessments are carried on and often completed on the predecessor entities only.

Issues

Courts have held proceedings completed on the predecessor entity to be bad in law where the assessing officer has been intimated of the merger / reorganisation as the predecessor assessee ceases to exist in the eyes of law.

Settled position before the amendment

The decision of the Supreme Court in Maruti Suzuki India Limited (416 ITR 613) had quashed the assessment order framed in the name of a non-existing entity where the assessing officer was informed about the merger pursuant to the amalgamation and in spite of being informed a notice and order was passed on the non- existing entity. The Supreme Court held that the same is a substantive illegality and cannot be a procedural violation as contemplated in section 292B of the Act. Further, the decision went on to clarify that participation in the proceedings by the successor cannot operate as an estoppel against law.

The other decisions which upheld the same position are as under:-

• Spice Entertainment Ltd (Del HC)

• Dimension Apparels Pvt Ltd (Del HC)

Various tribunals have also passed orders following the above settled principle.

Proposed Amendment

The Finance Bill, 2022 with a view to clarify about the validity of assessment proceedings with regard to concluding business reorganization under the Act proposes to insert section 170(2A) which provides that the assessment or other proceedings pending or completed on the predecessor in the event of a business reorganization, shall be deemed to have been made on the successor.

The amendment will take effect from April 1, 2022

Impact

The settled judgements of the Supreme Court have been overruled by this amendment and even if an assessment is framed on a non- existent entity which does not exist in the eyes of law, the same would be deemed to be made on the successor entity. The principle laid down by the Madras High Court in Vedanta Limited which held that reassessment proceedings are valid where the notice in the name of a non-existing entity has been rectified by the revenue during the course of proceedings will be confirmed by virtue of the proposed amendment.

The Finance Bill 2022 (Bill No.18 of 2022) dt.1st February, 2022 proposed several amendments as like every years made in the Income – tax Act, 1961. This year also the Finance Minister brought certain amendments pertaining to miscellaneous provisions. with respects to income do not a part of total income, income of certain trust, funds or institutions, taxation of dividends, special provisions for payments of tax, Disputes Resolutions Panel, limitation periods for assessment, reassessment and re- computations, refunds, appeals and revisions etc. and more so.

Let’s see which are the miscellaneous provisions newly inserted as well as amended in the Income – tax Act,1961.

• Amendment in section 10 – Relating to incomes which do not included in total incomes. (Clause 4)

  1. Sub section (4E) is proposed to amend to extend the exemption to the income accrued or arisen to or received by a non-resident as a result of transfer of offshore derivative instruments or over-the- counter derivatives entered into with an Offshore Banking Unit of an International Financial Services Centre, referred to in subsection (1A) of section 80LA.

     The reasons behind this amendment is that exemption was available only in respect of income from transfer of non-deliverable forwards contract of non-resident which is proposed to be extended to the income of transfer of off shore derivatives instruments as well as over the counter entered in to offshore banking unit with an object to make IFSC a Global hub of Financial Service Sector.

     The assessee will get benefit of this amendments from the 1st April, 2023 and will be applicable in relation to Assessment Year 2023 – 2024 and subsequently.

  2. Sub section (4F) is the exemption to any income of a non-resident by way of royalty or interest, on account of lease of an aircraft in a previous year, paid by a unit of an IFSC as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before 31st March, 2024.

     Now it is proposed to amend the exemption to extend the to any income of a non-resident by way of royalty or interest, on account of lease of a “ship” paid by a unit of an International Financial Services Centre also.

     Further proposed to substitute the Explanation to the said clause to include the definition of the term “ship” therein.

     However there is a need to make this amendment for, as shipping and airlines industries are capital intensive and require huge investments. Most of the time these industries borrowed funds from multinational companies or financial agencies in to huge lease or interest payments. Therefore in order to make India as global hub location for shipping companies, it is necessary to extend the exemptions.

     The benefit of such amendment will take effect from the 1st April, 2023 and will be applicable in relation to Assessment Year 2023 – 2024 and subsequently.

  3. Sub section (4G) is a new provision is proposed to insert to provide exemption to any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non- resident, in an account maintained with an Offshore Banking Unit, in any International Financial Services Centre, referred to in subsection (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India. Further proposed the expression “portfolio manager” to have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation
     (2) of the International Financial

     Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019.

     The said amendment will be applicable from the 1st April, 2023 and also will applicable in relation to Assessment Year 2023 – 2024 and subsequently.

  4. Sub section (8), (8A), (8B) & 10(9) are relates to Remunerations / Fees / Other income of the Individuals / consultants whose duties are assigns in accordance with an agreement entered by the Central Government and the Government of a foreign state (the terms thereof provide for the exemption given by this clause).

     As far as the amendment in sub section 8 is said that the remuneration received by the individual from the foreign state and any other income accruing or arising outside India, and is not deemed to accrue or arise in India, are exempt under the said clause in certain cases.

     Whereas sub section 8, 8B & 10(9) provides exemption to any income accruing or arising outside India (which does not accrue or arise in India) in respect of which the consultant is required to pay income or social security tax to the Government of the country or the country of his or its origin.

     These amendments will come in to effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.

  5. Sub section 23(c) is Exemption to the income of certain entities such as trust or institution or university or other educational institutions or hospital or other institutions.

     This amendment is proposed in sub-clause is with respect to the authority so as to substitute the reference of “prescribed authority” with the “Principal Commissioner or Commissioner”.

     This amendment will be effective from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.

     Further third proviso of clause (23C), inter-alia, provides that the fund or institution or trust or any university or other educational institution or any hospital or other medical institution, as is referred to in sub-clauses (iv), (v), (vi) and (via) of the said clause, shall apply at least 85% of its income, wholly and exclusively to the objects for which it is established and in a case where more than 15% its income is accumulated on or after the 1st day of April, 2002, the period of the accumulation of the amount exceeding 15% of its income shall in no case exceed 5 years. It also provides that it shall invest or deposit its funds in specified modes.

     It is proposed to insert a new Explanation 1A to the said third proviso so as to provide that where the property held under a trust or institution referred to in sub-clause (v) includes any temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G, any sum received by such trust or institution as a voluntary contribution for the purpose of renovation or repair of such temple, mosque, gurdwara, church or other place, may, at its option, be treated by such trust or institution as forming part of corpus of that trust or institution, subject to the conditions.

     Further proposed to insert Explanation 1B to the said third proviso to provide that for the purposes of the proposed Explanation 1A where any trust or institution referred to in sub- clause (v) has treated any sum received by it as forming part of the corpus, under Explanation 1A, and subsequently any of the conditions specified in clause (a) or clause (b) or clause (c) or clause (d) thereof are violated, such sum shall be deemed to be the income of such fund or trust or institution or university or other educational institution or hospital or other medical institution of the previous year during which the violation takes place.

     These amendments will applicable retrospectively from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.

     The motto behind these amendments is to proposed to bring taxation of institutions approved u/s.10(23C)at par with taxation u/s.11 & 12.

• Amendment in section 115BBD – Relating to tax on certain dividends received from foreign companies. (Clause 27)

  The present scenario of section 115BBD is provides that, in case of an Indian company whose total income includes any income by way of dividends declared, distributed or paid by a foreign company, in which the said Indian company holds 26% or more in nominal value of the equity share capital, such dividend income shall be taxed at the rate of 15%.

  Finance Act, 2020 abolished the dividend distribution tax provided in section 115- O to, inter-alia, provide that dividend shall be taxed in the hands of the shareholder at applicable rates plus surcharge and cess. In order to provide equality in the tax treatment in case of dividends received by Indian companies from specified foreign companies vis a vis dividend received from domestic companies. Therefore said amendment is brought in the present finance bills. The said amendment is proposed as to insert a new sub-section (4) to provide that the provisions of this section shall not apply to any assessment year beginning on or after the 1st day of April, 2023.

  This amendment will applicable from 1st April, 2023 and will, accordingly, apply to Assessment Years 2023 – 2024 and subsequent assessment years.

• Amendment to section 115JC – Rationalization of provisions to promote the growth of co-operative societies – Special provisions for payment of tax (Clause 29)

  The provisions of section 115JC inter alia, provides that where the regular income tax payable for a previous year by a person, other than a company, is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay income tax on such total income at the rate of 18.5%. Sub-section (4) provides that notwithstanding anything contained in sub-section (1) thereof, where the person referred to therein, is a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, it shall be liable to pay income-tax on such total income at the rate of 9%.

  The Finance Bill, 2022 is proposed to substitute the said sub-section (4), to provide it shall be liable to pay income- tax on such total income at the rate of 9% and where the person referred to therein, is a co-operative society, it shall be liable to pay income-tax on such total income at the rate of 15%.

  This amendment will be effective from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.

• Amendments to section 115JF relating to interpretation in the Chapter XII-BA (Clause 30)

  The section 115JF provides for definitions of earlier terms and expressions used in Chapter.

  Sub section (b) provides for the definition of “alternate minimum tax”. It is proposed to substitute the sub-clause
  (i) to provide that the rate of alternate minimum tax, in case of an assessee, being a unit located in an International Financial Services Centre and derives its income solely in convertible foreign exchange, shall be 9%., and in case of an assessee, being a co-operative society, 15%.

  As this amendment is in context with S.115JC, hence this consequentially will take effect from 1st April, 2023 and will, accordingly, apply in relation to the assessment year 2023-2024 and subsequent assessment years.

• Amendment to section 144C – Relating to Reference to dispute resolution panel – Faceless Scheme (Clause 43)

  The Central Government has undertaken a number of measures to make the

  Processes under the Act, electronic, by eliminating person to person interface between the taxpayer and the Department to the extent technologically feasible, and provide for optimal utilisation of resources and a team-based assessment with dynamic jurisdiction. A series of futuristic reforms have been introduced in the domain of Direct Tax administration for the benefit of taxpayers and economy. This started with faceless assessment in electronic mode involving no human interface between taxpayers and tax officials. The faceless procedures are being introduced in a phased manner in the Act.

  The section 144C, inter alia, empowers the Central Government to notify a scheme for the purposes of issuance of directions by the dispute resolution panel so as to impart greater efficiency, transparency and accountability by

  1. eliminatingthe interface between the dispute resolution panel and the eligible assessee or any other person to the extent technologically feasible;

  2. optimisingutilisation of the resources through economies of scale and functional specialisation;

  3. introducinga mechanism with dynamic jurisdiction for issuance of directions by dispute resolution panel.

  Sub-section (14C) of section 144C further provides that for the purposes of giving effect to the aforesaid scheme, the Central Government may by notification in the Official Gazette direct that any of the provisions of the Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified.

  The reason behind this amendment is that, Section 144C is related to the transfer pricing and international taxation which are presently out of regime of Faceless assessment.

  So it is proposed to amend the proviso to the said sub-section (14C), extending the date for issuing directions for the purposes of the said sub-section from 31st day of March, 2022 to 31st day of March, 2024.

  This amendment will take effect from 1st April, 2022.

• Amendment to section 153 – Relating to time limit for completion of assessment, reassessment and re- computation. (Clause 48)

  Any person fails to make the return of income required u/s.139, the Assessing officer after taking in to consideration all relevant material and after giving opportunity to the assessee complete the Assessment.

  Now it is proposed to insert a new sub-section (1A) in section 139 to provide that where an updated return is furnished under sub-section (8A) of section 139, an order of assessment under section 143 or section 144 may be made at any time before the expiry of 9 months from the end of the financial year in which such return was furnished.

  It is further proposed to amend sub- section (3) to provide that fresh order under section 92CA, in pursuance of an order, setting aside or cancelling an order under section 92CA shall also come within the provision of the said sub-section.

  It is also proposed to amend sub-section (5) to provide that an order passed by the Transfer Pricing Officer under section 92CA of the Act, in consequence to an order under section 263 of the Act shall also come within the purview of the said Act.

  It is also proposed to insert a new sub- section (5A) to provide that where the

  Transfer Pricing Officer gives effect to an order or direction under section 263 by means of an order under section 92CA and forwards such order to the Assessing Officer, the Assessing Officer shall proceed to modify the order of assessment or reassessment or re-computation, in conformity with such order of the Transfer pricing Officer, within 2 months from the end of the month in which such order of the Transfer Pricing Officer is received by him.

  Further proposed to amend sub-section (6) to make a reference of the newly inserted sub-section (5A) therein. These amendments are proposed consequent to the amendments made in section 263.

  Explanation 1 to section provides the time limit in certain cases which are required to be excluded while computing the period of limitation under the said section. It is also proposed to amend clause (iii) of the said Explanation so as to omit the reference of “sub-clause (iv) or sub- clause (v) or sub-clause (vi) or sub- clause (via) of clause (23C) of section 10”.

  This will take effect from lst April, 2022.

  It is also proposed to insert a new clause (xii) to provide for exclusion of the period commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A and ending on the date on which the books of account or other documents, or any money, bullion , jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A, as the case may be, are handed over to the Assessing Officer having jurisdiction over the assessee,––

  1. in whose case such search is initiated under section 132 or such requisition is made under section 132A; or

  2. to whom any money, bullion, jewellery or other valuable article or thing seized or requisitioned belongs to; or

  3. to whom any books of account or documents seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, or one hundred and eighty days, whichever is less, in computing the period of limitation for the purpose of assessment, reassessment or re-computation.

  This amendment will take retrospectively effect from 1st April, 2021.

  It is also proposed to insert a new clause (xiii) in the Explanation to provide that the period commencing from the date, on which the Assessing Officer makes a reference to the Principal Commissioner or Commissioner under third second proviso to sub-section (3) of section 143 or is deemed to have been made under Explanation 3 of the fifteenth proviso to clause (23C) of section 10, and ending with the date on which the copy of the order under clause (ii) or clause (iii) of fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB, as the case may be, is received by the Assessing Officer, shall be excluded while computing the period of limitation under the said section.

  This amendment will take effect from lst April, 2022.

• New section 239A is Inserted – Relating to refund for denying liability to deduct tax in certain cases. (Clause 66)

  The proposed new section provides that where under an agreement or other arrangement, in writing, the tax deductible on any income, other than interest, under section 195 is to be borne by the person by whom the income is payable, and such person having paid such tax to the credit of the Central

  Government claims that no tax was required to be deducted on such income, he may file an application before the Assessing Officer for refund of such tax deducted and such application shall be filed by such person only after within a period of thirty days from the date of payment of such tax, in such form and manner as may be provided by rules.

  Further, it is proposed that the Assessing Officer shall dispose of the abovementioned application for refund within a period of six months from the end of the month in which such application has been received, after making any such enquiry as he may consider necessary. The Assessing Officer may allow or reject such application by an order in writing; however, no such application shall be rejected unless an opportunity of being heard is given to the applicant.

  The reason behind this proposed amendment is to obtained refund, where it was deducted as per the provisions of 248, a taxpayer has no recourse to approach to the Assessing Officer with such request.

  This amendment will take effect from lst April, 2022.

Conclusions

The Governments has made some of these proposed amendment is part of policy in making contexts in ways to promote behaviour of the Assessee. However, it shows the approach of the government in making an effort to identify hardships faced by the tax- payers and resolve the same.