Beneficial Provisions

The Finance Bill, 2022, continues to make changes to the Income-tax Act, year on year, bringing with it, amendments and introduction of new provisions, to tackle with the ever-growing scope of income-generation and tax-evasion by tax- payers. Heraclitus, a Greek philosopher, has been quoted as saying “change is the only constant in life.” The tax statute is one of the many tools by which this change is implemented. Such change/ implementation of new tax laws or change in tax laws are made due to several reasons; some to reduce the hardship of the tax-payer and some to contain the persons from escaping the tax net and some for increasing the revenue/funds of the government. In this article the focus would be on the provisions which are/seem beneficial.

The following are the beneficial provisions introduced this year:

  1. Exemption of amount received for medical treatment and on account of death due to COVID-19 – Sections 56(2)(x) and s. 17(2)

  2. Socio-economic welfare measures Extension of the last date for commencement of manufacturing or production, under section 115BAB, from 31.03.2023 to 31.03.2024 – S. 158BAB

  3. Extension of date of incorporation for eligible start up for exemption – S. 80IAC

  4. Facilitating strategic disinvestment of public sector companies – S. 79(1)

  5. Tax Incentives to International Financial Services Centre (IFSC) – s. 10(4E), 10(4F) & 10(4G) read with section 80LA(1A) ; 56(viib), 80LA(2)(d).

  6. Incentives to National Pension System (NPS) subscribers for state government employees – S. 80CCD

  7. Condition of releasing of annuity to a disabled person – S.80DD

  8. Litigation management when in an appeal by revenue an identical question of law is pending before jurisdictional High Court or Supreme Court. – S. 158AB (Sunset provision for s. 158AA)

Relaxations due to COVID

Exemption of amount received for medical treatment and on account of death due to COVID-19 – Sections 56(2) (x) and s. 17(2)

The period of corona virus since 2019 has been a period of trauma and pain for many. A few have survived the pandemic and a few have succumbed. However, all of them affected have incurred unexpected expenditure to protect themselves as well as their loved ones. This unexpected expenditure was sourced from available funds or borrowed funds or funds received under different names; but for the same purpose. In order to provide the relief to the affected, the government has proposed to insert and amend s.17(2) and 56(2)(x) respectively.

Section 17(2) defines perquisites to be the value of any benefit provided to the employee which is not cash or cash equivalent. It is proposed to insert a new sub-clause in the proviso to state that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19 subject to such conditions, as may be notified by the Central Government, shall not be forming part of “perquisite”. The value actually incurred will be exempt in case of medical expenditure. However, if any of the employee’s family member dies due to Covid-19, the amount received will be exempt without any limit.

Section 56(1)(x) is amended to exempt the amount of expenditure incurred on treatment of illness related to covid-19. However, if any sum received is not wholly expended on the treatment of the person or their family members, the same shall be taxable in the year of receipt. Further, if such sum is received due to death caused in the family of the person, exemption amount shall be the amount received from employer(without limit) or any other person(upto 10 lakhs from all persons within 12 months from the date of death).

This is a welcome and much needed move from the government since tax is levied to strengthen government for ensuring public welfare and national development and not to exploit a situation.

Socio-economic welfare measures

Extension of the last date for commencement of manufacturing or production, under section 115BAB, from 31.03.2023 to 31.03.2024 – S. 158BAB

Section 115BAB of the Income-tax Act provides for an option of concessional rate of taxation @ 15 % for new domestic manufacturing companies provided that they do not avail of any specified incentives or deductions and fulfil certain other conditions.

Sub-section (2) of section 115BAB of the Act contains the conditions required to be fulfilled by such companies. Clause (a) of said sub-section (2) provides that a new domestic manufacturing company is required to be set up and registered on or after 01.10.2019, and is required to commence manufacturing or production of an article or thing on or before 31st March, 2023.

The intent of the introduction of section 115BAB was to attract investment, create jobs and trigger overall economic growth. However, the cumulative impact of the persistence of the COVID-19 pandemic has resulted in some delay in setting up/registration of new domestic companies and the commencement of manufacturing or production by such companies, if they have been set up and registered. In order to provide relief to such companies, it is proposed to amend section 115BAB so as to extend the date of commencement of manufacturing or production of an article or thing, from 31st March, 2023 to 31st March, 2024.

This amendment will take effect from 1st April, 2022

This amendment is in line with the philosophy of Chanakya quoted as under:

“Governments should collect taxes like a honeybee, which sucks just the right amount of honey from the flower without causing any harm.” Similarly, even though the economy is hit, the revenues of the government have been hit, it is only just that such burden is bourn by all and not transferred on the shoulders of the tax-payers.

Extension of date of incorporation for eligible start up for exemption – S. 80IAC

The existing provisions of the section 80-IAC of the Act inter alia, provide for a deduction of an amount equal to one hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assesses subject to the condition that,-

  1. the total turnover of its business does not exceed one hundred crore rupees,

  2. it is holding a certificate of eligible business from the Inter-Ministerial Board of Certification, and

  3. it is incorporated on or after 1st day of April, 2016 but before 1st day of April 2022.

Due to Covid Pandemic there have been delays in setting up of such units. In order to factor in such delays and promote such eligible start- ups, it is proposed to amend the provisions of section 80-IAC of the Act to extend the period of incorporation of eligible start-ups to 31st March, 2023.

3. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years.

Other Amendments

Facilitating strategic disinvestment of public sector companies – S. 79(1): Section 79 of the Act provides for carry forward and set-off of losses in case of certain companies. Sub-section (1) of the said section restricts the carry forward of loss when there is a change in shareholding of a company, where public are not substantially interested, against income of the previous year, unless on the last day of the previous year, the shareholders of the company carrying less than fifty-one per cent of the voting power were holding fifty-one per cent or more of the voting power on the last day of year or years in which the loss was incurred. Sub-section (2) of the said section provides certain circumstances in which the provisions of sub-section (1) shall not apply.

There are case laws in favour and a few in contradiction w.r.t. whether the benefit of carry forward & set-off of losses in case wherein the ultimate beneficial ownership has not undergone change, be allowed or not. This ambiguity has now been addressed and amending section 79.

It is proposed to amend section 79 of the Act to facilitate the strategic disinvestment of public sector companies by providing that the provisions of sub-section (1) of section 79 shall not apply to an erstwhile public sector company subject to the condition that the ultimate holding company of such erstwhile public sector company, immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least fifty one per cent of the voting power of the erstwhile public sector company in aggregate.

Prior to the amendment, judgments of the High Court of Delhi, Karnataka, etc., have already laid down the law with respect to carry forward of losses when beneficial ownership does not change. The legislature has formalised this interpretation by amending the provision.

Tax Incentives to International Financial Services Centre (IFSC) – s. 10(4E), 10(4F) & 10(4G) read with section 80LA(1A) ; 56(viib), 80LA(2)(d).

An IFSC caters to customers outside the jurisdiction of the domestic economy. Such centres deal with flows of finance, financial products and services across borders. London, New York and Singapore can be counted as global financial centres. Many emerging IFSCs around the world, such as Shanghai and Dubai, are aspiring to play a global role in the years to come. Finance Minister Arun Jaitley, had announced in the Union Budget 2015 that India’s first IFSC’s would be set up in GIFT City in Gujarat. Gujarat International Finance Tec-City (GIFT City) would be the country’s first IFSC, with which top bourses BSE and NSE signed MOUs for setting up International exchanges there. However, BSE already started India International exchange on January 9, 2017. Over the past few years several tax concessions have been provided to units located in International Financial Services Centre (IFSC) under the Act to make it a global hub of financial services sector. In order to further incentivise operations from IFSC, it is proposed to introduce the following amendments:

  1. Amendment to clause (4E) of section 10: To extend the exemption under the said clause 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 sub- section (1A) of section 80LA.

  2. Amendment to clause (4F) of section 10: To exempt the income of a non-resident by way of royalty or interest, on account of lease of a ship in a previous year, paid by a unit of an International Financial Services Centre, as referred to in sub-section (1A) of section 80LA, if the unit has commenced its operations on or before the 31st March, 2024.

  3. Amendment to clause (4G) of section 10: To exempt 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 sub- section (1A) of section 80LA, to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

  4. Amendment to the Explanation to clause (viib) of section 56: Section 56 provides exceptions such as venture capital undertaking/company/Specified fund. Prior to the insertion, the specified fund which was incorporated as a company/ undertaking, etc., registered as category I or II Alternative Investment Fund, was only regulated under the Securities and Exchange Board of India. Now the amendment provides that specified fund shall also include Category I or a Category II Alternative Investment Fund which is regulated under the International Financial Services Centres Authority Act, 2019.

  5. Amendment to clause (d) of sub-section (2) of section 80LA: Section 80LA provides for

Deductions in respect of certain incomes of Offshore Banking Units and International Financial Services Centre. Clause (d) has been inserted to provide that in addition to the income arising from the transfer of an asset being an aircraft, the income arising from the transfer of an asset, being a ship, which was leased by a unit of the International Financial Services Centre to any person shall also be eligible for deduction under section (1A) of the said section, subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024.

These amendments will take effect from 1st April, 2023

Incentives to National Pension System (NPS) subscribers for state government employees – S. 80CCD

Section 80CCD specifies the deductions available in respect of contribution to pension scheme of Central Government. Under the existing provisions of the Act, any contribution by the Central Government or any other employer to the account referred to in section 80CCD of the Act (NPS account), shall be allowed as a deduction to the assesses in the computation of his total income, if it does not exceed 14% of his salary where such contribution is made by the Central Government. This limit is presently 10% of his salary where such contribution is made by any other employer. The State Governments were given an option to raise the contribution to 14% w.e.f 01.04.2019 on their own volition, based on their own internal approvals and notifications, without seeking the approval of the Pension Fund Regulatory and Development Authority. In order to ensure that the State Government employees also get full deduction of the enhanced contribution by the State Government, it is proposed to increase the limit of deduction under section 80CCD of the Act from the existing ten per cent to fourteen per cent in respect of contribution made by the State Government to the account of its employee.

This amendment will take effect retrospectively from 1st April, 2020 and will accordingly apply in relation to the assessment year 2020-21 and subsequent assessment years; so as to ensure no additional tax liability arises on any contribution made in excess of 10% during such time.

This is a welcome move by the government since the option given to increase the limit of deduction to 14%. It helps government employees meet their retirement goals and removes the disparity between the central govt. employees and the state government employees.

A question may arise as to whether the contribution made by other employers should also have an increased limit. However, since there is a wage/salary disparity between government and private sector employees, the current limits seem appropriate in terms of claim of deduction.

Condition of releasing of annuity to a disabled person – S.80DD

Section 80DD specifies the deductions available in respect of maintenance including medical treatment of a dependant who is a person with disability. The existing provision of section 80DD, inter alia, provide for a deduction to an individual or HUF, who is a resident in India, in respect of (a) expenditure for the medical treatment (including nursing), training and rehabilitation of a dependant, being a person with disability; or (b) amount paid to LIC or any other insurer or administrator or specified company in respect of a scheme for the maintenance of a disabled dependant. Sub-section (2) of the aforesaid section provides that the deduction shall be allowed only if the payment of annuity or lump sum amount is made to the benefit of the dependant, in the event of the death of the individual or the member of the HUF in whose name subscription to the scheme has been made. Sub-section (3) of the aforesaid section provides that if the dependant with disability, predeceases the individual or the member of the HUF, the amount deposited in such scheme shall be deemed to be the income of the assessee of the previous year in which such amount is received by the assessee and shall accordingly be chargeable to tax as the income of that previous year.

In the Writ Petition No. 1107 of 2017 Ravi Agrawal versus Union of India and Another, Justice A.K. Sikri observed that that there could be harsh cases where handicapped dependants may need payment of annuity or lump sum basis even during lifetime of their parents/guardians. It was further observed that the Centre may take into consideration all the aspects, including those where a disabled dependant might need payment on annuity or lump sum basis even during the lifetime of the parents or guardians.

Therefore, in order to remove this genuine hardship, it is proposed to allow the deduction under the said section also during the lifetime, i.e., upon attaining age of sixty years or more of the individual or the member of the HUF in whose name subscription to the scheme has been made and where payment or deposit has been discontinued. Further, it is proposed that the provisions of sub-section (3) shall not apply to the amount received by the dependant, before his death, by way of annuity or lump sum by application of the condition referred to in the proposed amendment. This amendment will take effect from 1st April, 2023.

The government has always been vigilant and taken notice of the hardships caused to the taxpayers. Similarly, in the present case, hardships caused to handicapped dependents, which cannot be fathomed by others, needing payment of annuity or lump sum basis during lifetime of their parents/guardians, have been considered.

Litigation management when in an appeal by revenue an identical question of law is pending before jurisdictional High Court or Supreme Court. – S. 158AB (Sunset provision for s. 158AA) 

Section 158AA of the Act provides that when the Commissioner or Principal

Commissioner is of the opinion that any question of law arising in the case of an assessee is identical with a question of law arising in his case for another assessment year, which is pending in appeal before the Supreme Court against an order of High Court, which was in favour of assessee, he may direct the Assessing Officer to make an application to the Appellate Tribunal stating that an appeal on the question of law in the relevant case may be filed when the decision on the question of law becomes final in the other case, subject to the acceptance of the same by the assessee.

In order reduce the amount of litigation, it is now proposed that a procedure be provided when an appeal by revenue is pending on an identical question of law even before the jurisdictional High Court. Therefore it is proposed to insert a new section 158AB in the Act. A collegium would decide whether any question of law arising in the case of an assessee is identical with a question of law already raised in his case or in the case of any other assessee for an assessment year, which is pending before the jurisdictional High Court under section 260A or the Supreme Court in an appeal under section 261 or in a special leave petition under article 136 of the Constitution, against the order of the Appellate Tribunal or the jurisdictional High Court, as the case may be, in favour of such assessee (“other case”). The Collegium may then decide and intimate the Commissioner or Principal Commissioner not to file any appeal, at this stage, to the Appellate Authorities. Further, the Commissioner or Principal Commissioner shall, on receipt of a communication from the collegium, direct the Assessing Officer to make an application to the Appellate Tribunal or jurisdictional High Court, as the case may be, in the prescribed form within sixty days from the date of receipt of the order of the Commissioner (Appeals) or within one hundred and twenty days from the date of receipt of the order of the Appellate Tribunal, as the case may be, stating that an appeal may be filed when the decision on the question of law becomes final. During this procedure, an opportunity of hearing must be given to the Assessee for its acceptance.

In case the order of the Commissioner (Appeals) or the order of the Appellate Tribunal, as the case may be, is not in conformity with the final decision on the question of law in the other case, as and when such order is received, the Commissioner or Principal Commissioner may direct the Assessing Officer to appeal to the Appellate Tribunal or the jurisdictional High Court, as the case may be, against such order.

“Collegium” shall comprise of two or more Chief Commissioners or Principal Commissioners or Commissioners of Income- tax, as specified by the Board in this regard.

The government has time and again brought new enactments/provisions to reduce litigation and simplify the tax laws. Be it Vivad se Vishwas, Kar vivad samadhan scheme, tax effect limits for filing appeal by the department, etc. Even the proposed provision will ensure that multiplicity of appeals by department are avoided. Section 158A provides for such rights to the Assessee to claim that identical question of law is pending before High Court or Supreme Court.

With the introduction of section 158AB, a sunset clause is proposed to be inserted in sub-section
(7) of section 158AA to provide that no direction shall be given under the said sub-section on or after 1st April, 2022.

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

Even though the amendments to provide benefit to the Assessees may not be many in number, however, it shows the approach of the government in making an effort to identify hardships faced by the tax-payers and resolve the same. It is also in line with the overall objective of a government to tax which must be to strengthen the government to ensure public welfare and national development. The public must not be exploited by imposing heavy taxes, more than one’s ability to pay.

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