CA Kinjal Bhuta

The Finance Minister proposed 39 amendments in the Finance Bill 2022 vide a notice of amendments dated 23.03.2022. The Finance Bill, 2022 was passed in Loksabha on 25th March, 2022. Later, the Finance Bill, 2022 enacted on 30th March 2022 and therefore all the changes are part of Finance Act 2022 now. This article attempts to covers the major amendments to the Finance Bill 2022. Some of the amendments are not taken in depth as there are exhaustive articles on the topic scheduled for the same.

1. 1. Inclusions/exclusions to provisions of Updated Return
      1. Section 139(8A) was introduced to file updated returns. Second provision to section 139(8A) provides restrictions to filing of updated returns. It mentions that any case where search is initiated u/s. 132A or survey is conducted u/s. 133A, or when accounts or assets are requisitioned, updated return shall not be allowed to be filed for the relevant assessment year and preceeding two assessment years. Now the amendment to Finance bill, 2022 provides replaces ‘previous two assessment years’ with ‘any assessment year’. This would mean that for the above stated restricted circumstances, filing of updated return will not be allowed at all.
      2. Fourth provision is introduced to section 139(8A) which provides that a loss return can be updated if it is a return of income which means that the updated return should not be a loss return. In other words, an updated return cannot be used to show more losses in an already filed loss return, however if there is any additional income which has remained to be reported, that can be very well filed in the updated return.
      3. Fifth proviso is added section 139(8A) to provide that if as a result of filing an updated return for one of the years, if the loss claimed under chapter VI, or unabsorbed deprecation u/s.32, or tax credit carried forward u/s. 115JAA and 115JD is reduced for any subsequent years, then updated return shall have to be filed for each of such subsequent years. The idea behind this provision would be just to cover and correct the consequent losses which are connected and get affected by the losses of its previous years.
   2. Penalty and recomputation of income on claim of surcharge and education cessSection 40(a)(ii) states that any sum paid on account of any ‘rate’ or ‘tax’ levied on the profits or gains of any business or profession shall not be eligible as a deduction. Courts have upheld this view in a few judgments that provision of Section 40(a)(ii) does not expressly use the term ‘cess’ or ‘surcharge’ and accordingly, taxpayers could claim deduction on account of ‘cess’ or ‘surcharge’ under section 40.The Finance Bill 2022 proposed to insert an Explanation 3 with retrospective effect from assessment year 2005-06 that for Section 40(a)(ii), the term ‘tax’ shall include and be deemed to have always included ‘surcharge’ or ‘cess’. Accordingly, even for the past period, the deduction for ‘cess’ or ‘surcharge’ shall not be available.

      Now, the amendments to Finance Bill, 2022 has inserted a new sub-section (18) to section 155 to provide that the claim of ‘surcharge’ or ‘cess’ in any previous year shall be deemed as under-reporting of income. If an assessee has claimed the deduction on account of ‘surcharge’ or ‘cess in any previous year and such deduction is not allowable under section 40, it shall be deemed that assessee has under-reported income for such previous years for the purpose of Section 270A(3). Also, the exceptions in sub section (6) of section 270A shall not apply to such cases. The Assessing Officer has been empowered to re-compute the total income of the assessee for such a previous year in which he claimed deduction of surcharge or cess. The income so computed shall be treated as under-reported income, and the assessee shall be liable to pay tax on it along with a penalty of 50% of the amount of tax payable on under-reported income.

      However, proviso to Section 155(18) provides relief from considering the addition so made as under-reported income, if the following conditions are satisfied:

      1. The assessee makes an application in the prescribed form and prescribed time to the Assessing Officer;
      2. The application is filed to request the AO for recomputation of the total income of the previous yearwithout allowing the deduction of surcharge or cess; and
      3. The assessee pays the amount due within the specified time.

Section 154 authorises the Income-tax authorities to rectify any mistake in the order. Sub-section (18) of Section 155 provides that the period of 4 years specified under Section 154(7) to be reckoned from the end of the previous year commencing on the 01-04-2021.

1. 3. Loss from Virtual Digital assets (VDAs)A new section 115BBH was introduced in the budget which sought to tax any income arising on transfer of VDAs. However, there were lot of concerns and open ended issues in the newly introduced provisions. There are various amendments therefore made to the Finance Bill, 2022 to reduce such uncertainties and provide clarifications at appropriate places.
      1. No set off of losses from transfer of one VDAs from gain of another VDAs Finance Bill, 2022: The sub section (2) of section 115BBH deters setting off loss under any other head of income from the VDAs income and also prohibits the loss on account of transfer of VDAs to be adjusted against income from any other head of income. To be specific, sub clause (b) of section 115BBH (2) provided that ‘no set off of losses from transfer of the VDAs shall be against income computed under any other provisions of this Act’. The sub-section also provides that loss from transfer of VDAs shall not be allowed to be carried forward to succeeding assessment years.Finance Act, 2022: The word ‘other’ in the clause (b) created a perception that loss from transfer of VDAs can be set off against gains from transfer of VDAs. The amendment made in the Finance Bill, 2022 removes the word ‘other’ and now clarifies that even the loss from transfer of one class of VDAs shall not be allowed to be adjusted against income from transfer of another or same class of VDAs. This amendment clarifies that no loss whatsoever shall be allowed to be adjusted and therefore the taxpayer will not be able to take benefit of set off of losses from VDAs internally with same stream income too. This amendment mirrors the intention of the government as had also been mentioned by them several times in the past that they would not like to encourage any transactions from VDAs and therefore the same shall be taxed exhaustively, without conferring any benefits, exemptions, deductions etc.
      2. Transfer definition u/s. 2(47) to apply to VDAs held in any formFinance Bill, 2022: Section 115BBH provides that income from transfer of VDAs shall be taxed under that section. Therefore, the definition of the word ‘transfer’ becomes imperative to tax the VDAs income. The definition of transfer becomes applicable only account of transfer of any capital asset. So, the issue was that whether if the VDAs are not retained by the taxpayer as a capital asset then in that case whether the income from transfer of such VDAs shall be taxed under the computation method provided u/s. 115BBH.Finance Act, 2022: Sub section (3) is now introduced to section 115BBH which provides that the definition of transfer shall apply to any VDAs, whether held as capital asset or not. As a consequence of this amendment, it has been clarified that any income on transfer of VDAs shall be taxed under section 115BBH only even if the character of income falls under other heads of income like Income from Business or Profession or Income from other sources.
      3. Over-riding provisions enabled for sub- section (1) of section 115BBHFinance Bill, 2022: Section 115BBH when introduced was brought about with two sub-sections. Sub section (1) provided the rate of tax of 30% of income on account of transfer from VDAs whereas sub-section (2) provided the computation mechanism. Sub section (2) started with a non-obstante clause. However similar ‘notwithstanding provisions’ were not made in sub-section (1). Absence of non-obstante clause in sub- section (1), instilled a doubt that, absence of such provisions would mean that lower tax may be applied in certain cases, if the Income Tax Act provides for lower tax rate in some other sections.Finance Act, 2022: To reduce the air of confusion, over-riding provisions are also introduced under sub section (1). Therefore, this would mean that notwithstanding any provisions of the Act, the tax rate of 30% shall apply to any income arising on account of transfer of VDAs.
      4. Income from transfer of VDAs shall be taxed even in case there is not cost of acquisitionFinance Bill, 2022: The computation mechanism under section 115BBH (2) provides that no deduction or expenditure shall be allowed to be reduced from income on transfer of VDAs except the cost of acquisition. It has been held by various courts especially in case of B C Srinivasa Shetty (5 Taxman 1) by Apex Court that if there is no cost of acquisition, the computation mechanism of capital gains fails. There was an apprehension that in cases where VDAs are not acquired by way of cost, whether computation mechanism under section 115BBH will fail.Finance Act, 2022: It is therefore now clarified by adding the words ‘if any’ after cost of acquisition of provisions are produced in the section. This implies that whether there is any cost or not, the income from transfer of VDAs shall be computed as per the section.
      5. TDS to be deducted even when consideration of VDAs is received in kindSection 194S was introduced in the Finance Bill, 2022 which provided that any person who is responsible to pay to a resident, any sum by way of consideration. The provisions as regard to his provided that payer shall ensure that tax is paid on this transfer. The amendment clarifies that tax is required to be deducted by the payer also, and only ensuring that tax is paid is not enough. Therefore, this amendment basically makes it abundantly clear that payer has to deduct tax as per section 194S whether the payment is by way of a sum or in kind.
      6. TDS can be deducted under other sections too apart from 194SSub section (4) of section 194S provides that when tax is deducted u/s. 194S for a particular transaction, then no tax shall be deducted or collected under any other section. This sub-section is now omitted and therefore, that would mean that deduction or collection of tax at source can be done under other sections too, even if the transaction is subject to TDS u/s. 194S.
   4. Clarification of TDS on Long term capital gains to non-residentsIn respect to TDS from the income of a non-resident person, Part II of Finance Act provides for 10% TDS from income by way of long-term capital gains referred to in section 112A. Capital gains upto Rs.1 lakh is exempted from tax as per section 112A. However, as per the literal reading of the TDS provisions, the tax was required to be deducted on the total long- term capital gains and not in excess of Rs. 1 lakh. It is now clarified that deduction of tax from the long-term capital gains shall be only in excess of Rs. 1 lakh.
   5. Cancellation provision introduced to provisionally approved institutionsThe Finance bill, 2022 had introduced fifteenth provision to section 10(23C) which empowers the PCIT or CIT for cancellation of approval of fund or institutions u/s. 10(23C) in case of certain prescribed circumstances. Now these provisions are extended to even the provisional registration granted
   6. Restriction on using exemptions u/s. 10(23C) and 10(46)The amendments to Finance bill, 2022 has provided that any institution cannot take the simultaneous benefit of exemption u/s. 10(46) and section 10(23C). So once an institution is notified u/s. 10(46), the approval granted u/s.10(23C) shall become inoperative.
   7. Books of account in digital form Books of account is defined u/s. 2(12A) of the Income Tax Act, 1961. The existing definition includes day books, ledgers, cash books etc. whether kept in written form or as print stored. Now it is provided that the definition shall also include books of account kept in electronic and digital forms. Therefore, books of account maintained on cloud, or on softwares shall now be considered as books of account. One has to be therefore more vigilant in the electronic accounts now maintained.
   8. Relaxation to resident unit holders for claim of exemption u/s.10(4D):Section 10(4D) provides exemption of income for certain incomes of specified funds. One such condition for category III AIF Fund located in IFSC was that all of its units are managed by non-residents. The provisions are now relaxed with the amendment, to provide that even if the non-resident unit holder becomes resident the exemption shall continue provided that unit holder does not hold more than 5% of the total units of that fund.
   9. The provider of perquisite or benefit has to deduct TDS u/s. 194RSection 194R was introduced by the Finance Bill 2022, which stated that provider of any benefit or perquisite to a resident, whether convertible into money or not, arising from business or the exercise of a profession, shall, before providing such benefit or perquisite to such resident, ensure that tax has been deducted 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. To remove confusion on how section 194R is to be complied with, the following changes has been made:
      1. the words “ensure that tax has been deducted” in section 194R, are replaced with words “ensure that tax required to be deducted has been deducted”;
      2. the provision of section 194R, as originally proposed, is renumbered as sub-section (1);
      3. sub-section (2) is inserted to empower the CBDT to issue guidelines for removal of difficulties if any difficulty arises in giving effect to the provisions of the section;
      4. Sub-section (3) is inserted to provide that guidelines issued by the CBDT under section 119 for removal of difficulties shall be binding on the assessee and the assessing authority.

CBDT guidelines will presumably provide guidance on how to ensure that tax has been deducted if the benefits or perquisites are in kind and what shall be the value of such benefit or perquisite. As has been the practice over the last few years, most likely the CBDT will issue these guidelines through a Circular.

10. Avoidance of repetitive appealsThe Finance Bill 2022 introduced a new section 158AB for the new provision relating to avoidance of repetitive appeals. Section 158AB allows avoidance of repetitive appeal before Income-tax Appellate Tribunal or to the Jurisdictional High Court. Such a decision to avoid the repetitive appeal is taken by the collegium. On receipt of communication from the collegium, the PCIT/CIT may direct the AO to make an application to the ITAT or the High Court in a prescribed form within 60 days from the date of receipt of the order of CIT(A) or within 120 days from the date of receipt of the order of Tribunal.Following changes in Section 158AB are now made:
    1. It expressly provides that the provisions of section 158AB shall override the respective provisions providing time limits and procedural directions for filing an appeal to ITAT or the High Court;
    2. The time limit within which the application is to be filed with the ITAT has been increased to 120 days from 60 days;
    3. It is also expressly provided that all the provisions of Appeal to ITAT and Appeal to High Court of Chapter XX shall apply, as the case may be, when an appeal is being filed under section 158AB (4).
11. Time limit for completion of assessment in search and requisition casesThe Finance Act, 2021 had introduced a sunset clause and accordingly, the provisions of section 153A were made inapplicable from 01-04-2021. Section 153B provides a time limit for completion of assessment and reassessment in search or requisition cases. The time limit provided under sub-section (1) is 21 months from the end of the financial year in which the last authorisation of search or requisition was executed. The provisos to sub-section (1) provide for reduced time limits for different assessment years.Sixth proviso to sub-section (1) of section 153B is added which provides that the completion date of such assessments. The limitation period for completion of assessment in search/requisitioned cases is given in the below table:

12. Extension of timelimit of assessments for AY 2020-21 Section 153 provides time limits to completion of assessments, re- assessments and re-computations under various provisions. The amendment seeks to increase time limit to complete assessments for AY: 2020-21 u/s. 143(3) or 144 of the Act from existing 12 months to 18 months. The amendment is made only for assessments of AY: 2020-21.
13. Application of income for the benefit of interested personsHitherto, section 10(23C) did not have any provision similar to section 13(1)(c) regarding benefits to interested parties. The Finance Bill 2022 inserted twenty-first proviso imposing restriction to apply the income of a 10(23C)(iv)/(v)/(vi)/(via) institution for the benefit of an interested person referred to in section 13(3). Such income shall be deemed to be the income of the said institution which has provided the benefit. However, the Finance Bill inadvertently mentioned that such benefit should become income of that person to whom the benefit is provided. Now the same is corrected by providing that such income shall be deemed to be the income such fund or institution of the previous year in which it is so applied.
14. Overriding effect to provisions of Section 115BBIThe Finance Bill 2022 introduced section 115BBI which provides that the income which does not enjoy exemption under section 11 is taxable at the rate of 30%. On the other hand, proviso to section 164(2)  providing for taxation of a charitable trust at maximum marginal rate (MMR) is not deleted. Hence, literally, both the provisions apply to a trust. Thus, it was not clear whether section 115BBI or section 164(2) should apply to a trust for taxation of certain incomes.It is now amended to provide that notwithstanding anything contained in any other provision of the Act, the specified incomes shall be taxable under section 115BBI. Thus, the provisions of section 115BBI would have an overriding effect over anything contrary contained in the Act.
15. No exemption if a person as referred to in section 13(3) receives gifts from trustSection 56(2)(x) deals with deeming provisions when a person receives gifts or acquires an immovable property or specified moveable assets without consideration or for inadequate consideration. Clauses (VI) and (VII) of proviso to Section 56(2)(x) provides exemption from applicability if any sum of money or any property is received:
    1. From any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in Section 10(23C); or
    2. From or by any trust or institution registered under section 12A/12AA/12AB.

    sThe amendment has now inserted a second proviso to section 56(2)(x) to provide that, the clauses (VI) and (VII) of the first proviso shall not apply if any sum of money or property has been received by any person referred to in section 13(3). Section 13 of the Act denies the benefit of exemption to a charitable or religious trust or institution if any part of its income or property is used or applied for the benefit of interested persons.

16. Validation of proceedings completed on predecessor entitySection 170 of the Income Tax Act relates to succession to business otherwise than on death. Finance Bill, 2022 had proposed that any proceedings initiated on the predecessor during a business reorganization would be deemed to have been initiated on the successor. “Business reorganization” was to be defined to mean the reorganization of business involving the amalgamation, demerger, or merger of business of one or more persons. Under the Finance Bill amendments, business reorganization is replaced with “succession” and the definition of business reorganization deleted from section 170. The amendments also provide that in the case of succession, any proceedings initiated against the predecessor during the succession are deemed to have been initiated against the successor.The term ‘succession’ is wider than the term ‘business reorganisation’. ‘Succession’ means an end of an entity carrying on the business, and its place has been taken by an entirely new entity to run, in continuity and as a going concern, the same business. Succession involves a change of ownership – the transferor goes out, and the transferee comes in. It connotes that the whole business is transferred and also implies that substantially the identity and the continuity of the business are preserved [CIT v. K. H. Chambers, (1965) 55 ITR 674 (SC)]. In a recent case, the Mumbai ITAT held that transfer of an undertaking by way of a slump sale will be considered as succession [ITO v. Archroma India (P.) Ltd. [2021] 124 taxmann. com 432]. Thus, the assessment or other proceedings initiated or completed on the predecessor in the event of succession shall be deemed to have been made on the successor.