The Finance Bill, 2011

BILL

Amendments Incorporated in the Finance Bill, 2011 at the Time of Passing Thereof by the Lok Sabha in Respect of Income Tax Act, 1961

1. Amendment of section 40A

(i) New clause 7A of the Finance Bill,2011

7A. In section 40A of the Income Tax Act, in sub-section (9), after the words, brackets and figures “under clause (iv)”, the words, brackets, figures and letter “or clause (iva)” shall be inserted with effect from the 1st day of April, 2012.

 (ii) Amended section 40A(9)

(9) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards the setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860 (21 of 1860) or other institution, for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under clause (iv)  [or clause (iva)] (Inserted vide Finance Act, 2011, effective from 1-4-2012.) or clause (v) of sub-section (1) of section 36 or, as required by or under any other law for the time being in force.

2. Insertion of section 115BBD

(i) Original clause 16 of the Finance Bill,2011

After section 115BBC of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2012, namely:—

‘115BBD. Tax on certain dividends received from foreign company—(1) Where the total income of an assessee, being an Indian company, for the previous year relevant to the assessment year beginning on the 1st day of April, 2012 includes any income by way of dividends declared, distributed or paid by a subsidiary foreign company, the income-tax payable shall be the aggregate of—

(a) the amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen per cent.; and

(b) the amount of income-tax with which the assessee would have been chargeable had its total income been reduced by the aforesaid income by way of dividends.

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in sub-section (1).

(3) In this section,—

(i) “dividends” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (e) thereof;

(ii) “subsidiary foreign company” means a foreign company in which the Indian company holds more than half in nominal value of the equity share capital of the company.’.

(ii) Amended clause 16 of the Finance Bill,2011

After section 115BBC of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2012, namely:—

‘115BBD. Tax on certain dividends received from foreign company—(1) Where the total income of an assessee, being an Indian company, for the previous year relevant to the assessment year beginning on the 1st day of April, 2012 includes any income by way of dividends declared, distributed or paid by a specified foreign company, the income-tax payable shall be the aggregate of—

(a) the amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen per cent.; and

(b) the amount of income-tax with which the assessee would have been chargeable had its total income been reduced by the aforesaid income by way of dividends.

(2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing its income by way of dividends referred to in sub-section (1).

(3) In this section,—

(i) “dividends” shall have the same meaning as is given to “dividend” in clause (22) of section 2 but shall not include sub-clause (e) thereof;

(ii) “specified foreign company” means a foreign company in which the Indian company holds twenty-six per cent or more in nominal value of the equity share capital of the company.

 3. Amendment of section 115JB

(i) Original clause 17 of the Finance Bill,2011

In section 115JB of the Income-tax Act, with effect from the 1st day of April, 2012,—

(i) in sub-section (1),—

(a) for the words, figures and letters “the 1st day of April, 2011”, the words, figures and letters “the 1st day of April, 2012” shall be substituted;

(b) for the words “eighteen per cent.”, at both the places where they occur, the words “eighteen and one-half per cent” shall be substituted;

(ii) sub-section (6) as so inserted by the Special Economic Zones Act, 2005 (28 of 2005), the following proviso shall be inserted, namely:—

“Provided that the provisions of this sub-section shall cease to have effect in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012.”.

 (ii) Amended clause 17

In section 115JB of the Income-tax Act,—

(i) in sub-section (1), with effect from the 1st day of April, 2012,—

(a) for the words, figures and letters “the 1st day of April, 2011”, the words, figures and letters “the 1st day of April, 2012” shall be substituted;

(b) for the words “eighteen per cent.”, at both the places where they occur, the words “eighteen and one-half per cent” shall be substituted;

(ia) after sub-section (2), in Explanation 1, clause (iv), clause (v) and clause (vi) shall be omitted and shall be deemed to have been omitted with effect from the 1st day of April, 2005;

(ii) sub-section (6) [as so inserted by the Special Economic Zones Act, 2005 (28 of 2005)], the following proviso shall be inserted with effect from the 1st day of April, 2012, namely:—

“Provided that the provisions of this sub-section shall cease to have effect in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012.”.

 (iv) Amended section 115JB(1)

(1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and half per cent.

(v) Amended Explanation 1 to section 115JB

Explanation 1 : For the purposes of this section, “book profit” means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by—

(a) the amount of income-tax paid or payable, and the provision therefor; or

(b) the amounts carried to any reserves, by whatever name called; other than a reserve specified under section 33AC or

(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or

(d) the amount by way of provision for losses of subsidiary companies; or

(e) the amount or amounts of dividends paid or proposed; or

(f) the amount or amounts of expenditure relatable to any income to which section 10 other than the provisions contained in clause (38) thereof or [* * * * *] or section 11 or section 12 apply; or

(g) the amount of depreciation,

(h) the amount of deferred tax and the provision therefor,

(i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, and as reduced by,—

(i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the profit and loss account), if any such amount is credited to the profit and loss account :

Provided that where this section is applicable to an assessee in any previous year, the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation or Explanation below second proviso to section 115JA, as the case may be; or

(ii) the amount of income to which any of the provisions of section 10 other than the provisions contained in clause (38) thereof or [* * * * *] or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or

(iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or

(iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or

(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.

Explanation : For the purposes of this clause,—

(a) the loss shall not include depreciation;

(b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation, is nil; or

(iv) to (vi) * * * * * (See Note 1 at the bottom)

(vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

Explanation : For the purposes of this clause, “net worth” shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).

(viii) the amount of deferred tax, if any such amount is credited to the profit and loss account.

(iv) Amended section 115JB(6)

(6) The provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be.

Provided that the provisions of this sub-section shall cease to have effect in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012.

______________________________________________________

Note- 1

Omitted vide Finance Act, 2011, effective retrospectively from 1-4-2005. Before omission clauses read as under :

“(iv) the amount of profits eligible for deduction under section 80HHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or

(v) the amount of profits eligible for deduction under section 80HHE computed under sub-section (3) or sub-section (3A), as the case may be, of that section, and subject to the conditions specified in that section; or

(vi) the amount of profits eligible for deduction under section 80HHF computed under sub-section (3) of that section, and subject to the conditions specified in that section; or”

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