SECTION 139 OF INCOME TAX ACT’1961

[AMENDED UPTO FINANCE ACT (NO.2) 2019]

Ques 1: Why this post?

Ans: In the approaching return filing season the aforesaid section namely ‘FILING OF RETURN’ has a great importance and that too w.r.t. amendments it contains till AY 2020-21 i.e. FY 19-20. Thus, the author has come up with the glance at the major provisions of this section with few clarifications.

 Ques 2: Is bird eye view of the section 139 possible?

Ans: Attached image can be referred to for the bird–eye view of Section 139 of Income Tax Act 1961. It contains 19 subsections. Few of them are not in existence from the stated dates, thus ignored in our discussion. (Readers can refer bare act for their reference, author has tried to be precise)

Section 139 of Income Tax Act 1961

We will be restricting our discussion to only grey highlighted area.

Ques 3: Who all have obligation to file return of income under section 139(1)?

Ans:

Assessee Covered Situation
a) Company or  Firm In every case
b) Any other person other than company or firm It total income exceeds maximum amount not chargeable to tax.

Ques 4: What are the FOURTH and FIFTH proviso to section 139(1)? Please elaborate with illustrations. First three provisos have been skipped as they are not relevant as stated in summary chart.

Ans. Fourth and Fifth proviso states that following person has to file return:

Any person,

– being a resident other than not ordinarily resident in India,(i.e. ROR)

– who is not required to furnish a return under section 139(1), and

a)who holds, as a beneficial owner, any asset (including any financial interest in any entity) located outside India or has signing authority in any account located outside India

b)who is beneficiary of any asset (including any financial interest in any entity) located outside India

However an individual being a ‘beneficiary referred in (b)’, where if any income arising from such asset is includible in the income of the person referred to  in (a),

Then, the beneficiary is not required to file return of income under this proviso.

Author:

Explanation 4 and 5 defines the terms ‘beneficial owner’ and ‘beneficiary’ respectively.

Illustration: Parties Involved: Mr. K(ROR) , Mr D(resident of Dubai) and Mr.F (Father of Mr. D lives in India)

Mr. K gifted his rural agricultural land(not capital asset) to Mr. F, worth Rs. 10Crores.

Mr. D buys a flat in Dubai in his name and gives an irrevocable power of attorney to Mr. K to sell/gift/lease/transfer the flat in any manner, with clause that home will be transferred to Mr. K/his wife after 10th year.

As per Explanation 4: beneficial owner” in respect of an asset means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person

Therefore, although the flat in Dubai is not in the name of Mr. K, but he is beneficial owner of the flat since he has

– provided consideration indirectly

– for the flat which is for immediate or future benefit

– direct or indirect

– of Mr. K or his wife

Illustration: Mr. A (ROR), transferred his black money INR 5crores to Mr. B in Singapore through Hawala. Now Mr. B forms a Trust in Singapore, donates the sum in Trust and buys securities of INR 5Crores through trust. Mr. A is the sole beneficiary of Trust and Mr. A donot have taxable income in India.

As per Explanation 5:beneficiary” in respect of an asset means an individual who derives benefit from the asset during the previous year and the consideration for such asset has been provided by any person other than such beneficiary

Thus Mr. A satisfies the definition of beneficiary, hence he is under obligation to file return of income under fourth proviso.

Illustration: Mr. X(ROR) has substantial incomes in India and Mrs. X(ROR) does not have any income. Mr. X opens an account in the wife’s name in Australia and transfers INR 2 Crores of his taxable income to his wife’s account. Mrs. X purchases a house property from the bank balance of INR 2 Crores  in Australia in her name.

Now, Mr. X is the beneficial owner and Mrs. X is the beneficiary w.r.t. the house in Australia.

As per Fifth proviso, Mrs. X is not under obligation to file return of income, if income from house property in Australia is clubbed with income of Mr. X.

Ques 5: Under SIXTH proviso to section 139(1) who is required to file Return of Income?

Ans: This is applicable to all assesses other than Company and Firm

If total income before giving effect to the following benefits exceeds the maximum amount not chargeable to tax, then, the person has to file return of income:

Section: In relation to:
10(38) LTCG exemption
10A For newly established undertakings in free trade zone
10B For newly established 100% per cent export-oriented undertakings
10BA For of export of certain articles or things
54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB For persons availing rollover benefit of capital gains exemptions. [inserted by Finance Act (No.2) 2019]
Chapter VIA Deductions under Section 80C-80U

To illustrate lets say a senior citizen who has interest income of Rs. 1 lakh, sells his residential house and earns capital gains of Rs. 15 lakhs. He reinvests the entire gains in bonds issued under section 54EC. Now even if his tax liability is Nil, then also he has to file return under sixth proviso to section 139(1).

The ptoviso does not apply if the total income of a person including capital gains does not exceed the maximum amount not chargeable to tax.

Ques 6: Who all are required to file return of income under newly inserted SEVENTH proviso to Section 139(1)?

Ans: Seventh proviso to section 139 has been inserted with effect from 1st April 2020 to provide for furnishing of return by a person who is otherwise not required to furnish a return under section 139(1), if such person during the previous year—

i) has deposited an amount or aggregate of the amounts exceeding Rs.1 crore in one or more current account maintained with a banking company or a co-operative bank; or

 ii) has incurred expenditure of an amount or aggregate of the amounts exceeding Rs. 2 lakhs for himself or any other person for travel to a foreign country; or

 iii) has incurred expenditure of an amount or aggregate of the amounts exceeding Rs. 1 lakh towards consumption of electricity; or

 iv) fulfils such other conditions as may be prescribed.

Note: 1)  The limits stated in the conditions are for a previous year and hence, for every assessment year, it has to be examined whether the condition is fulfilled or not.

2) The aforesaid conditions are in alternative; hence a return of income will have to be filed even if any one of the aforesaid condition is fulfilled

Analysis of Condition – (i)

  • The proviso applies only if the deposit/deposits are made in a current account; it will not apply if such deposits are made in a savings account.
  • The deposit may be made in cash or by cheque or by any other electronic mode. It may even be made by transfer from another bank account, including a current account. (Since the intent of law makers is to ensure that persons who enter into certain high value transactions do furnish their return of income. Thus, considering only cash deposits will defeat the intent of law makers.)
  • The deposit has to be made in one or more current accounts ‘maintained with a banking company or a co-operative bank’. ‘A’ is often interpreted as ‘any’ and not ‘one’ [see CIT v. Khoobchand M. Makhija [2014] (Kar.); CIT v. D. Ananda Basappa [2009] (Kar.)]. In the context, it appears that the ‘a’ banking company may be read as any banking company and the aggregate of deposits in all current accounts should be reckoned to ascertain whether the limit of Rs. 1 crore is fulfilled or not.
  • It is the aggregate of all such deposits made by the person that is relevant during a previous year for the purpose of the condition.
  • On a literal reading, the deposit may be made in the current account maintained by the person or by any other person. To illustrate, if an individual directly deposits Rs. 1 crore in a current account maintained by another person “B”, the said deposit will be reckoned for the purpose of calculating the aggregate sum of Rs. 1 crore. However, it is to be noted that while clause (i) is silent as to who maintains the account with the bank, clause (ii) expressly refers to foreign travel expenses for himself or any other person. This suggests that clause (i) ought to be reasonably construed as an account being maintained by the assessee. Further it will be difficult to track the amount deposited by one person in another person’s account.

Analysis of Condition – (ii)

  • The expenditure may be incurred in Indian rupees (say, for purchase of tickets) or in foreign currency.
  • The expenditure may be incurred in cash or in cheque or by for-ex card or by any other electronic mode.
  • The person should have incurred expenditure of an amount or aggregate of amounts exceeding Rs. 2 lakh for himself or any other person. The word ‘or’ gives an impression that the condition would be fulfilled only if a person incurred expenditure exceeding Rs. 2 lakh for himself or any other person. In other words, if the individual spends say Rs. 1.75 lakh on himself or another Rs. 1.25 lakh on his wife, the condition will not be triggered. This appears to be unintended.
  • It is the person who incurs the expenditure needs to file his return of income and not the person on whose behalf the expenditure is incurred

Other points worth evaluation:

  • As per literal interpretation, the condition applies to non-residents also; hence, if a non-resident’s son meets the foreign travel expenses of his parents which exceed Rs. 2 lakh, he will have to file a return of income.
  • The condition applies only if expenditure for ‘travel’ to a foreign country exceeds Rs. 2 lakh.

The word ‘travel’ has been explained as: “go from one place to another, make a journey, especially of some length or abroad” [New India Assurance Co. Ltd. v. Annakutty AIR 1993 Ker. 299]

Thus, travel means a journey or going to a particular place. It could therefore be argued that the expense for travel to the foreign country means the ticket expenses and not the subsequent lodging, boarding, and sightseeing expenses. It may be noted that broader meaning had been given to the word in the context of erstwhile section 37(3) [see Beardsell Ltd. v. CIT [2000] (Mad.)]. The limitation in that section was on travelling expenses (including hotel expenses). A safer view is that the condition under section 139 covers all expenses.

  • Explanation 3 to this sub section read as follows:

For the purposes of this sub-section, the expression “travel to any foreign country” does not include travel to the neighboring countries or to such places of pilgrimage as the Board may specify in this behalf by notification in the Official Gazette.

NOTIFICATION NO. S.O. 508(E), DATED 11th June, 2001

Neighbouring countries includes Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka

NOTIFICATION NO. S.O. 508(E), DATED 11th June, 2001

Travel to Saudi Arabia on Haj pilgrimage and to China on pilgrimage to Kailash Mansarover

Now the issue is seventh proviso has been inserted by Finance Act (No.2) 2019, but the above explanation  3 is there from a way back from 2001 and so are the above notifications issued in June 2001. Thus whether the same shall be applicable to the newly inserted seventh proviso?

View-1: Giving relaxations should not be the intent of law. The words used in proviso is ‘travel to a foreign country’ and words used in explanation is ‘travel to any country’. Further these notifications were issued a way back when the proviso was not in existence, thus these notifications should read with this proviso.
View 2: The explanation 3 begins with the words ‘For the purpose of this sub section’, which implies it is applicable to all parts of Section 139(1), thus cannot deny it’s applicability to Seventh proviso. Further notifications have not been repealed. Has law makers intended to remove the same they could have done so by inserting another explanations (like they have done by inserting explanation 4 and 5 explaining banking company and cooperative banks resp.). Thus the explanation-3 is valid and benefit of notification has to be accorded to assessee.

Analysis of Condition – (iii)

  • The expenditure may be incurred by cash or cheque or by any other electronic mode
  • The consumption of electricity may be for residential purposes or business purposes.

Ques 7: What are the provisions related to Loss Return under section 139(3)?

Ans: Section 80 read with Section 139(3) provides that the loss under the section 72(1)[Business Loss], or section 73(2)[Speculation loss], or section 73A(2)[Specified Business u/s 35AD Loss] or section 74(1)&(3)[Captial Loss], or section 74A(3) [O/M Horse races Loss] cannot be carried forward if ROI is filed after the due date specified in section 139(1).

1) Loss under head “Income from house property” can be carried forward if ROI is furnished after the due date.

2) Losses can be setoff even if ROI is furnished after due date u/s 139(1).

3) Unabsorbed depreciation is governed by Sec 32 of Income tax Act, thus can be carried forward even if the ROI is furnished after due date and even if ROI has not been furnished.

Ques 8: What are the provisions related to Belated Return under section 139(4)?

Ans: If a person has not furnished the return of income within the time allowed under section 139(1), then he may furnish the return of income at any time before the end of the relevant Assessment Year or before the completion of assessment whichever is earlier.

Ques 9: What are the provisions related to Revised Return under section 139(5)?

Ans: If any person, having furnished a return under section 139(1) or section 139(4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

The revised return substitutes the original return from the date the original return was filed [Dhampur Sugar Mills Limited]

A loss return filed belatedly under section 139(4) can be revised under section 139(5), but loss is not allowed to be carried forward as original return was itself filed belatedly.

Ques 10: What are the provisions related to Defective Return under section 139(9)?

Ans: A return of income shall be regarded as defective return unless it is accompanied by the documents stated in the explanation to Section 139(9).

If the Assessing Officer considers that the return is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within fifteen days from the date of such intimation. He can extend this time period on an application made by the assesse. If the defect is not rectified within fifteen days or, the extended time, then, the return shall be treated as an invalid return and it shall be deemed as if the assessee has failed to furnish the return.

This material has been prepared by S S Bansal & Co. and contains general information only. This information is not intended to constitute professional advice or services or is to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. The information contained in this material is intended solely for you thereby, any disclosure, copy or further distribution of this material or the contents thereof may be unlawful and is strictly prohibited.

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Company: S S Bansal & Co.
Location: New Delhi, IN
Member Since: 08 Apr 2020 | Total Posts: 3
Experienced professional with a demonstrated history of working in the financial services industry on National and International projects. Presently associated as Partner in S S Bansal & Co. (Chartered Accountants). View Full Profile

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