Circular No. 559-Income Tax dated 4/5/1990

49

DIRECT TAX LAWS (AMENDMENT)
ACT, 1989

Section/Schedule	Particulars
	INCOME-TAX ACT
10(6c)	Exemption from income-tax to foreign companies providing technical know-how in connection with projects connected with security of India 4
10(15)(iid)	Exemption from income-tax in respect of interest on non-repatriable NRI Bonds purchased by non-resident Indians 5
32A/32AB/	Reintroduction of investment allowance as an option
155(4A)	to the existing investment deposit account scheme 6
80CC(3)	Amendment of section 80CC to extend the benefit to investment in new equity shares of approved hotels 7.2, 7.3
80HHD	Insertion of a new section 80HHD relating to deduction in respect of earnings of a hotel or tour operator or travel agent in convertible foreign exchange 7.4-7.7
115A (1), 196A	Tax concessions to foreign companies who receive income in respect of units, purchased in foreign currency, of a mutual fund set up by public sector banks, etc. 8
115J	Exclusion of export profits, profits of tourism related industry earned in convertible foreign exchange and income of companies engaged in generation or distribution of electric power from the purview of section 115J 9
44AC(1) (a),	Amendments of sections 44AC and 206C relating to
206C(1)/(5A)	levy and collection of presumptive tax in the case of trading in certain goods to remove hardships and to remove the lacuna 10.1 to 10.5
80C	Amendments of section 80C relating to deduction in respect of life insurance premia, contributions to provident fund, etc., to rationalise certain provisions of the section 10.6
80HHC	Amendments of section 80HHC to rationalise the provisions of the section and to remove certain anomalies 10.7
190 (1), 198,	Certain consequential amendments in various sec-
199, 200, 202,	tions of Chapter XVII relating to collection and
203, 203A, 205	recovery of tax 10.8
& 215 (5)
249(4)	Amendment of sub-section (4) of section 249 dealing with the payment of tax due on the returned income before filing an appeal 10.9
253	Consequential amendments to section 253 relating to appeals to the Appellate Tribunal 10.11
255(3)	Amendment of sub-section (3) of section 255 to enable a Single Member Bench of the Appellate Tribunal to hear appeals where assessed income is up to Rs. 1,00,000 10.12
269A/269B	Amendments of sections 269A and 269B of Chapter XXA relating to acquisition of immovable properties in certain cases of transfer, to remove an anomaly 10.13
279B	Insertion of a new section 279B to remove practical difficulties in production of original records and documents, etc., in evidence during prosecution proceedings 10.14
	WEALTH-TAX ACT
5 (1) (xvig)/	Amendments corresponding to the amendments made
26/36	in the Income-tax Act 11.1, 11.2
2(m)	Amendment of the definition of ýÿnet wealthýÿ in section 2(m) 12.1
5(1A)	Consequential amendment of sub-section (1A) of section 5 12.2
4, 5(4)	Amendments of the provisions of section 4 dealing with inclusion of certain assets in the net wealth 13.1-13.4
7, 16A	Substitution of new section for section 7 dealing with determination of the value of assets 14
18B	Amendments of the provisions relating to power of the Commissioner to reduce or waive penalty in certain cases 15
41, 42A	Application of the provisions relating to service of notice and publication of information in respect of assessees to companies 16
6, 11, 35	Amendments to remove anomalies relating from certain provisions of the Amending Act, 1987 of withdrawal thereof 17
Sch. III	Incorporation of rules for valuation of assets in the Wealth-tax Act – Insertion of Schedule III 18
	GIFT-TAX ACT
3, 5 (1)(iiie), 6,	Amendments corresponding to amendments in
10, 25(1), 34,	the Wealth-tax Act and the Income-tax Act 19, 20
35E
Sch.II	Insertion of Schedule II containing rules for determining the value of property gifted 21

2. Amendments to Income-tax Act

EXEMPTION FROM INCOME-TAX TO FOREIGN COMPANIES PROVIDING TECHNICAL KNOW-HOW IN CONNECTION WITH PROJECTS  CONNECTED WITH SECURITY OF INDIA

DIRECT TAX LAWS (AMENDMENT)

ACT, 1989

Insertion of a new clause (6C) in section 10

4.1 Foreign companies, which provide technical assistance in accordance with agreements entered into with the Government of India, are taxable in India in respect of fees for technical services received by them. The tax leviable is 30% of the gross fees for technical services received by them. Accordingly, foreign companies providing technical assistance in connection with defence projects were also liable to similar tax. It was felt that foreign companies hesitated to provide such technical assistance due to hassels of taxation procedure. Therefore, the Amending Act, 1989 has inserted a new clause (6C ) in section 10 to provide that income by way of fees for technical services received by a foreign company, which the Central Government may, by notification in the Official Gazette, specify in this behalf, shall not be included in the total income of such a company, where such income is received in pursuance of an agreement entered into with the Central Government for providing services in or outside India in projects connected with security of India.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

4.2 This amendment comes into force with effect from 1-4-1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years.

[Clause (a) of section 4 of the Amending Act, 1989]

 

EXEMPTION FROM INCOME-TAX IN RESPECT OF INTEREST
ON NON-REPATRIABLE NRI BONDS PURCHASED BY
NON-RESIDENT INDIANS

DIRECT TAX LAWS (AMENDMENT)

ACT, 1989

Insertion of a new sub-clause (iid) in clause (15) of section 10

5.1 A number of facilities, including fiscal concessions, have been extended to the non-resident Indians (NRIs) for facilitating investments by them in India. The Government launched on 14-11-1988 through the State Bank of India, a Scheme for non-repatriable NRI Bonds, 1988 to be purchased by the non-resident Indians in foreign exchange. The maturity period of these Bonds was 7 years and these carried an interest rate higher than that applicable to the repatriable foreign currency non-resident deposits. To encourage investments by NRIs in these Bonds, it was also decided that appropriate exemptions under the Income-tax, Wealth-tax and Gift-tax Acts should also be provided to these Bonds.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

5.2 The Amending Act, 1989 has, therefore, inserted a new sub-clause (iid) in clause (15) of section 10 of the Income-tax Act to provide that interest income arising to an individual, being a non-resident Indian, from such Bonds as are notified by the Central Government in the Official Gazette, shall not be included in the total income of such individual. However, to be entitled to this exemption and to have continuity thereof, the following conditions must be satisfied :—

  (i)  The bonds should be purchased by a non-resident Indian in foreign exchange.

 (ii)  The interest and principal received in respect of such bonds, whether on their maturity or otherwise, should not be allowed to be taken out of India.

(iii)  The bonds should not be encashed before their maturity. In case the bonds are encashed prior to the date of maturity, the exemption under the sub-clause shall cease to apply from the assessment year relevant to the previous year in which such bonds are encashed.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

5.3 It has, however, been provided that even if the non-resident Indian, having purchased such bonds in a previous year, becomes a resident in a subsequent year also be available to a nominee or survivor of the non-resident Indian (sic). Further, the benefit shall also be available to the donee individual, if the non-resident Indian gifts away the bonds to him.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

5.4 It has also been provided that for the purposes of this exemption the expression “non-resident Indian” shall have the meaning assigned to it in section 115C(e).

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

5.5 It may be mentioned that in exercise of the powers conferred by the said new sub-clause (iid), the Central Government notified the “NRI Bonds, 1988” issued by the State Bank of India for purposes of exemption under the said sub-clause vide  Notification  No. SO 847(E) dated 24-10-1989, issued under No. 8474/F. No.132/1/89-TPL.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

5.6 Corresponding exemptions under the Wealth-tax and the Gift-tax Acts are discussed in paras 11.2 and 20 of these explanatory notes.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

5.7 These amendments come into force with effect from 1-4-1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years.

[Clause (b) of section 4 of the Amending Act, 1989]

 

REINTRODUCTION OF INVESTMENT ALLOWANCE AS AN
OPTION TO THE EXISTING INVESTMENT DEPOSIT
ACCOUNT SCHEME

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendments to section 32A to revive investment allowance

6.1 It was decided in the year 1986 to discontinue the deduction for investment allowance and substitute it by the new provisions of investment deposit account, where the deduction was linked with the profit of the concern. Accordingly, under the provisions of sub-section (8) of the section, a Notification No. GSR 870(E) dated 12-6-1986 was issued, which discontinued the deduction for investment allowance in respect of a ship or aircraft acquired or any machinery or plant installed after 31-3-1987. The Finance Act, 1986 inserted, with effect from 1-4-1987 a new section 32AB in the Income-tax Act to allow deduction on account of investment deposit account (i.e., deposit in an account with the Development Bank) subject to a maximum of 20% of the profits of the eligible business or profession. This deduction is allowed in accordance with the Investment Deposit Scheme framed under the said section 32AB and is subject to the fulfilment of the conditions mentioned in that section.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

6.2 It was, however, felt that the withdrawal of investment allowance, with effect from 1-4-1987, created an adverse situation for entrepreneurs, who were not able to get the benefit of section 32AB for reasons of absence or inadequacy of profit in the year of investment. The Government, therefore, decided to reintroduce investment allowance in respect of new ship or aircraft acquired or new machinery or plant installed after 31-3-1988. The investment allowance could be claimed as an option to the deduction allowable under the investment deposit account scheme (section 32AB) and was to be allowed on the same lines as was being allowed earlier prior to its withdrawal, with the modification that the admissible deduction would be 20% of the cost of the new asset as against 25% allowed earlier. However, investment allowance in respect of any plant or machinery installed for the purposes of business or repairs to ocean-going vessels or other powered craft, which was earlier allowable under section 32A(2)(c), was not to be reintroduced.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

6.3 Since the investment allowance had been withdrawn earlier in respect of new ship or aircraft acquired or new machinery or plant installed after 31-3-1987 and it was being revived in respect of such assets acquired or installed after 31-3-1988, the result was that assessees would not have been eligible to claim investment allowance in respect of these assets acquired or installed during the period 1-4-1987 to 31-3-1988. It was felt that the short notice given for withdrawal of investment allowance, vide notification dated 12-6-1986, had caused hardship in cases where the assessees had taken steps to acquire such assets prior to the date of their notification (i.e., 12-6-1986), but were not able to obtain timely delivery of these assets from the foreign or Indian manufacturers or dealers for reasons beyond their control, so that these could be acquired or installed only after 31-3-1987. These assessees would have been denied the benefit of deduction for no fault of theirs. It was, therefore, decided to make provisions to allow investment allowance to such assessees also.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

6.4 In order to implement the decision for re-introduction of investment allowance, as indicated in paras 6.2 and 6.3 above, the Amending Act, 1989 has made the following amendments to section 32A :—

(I) A new sub-section (8B) has been substituted in the section to provide that, notwithstanding anything contained in sub-section (8) or Notification No. GSR 870(E) dated 12-6-1986 issued thereunder, the provisions of the section shall apply in respect of the following assets :—

(a) (i) A new ship or new aircraft acquired after 31-3-1987 but before 1-4-1988, if the assessee furnishes evidence to the satisfaction of the Assessing Officer that he had entered into a contract for the purchase of such ship or aircraft with the builder or manufacturer or owner thereof before 12-6-1986.

  (ii)   Any new machinery or plant installed after 31-3-1987 but before 1-4-1988, if the assessee furnished evidence to the satisfaction of the Assessing Officer that he had,—

 (1)  purchased such machinery or plant or had entered into a contract for purchasing such machinery or plant with the manufacturer or owner of or dealer in such machinery or plant before 12-6-1986, or

 (2)  where such machinery or plant has been manufactured in an undertaking owned by the assessee, taken steps, before 12-6-1986, for the manufacture of such machinery or plant.

In both the situations indicated at (i) and (ii) above, normally, the investment allowance would have been allowable in the assessment year 1988-89. However, to get over the problems which would have arisen by retrospective revival of investment allowance in respect of assessment year 1988-89, it has been specifically provided that in both these situations the investment allowance can be claimed in the assessment year 1989-90 only.

 (b)  A new ship or new aircraft acquired or any new machinery or plant installed after 31-3-1988 but before such date as the Central Government may specify in a notification in the Official Gazette.

(II) A proviso has been inserted in sub-section (1) of the section to provide that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), the deduction for investment allowance shall be allowed at 20 per cent of the actual cost thereof.

(III) Since there would be cases where a portion of the cost of the new asset may be financed by way of withdrawal from the deposits made with the Development Bank under the Investment Deposit Account Scheme, on which deduction under section 32AB has already been claimed by the assessee, it was necessary to provide that investment allowance would not be allowed again on such portion. An Explanation has, therefore, been inserted in sub-section (1) of the section to provide that for the purposes of the investment allowance, “actual cost” shall mean the actual cost of the ship, aircraft, machinery or plant to the assessee as reduced by that part of such cost which has been met out of the amount released to the assessee from the Development Bank in accordance with the provisions of section 32AB(6).

(IV) A proviso has been inserted in sub-section (2) of the section, which specifies the assets on which deduction for investment allowance is allowable, to clarify that the deduction shall not be allowed on a new ship or new aircraft acquired or any new machinery or plant installed after 31-3-1987 but before 1-4-1988 unless such assets are acquired/installed in the circumstances specified in clause (a) of sub-section (8B) of the section and the assessee furnishes evidence to the satisfaction of the Assessing Officer as specified in that clause.

(V) Sub-section (2C) of the section allows a special rate of investment allowance, being 35 per cent in respect of new machinery or plant which would assist in control of pollution or protection of environment and which is installed after 31-5-1983 in any industry specified in sub-section (2) of the section. This sub-section has been amended to provide that investment allowance at the enhanced rate of 35 per cent shall be allowed only in respect of such machinery or plant installed before 1-4-1987. Where such machinery or plant is installed on or after 1-4-1987, it will be entitled to investment allowance at the normal rate of 20 per cent under the amended provisions of sub-sections (1) and (8B) of the section.

(VI) A new sub-section (8C) has been substituted in the section to provide that where a deduction for investment allowance under section 32A has been allowed to the assessee for any assessment year (called as the initial assessment year), no deduction shall be allowed to him in respect of the investment deposit account scheme under section 32AB in the said initial assessment year and a block of further period of four years beginning with the assessment year immediately succeeding the initial assessment year. The intention is that the option, once exercised, cannot be changed for five assessment years.

(VII) Amendments of consequential nature have been made in sub-sections (4) and (5) of the section pursuant to the insertion of a proviso in sub-section (1) of the section, as discussed at Serial No. (II) above.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendment of section 32AB relating to deduction under the investment deposit account scheme

6.5 The old provisions of sub-section (10) of section 32AB provided that no deduction shall be allowed under this section in the case of an assessee who had claimed deduction allowable under section 33AB in respect of the tea development account. Since the Finance Act, 1987 had amended section 33AV to provide that deduction under that section would be allowable only for the assessment years 1986-87 and 1987-88, the said provisions of sub-section (10) of section 32AB were no longer necessary and were to be deleted.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

6.6 Further, since the Amending Act, 1989 has amended section 32A to re-introduce investment allowance, as discussed in the preceding paras, and has substituted a new sub-section (8C) in that section to provide that deduction for investment allowance will be an option to the deduction for investment deposit account scheme under section 32AB and the option, once exercised, would be valid for five assessment years, it was necessary that a corresponding provision should be made in section 32AB also. Therefore, the old sub-section (10) has been substituted by a new sub-section, which now contains provisions similar to those of sub-section (8C) of section 32A. The new sub-section (10) provides that where a deduction under the investment deposit account scheme under section 32AB has been allowed to the assessee for any assessment year (called as the initial assessment year), no deduction shall be allowed to him in respect of investment allowance under section 32A in the said initial assessment year and a block of further period of four years beginning with the assessment year immediately succeeding the initial assessment year.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Combined effect of the provisions of section 32A(8C) and section 32AB(10)

6.7 Since the investment allowance (section 32A) has been re-introduced as an alternative to the investment deposit account scheme (section 32AB) the combined effect of the provisions of sub-section (8C) of section 32A and sub-section (10) of section 32AB is that if the assessee exercises option to claim either of them in an assessment year (called as the initial assessment year), he will have to stick to that allowance for the said initial assessment year and a block of four subsequent assessment years. Thus, once the assessee avails of the claim under section 32A in the assessment year 1989-90 (which will become the initial assessment year for claim under section 32A), he will have to continue claiming the same allowance in the block of next four assessment years, i.e., assessment years 1990-91 to 1993-94. During these five assessment years (i.e., assessment years 1989-90 to 1993-94) he cannot claim deduction under section 32AB, for which he can opt only in the assessment year 1994-95. If the assessee opts for the deduction under section 32AB in the assessment year 1994-95, that will become the initial assessment year for claim under section 32AB and then the assessee would have to stick to this claim in the block of next four years (i.e., assessment years 1995-96 to 1998-99). During these five assessment years (i.e., assessment years 1994-95 to 1998-99) he cannot claim deduction under section 32A, for which he can opt again only in the assessment year 1999-2000 and so on.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

6.8 It may be clarified that the period of five assessment years (including the initial assessment year) during which the assessee is debarred from switching over to the other option is counted from the initial assessment year only and not from any assessment year comprised in the block of four assessment years immediately succeeding the initial assessment year. Thus, in the example given in the preceding para the assessee can switch over to deduction under section 32AB in the assessment year 1994-95 (counting the block for claim under section 32A from the initial assessment year 1989-90) notwithstanding that the assessee had claimed deduction under section 32A up to assessment year 1993-94. In case of an option for claiming deduction under section 32A is exercised by the assessee for the first time during the assessment year 1990-91, that will become the initial assessment year for claim under section 32A and in that case the assessee would be able to switch over to the claim under section 32AB from the assessment year 1995-96, notwithstanding that the assessee had claimed under section 32A up to the assessment year 1994-95.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

The first initial assessment year for the purposes of exercising the option between sections 32A and 32AB

6.9 Doubts have been raised as to which will be the first initial assessment year for the purposes of exercising the option between the investment allowance (section 32A) and investment deposit account scheme (section 32AB) and in view of the fact that section 32AB has been in force since the assessment year 1987-88, whether an assessee, who had claimed deduction under section 32AB during the assessment year 1987-88 or assessment year 1988-89, could exercise an option to claim deduction under section 32A in the assessment year 1989-90. In this connection, it may be clarified that since investment allowance (section 32A) has been reintroduced with effect from the assessment year 1989-90 and an option between section 32A and section 32AB has been made available for the first time from the assessment year 1989-90 only, the assessment year 1989-90 shall be the first initial assessment year for the purposes of exercising the option between the two sections. Thus an assessee, who had claimed deduction under section 32AB during the assessment year 1987-88 or assessment year 1988-89, can exercise the option for claiming deduction either under section 32A or under section 32AB in the assessment year 1989-90. Where any such option is exercised in the assessment year 1989-90, that will be the initial assessment year for the claim for which option is exercised.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Consequential amendment of section 155(4A)(b)

6.10 The Amending Act, 1989 has also made an amendment of consequential nature in clause (b) of sub-section (4A) of section 155 pursuant to the insertion of a proviso in sub-section (1) of section 32A, as discussed at Sl. No. (II) in para 6.4 ante.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

6.11 These amendments come into force with effect from 1-4-1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years.

[Sections 6, 7 and 25 of the Amending Act, 1989]

 

TAX CONCESSIONS TO ENCOURAGE TOURISM FOR AUGMENTING FOREIGN EXCHANGE RESOURCES

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

7.1 The Amending Act, 1989 has made available the following tax concessions for encouragement of foreign tourism:-—

  (i)  Section 80CC has been amended to provide that investment in the new equity shares of approved hotels that form part of eligible issue of capital will also be entitled to deduction under the section.

 (ii)  A new section 80HHD has been inserted, which allows 100 per cent deduction, subject to fulfilment of certain conditions, in respect of the profits of hotels, tour operators and travel agents, which have been earned in convertible foreign exchange.

(iii)  Corporate taxpayers, who get 100 per cent deduction in respect of their profits under the new section 80HHD, have been excluded from the purview of section 115J (for amendment of section 115J, refer paras 9.2 & 9.3 of these Explanatory Notes).

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendment of section 80CC to extend the benefit to investment in new equity shares of approved hotels

7.2 Section 80CC provides for grant of a tax concession to individuals, Hindu undivided families, associations of persons, bodies of individuals, etc., who acquire out of their income chargeable to tax, new equity shares forming part of an “eligible issue of capital”. Such taxpayers are entitled to a deduction out of their Gross Total Income, of an amount equal to 50 per cent of the cost of such shares. The maximum amount of investment qualifying for deduction in a year is limited to Rs. 20,000.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

7.3 Meaning of the expression ‘eligible issue of capital’ is explained in sub-section (3) of the section. Clause (a) of the said sub-section (3) enumerates the types of business that a public limited company may carry on in order that the investment in its new equity shares may be entitled to deduction under this section. The Amending Act, 1989 has amended the said clause (a) of sub-section (3) of the section to include hotels approved by the prescribed authority therein. Thus, the benefit of section 80CC is extended to the investment in the new equity shares of approved hotels that form part of eligible issue of capital.

 DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Insertion of a new section 80HHD relating to deduction in respect of earnings of a hotel or tour operator or travel agent in convertible foreign exchange

7.4 Provisions of section 80HHD are briefly explained below:—

  (i)  Sub-section (1) of the section provides that in computing the total income of an assessee, being an Indian company or a person (other than a company) resident in India, who is engaged in the business of a hotel, or of a tour operator, approved by the prescribed authority in this behalf or of a travel agent, deduction shall be allowed, subject to the provisions of this section, of a sum equal to the aggregate of—

 (a)  50 per cent of the profits derived by him from services provided to foreign tourists; and

 (b)  so much of the amount out of the balance profits as is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee for the purposes of his business in the manner laid down in sub-section (4).

        Thus 100 per cent of the profits derived by such hotels, tour operators and travel agents from services rendered to foreign tourists can be allowed as a deduction. However, only 50 per cent of such profits is allowed as a deduction straightaway, while profits up to the balance 50 per cent is allowed only to the extent it is credited to a reserve account and subsequently utilised for making certain specified investments for the business of the assessee.

 (ii)  The term ‘travel agent’ has been defined in clause (a) of the Explanation at the end of the section to mean a travel agent or other person (not being an airline or a shipping company) who holds a valid licence granted by the Reserve Bank of India under section 32 of the Foreign Exchange Regulation Act, 1973.

        Thus only those hotels and tour operators, which are approved by the prescribed authority in this behalf, and travel agents who hold the abovementioned licence granted by the Reserve Bank of India, shall be entitled to claim deduction under this section.

        Clause (c ) of the Explanation also clarifies that ‘services provided to foreign tourists’ shall not include services by way of sale in any shop owned or managed by the person who carries on the business of a hotel or a tour operator or a travel agent. It may further be clarified that the intention is to exclude only the sale of any goods or merchandise in any such shop from the benefit of exemption under the section. Therefore, services provided at health clubs, beauty parlours, barber’s shops, etc., owned or managed by persons who are entitled to deduction under the section will be included in the term ‘services provided to foreign tourists’ and will be entitled to deduction under this section. However, if such health clubs, beauty parlours, etc., also sell any goods or merchandise to the foreign tourists, such sale cannot be included in the term ‘services provided to foreign tourists’ and, therefore, shall not be entitled to the benefit of deduction under the section.

(iii)  Sub-section (2) of the section lays down the important condition for claiming deduction under this section, namely, that the assessee should receive the receipts in relation to services provided to foreign tourists in convertible foreign exchange. Clause (b) of the Explanation at the end of the section defines ‘convertible foreign exchange’ to have the same meaning as in clause (a) of the Explanation to section 80HHC.

        It may be clarified that the deduction under this section is available only to the first recipient of the convertible foreign exchange -whether it is the hotel or the travel agent or the tour operator. There is no provision in section 80HHD for apportioning the benefit between the travel agents, hotels, tour operators, etc.

 (iv)  Sub-section (3) lays down that for the purposes of claiming deduction under this section profits derived from services provided to foreign tourists shall be determined as follows :

 (a)  Where assessee’s business consists exclusively of services provided to foreign tourists resulting in receipt in convertible foreign exchange, the entire profits of the business as computed under the head ‘Profits and gains of business or profession’ shall be treated as such profits.

 (b)  Where assessee’s business does not consist exclusively of services provided to foreign tourists resulting in receipts in convertible foreign exchange, only the proportionate profits computed under the head ‘Profits and gains of business or profession’ shall be entitled to the deduction. The proportion shall be the same as the receipts in convertible foreign exchange bear to the total receipts of assessee’s business.

  (v)  Sub-section (4) lays down the manner in which the amount credited to the reserve account, referred to in sub-section (1), is to be utilised. It is laid down that the said amount shall be utilised by the assessee, before the expiry of a period of five years from the year in which the amount was credited to the reserve account, for the following purposes:—

  (i)  construction of new hotels approved by the prescribed authority in this behalf or expansion of facilities in existing hotels already so approved;

 (ii)  purchase of new cars and new coaches by tour operators already so approved or by travel agents;

(iii)  purchase of sports equipment, for mountaineering, trekking, golf, river-rafting and other sports in or on water;

 (iv)  construction of conference or convention centres;

  (v)  provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification in the Official Gazette, specify in this behalf.

        A proviso to the sub-section provides that where any of the aforesaid activities would result in creation of any asset owned by the assessee outside India, such asset should be created only after obtaining prior approval of the prescribed authority.

 (vi)  Sub-section (5) provides for the consequences of not utilising the amount credited to the reserve account in the manner laid down in sub-section (4), as explained above. The said sub-section (5) provides as follows:—

 (a)  Where any amount credited to the reserve account has been utilised by the assessee for any purpose other than those referred to in sub-section (4), the amount so utilised shall be deemed to be the profits in the year of utilisation and shall be taxed accordingly.

 (b)  Where any amount credited to the reserve account has not been utilised in the manner specified in sub-section (4), the amount not so utilised shall be deemed to be the profits in the year immediately following the period of five years specified in sub-section (4) and shall be taxed accordingly.

(vii) Sub-section (6) provides that deduction under this section shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of a chartered accountant certifying that the deduction has been correctly claimed on the basis of the amount of convertible foreign exchange received by the assessee for services provided by him to foreign tourists.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

“Prescribed form” for the purposes of sub-section (6) of section 80HHD

7.5 The ‘prescribed form’ for the purpose of sub-section (6) of section 80HHD, in which the report of the chartered accountant is required to be  furnished by the assessee, shall be in Form 10CCAD [Refer new sub-rule (4) inserted in rule 18BBA by the Income-tax (Fifth Amendment) Rules, 1989 issued under Notification No. SO 362(E) dated 18-5-1989].

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

‘Prescribed authority’ for the purpose of section 80HHD

7.6 The ‘prescribed authority’ for the purposes of section 80HHD shall be the Director General in the Directorate General of Tourism, Government of India [Refer new sub-rule (5) inserted in rule 18BBA by the Income-tax (Eleventh Amendment) Rules, 1989 issued under Notification No. SO 975(E), dated 30-11-1989].

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

7.7 These amendments come into force with effect from 1-4-1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years.

[Sections 14 and 16 of the Amending Act, 1989]

 

TAX CONCESSIONS TO FOREIGN COMPANIES WHO RECEIVE
INCOME IN RESPECT OF UNITS, PURCHASED IN FOREIGN
CURRENCY, OF A MUTUAL FUND SET UP BY
PUBLIC SECTOR BANKS, ETC.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendments of section 115A, which prescribes special rates of tax on certain incomes of foreign companies

8.1 Under the old provisions of section 115A of the Income-tax Act, the following special rates of tax were prescribed in respect of certain income of foreign companies:—

  (i)  On interest received from Government or an Indian concern on monies borrowed in foreign currency and on dividends – 25 per cent

 (ii)  On royalties or fees for technical services received from Government or an Indian concern in pursuance of an agreement approved by the Central Government 30 per cent

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

8.2 As a measure to attract foreign investments in India, the State Bank of India decided to set up a fund, the India Fund Inc., which was registered as a company in U.S.A. This company was to invite subscriptions from global investors by issue of its shares. The resources so mobilised were to be invested in the units of the Mutual Fund floated by the State Bank of India through the SBI Capital Market Limited which are to be purchased in foreign currency. The income received by the India Fund Inc., in respect of units of such Mutual Fund is neither in the nature of dividend income nor in the nature of interest income and, therefore, could not have been taxed at the concessional rate of 25 per cent provided in section 115A. It would rather have been taxed at the rate of 65 per cent, the general rate provided for companies other than a domestic company in the Annual Finance Act. This would have discouraged foreign investors from investing in the India Fund Inc. This would have also discouraged other foreign companies from investing in various other Mutual Funds which may be set up by public sector banks or public financial institutions of similar nature. It was further noticed that under the provisions of section 32(3) of the UTI Act, 1963, the income received by foreign companies from UTI is taxable at a concessional rate of 25 per cent.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

8.3 Therefore, in order to secure that Mutual Funds set up by the State Bank of India or other similar Mutual Funds may attract foreign investors and to maintain parity with the concessional rate of tax available to foreign companies on their income from units of the Unit Trust of India, the Amending Act, 1989 has amended section 115A of the Income-tax Act to provide that the foreign companies shall be liable to tax at the special rate of 25 per cent also on their income received in respect of units, purchased in foreign currency, of a Mutual Fund specified in section 10(23D), i.e., a Mutual Fund set up by a public sector bank or a public financial institution.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

8.4 The Amending Act, 1989 has further omitted the definition of “foreign company” contained in section 115A, as the same is now provided in section 2(23A) of the Income-tax Act.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendment of section 196A to provide for deduction of tax at source at the rate of 25 per cent from any income payable to a foreign company in respect of units of a Mutual Fund

8.5 Under the old provisions of section 196A, as inserted by the Amending Act, 1987, with effect from 1-4-1988, no tax was to be deducted at source from any sums payable to the unit holders of a Mutual Fund specified under section 10(23D). Thus, even foreign companies, which do not enjoy exemption under section 80L in respect of the income from the units of such Mutual Fund and which are straightaway taxable at the rate of 25 per cent under the amended provisions of section 115A, were excluded from the provisions of tax deduction at source. This made the realisation of tax in respect of such income of the foreign companies difficult. The Amending Act, 1989 has, therefore, substituted a new section 196A in the Income-tax Act to provide that tax shall not be deducted at source from any income payable in respect of units of a Mutual Fund, specified under section 10(23D), to its unit holders, being persons other than foreign companies. It is further provided that in the case of a  foreign company the rate of deduction of tax at source from income received by it in respect of units of a Mutual Fund specified under section 10(23D) shall be 25 per cent.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

8.6 The amendments of section 115A come into force with effect from 1-4-1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years. The amendment of section 196A comes into force on 15-3-1989, i.e., on the date of President’s assent to the Amending Act, 1989.

[Sections 18 and 32 of the Amending Act, 1989]

 

 EXCLUSION OF EXPORT PROFITS, PROFITS OF TOURISM RELATED INDUSTRY EARNED IN CONVERTIBLE FOREIGN EXCHANGE
AND INCOME OF COMPANIES ENGAGED IN GENERATION
OR DISTRIBUTION OF ELECTRIC POWER FROM
THE PURVIEW OF SECTION 115J

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

9.1 Section 80HHC of the Income-tax Act provides for a 100 per cent deduction in respect of export profits earned by the exporters or supporting manufacturers. Section 80HHD provides for a 100 per cent deduction in respect of profits of hotels, tour operators or travel agents derived from services provided to foreign tourists, the receipts in relation to which are received in convertible foreign exchange. Thus, these sections seek to encourage exports and tourism related industry for augmenting the foreign exchange resources of the country by providing 100 per cent tax deduction in respect of profits from such activities. However, section 115J of the Income-tax Act levies a minimum tax on “book profits” of a company. Under the old provisions of section 115J, it was provided that where the total income of the company in respect of any previous year, computed under this Act, was less than 30 per cent of its “book profits”, the total income chargeable to tax for that previous year shall be taken as 30 per cent of such “book profits”. Thus, 100 per cent exemption allowed to exporters and tourism related industry under the provisions of sections 80HHC and 80HHD was restricted by the provisions of section 115J, under which they would have been obliged to pay tax at least on 30 per cent of their profits, which were otherwise fully exempt under sections 80HHC and 80HHD.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

9.2 It was pointed out that the provisions of section 115J took away the 100 per cent exemption which was to be allowed in respect of export profits earned by the exporters and tourism related industry and thus watered down the encouragement which was to be provided to such foreign exchange earning activities. Since the intention was that 100 per cent of such profit should be exempt, it was decided that the profits, which are exempt under sections 80HHC and 80HHD, should be excluded from the purview of section 115J. It was also decided that section 115J should not apply to companies engaged in the business of generation or distribution of electricity.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendments of section 115J

9.3 To achieve the objectives outlined in para 9.2 above, the Amending Act, 1989 has carried out the following amendments in section 115J:—

  (i)  Sub-section (1) of the section has been amended to provide that the provisions of the sub-section relating to the taxability of 30 per cent of the “book profits” of companies shall not apply in the case of a company engaged in the business of generation or distribution of electricity.

 (ii)  An Explanation in the section provides for the manner of computation of “book profits” for the purposes of the section. The Amending Act, 1989 has carried out the following amendments in the said Explanation:—

 (a)  A new clause (iii) has been inserted in the Explanation to provide that for the purposes of computation of “book profits”, the net profit shall be reduced by the amount of net profits derived from the business of exports or from services provided to foreign tourists by approved hotels and tour operators or by travel agents, which are eligible for deduction under sections 80HHC and 80HHD. For this purpose the net profit to be excluded shall be computed in the same manner as provided for in sub-sections (3) and (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be.

        Thus the profits exempt under sections 80HHC and 80HHD have been excluded from the purview of section 115J.

 (b)  Two new clauses (g) and ( h) have been inserted in the Explanation to provide that for the purposes of computation of “book profits”, the net profit shall be increased by,—

 (1)  any amount withdrawn from the reserve account under section 80HHD that has been utilised for any purpose other than those referred to in sub-section (4) of that section, or

 (2)  any amount credited to the reserve account under section 80HHD to the extent that amount has not been utilised within the period specified in sub-section (4) of that section, if the said amounts have not been credited to the profit and loss account.

  (c)  Certain other consequential amendments have also been made in the said Explanation.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

9.4 These amendments come into force with effect from 1-4-1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years.

[Section 19 of the Amending Act, 1989]

 

RATIONALISATION OF THE PROVISIONS OF CERTAIN SECTIONS
OF THE INCOME-TAX ACT TO REMOVE ANOMALIES OR
HARDSHIPS OR PRACTICAL DIFFICULTIES

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendments of sections 44AC and 206C relating to levy and collection of presumptive tax in the case of trading in certain goods to remove hardships and to remove the lacuna

10.1 Section 44AC was inserted in the Income-tax Act by the Finance Act, 1988, with effect from 1-4-1989. The purpose was to counteract tax evasion by liquor contractors and dealers in forest produce by providing presumptive rates of profits in the case of trading in these items, where such items are obtained by way of auction, tender or any other mode. The presumptive rates prescribed in the section are:

Sl. No.	Nature of goods	Rate of profit
1	Alcoholic liquor for human consumption (other than foreign liquor)	40% of the purchase price.
2	Timber obtained under a forest lease	35% of the purchase price.
3	Timber obtained by any mode other than under a forest lease	15% of the purchase price.
4.	Any other forest produce, not being timber	35% of the purchase price.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.2 It was, however, pointed out that in some of the States the contracts for sale of liquor are not given by auction or any similar mode, but licences to sell the liquor are issued to the contractors by the State Government more or less on a permanent basis. The licences are renewable every year automatically on payment of the prescribed fees. Both the purchase and sale prices are regulated by the State Government. Thus indirectly the entire profit in such cases is regulated by the State laws and this leaves little scope of manipulation of tax evasion. It was, therefore, pointed out that the application of the rate of presumptive profits operated very harshly in such cases. To remove this hardship, the Amending Act, 1989 has amended section 44AC to provide that the provision for the application of rate of presumptive profit would not apply in a case where the liquor is not obtained by the buyer by way of auction and where the sale price of such liquor to be sold by the buyer is fixed by or under any State Act.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.3 Simultaneously with the insertion of section 44AC, another section 206C was also inserted in the Income-tax Act by the Finance Act, 1988, with effect from 1-6-1988, which provided for collection of tax by the seller of the goods, referred to in section 44AC at a fixed percentage of the purchase price of such goods. The rates of tax were provided in this section in respect of all the four items mentioned in section 44AC. In the case of timber obtained by any mode other than under a forest lease, the rate of tax prescribed in the section was 10 per cent of the purchase price.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.4 It was pointed out that the said rate of tax of 10 per cent of purchase price prescribed in the case of timber obtained by any mode other than under a forest lease was too high and caused hardships in such cases. To avoid this hardship, the Amending Act, 1989, has amended section 206C to reduce the rate of collection of tax in such cases from 10 per cent to 5 per cent. This amendment has been made retrospectively with effect from 1-6-1988.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.5 The provisions of section 206C relating to collection of tax at source are analogous to the provisions for deduction of tax at source in respect of certain incomes, which are contained in sections 192 to 195. Section 206 provides for furnishing of returns of tax deducted at source by the persons responsible to deduct such tax to the prescribed income-tax authorities. However, there was no provision in section 206C corresponding to section 206 requiring the persons collecting tax at source to furnish returns of such tax collected at source to the income-tax authorities. To remove this lacuna, the Amending Act, 1989 has inserted a new sub-section (5A) in section 206C to provide that every person collecting tax in accordance with the provisions of this section shall prepare half-yearly returns for the periods ending 30th September and 31st March in each financial year and deliver to the prescribed income-tax authority such returns in such form and verified in such manner and setting forth such particulars and within such time, as may be prescribed.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendments of section 80C relating to deduction in respect of life insurance premia, contributions to provident fund, etc., to rationalise certain provisions of the section

10.6 Section 80C of the Income-tax Act provides for deductions to be made in computing the total income of an assessee in respect of payments made by him towards life insurance premia, contributions to provident fund, etc. The Amending Act, 1989 has made amendments to certain provisions of the section to rationalise the same. These amendments are discussed below:

  (i)   Amendment of section 80C(2)(d) – Under the old provisions of clause (d) of sub-section (2) of the section, an employee participating in a recognised provident fund was allowed deduction under the section on his contributions to the provident fund subject to the limit of 1/5th of his salary or Rs. 10,000, whichever was less. The monetary ceiling of Rs. 10,000 was not very necessary and had also lost its relevance in view of the increased salary now being paid to the Government as well as non-Government employees. The said clause (d) has, therefore, been amended to remove this monetary ceiling of Rs. 10,000 therefrom. Thus the qualifying amount for deduction under the section for contributions by an employee to the recognised provident fund will now be subject to only one limit that is 1/5th of his salary.

 (ii)   Insertion of the definition of the term “contribution”– Some appellate courts had been taking the view that even repayment of loans taken by employees from their provident funds would amount to “contributions” by them to such funds and would be entitled to deduction under this section. This was never the intention of the Government, as this amounts to allowing the deduction twice for the same contribution. To make the position clear and beyond doubt, a new clause (d) has been inserted in sub-section (8) of the section to provide that the term “contribution” to any fund shall not include any sums in repayment of loan.

(iii)   Amendment of section 80C( 2)(h)(ii)(c)(6) – Under the old provisions of sub-item ( 6) of item (c) of sub-clause (ii) of clause ( h) of sub-section (2) of the section, deduction under the section was allowed in respect of repayment of loans taken by the assessee for construction of his house property from his employer, where such employer was a public company. It was pointed out that the benefit should also be extended to the employees of a public sector company or a university or a college affiliated to such university or a local authority. Necessary amendment has, therefore, been carried out in the said sub-item (6) to extend the benefit to the employees of the aforesaid entities also.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendments of section 80HHC to rationalise the provisions of the section and to remove certain anomalies

10.7 Section 80HHC of the Income-tax Act, after its amendment by the Finance Act, 1988, provides for 100 per cent deduction in respect of the export profits. The Amending Act, 1989, has made certain amendments to this section, which are discussed below:—

  (i)  Under the old provisions of sub-section (1) of the section, where the assessee was engaged in the business of export of any goods or merchandise, he was allowed, in computing his total income, a deduction of the “whole of the income” derived by the assessee from such exports. Similarly, in sub-section (1A), which allows deduction in the case of supporting manufacturers, and sub-section (4A), which requires the supporting manufacturer to furnish, with his return of income, the report of a chartered accountant certifying that the deduction has been correctly claimed, the deduction was to be computed and allowed on the basis of “income” of the supporting manufacturer derived on the sale of goods or merchandise to the Export House or the Trading House.

        The wordings of sub-sections (1), (1A) and (4A), according to which deduction was computed on the basis of “income” from the export activity, created confusion, as under the Income-tax Act as well as in accountancy principal income from business or profession is normally referred to as “‘profits”. Even sub-sections (3) and (3A) of section 80HHC itself provides for determination of export “profits” of the exporter or the supporting manufacturer and not export “income” for the purposes of deduction under the section. Therefore, to rationalise the provisions of section 80HHC and to remove the confusion, the words “whole of the income” used in sub-sections (1) and (1A) and the word “income” used in sub-section (4A) of the sections have been substituted by the word “profits” in each case.

 (ii)  Sub-section (4) of the section provides that in order to claim deduction under the section an exporter should furnish, along with the return of income, the report of a chartered accountant in the prescribed form. Under the old provisions of the said sub-section (4), the chartered accountant was to certify that the deduction had been correctly claimed on the basis of the amount of “net foreign exchange realisation as determined in accordance with the Import and Export Policy of the Government of India for the relevant period”. However, “net foreign exchange realisation” was no longer relevant for computing the deduction allowable under the section, because the Finance Act, 1988 had amended the section to allow 100 per cent deduction on the basis of export turnover. Therefore, to remove this anomaly, sub-section (4) has now been amended so that the chartered accountant is now required to certify in his report that the deduction has been correctly claimed on the basis of the amount of “export turnover”.

(iii)  The definition of the term “net foreign exchange realisation”, earlier given in clause (c) of the Explanation   to the section, being no longer necessary, has been omitted.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Certain consequential amendments in various sections of Chapter XVII relating to collection and recovery of tax

10.8 (i) Section 190 provides that even if a regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment in accordance with the provisions of Chapter XVII. The Finance Act, 1988 had inserted a new Sub-Chapter BB and a new section 206C in Chapter XVII to provide for collection of tax at source in cases where presumptive rates of profits were provided for in section 44AC. Consequently it was necessary that a reference to tax payable by collection at source should also have been made in section 190. The Amending Act, 1989 has, therefore, amended section 190 to include reference to tax payable by “collection at source” also in that section. The amendment has been made retrospectively, with effect from 1-6-1988.

(ii)  Pursuant to the substitution of section 196A by a new section, which provides for deduction of tax at source in the case of foreign companies in respect of their income from units of a Mutual Fund (refer para 8.5 ante), the Amending Act, 1989 has carried out consequential amendments in sections 198, 199, 200, 202, 203, 203A (1), 205 and 215(5) to include reference to section 196A in each of these sections.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendment of sub-section (4) of section 249 dealing with the payment of tax due on the returned income before filing an appeal

10.9 Sub-section (4) of section 249 of the Income-tax Act provides that no appeal shall be admitted unless, at the time of filing the appeal, the assessee has,—

 (a)  where a return has been filed by him, paid the tax due on the income returned by him, or

 (b)  where no return has been filed by him, paid an amount equal to the amount of advance tax which was payable by him.

Under the old provisions of a proviso to the said sub-section (4), discretion was allowed to the first appellate authority, i.e., any Deputy Commissioner (Appeals) or the Commissioner (Appeals) to waive the above requirement for good and sufficient reasons.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.10 In a case where the assessee has filed a return of income, there is no reason as to why he should not have paid the tax due on the basis of income declared in the return. This is all the more necessary now under the new procedure of assessment, which has become effective from 1-4-1989, according to which the assessee must pay at the time of filing the return, not only the tax due on the basis of the returned income, but also the interest due, if any, for late filing of the return and for defaults in the payment of advance tax. In view of this, there is no justification for the said proviso to sub-section (4), at least to the extent it allows discretion to the first appellate authority to admit an appeal even where tax on the basis of the returned income has not been paid. The Amending Act, 1989 has, therefore, amended the said proviso to limit the discretion of the first appellate authorities to admit an appeal only in cases falling in clause (b) of sub-section (4), i.e., where no return has been filed by the assessee and the assessee has not paid an amount equal to the amount of advance tax payable by him. It, therefore, follows that where an assessee has filed a return of income, his appeal will now be admitted by the first appellate authority only if he has paid the tax due on the returned income.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Consequential amendments to section 253 relating to appeals to the Appellate Tribunal

10.11 The Amending Act 1989 has made the following consequential amendments in the provisions of section 253 dealing with appeals to the Appellate Tribunal :—

  (i)  The provisions regarding filing of an appeal against a penalty order under sub-section (2) of section 131 have been omitted, as the said sub-section (2) of section 131 had already been omitted by the Amending Act, 1987.

 (ii)  The provisions regarding filing of an appeal against a penalty order under section 272A passed by the Commissioner have been amended so that now an appeal can also be filed before the Appellate Tribunal against a penalty order under section 272A passed by the Chief Commissioner, Director General or Director. This is pursuant to the amendment of section 272A by the Amending Act, 1987, whereby penalties under that section can also be levied by the Chief Commissioner, Director General or Director.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendment of sub-section (3) of section 255 to enable a Single Member Bench of the Appellate Tribunal to hear appeals where assessed income is up to Rs. 1,00,000

10.12 Under the old provisions of sub-section (3) of section 255 of the Income-tax Act, a Single Member Bench of the Appellate Tribunal could hear appeals arising from orders of assessment in which the total income computed by the Assessing Officer did not exceed Rs. 40,000. This monetary limit had been raised from Rs. 25,000 to Rs. 40,000 by the Taxation Laws (Amendment) Act, 1970, with effect from 1-4-1971, and had stayed as such since then. On account of continued inflation, this limit of Rs. 40,000 had become very low and had lost its relevance, especially in view of the fact that the basic exemption limit had been raised from Rs. 5,000 in the year 1971 to Rs. 18,000 at present. It had, therefore, become necessary to suitably raise this monetary limit of Rs. 40,000. The Amending Act, 1989 has, therefore, amended the said sub-section (3) of section 255 to raise the monetary limit of Rs. 40,000 mentioned therein to Rs. 1,00,000. Thus, a Single Member Bench of the Appellate Tribunal can now hear appeals arising from orders of assessment where the assessed income is up to Rs. 1,00,000.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Amendments of sections 269A and 269B of Chapter XXA relating to acquisition of immovable properties in certain cases of transfer, to remove an anomaly

10.13 Under the old provisions of clause (b) of section 269(a) and clause ( a) of sub-section (1) of section 269B of Chapter XXA of the Income-tax Act relating to acquisition of immovable properties in certain cases of transfer to counteract evasion of tax, an “Assistant Commissioner of Income-tax” was referred to as a competent authority for the purposes of performing the functions under the Chapter. This referred to the “Assistant Commissioner of Income-tax”, before changes in the designations of income-tax authorities were made by the Amending Act, 1987. However, as a result of changes in the designations made by the Amending Act, 1987, with effect from 1-4-1988, the term “Assistant Commissioner” now means an “Income-tax Officer Group A”. Since it was always intended that an officer of the rank of a “Deputy Commissioner” (which was earlier called as “Assistant Commissioner”) should perform functions of a competent authority under Chapter XXA, the Amending Act, 1989 has amended both the sections 269A and 269B to substitute the authority “Assistant Commissioner of Income-tax” mentioned in these sections by the authority “‘Deputy Commissioner”. These amendments have been made retrospectively, with effect from 1-4-1988. Thus the anomaly in these two sections has been removed from the date the new designations of income-tax authorities have come into effect.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

Insertion of a new section 279B to remove practical difficulties in production of original records and documents, etc., in evidence during prosecution proceedings

10.14 During prosecution proceedings for offences under the Income-tax Act, the Department has to produce a number of original records, documents, seized books of account, etc., before the Courts for establishing the case. Before insertion of section 279B by the Amending Act, 1989, the officers of the Department had to carry all such records to the Court every time a hearing was fixed in the Court. This very often caused practical difficulties, because, besides being cumbersome, this involved the risk of important records being lost or being unlawfully taken away. It was therefore, necessary to dispense with the necessity of production of original records in evidence. The Amending Act, 1989 has, therefore, inserted a new section 279B in the Income-tax Act to provide that entries in the records or other documents in the custody of an income-tax authority shall be admitted in evidence during prosecution proceedings for an offence under Chapter XXII of the Income-tax Act and all such entries may be proved either by the production of such records or other documents or by the production of a copy of the entries certified by the income-tax authority having the custody of such records or other documents under its signature and stating that it is a true copy of the original entries which are contained in the records or other documents in its custody.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.15 Amendments of section 44AC(para 10.2), section 80C (para 10.6) and section 80HHC (para 10.7) come into force with effect from 1-4-1989 and will, accordingly, apply to the assessment year 1989-90 and subsequent assessment years.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.16 Amendments of section 206C (para 10.5) , various sections of Chapter XVII [Item (ii) of para 10.8], section 249(4) [para 10.10], section 253 (Para 10.11), section 255(3) [para 10.12], and insertion of a new section 279B (Para 10.14) come into force with effect from 1-4-1989.

DIRECT TAX LAWS (AMENDMENT)

 ACT, 1989

10.17 The following amendments come into force retrospectively, with effect from the dates mentioned against them:—

  (i)  Amendment of section 190 [Item (i) of Para 10.8]                     1-6-1988

 (ii)  Amendment of section 206C (Para 10.4)                                   1-6-1988

(iii)  Amendment of sections 269A and 269B (Para 10.13)   1-4-1988

[Sections 10,13, 15, 29, 33, 34, 45 to 49 and 53 of the Amending Act, 1989]

 3. Amendments to Wealth-tax Act