Budget 2020- Exemption in respect of certain income of Indian Strategic Petroleum Reserves Limited (ISPRL)

Section 10 of the Act provides for exemption in respect of certain incomes and activities under specific circumstances.

Clause (48A) thereof, inserted by the Finance Act, 2016, provides that any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India shall not be included in the total income, if such storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and having regard to the national interest, the foreign company and the agreement or arrangement are notified.

Clause (48B) of said section, inserted by the Finance Act, 2017 and amended by the Finance Act, 2018, provides for exemption in respect of any income accruing or arising to a foreign company on account of sale of leftover stock of crude oil, if any, from the facility in India after the expiry of the agreement or the arrangement referred to in clause (48A) or on termination of the said agreement or the arrangement, in accordance with the terms mentioned therein, as the case may be, subject to such conditions as may be notified by the Central Government in this behalf.

It is now proposed to provide exemption, by inserting a new clause in section 10, to any income accruing or arising to Indian Strategic Petroleum Reserves Limited (ISPRL), being a wholly owned subsidiary of Oil Industry Development Board under the Ministry of Petroleum and Natural Gas, as a result of an arrangement for replenishment of crude oil stored in its storage facility in pursuance to directions of the Central Government in this behalf. This exemption shall be subject to the condition that the crude oil is replenished in the storage facility within three years from the end of the financial year in which the crude oil was removed from the storage facility for the first time.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

[Clause 7]

Extract of Relevant Clauses of Finance Bill,2020

Clause 7 

Clause 7 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.

First proviso to clause (23C) of said section provides for application to be made in prescribed form and manner to the prescribed authority for exemption in respect of income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of said clause in a case where such income is applied or accumulated during the previous year for certain purposes in accordance with the relevant provisions.

It is proposed to substitute said proviso so as to provide that the exemption to such fund or trust or institution or any university or other educational institution or any hospital or other medical institution shall not be available unless it is approved under the proposed second proviso on an application made in the prescribed form and manner to the Principal Commissioner or Commissioner, for grant of approval where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution is approved under the second proviso (as it stood before its amendment by the Finance Act, 2020), within three months from the date on which this clause has come into force; where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution is approved and the period of such approval is set to expire, at least six months prior to expiry of said period; where the fund or trust or institution or any university or other educational institution or any hospital or other medical institution has been provisionally approved, at least six months prior to expiry of period of the provisional approval or within six months of commencement of its activities, whichever is earlier; in any other case, at least one month prior to commencement of the previous year relevant to the assessment year from which said registration is sought.

Second proviso to clause (23C) of said section thereof provides for the inquiry to be made by the prescribed authority before approving the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of said clause.

It is proposed to substitute the second proviso so as to provide that the Principal Commissioner or Commissioner, on receipt of an application made under the proposed first proviso, shall, where the application is under clause (i) of said proviso, pass an order in writing granting it approval for a period of five years; where the application is under clause (ii) or clause (iii) of said proviso, call for such documents or information from it or make such inquiries as he thinks necessary in order to satisfy himself about, the genuineness of activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution and the compliance of such requirements of any other law for the time being in force by it as are material for the purpose of achieving its object; and after satisfying himself about the objects and the genuineness of its activities, under item (A), and compliance of the requirements under item (B), of sub-clause (a), pass an order in writing granting its approval for a period of five years; if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its approval after affording it a reasonable opportunity of being heard;

where the application is under clause (iv) of said proviso, pass an order in writing granting it approval provisionally for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the fund or trust or institution or any university or other educational institution or any hospital or other medical institution.

Eighth proviso to clause (23C) thereof, inter alia, provides for period for which a notification issued by Central Government under sub-clause (iv) or sub-clause (v) of said clause shall have effect.

It is proposed to substitute the eighth proviso so as to provide that the approval granted under the proposed second proviso shall apply in relation to the income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, where the application is made under clause (i) of the first proviso, from the assessment year from which approval was earlier granted to it; where the application is made under clause (iii) of the first proviso, from the first of the assessment years for which it was provisionally approved; in any other case, from the assessment year immediately following the financial year in which such application is made.

Ninth proviso to clause (23C) of said section thereof, inter alia, provides for the period within which a notification under sub-clause (iv) or sub-clause (v) shall be issued or approval under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall be granted or an order rejecting the application made in this behalf shall be passed.

It is proposed to substitute the ninth proviso so as to provide that the order under clause (i), sub-clause (b) of clause (ii) and clause (iii) of the proposed second proviso shall be passed, in such form and manner as may be prescribed, before expiry of period of three months, six months and one month respectively, calculated from the end of the month in which the application was received.

These amendments will take effect from 1st June, 2020.

The tenth proviso to the said clause provides that where the total income, of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such trust or institution or university or other educational institution or hospital or other medical institution shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 and furnish the report of such audit along with the return of income for the relevant assessment year.

It is proposed to amend the said proviso so as to provide that such trust or institution or university or other educational institution or hospital or other medical institution should get the accounts audited before the specified date referred to in section 44AB (i.e. one month prior to the due date for filing of return under sub-section (1) of section 139) and furnish the report of audit by that date.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.

Sixteenth proviso to clause (23C) of said section thereof, inter alia, provides for the period within which application for exemption has to be made by the fund or trust or institution or any university or other educational institution or any hospital or other medical institution under the first proviso.

It is proposed to omit the said proviso.

It is further proposed to substitute the existing eighteenth proviso so as to provide that all applications made under the existing first proviso, pending before the Principal Commissioner or Commissioner, on which no order has been passed, shall be deemed to be an application made under clause (iv) of the proposed first proviso on that date.

These amendments will take effect from 1st June, 2020.

Clause (23D) of the said section exempts the income of Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or such other Mutual Funds. This exemption is subject to the provisions of Chapter XII-E relating to special provision relating to tax on distributed income. It is proposed to omit the reference of the said Chapter in the said clause so that Mutual Funds are not required to pay additional tax under that Chapter.

Clause (23FC) of the said section exempts certain income of business trust including income by way of dividend referred to in sub-section (7) of section 115-O. It is proposed to amend the said clause so as to exempt all dividend received or receivable by business trust from a special purpose vehicle under the said clause.

Clause (23FD) of the said section exempts income distributed by business trust to a unit holder except the interest and rental income. It is proposed to amend the said clause so as to exclude dividend income received by a unit holder from business trust from such exemption.

It is proposed to insert a new clause (23FE) in the said section so as to provide exemption in respect of any income of a specified person in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or equity, if the investment––

(i) is made on or before the 31st day of March, 2024;

(ii)is held for at least three years; and

(iii) is in a company or enterprise carrying on the business of developing, or operating and maintaining, or developing, operating or maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub­section (4) of section 80-IA or such other business as may be notified by the Central Government in this behalf.

It is further proposed to insert an Explanation to the said clause so as to define “specified person” for the purposes of this clause to mean––

(a) a wholly owned subsidiary of the Abu Dhabi Investment Authority which––

(i) is a resident of the United Arab Emirates; and

(ii) makes investment, directly or indirectly, out of the fund owned by the Government of the United Arab Emirates;

(b) sovereign wealth fund which shall qualify the conditions specified therein.

Clause(34) of the said section exempts income by way of dividends referred to in section 115-O except the income by way of dividend chargeable to tax in accordance with the provisions of section 115BBDA. It is proposed to amend the said clause so as to provide that the provisions of the said

clause shall not apply to any income, by way of dividend, received on or after the 1st April, 2020.

Clause(35) of the said section exempts income received in respect of the units of a Mutual Fund, units from the Administrator of the specified undertaking and units from the specified company. It is proposed to amend this clause to provide that the provisions of the said clause shall not apply to any income, in respect of units, received on or after the 1st April, 2020.

It is also proposed to omit clause (45) of the said section, which provides that any allowance and perquisite as may be notified by the Central Government, paid to the serving or retired Chairman or Members of Union Public Services Commission shall be exempt from income-tax.

These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.

It is proposed to insert a new clause (48C) in said section so as to provide exemption in respect of any income accruing or arising to Indian Strategic Petroleum Reserves Limited, being a wholly owned subsidiary of Oil Industry Development Board under the Ministry of Petroleum and Natural Gas, as a result of arrangement for replenishment of crude oil stored in its storage facility in pursuance of directions of the Central Government in this behalf.

It is further proposed to insert a proviso to newly inserted clause so as to provide that nothing contained in this clause shall apply to an arrangement if the crude oil is not replenished in the storage facility within three years from the end of the financial year in which the crude oil was removed from the storage facility for the first time.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.”

Extract of Relevant Amendment Proposed by Finance Bill, 2020

7. Amendment of section 10.

In section 10 of the Income-tax Act,–

(I) in clause (23C),–

(A) with effect from the 1st day of June, 2020,–

(a) for the first and second provisos, the following provisos shall be substituted, namely:–

“Provided that the exemption to the fund or trust or institution or university or other educational institution or hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) under the respective sub-clauses shall not be available to it unless such fund or trust or institution or university or other educational institution or hospital or other medical institution makes an application in the prescribed form and manner to the Principal Commissioner or Commissioner, for grant of approval,–

(i) where such fund or trust or institution or university or other educational institution or hospital or other medical institution is approved under the second proviso [as it stood immediately before its amendment by the Finance Act, 2020], within three months from the date on which this clause has come into force;

(ii) where such fund or trust or institution or university or other educational institution or hospital or other medical institution is approved and the period of such approval is due to expire, at least six months prior to expiry of the said period;

(iii) where such fund or trust or institution or university or other educational institution or hospital or other medical institution has been provisionally approved, at least six months prior to expiry of the period of the provisional approval or within six months of commencement of its activities, whichever is earlier;

(iv) in any other case, at least one month prior to the commencement of the previous year relevant to the assessment year from which the said approval is sought,

and the said fund or trust or institution or university or other educational institution or hospital or other medical institution is approved under the second proviso:

Provided further that the Principal Commissioner or Commissioner, on receipt of an application made under the first proviso, shall,—

(i) where the application is made under clause (i) of the said proviso, pass an order in writing granting approval to it for a period of five years;

(ii) where the application is made under clause (ii) or clause (iii) of the said proviso,–

(a) call for such documents or information from it or make such inquiries as he thinks necessary in order to satisfy himself about

(A) the genuineness of activities of such fund or trust or institution or university or other educational institution or hospital or other medical institution; and

(B) the compliance of such requirements of any other law for the time being in force by it as are material for the purpose of achieving its objects; and

(b) after satisfying himself about the objects and the genuineness of its activities under item (A), and compliance of the requirements under item (B), of sub-clause (a),–

(A) pass an order in writing granting approval to it for a period of five years;

(B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its approval after affording it a reasonable opportunity of being heard;

(iii) where the application is made under clause (iv) of the said proviso, pass an order in writing granting approval to it provisionally for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the fund or trust or institution or university or other educational institution or hospital or other medical institution:”;

(b) for the eighth and ninth provisos, the following provisos shall be substituted, namely:–

“Provided also that any approval granted under the second proviso shall apply in relation to the income of the fund or trust or institution or university or other educational institution or hospital or other medical institution,––

(i) where the application is made under clause (i) of the first proviso, from the assessment year from which approval was earlier granted to it;

(ii) where the application is made under clause (iii) of the first proviso, from the first of the assessment years for which it was provisionally approved;

(iii) in any other case, from the assessment year immediately following the financial year in which such application is made:

Provided also that the order under clause (i), sub-clause (b) of clause (ii) and clause (iii) of the second proviso shall be passed, in such form and manner as may be prescribed, before expiry of the period of three months, six months and one month, respectively, calculated from the end of the month in which the application was received:”;

(B) in the tenth proviso, for the words and figures “section 288 and furnish along with the return of income for the relevant assessment year”, the words, figures and letters “section 288 before the specified date referred to in section 44AB and furnish by that date” shall be substituted;

(C) with effect from the 1st day of June, 2020,–

(a) the sixteenth proviso shall be omitted;

(b) for the eighteenth proviso, the following proviso shall be substituted, namely:–

“Provided also that all applications made under the first proviso [as it stood before its amendment by the Finance Act, 2020] pending before the Principal Commissioner or Commissioner, on which no order has been passed before the date on which the first proviso has come into force, shall be deemed to be an application made under clause (iv) of the first proviso on that date:”;

(II) with effect from the 1st day of April, 2021,–

(a) in clause (23D), in the opening portion, the words, figures and letter “subject to the provisions of Chapter XII-E,” shall be omitted;

(b) in clause (23FC), in sub-clause (b), for the words, brackets, figures and letter “referred to in sub-section (7) of section 115-O”, the words “received or receivable from a special purpose vehicle” shall be substituted;

(c) in clause (23FD), the words, brackets and letter “sub-clause (a) of” shall be omitted;

(d) after clause (23FD), the following clause shall be inserted, namely:–

‘(23FE) any income of a specified person in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or equity, if the investment––

(i) is made on or before the 31st day of March, 2024;

(ii) is held for at least three years; and

(iii) is in a company or enterprise carrying on the business of developing, or operating and maintaining, or developing, operating and maintaining any infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA or such other business as the Central Government may, by notification in the Official Gazette, specify in this behalf.

Explanation.—For the purposes of this clause, “specified person” means–

(a) a wholly owned subsidiary of the Abu Dhabi Investment Authority which–

(i) is a resident of the United Arab Emirates; and

(ii) makes investment, directly or indirectly, out of the fund owned by the Government of the United Arab Emirates;

(b) a sovereign wealth fund which satisfies the following conditions, namely:–

(i) it is wholly owned and controlled, directly or indirectly, by the Government of a foreign country;

(ii) it is set up and regulated under the law of such foreign country;

(iii) the earnings of the said fund are credited either to the account of the Government of that foreign country or to any other account designated by that Government so that no portion of the earnings inures any benefit to any private person;

(iv) the asset of the said fund vests in the Government of such foreign country upon dissolution;

(v) it does not undertake any commercial activity whether within or 15 outside India; and

(vi) it is specified by the Central Government, by notification in the Official Gazette, for this purpose;’;

(e) in clause (34), after the proviso, the following proviso shall be inserted, namely:–

“Provided further that nothing contained in this clause shall apply to any income by way of dividend received on or after the 1st day of April, 2020;”;

(f) in clause (35), after the proviso, the following proviso shall be inserted, namely:–

“Provided further that nothing contained in this clause shall apply to any income in respect of units received on or after the 1st day of April, 2020;”;

(g) clause (45) shall be omitted;

(III) after clause (48B), the following clause shall be inserted, namely:–

(48C) any income accruing or arising to the Indian Strategic Petroleum Reserves Limited, being a wholly owned subsidiary of the Oil Industry Development Board under the Ministry of Petroleum and Natural Gas, as a result of arrangement for replenishment of crude oil stored in its storage facility in pursuance of directions of the Central Government in this behalf:

Provided that nothing contained in this clause shall apply to an arrangement, if the crude oil is not replenished in the storage facility within three years from the end of the financial year in which the crude oil was removed from the storage facility for the first time;”.

Source- Finance Bill 2020 / Union Budget 2020-21

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