In this article, the proposed amendments by The Finance (No. 2) Bill, 2009 relating to sections 56(2), 57, 145A, 271(1) Explanation 5A and 281B, are briefly discussed. These amendments proposed in the Finance (No. 2) Bill, 2009, are aimed towards rationalizing the provisions of the Income-tax Act, 1961 (“the Act”) in order to bring out the true and correct intention of the legislature for enacting the above provisions.
1. Section 56 (2): Income from Other Sources
Existing provision
Existing provisions of section 56(2) of the Act provides a list of certain incomes will be specifically be chargeable under the head, ‘Income from other source’.
Proposed Amendment
The Finance (No. 2) Bill, 2009 seeks to amended sub-section (2) of section 56 of the Act, so as to insert a clause (viii) after newly inserted clause (vii) which provides that any income received by the assessee by way of interest on compensation or on enhanced compensation referred to in sub-section (2) of section 145A, shall be chargeable to Income-tax under head income from other sources.
Reason for the Amendment
The amendment is made with the intent to tax the interest income earned by the assessee on delayed / enhanced compensation specifically under the head, ‘Income from other sources’.
Effective Date
This amendment will take effect from 1-4-2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.
2. Section 57: Deduction
Existing provision
The existing provisions of section 57 of the Act provides that the income chargeable under the head, ‘Income from other sources’ shall be computed after making the deductions specified the section.
Proposed Amendment
The Finance (No. 2) Bill, 2009 seeks to amend section 57 of the Act so as to insert a clause (iv) after existing clause (iii) to provide that in the case of income referred to in newly inserted clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent (50%) of such income shall be allowed to the assessee. The clause further proposes to provide that no other deduction shall be allowed to the assessee under any other clause of section 57 of the Act.
Reasons for the Amendment
The amendment is made to provide for deduction out of the interest income earned by the assessee on the delay in receipt of compensation or enhanced compensation. The section also provides, to restrict the deduction to only fifty per cent (50%) of the amount of such interest income received by the assessee by providing that no further deduction under the section shall be available to the assessee while computing such income.
Effective Date
This amendment will take effect from 1-4-2010 and will, apply in relation to the assessment year 2010-11 and subsequent years.
3. Section 145 A: Method of Accounting in certain cases
Existing provision
Existing provisions of section 145A of the Act provides that valuation of purchase and sale of goods and inventories for the purpose of determination of income chargeable under the head, ‘Profit and gain of business or profession’ shall be in accordance with the method of accounting regularly applied by the assessee and the same will be further adjusted to include the amount of tax, duty, cess or fees under any law in force, paid / incurred by the assessee to bring the goods to its location.
Proposed Amendment
The Finance (No. 2) Bill, 2009 seeks to amend the section 145A of the Act to provide that the interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the assessee for the year in which it is received by him.
Reason for the Amendment
The Act provides that income chargeable under the head ‘Profits and gains of business or profession’ or ‘income from other sources’, shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. However, the Hon’ble Apex Court, in the case of, Rama Bai v/s. CIT [(1990) 181 ITR 400 (SC)] held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to tax-payers. With a view to mitigating the hardship, it is proposed to amend section 145A of the Act to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it is received, irrespective of the method of accounting followed by the assessee.
Effective date:
This amendment will take effect from 1-4-2010 and will, accordingly, apply in relation to the assessment year 2010-2011 and subsequent years.
4. Section 271 (1) Explanation 5 A: Penalty
Existing provisions
Existing provisions of Explanation 5A to sub-section (1) of section 271, provides that where, in the course of search initiated under section 132 on or after the 1-6-2007 the assessee is found to be owner of:
(i) any money, bullion, jewellery or other valuable article or thing and the assessee claims that such assets have been acquired by him by utilizing his income for any previous year; or
(ii) any income based on any entry in any books of account or other documents or transactions and the assessee claims that such assets or entry in the books of account or other documents represents his income for any previous year;
which has ended before the date of the search and the due date for filing the return of income for year has expired and the assessee has not filed the return, then, such income declared by him in any return of income furnished on or after the date of the search, shall be deemed to have been concealed by the assessee or the assessee shall be held to have furnished inaccurate particulars of such income.
Proposed Amendment
The Finance (No.2) Bill, 2009 seeks to substitute a new Explanation 5 A to section 271(1) of the Act in place of existing the Explanation 5A to clarify that where the return of income for such previous year has been furnished before the said date, but the discovered assets or the income has not been declared by the assessee in such return. Then, in such case, the assessee shall for the purposes of section 271(1)(c) the Act be, deemed to have concealed the particulars of his income or furnished inaccurate particulars with respect to such income.
Reason for the Amendment
The intend of the legislature is to enlarge the scope of Explanation 5A to section 271(1) (c) and treat the income as deemed to be concealed by assessee under the provisions of section 271(1) (c) of the Act in cases where the assessee has filed the return of income for any previous year and it is found during the course of search, that the assessee has not disclosed in the return for such previous year the income/ assets of found during the course of search.
Effective date
As the original Explanation was inserted from 1-6-2007 the present amendment will take effect retrospectively from 1-6-2007 and apply in cases where search under section 132 is initiated on or after 1-6-2007.
5. Section 281 B: Provisional attachment to protect revenue in certain cases
Existing provisions
The existing provisions of section 281B of the Act empower the assessing officer to make provisional attachment of the assets of the assessee during the pendency of any proceedings for assessment or reassessment. However, the second proviso to sub-section (2) to section 281B of the Act provides that where an application has been made by the assessee under section 245C(1) of the Act before the Settlement Commission then, the time taken by the Settlement Commission for admission should be excluded for computing the period of limitation of the provisional attachment order under section 281B of the Act.
Proposed Amendment
The Finance (No. 2) Bill, 2009 proposes to insert a third proviso in sub-section (2) of section 281B to provide that the period during which the proceedings for assessment or reassessment are stayed by an order or injunction from any court shall be excluded from the period of operation of the provisional attachment order.
Reason for the Amendment
The validity of provisional attachment made by the assessing officer remains in force for the period of six months or for such extended period as provided in first proviso to section 281B of the Act. In some cases upon the writ petitions filed by the assessee before the Hon’ble Supreme or the Hon’ble High Courts, the Court may stay the assessment proceedings. Usually, such stay granted by the courts remains in force for many years, during which the validity of provisional attachment order expires. To overcome such situations, it is proposed to provide that the period, during which the proceedings for assessment or reassessment are stayed by any Court, such period shall be excluded while calculating the period of operation of provisional attachment order under section 281B of the Act.
Effective date
This amendment will take effect retrospectively from 1-4-1988 and will, apply in relation to the assessment year 1988-89 and subsequent assessment years.
