Key Direct Tax Amendments to the Finance Act, 2022

[Amendment to section 2(12A)]

– As per clause 12(A), books or books of account includes ledgers, day books, cash books, account books and other books, whether kept in written form or as print outs of data stored in a floppy, disc, tape, or any other form of electro-magnetic storage device.

– The words in the electronic form or in the digital form are added after the terms in written form or as print outs of data in the definition of books or books of account under section 2(12A).

– This amendment has been brought about to include all records even in digital form such as those maintained using block chain technology, etc.

Income exempt for trusts

[Amendment to Section 10]

Amendment to fifteenth proviso

Amendment to nineteenth proviso

– This clause has been amended to also include the words provisionally approved. Thus, the scope of the said sub-section has been extended to funds/institutions which have also been granted provisional approval.

– Consequently, even provisional approval granted to an institution, fund, etc., can now be withdrawn.

– Further where any such fund or institution is notified under section 10(46), the approval or provisional approval granted to the fund or institution shall become inoperative from the date of the notification to the body under the said section.

Income exempt for trusts

[Amendment to Section 10]

– Specified persons under section 13(3) include-

• the author of the trust or founder of the institution
• any person who has made a substantial contribution to the trust or institution in excess of INR 50,000
• any trustee of the trust or manager of the institution
• any relative of any such author, founder, person, member, trustee or manager
• any concern in which the above-mentioned persons have a substantial interest.

– For the words, ‘such person’, the words such fund or institution or trust or university or other educational institution or hospital or other medical institution is substituted.

– Thus, the application of the income by the fund, trust, etc., for the benefit of the persons specified in section 13(3), will be deemed to be the income of such fund, trust, etc., of previous year in which it is so applied.

[Amendment to Section 10]

– Such exemption is available in respect of income from transfer of a capital asset as referred to in section 47(viiab) on a recognised stock exchange in an IFSC, securities (other than shares of companies resident in India) and income from securities issued by a non-resident where such income is not deemed to accrue or arise in India and securitization trusts (chargeable under Profits under Business or Profession).

– Section 10(4D) has been amended to provide for a situation where a person, being a non-resident in the previous year in which the units were issued, becomes a resident during any subsequent previous year.

[Amendment to Section 10]

[Amendment to Section 56]

– Provided that the provisions of the above section shall not apply to sum of money or property received from a trust or institution, etc., registered under section 10(23C), 12A or section 12AA or section 12AB.

– A second proviso has been inserted to section 56(2)(x)(c), it provides that the exemptions under the first proviso to section 56(2)(x)(c) in respect of receipt of sum of money or property from a trust or an educational institution referred above shall not apply if the property or money has been received by the persons referred to un-der section 13(3).

[Amendment to Section 56]

[Amendment to Section 115BBH]

– Where the total income of an assessee includes any income from the transfer of any virtual digital asset, the income-tax payable shall be the aggregate of:

(a) the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent.; and

(b) the amount of income-tax with which the assessee would have been chargeable, had the total income of the assessee been reduced by the income referred to in clause (a).

– Thus, income from transfer of virtual digital assets shall be computed and taxed as per section 115BBH, though such income may be taxable under other heads of in-come.

– Further, section 115BBH(2) has been amended to provide that in computing income under this section, the cost of acquisition if any is to be deducted. Thus, income from virtual digital assets shall be computed even if the cost of acquisition is Nil or cannot be computed

– Further the scope of virtual digital assets has been clarified to include all forms of digital assets whether capital or not.

[Amendment to Section 115BBH]

– It has been clarified that no set off of losses under any provision of the Act shall be allowed including computing income under the said section for different classes of virtual digital assets. The word other has been omitted.

– Further, a new sub section (3) has been inserted which states that the definition of transfer as stated in section 2(47) is to be applied for this section, whether the virtual digital assets are held as capital assets or not.

[Amendment to Section 139]

– Section 139 has been amended to provide that any assessee, irrespective of the fact whether he/she has filed a return under the respective provisions of the section, may opt to furnish an updated return under the subsection 8A in respect of the income under which he/she is assessable under the Act, for the previous year relevant to such assessment year. However, such a submission is permitted only within 24 months from the end of the relevant assessment year pertaining to the previous year.

– The words two assessment years have been substituted and the words ‘any assessment year’ are inserted. Thus, in such cases the assessee cannot file updated return of income for any of the preceding assessment years.

– Further wherein a return of loss is filed and verified under sub section (1) in respect of losses sustained in any previous year, the assessee shall be permitted such up-dated return provided the updated return is a return of income. The words used in the amendment are ‘return of income’, probably what it means is a return of income which determines income chargeable to tax.

[Amendment to Section 139]

– In addition, filing of an updated return is not permitted where any proceeding for assessment or reassessment or re-computation of income is pending or has been completed for the relevant AY, information under section 90/90A has been received in respect of the said assessee or prosecution proceedings under Chapter XXII have been initiated against him or her.

– The second proviso to this section has been amended to provide that in case of an order of assessment relating to AY 2019-20, the time limit would be 12 months in-stead of 21 months and in case of that relating to AY 2020-21, the time limit would be 18 months instead of 21 months.

– The same shall be applicable from 1 April 2021.

– Assessment in respect of AY 2020-21 which was getting time barred on 31 March 2022 has now been extended to 30 September 2022.

– The methodology adopted to give more time to the department when the limitation period is expiring, is completely different when it comes to giving time to the tax payer to comply with various deadlines, especially during the stressful COVID 19 times.

[Amendment to Section 153B(1)]

– Section 153B(1) provides the time limit for completion of assessment or reassessment in search or requisition cases.

– A new sixth proviso to section 153B (1) has been inserted to provide that the assessment in the below cases for AY 2021-22 shall be made on or before 30 September 2022:

• in case where the last of the authorisations for search under section 132 or requisition under section 132A was executed during financial year (‘FY’) 2020-21, or
• in case of other person referred to in section 153C, the books of account or document or asset seized or requisitioned were handed over under section 153C to the Assessing Officer (‘AO’) having jurisdiction over such other person during FY 2020-21.

– The same shall be applicable from 1 April 2021.

– The time for completion of such assessments has been extended for the department.

[Deduction in respect of Surcharge and Education Cess]

– Section 155 is amended to include sub-section (18) to provide that deduction in respect of surcharge or cess which is not allowable as deduction under section 40, claimed and been allowed to an assessee in any previous year (‘PY’) shall be deemed to be under-reported income of the assessee for such PY, for the purpose of sec-tion 270A(3).

– The provisions of section 270A(6) relating to exceptions for under-reported income would not be applicable to this sub-section.

– The AO shall re-compute total income of the assessee for such PY and make the necessary amendment.

– The provisions of section 154 regarding rectification of mistake shall apply to the same and the period of 4 years specified in section

[Deduction in respect of Surcharge and Education Cess]

– The claim shall not be deemed to be under-reported income for the purposes of section 270A(3), in case the following requirements are fulfilled:

• Assessee makes an application to the AO in prescribed form and within prescribed time,
• Assessee has requested for re-computation of the total income of the PY without allowing deduction of surcharge or cess, and
• Assessee pays amount due thereon within the specified time.

– The amendment presumes that the deduction claimed by an assessee for payments made for surcharge and cess would tantamount to under-reporting of income under section 270A.

– The deduction claimed was on the basis of the law prevalent at that date, however, this position has been nullified by a retrospective amendment to section 40(a)(ii) by the Finance Bill 2022. Thus, can a claim for expenditure on the basis of the interpretation of law by various High Courts be said to be under-reporting of income is the larger question of law.

[Amendment to Section 158AB]

– A different time limit is prescribed for the Commissioner of Income-tax (Appeals) [‘CIT(A)’] order and Income-tax Appellate Tribunal (‘ITAT’) Order.

– The section provides the cases where the collegium may decide and intimate the CIT/PCIT not to file any appeal to the ITAT or the HC against the order of the CIT(A) or the ITAT, as the case may be.

– An amendment to section 158AB(3) is also made to provide that the CIT/PCIT shall direct the AO to make an application under section 158AB(2) (supra) only if an ac-ceptance is received from the assessee to the effect that the question of law in the other case is identical to that arising in the relevant case.

[Amendment to Section 158AB]

Further, in case no such acceptance is received, the CIT/PCIT shall proceed in accordance with the provisions contained in section 253(2) or section 260A(2)(c), notwithstanding any limitation mentioned in section 253(3) and section 260A(2)(a).

– It is also now proposed to include filing of an appeal to the ITAT / High Court where the order passed by the CIT(A) or the ITAT is not in conformity with the final deci-sion on the question of law in the other case.

– Further, it is proposed that a time limit of 60 days will be applicable for the appeals to be filed with the ITAT and a period of 120 days will be applicable for appeals to be filed with the HC from the date on which the relevant order is communicated to the PCIT or CIT having jurisdiction over the case.

[Amendment to Section 170]

– A new sub-section 2A was introduced by the Finance Bill to provide that in case of a business reorganization, the assessment or reassessment or other proceedings, made on the predecessor during the course of pendency of such reorganisation, shall be deemed to have been made on the successor.

– An explanation was also inserted to define the terms ‘business organisation’ and ‘pendency’.

-where there is succession, the assessment or reassessment or any other proceedings, made or initiated on the predecessor during the course of pendency of such succession, shall be deemed to have been made or initiated on the successor.

– The explanation is also consequently amended to exclude the definition of business reorganization and the word pendency is defined to mean:

‘the period commencing from the date of filing of application for such succession of business before the High Court or tribunal or the date of admission of an application for corporate insolvency resolution by the Adjudicating Authority as defined in clause (1) of section 5 of the Insolvency and Bankruptcy Code, 2016 and ending with the date on which the order of such High Court or tribunal or such Adjudicating Authority, as the case may be, is received by the Principal Commissioner or the Commissioner.’

[Amendment to Section 170A]

– In line with the amendment in section 170, section 170A is also amended to include an Explanation which defines the terms ‘business reorganisation’ and ‘successor’

(i) “business reorganisation” means the reorganisation of business involving the amalgamation or de-merger or merger of business of one or more persons;

(ii) “successor” means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.

[Amendment to Section 194R]

– In case such benefit or perquisite is provided wholly in kind or partly in kind and partly in cash but such part in cash is not sufficient to meet the liability of deduc-tion of tax in respect of whole of such benefit or perquisite, the person responsible for providing such benefit or perquisite shall, before releasing the benefit or per-quisite, ensure that tax has been deducted has been paid in respect of the benefit or perquisite.

– New sub-sections (2) and (3) are inserted to provide that in case any difficulty arises in giving effect to the provisions of this section, the CBDT may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty and such guidelines would be binding on the assessee and assessing authority.

[Amendment to Section 194S]

– As per the amendment brought about by the Finance Bill 2022, payments made in respect of consideration on transfer of virtual digital assets shall be liable to TDS un-der section 194S.

– Further, the amendment has clarified that notwithstanding anything contained in the Chapter, a transaction in respect of which tax is deducted under section 194S shall not be liable to deduction to tax under any provisions in the chapter.

– Further, it is now clarified that the person responsible for deducting tax, should ensure that tax which is ‘required to be deducted’ shall be paid, before release of such consideration for transfer of a virtual digital asset.

– The Finance Bill has omitted subsection (8) of section 194S and same is substituted in subsection (4) of section 194S. It is clarified that notwithstanding anything con-tained in section 194-O, in case of a transaction to which the provisions of the said section are applicable along with the provisions of section 194S, tax shall be deducted under section 194S(1).

[Amendment to Section 194S]