The Finance Minister has introduced the Union Budget 2022 (‘Budget’) in the Parliament aiming to boost economic growth and revive sustainably from the ravages of the COVID-19 pandemic. The aim seems to start a virtuous cycle of growth by increasing public expenditure, in the hope of attracting private investment.

But in order to facilitate the growth push, the government has had to make a compromise and the casualty here is the degree of fiscal consolidation to be achieved over the next few years. At 6.4 per cent of GDP, the fiscal deficit target for the next financial year is well above the range of 6-6.20 per cent that was predicted by a majority of economists. Financing that fiscal deficit will require the government to borrow a gargantuan INR 14.95 lakh crore from the domestic market through the sale of bonds – a fresh all-time high. The effect can already be seen in the debt market, as sovereign debt yields have increased at a very high rate since the presentation of the Budget.

We hope that the public spending will ease the pain by way of increase in jobs and help the MSME and the SME sectors to withstand the stress caused by COVID-19.

Union Budget 2022-23 - Direct Tax Proposals

The Budget aims to rationalise many provisions of the Income-tax Act, 1961 (the Act). However, it seems that in fact the law has become very complex and stringent for charitable trusts and institutions. Further, the reopening provisions have also been widened, creating more uncertainty for the taxpayers.

The Parliament aims to continue its push for faceless assessments and also appellate processes. It is hoped that the functioning of the Income-tax Appellate Tribunal (the Tribunal) is not hampered by this aim, as the Tribunal plays a very important role in meeting out justice in various tax matters, and trying to achieve a faceless Tribunal process may be counter-productive

The key amendments introduced by the Budget in relation to the direct tax proposals are provided below.

KEY INCOME-TAX PROPOSALS

PROFITS AND GAINS OF BUSINESS OR PROFESSION

Expenditure on scientific research

[Section 35(1A)]

  • A clarificatory amendment has been proposed to provide that the deduction claimed by the donor with respect to the donation given to any research association, university, college or other institution referred to in clause (ii) or clause (iii) or the company referred to in clause (iia) of sub-section (1) of section 35 of the Act shall be disallowed, unless such research association, university, college or other institution or company files the statement of donations.
  • This amendment is proposed to come into effect retrospectively from 1 April 2021 and will accordingly apply in relation to the AY 2021-22 and subsequent assessment years (AYs).
VTPA Comments The above amendment is proposed considering the intent of the legislation to allow the deduction in the hands of research association, university, college or other institution.

General allowability of expenditure

[Section 37]

  • Section 37 provides for general allowability of expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of business or profession.
  • Explanation 1 of sub-section (1) of the section 37 provides that if any expenditure is incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.
  • A new Explanation 3 to the said sub-section is proposed to be inserted to further clarify that the expression ‘expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law’ under Explanation 1, shall include and shall be deemed to have always included the expenditure incurred by an assessee:
    • for any purpose which is an offence under, or which is prohibited by, any law for the time being in force, in India or outside India; or
    • to provide any benefit or perquisite, in whatever form, to a person, whether or not carrying on a business or exercising a profession, and acceptance of such benefit or perquisite by such person is in violation of any law or rule or regulation or guideline, as the case may be, for the time being in force, governing the conduct of such person; or
    • to compound an offence under any law for the time being in force, in India or outside India.
  • This amendment is proposed to come into effect from 1 April 2022 and will accordingly apply in relation to AY 2022-23 and subsequent AYs.
VTPA Comments

The above amendment brings an end to the below issues:

  • Where certain taxpayers were claiming deductions on expenditure incurred in offering certain benefits or perquisite to a person which were not intended to be allowed under the section, namely meeting his expenditure related to travel, hospitality, conference etc. In these cases acceptance of such benefit or perquisite by such person is in violation of a law or rule or regulation or guidelines, as the case may be, governing the conduct of such person

The Mumbai ITAT in a recent decision of Macleods Pharmaceuticals in ITA Nos. 5168 & 5169/Mum/2018 vide order dated 14 October 2021 has covered the above issue in length. The Mumbai ITAT clarifies the legal position that the claim of any expense incurred in providing various benefits is in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and shall be inadmissible under sub-section (1) of section 37 of Act being an expense prohibited by the law.

  • Where certain taxpayers were seen to be claiming deduction on expenses incurred for a purpose which is an offence under foreign law or for compounding of an offence for violation of foreign law, claiming that provisions of Explanation 1 to sub[1]section (1) of section 37 of the Act applies only to offences which are prohibited by the domestic law of the country

Thus, amounts paid for compounding of offences under various legislations including FEMA, Companies Act, 2013, etc., would not be allowed as a deduction.

Amounts not deductible while computing the income chargeable under the head Profits and gains of business or profession

[Clarification regarding treatment of cess and surcharge]

[Section 40(a)(ii)

  • Section 40 specifies the amounts which shall not be deducted in computing the income chargeable under the head ‘Profits and gains of business or profession’.
  • Section 40(a)(ii) provides that any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains shall not be deducted in computing the income chargeable under the head ‘Profits and gains of business or profession’.
  • However, certain taxpayers are claiming deduction on account of ‘cess’ or ‘surcharge’ under section 40 of the Act claiming that ‘cess’ has not been specifically mentioned in the aforesaid provisions of section 40(a)(ii) and, therefore, cess is an allowable expenditure. The said view has been upheld by Courts in a few judgments, wherein the Courts are also relying upon the CBDT Circular No. 91/58/66-ITJ(19) dated 18-05-1967.
  • In order to clarify the issue, an amendment has been proposed by inserting Explanation 3 retrospectively to section 40(a)(ii) to clarify that for the purposes of section 40(a)(ii), the term ‘tax’ shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax.
  • This amendment will take effect retrospectively from 1 April 2005 and will accordingly apply in relation to the AY 2005-06 and subsequent AYs.
VTPA Comments 
VTPA Comments

(Cont…) 

  • The amendment tends to affirm the principle laid by the Kolkata ITAT in case of Kanoria Chemicals and Industries Ltd. (ITA 2184/Kol/2018) wherein the ITAT ruled in favour of the IT Department. The Kolkata ITAT has placed reliance upon the judgment of the Hon’ble SC in the case of CIT Vs. K. Srinivasan (1972) 83 ITR 346.
  • The amendment will adversely impact the taxpayers who have claimed a deduction of the surcharge and education cess while filing their return of income during the assessment proceedings.
  • One may also have to evaluate the effect on appeals which are already pending before the Courts. Further, this amendment may also lead to more litigation.

Certain deductions to be allowed only on actual payment of interest

[Section 43B] 

  • Section 43B of the Act provides for certain deductions to be allowed only on actual payment.
  • Explanations 3C, 3CA and 3D of the said section provide that a deduction of any sum, being interest payable on loan or borrowing from specified financial institution / NBFC / scheduled bank or a co-operative bank under clause (d), clause (da), and clause (e) of this section respectively, shall be allowed if such interest has been actually paid and any interest referred to in the said clauses which has been converted into a loan or borrowing or advance shall not be deemed to have been actually paid.
  • It is proposed to amend the said Explanations 3C, 3CA and 3D of the said section to provide that conversion of interest payable under clauses (d), (da), and (e) of the said section, into debenture or any other instrument by which liability to pay is deferred to a future date, shall also not be deemed to have been actually paid.
  • This amendment is proposed to come into effect from 1 April 2023 and accordingly would apply in relation to the AY 2023-24 and thereafter.
VTPA Comments 
  • The above amendment will overturn the decision of Hon’ble Supreme Court in case of M.M. Aqua Technologies Ltd [129 taxmann.com 145] wherein the Court treated issue of debentures in lieu of outstanding interest, as actual payment of interest under section 43B of the Act.

CAPITAL GAINS

Special provision for computation of capital gains in case of depreciable assets

[Section 50] 

♦ Section 50 of the Act which is a special provision for computation of capital gains in case of depreciable assets is proposed to be amended by introducing an Explanation to clarify that for the purpose of section 50 of the Act, reduction of the amount of goodwill of a business or profession, from the block of asset in accordance with section 43(6)(c)(ii)(B) of the Act shall be deemed to be transfer.

♦ This amendment is proposed to come into effect retrospectively from 1 April 2021 and accordingly would apply in relation to AY 2021-22 and thereafter.

VTPA Comments  The said amendment is clarificatory in nature. It is pertinent to note that such reduction could result in tax implications where there is no asset in the block or value of block becomes NIL on reduction of goodwill.

DEDUCTIONS

Deduction in respect of contribution to pension scheme of Central Government

[Section 80CCD] 

♦ Section 80CCD(2) provides that any contribution made by the Central Government or any other employer to the account of the employee under a notified pension scheme, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government, if it does not exceed:

    • Fourteen per cent of his salary where such contribution is made by the Central Government
    • Ten per cent of his salary where such contribution is made by any other employer.

The State Governments were given an option to raise the contribution to 14% with effect from 01.04.2019 on their own volition, based on their own internal approvals and notifications, without seeking the approval of the Pension Fund Regulatory and Development Authority.

♦ In order to ensure that the State Government employees also get full deduction of the enhanced contribution by the State Government, it is proposed to increase the limit of deduction under section 80CCD of the Act from the existing ten per cent to fourteen per cent in respect of contribution made by the State Government to the account of its employee.

♦ This amendment will take effect retrospectively from 1 April 2020 and will accordingly apply in relation to the AY 2020-21 and subsequent AYs.

VTPA Comments  The amendment has been made retrospective so as to ensure no additional tax liability arises on any contribution made in excess of 10% during such time.

Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability

[Section 80DD] 

♦ Section 80DD(2)(a) is proposed to be substituted so as to provide that the deduction under section 80DD(1)(b) shall be allowed if the scheme provides for payment of annuity or lump sum amount for the benefit of a dependant, being a person with disability, in the event of the death of the individual or the member of the Hindu undivided family in whose name subscription to the scheme has been made; or on his attaining the age of sixty years or more or the member of the Hindu undivided family, and the payment or deposit to such scheme has been discontinued.

♦ Further, it is proposed to insert a new sub-section (3A) to provide that the provisions of sub-section (3) shall not apply to the amount received by the dependant, being a person with disability, before his death, by way of annuity or lump sum by application of the condition referred to in the proposed sub-clause (ii) of clause (a) of sub-section (2).

♦ This amendment is proposed to come into effect from 1 April 2023 and accordingly would apply in relation to AY 2023-24 and thereafter.

Special provision in respect of specified business [Start-ups]

[Section 80-IAC] 

♦ Section 80-IAC of the Act provides for a deduction of 100% of the profits and gains derived from an eligible business by an eligible start-up having turnover not exceeding INR 100 crores, for 3 consecutive assessment years out of 10 years, at the option of the assessee, subject to certain conditions, for an eligible start-up incorporated on or after the 1 April 2016 but before the 1 April 2022.

♦ It is now proposed to extend the period of incorporation of such eligible start-ups till 1 April 2023.

♦ This amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

SPECIAL TAXATION REGIME FOR VIRTUAL DIGITAL ASSET

Definition of ‘Virtual Digital Asset’

[Section 2(47A)] 

  • The term ‘virtual digital asset’ is defined under Section 2(47A) of the Act.
  • As per the proposed new clause, ‘virtual digital asset’ is proposed to include any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically.
  • Non fungible token (NFT) and any other token of similar nature are included in the definition.
  • Central Government may notify any other virtual digital asset as virtual digital asset by way of notification in the Official Gazette. The Non fungible token means such digital assets as notified by the Central Government. Further, Central Government can notify such assets which shall not be considered as virtual digital assets for the purposes of the proposed section.
  • This amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
Taxation of Virtual Digital Asset

[Section 115BBH]

  • Section 115BBH is proposed to be inserted to provide for taxation of virtual digital assets. This section inter alia provides that tax on transfer of any virtual digital assets ought to be calculated at the rate of 30%.
  • The section further provides that no deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act in computing the income from transfer of virtual digital asset.
  • This amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.
Set-off and carry forward of losses 
  • No set-off of any loss arising from transfer of virtual digital asset shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years.

Gift taxation for Virtual Digital Asset

[Section 56(2)(x)]

  • Further, in order to provide for taxing the gifting of virtual digital assets, it is also proposed to amend Explanation to section 56(2)(x) of the Act by widening the scope of the term ‘property’ to have the same meaning as assigned to it in clause (d) of the Explanation to clause (vii) and to include virtual digital asset.
  • This amendment will take effect from 1 April 2023 and will accordingly apply in relation to AY 2023-24 and subsequent assessment years.

Payment on transfer of virtual digital asset (Withholding tax)

[Insertion of new Section 194S]

  • A new section 194S is proposed to be inserted in the Act to provide for TDS on payments for transfer of virtual digital asset to a resident at 1% of such sum.
  • However, in case the payment for such transfer is:
    • wholly in kind or in exchange of another virtual digital asset where there is no part in cash; or
    • partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of such transfer,

the person before making the payment shall ensure that the tax has been paid in respect of such consideration.

  • In case of specified persons, the provisions of section 203A and 206AB will not be applicable.
  • No tax is to be deducted in case the payer is the specified person and the value or the aggregate of such value of consideration to a resident is less than INR 50,000 (INR 10,000 for other cases) during the financial year.
  • ‘Specified person’ is defined to mean, a person:
    • being an individual or HUF whose total sales, gross receipts or turnover from the business carried on by him does not exceed INR 1 crore or profession exercised by him does not exceed INR 50 lakh, during the FY immediately preceding the FY in which such virtual digital asset is transferred;
    • being an individual or HUF having income under any head other than the head ‘Profits and gains of business or profession’.

Payment on transfer of virtual digital asset (Withholding tax)

[Insertion of new Section 194S] (Cont…)

  • It is also proposed to provide that if tax has been deducted under section 194S, then no tax is to be collected or deducted in respect of the said transaction under any other provision of Chapter XVII of the Act.
  • Furthermore, in any sum paid for transfer of virtual digital asset is credited to any account, whether called ‘Suspense Account’ or by any other name, in the books of account of the person liable to pay such sum, such credit of the sum shall be deemed to be the credit of such sum to the account of the payee and the provisions of section 194S shall apply accordingly.
  • This amendment is proposed to come into effect from 1 July 2022.
VTPA Comments
  • The definition and scope of ‘virtual digital assets’ has been amplified to include virtually all digital assets, including crypto currencies currently traded in the market, that are not yet under regulatory purview(for e.g., Bitcoin, Ethereum, etc.).
  • Thus, to bring certainty it would be necessary to correctly bring out the types of digital assets that are covered in the definition, as the words ‘generated through cryptographic means or otherwise, by whatever name called’ is extremely wide to cover varied types of digital assets.
  • However, there is ambiguity as to the legality of such virtual digital assets. Further, the decision for creation of a virtual digital currency by the RBI also adds to the ambiguity of the legality and recognition of the crypto currencies. Official guidelines are yet to be released regarding the said aspect.

INTERNATIONAL FINANCIAL SERVICES CENTRE

Tax Incentives to International Financial Services Centre (IFSC)

[Section 10(4E) Section 10(4F) and Section 10(4G)] 

  • Section 10(4E) has been amended to extend the exemption under the said clause to the income accrued or arisen to or received by a non-resident as a result of transfer of offshore derivative instruments or over-the-counter derivatives entered into with an Offshore Banking Unit of an International Financial Services Centre, referred to in section 80(1A).
  • Section 10(4F) has been amended to extend the exemption under the said clause to the income of a non-resident by way of royalty or interest, on account of lease of a ship in a previous year, paid by a unit of an International Financial Services Centre, as referred to in section 80LA(1A), if the unit has commenced its operations on or before the 31 March, 2024.

The definition of the term ‘ship’ is also inserted to mean a ship or an ocean vessel, an engine of a ship or an ocean vessel, or any part thereof.

  • Section 10(4G) has been newly inserted so as to provide exemption to any income received by a non-resident from portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an Offshore Banking Unit, in any International Financial Services Centre as referred to in section 80LA(1A), to the extent such income accrues or arises outside India and is not deemed to accrue or arise in India.

The term ‘portfolio manager’ is proposed to have the same meaning as assigned to it in clause (z) of sub-regulation (1) of regulation (2) of the International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019.

  • This amendment is proposed to come into effect from 1 April 2023 and accordingly would apply in relation to the AY 2023-24 and thereafter.

Tax Incentives to International Financial Services Centre (IFSC)

[Section 56 income from other sources] 

  • Section 56(2)(viib) provides that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable under the head of Income-from other sources.
  • The first proviso to said clause (viib) provides that the provisions of the said clause shall not apply, where the consideration for issue of shares is received by a venture capital undertaking from, inter-alia, a specified fund.
  • Explanation to the said clause provides the definition of ‘specified fund’ as a Category I or a Category II Alternative Investment Fund which is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992.
  • The above Explanation is proposed to be amended to provide that specified fund shall also include Category I or a Category II Alternative Investment Fund which is regulated under the International Financial Services Centres Authority Act, 2019.
  • This amendment is proposed to come into effect from 1 April 2023 and accordingly would apply in relation to the AY 2023-24 and thereafter.

Tax Incentives to International Financial Services Centre (IFSC)

[Section 80LA Deductions in respect of certain incomes of Offshore Banking Units and IFSC] 

  • Section 80LA(1A) provides that where the gross total income of an assessee, being a Unit of an IFSC, includes any income referred to in section 80LA(2), then a deduction shall be allowed from such income, of an amount equal to 100% of such income for any ten consecutive assessment years, at the option of the assessee, out of fifteen years, beginning with the assessment year relevant to the previous year in which the permission, under section 23(1)(a) of the Banking Regulation Act, 1949 or permission or registration under the Securities and Exchange Board of India Act, 1992 or any other relevant law was obtained.
  • Section 80LA(2) specifies the incomes which are eligible for deduction, inter-alia, under the said section 80LA(1A).
  • It is proposed to amend clause (d) of section 80LA(2) to provide that in addition to the income arising from the transfer of an asset being an aircraft, the income arising from the transfer of an asset, being a ship, which was leased by a unit of the IFSC to any person shall also be eligible for deduction under section 80LA(1A), subject to the condition that the unit has commenced operation on or before the 31st day of March, 2024.
  • It is also proposed to provide that the term ‘ship’ shall have the same meaning as provided under section 10(4F).
  • This amendment is proposed to come into effect from 1 April 2023 and accordingly would apply in relation to the AY 2023-24 and thereafter.

CHARITABLE TRUSTS AND INSTITUTIONS

Rationalization of provisions of Charitable Trusts and Institutions

[Section 10(23C), 11, 12, 12A, 12AA, 12AB, 13, 115BBI, 143, 153, 271AAE] 

  • The power of approval to any university, trust or fund or institution for charitable, public religious purpose or educational purpose or a hospital or such institution, which vested in the prescribed authority, such power of approval for the purposes of section 10(23C)(iv) to (via) will now be vested in the Principal Commissioner [P(CIT)] or Commissioner [(CIT)].
  • Retrospectively from AY 2021-22, property held by a trust or religious institution for public religious purposes, which includes any temple, mosque, gurdwara, church or other place notified under section 80G(2)(b) under section 11 or 10(23C), can earmark funds received for renovation or repairs of temples, etc., as corpus donations, to be utilized only for such specific purposes, provided the new prescribed conditions are followed.
  • However, if such trust or institution violates any of the prescribed conditions, then such corpus donation will be deemed to be its income in the year of default.
  • Further, from AY 2023-24, in case of any trust or institution, etc., covered under 10(23C)(iv) to (via), where in any year it cannot apply 85% of its income to its objects, then to claim exemption for accumulation of such income, it has to make application to the Assessing Officer (AO) and follow the prescribed conditions.
  • However, if such trust or institution, etc., does not utilize its accumulated income for such specific purposes, then such accumulated income shall be deemed to be the income of the previous year being the last of the years that the accumulated income should have been utilized.
  • Further, if such trust or institution, etc., violates any of the aforesaid prescribed conditions, then such accumulated income shall be deemed to be the income of the previous year when the prescribed conditions were violated. However, it is provided that the AO on specific application may give relief on this count to remove genuine hardship where the trust, etc., could not adhere to the prescribed conditions.
Rationalization of provisions of Charitable Trusts and Institutions

[Section 10(23C), 11, 12, 12A, 12AA, 12AB, 13, 115BBI, 143, 153, 271AAE] (Cont….) 

  • All trusts or institutions covered under section 11 and 12 and under 10(23C)(iv) to (via) from AY 2023-24, would now need to maintain books of accounts as prescribed, in cases where the income exceeds the maximum amount which is not chargeable to income-tax, without giving effect to the exemptions under the respective sections.
  • Sections 11 and 12 and 10(23C)(iv) to (via) from AY 2022-23, will be amended to provide for the methodology by which the P(CIT) / (CIT) can cancel a registration / approval granted to the fund or institution under the respective sections. Consequential amendments would be made to sections 143 and 153.
  • Similar to the provision of section 12A(1)(ba), trust or institution, etc., covered under 10(23C)(iv) to (via) from AY 2023-24, would also need to file its return of income under section 139(4C), within the time allowed under section 139, to avail the exemption under section 10(23C).
  • The provisions of sections 11 and 12 and 10(23C)(iv) to (via) from AY 2023-24 would now provide for the methodology to compute income chargeable to tax, in case the trust or institution, etc., is denied the deduction /exemption under the respective sections.
  • From AY 2023-24, it is proposed to insert a new section 271AAE in the Act to provide for penalty on trusts or institution, etc., covered under sections 10(23C), 11, 12AA and 12AB, which is equal to amount of income applied by such trust or institution for the benefit of a trustee or specified person, where the violation is noticed for the first time during any previous year and twice the amount of such income where the violation is noticed again in any subsequent year.
  • From AY 2023-24, an exit tax on a society or company or trust or institution carrying on charitable activity, voluntarily winding up its activities and dissolving or also merging with any other charitable or non-charitable institution, or converting into a non-charitable organization is now determined under Chapter XII-EB consisting of amended sections 115TD, 115TE and 115TF. This will be applicable to all trusts, institutions, etc., covered under sections 10(23C), 11, 12AA and 12AB.

Rationalization of provisions of Charitable Trusts and Institutions

[Section 10(23C), 11, 12, 12A, 12AA, 12AB, 13, 115BBI, 143, 153, 271AAE]

(Cont…) 

  • The provisions of sections 10(23C) and 13 are amended from AY 2023-24 to tax that part of the income of such trusts or institutions, etc., covered under the said sections, which result from any of the conditions being violated as stated in the respective sections. This part of the income which has lost the exemption under section 10(23C) or section 11, i.e., the ‘specified income’ would be taxed under the provisions of the new section 115BBI, in the manner stated therein.
  • Further, from AY 2022-23, it is proposed to amend sections 10(23C) and 11 to specify that any sum payable by any trust shall be considered as application of income in the previous year in which such sum is actually paid by it, irrespective of the previous year in which the liability to pay such sum was incurred by such trust, according to its method of accounting. Further, any sum which has been claimed to have been applied by a trust, etc., shall not be allowed as application of income in any subsequent previous year.
Benefits to related persons

[Section 271AAE] 

  • A new Section 271AAE is proposed to be inserted which provides for penalty on trusts or institution referred to in sections 10, 11 or 13.
  • It covers the following funds and institutions :
    • any trust, fund or institution referred to in sub-clause (iv), (v), (vi) and (via) of section 10(23C)
    • any trust or institution referred to in section 11 has violated the provisions of the twenty-first proviso to section 10(23C) or section 13(1)(c)

The Assessing Officer may direct that such person shall pay by way of penalty :

a) a sum equal to the aggregate amount of income applied, directly or indirectly, by such person, for the benefit of any person referred to in sub-section (3) of section 13, where the violation is noticed for the first time during any previous year; and

b) a sum equal to two hundred per cent. of the aggregate amount of income of such person applied, directly or indirectly, by that person, for the benefit of any person referred to in sub-section (3) of section 13, where violation is noticed again in any subsequent previous year. –

The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

VTPA Comments
  • Charitable organizations are being subjected to a host of stringent procedures, making their working extremely onerous. Further, the penalty provisions and the taxation of the charitable organizations also do not seem to encourage charity!

ADMINISTRATION AND ASSESSMENTS

Power of CBDT

[Section 119]

  • Section 119(2)(a) empowers the Board to issue general or special orders in respect of any class of incomes or class of cases to be followed by other income-tax authorities by way of relaxation or otherwise relating to the provisions of the sections specified therein, for the purpose of proper and efficient management of the work of assessment and collection of revenue.
  • It is proposed to insert the reference of section 234F relating to fee for default in furnishing return of income, to the list of sections mentioned therein in respect of which such relaxation can be granted by the Board.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.

Search and Seizure (Retention of books or documents)

[Section 132]

and Application of seized or requisitioned assets

[Section 132B] 

  • Section 132(8) provides that the books of account or other documents seized shall not be retained by the authorised officer for a period exceeding thirty days from the date of the order of assessment under section 153A or section 158BC(c) unless the reasons for retaining the same are recorded by him in writing and the approval of the listed authorities.
  • It is proposed that the above provisions would also be applicable to an order of assessment or reassessment or re-computation made in search cases.
  • Similar amendments have been made under section 132B(1)(i) and 132B(4) to include orders of assessment or reassessment or re-computation which relates to application of seized or requisitioned assets.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.

Power of survey

Definition of ‘Income-tax authority’

[Section 133A] 

  • Section 133A deals with power of survey. Explanation to section 133A defines the expression ‘income-tax authority’.
  • It is proposed to amend the said definition of ‘income-tax authority’ to mean such authority who is subordinate to the Principal Director General or the Director General or the Principal Chief Commissioner or the Chief Commissioner, as may be specified by the Board.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.
Assessment

[Section 143] 

  • As has been referenced in the ‘Charitable Trusts and Institutions’ section of this bulletin, the first proviso of section 143(3) has been consequentially amended to exclude any reference to trusts or institution under the first regime, i.e., for section 10(23C)(iv) to (via).
  • The second proviso to section 143(3) is now amended to include that if the Assessing officer is satisfied that a fund or institution under section 10(23C)(iv) to (via), or any trust or institution referred to in section 11, has committed any specified violation as referred to in Explanation 2 to the fifteenth proviso to clause (23C) of section 10 or the Explanation to section 12AB(4), he shall :
    • send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and
    • no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB:
  • The third proviso, which also referred to section 10(23C) (iv) to (via) has now been deleted.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.
Best judgement assessment

[Section 144] 

  • Section 144(1) of the Act has been amended to also include an updated return under section 139(8A).
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.

Reference to dispute resolution panel

[Section 144C] 

  • Section 144C of the Act empowers the Central Government to notify a scheme for the purposes of issuance of directions by the dispute resolution panel.
  • It is proposed to amend the proviso of Sub-section 14C extending the date for issuing directions for the purposes of the said sub-section from 31 March, 2022 to 31 March, 2024.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.
Faceless Assessment

[Section 144B] 

  • Section 144B has been amended to streamline the process of faceless assessment to address the various legal and procedural issues faced in the implementation of this section. Important highlights of this section are given below:
  • This section will be applicable for faceless assessment in reassessment or re-computation under section 143(3) or under section 144 as well as section 147 of the Act which was not included earlier.
  • The National Faceless Assessment Centre (NaFAC) shall assign the case selected for the purposes of faceless assessment to a specific Assessment Unit AU) and also intimate the assessee that assessment in his case shall be completed in accordance with the procedure laid down in this section.
  • A notice shall be served on the assessee through the NaFAC under section 143(3) or section 142(1) and the assessee may file his response within the specified time to the NaFAC which will then forward the same to the AU.
  • The AU may request the NaFAC for additional information, documents or evidence from the assessee or any other person and the NaFAC shall serve appropriate notice on the assessee for obtaining such information. The Assessee shall file his response for the same to the NaFAC which shall forward it to the AU.
  • On failure by the assessee to file response to the notices issued to it by the NaFAC, the NaFAC shall intimate the AU which is then required to :
    • Prepare in writing an income or loss determination proposal in cases where there is no variation prejudicial to the assessee and a show cause notice in other cases to call upon the assessee to submit why the proposed variation should not be made to the income of the assessee.
    • The assessee is then required to file his reply to the show cause notice with NaFAC, which shall be forwarded to AU or the AU will be intimated in case of failure of assessee to file a reply within prescribed time.
Faceless Assessment

[Section 144B]

·

  • The AU shall prepare an income or loss determination proposal and send it to NaFAC. The NaFAC shall convey to the AU on the basis of guidelines issued by the Board to prepare a draft order and only then can the AU prepare the draft order.
  • The Assessee can accept or object to such draft order and assessment should be completed by the AU as per the provisions therein.
  • It is also clarified that in case a personal hearing is requested, such hearing may be granted exclusively through video conferencing.
  • This amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
  • Further, sub-section 9 of section 144B which provided that assessment proceedings shall be void if the procedure mentioned in the section was not followed is now proposed to be deleted.
  • This amendment is proposed to come into effect from 1 April 2021, and accordingly would apply in relation to AY 2021-22 and thereafter.
VTPA Comments 
  • There has been multiple disputes and litigation and various difficulties are being faced by the administration and the taxpayers in the operation of the faceless assessment procedure
  • It has been upheld by various High Courts that due regard must be given to the principles of natural justice. In a recent judgment, the Hon’ble Delhi Court in the case of Bharat Aluminium Company Ltd v. Union of India [2022] 134 taxmann.com 187 (Delhi), held that :
    • Personal Hearing is assessee’s vested right and must be granted to the assessee in Faceless Assessment.
    • No distinction can be made between questions of facts and questions of law in the matter of Personal Hearing and assessee is free to raise all questions at such hearing
  • Keeping in mind the difficulties and unnecessary litigation, various amendments have been proposed.
  • It needs to be seen whether the revised procedures align with the decision of the Courts and expectations of the taxpayers and reduce undue hardships.

Issue of notice where income has escaped assessment

[Section 148] 

  • Section 148 of the Act provides for issuance of notice to a person before making the assessment, reassessment or re-computation under section 147 of the Act, requiring such person to furnish a return of his income or income of any other person in respect of which he is assessable under the Act, within specified time, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.
  • The proposed amendment inserts a new proviso under the first proviso to section 148 to the effect that approval to issue notice shall not be required where the AO, with the prior approval of the specified authority has passed an order under section 148A(d) of the Act that it is a fit case to issue a notice under the said section.
  • It is also proposed to amend Explanation 1 to the said section to provide that for the purposes of the said section and section 148A of the Act, the information with the AO which suggests that the income chargeable to tax has escaped assessment means the following:
    • any information in the case of the assessee for the relevant AY in accordance with the risk management strategy formulated by the Board from time to time; or
    • the information now includes any audit objection in regard to the assessment for the relevant AY in accordance with the risk management strategy formulated by the Board from time to time; or
    • any information received under an agreement referred to in section 90 or section 90A of the Act; or
    • any information made available to the AO under the scheme notified under section 135A of the Act; or
    • any information which requires action in consequence of the order of a Tribunal or a Court.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.

Issue of notice where income has escaped assessment

[Section 148]

  • It is further proposed to amend Explanation 2 of section 148 of the Act to provide that the AO shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.
  • This amendment is proposed to come into effect, retrospectively, from 1 April 2021.

Conducting inquiry, providing opportunity before issue of notice under section 148

[Section 148A] 

  • Section 148A of the Act relates to the conduct of inquiry by the relevant authority and an opportunity be provided to the assessee before issue of notice under section 148 of the Act.
  • Section 148A(b) provides an opportunity of being heard to the assessee to show cause as to why a notice under section 148 of the Act should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant AY and results of enquiry conducted, if any, with the prior approval of specified authority. It is proposed to omit the requirement of approval of specified authority in clause (b) of section 148.
  • It is further proposed to insert a new clause (d) in the proviso to the said section to provide that the provisions of the said section shall not apply in cases where the AO has received any information under the scheme notified under section 135A of the Act, pertaining to income chargeable to tax escaping assessment for any AY in the case of the assessee.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.

Prior approval for assessment, reassessment or re-computation in certain cases

[Insertion of new Section 148B] 

  • A new Section 148B of the Act is proposed to be inserted relating to the prior approval for assessment, reassessment or re-computation in certain cases.
  • The proposed new section seeks to provide that no order of assessment or reassessment or re-computation under the Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, in respect of an assessment year to which clause (i), clause (ii), clause (iii) or clause (iv) of the Explanation 2 to section 148 apply.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.

Time limit for issuance of notice under Section 148 for assessment, reassessment or re-computation of income

[Section 149] 

  • Section 149 of the Act provides the time limit for issuance of notice under section 148 of the Act for assessment, reassessment or re-computation of income.
  • It is proposed to amend clause (b) of sub-section (1) of section 149 of the Act to provide that no notice under section 148 shall be issued for the relevant AY after three years but prior to ten years from the end of the relevant AY unless the AO has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of:
    • an asset; or
    • expenditure in respect of a transaction or in relation to an event or occasion; or
    • an entry or entries in the books of account, which has escaped assessment amounts to or likely to amount to INR 5 million or more.
  • The amendment is proposed to come into effect from 1 April 2022.
  • It is also proposed to amend the first proviso to sub-section (1) of section 149 of the Act to provide that no notice under section 148 of the Act shall be issued at any time in a case for the relevant AY beginning on or before 1 April 2021, if a notice under section 148 or section 153A or section 153C of the Act could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of subsection (1) of section 149 or section 153A or section 153C of the Act, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021.
  • This amendment is proposed to be made retrospective from 1 April 2021.

Time limit for issuance of notice under Section 148 for assessment, reassessment or re-computation of income

[Section 149]

  • It is also proposed to insert a new sub-section (1A) to section 149 of the Act to provide that notwithstanding anything contained in sub-section (1), where the income chargeable to tax represented in the form of an asset or expenditure in relation to an event or occasion of the value referred to in clause (b) of sub-section (1), has escaped the assessment and the investment in such asset or expenditure in relation to such event or occasion has been made or incurred, in more than one previous years relevant to the AYs within the period referred to in clause (b) of sub-section (1) of the said section, notice under section 148 of the Act shall be issued for every such AY for assessment, reassessment or re-computation, as the case may be.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.

Time limit for completion of assessment, reassessment and re-computation

[Section 153]

  • It is proposed to insert a new sub-section (1A) in the said section to provide that where an updated return is furnished under sub-section (8A) of section 139, an order of assessment under section 143 or section 144 may be made at any time before the expiry of nine months from the end of the financial year in which such return was furnished.
  • Section 153(3) is proposed to be amended to provide that a fresh order under section 92CA of the Act, in pursuance of an order setting aside or cancelling an order under section 92CA of the Act may be made at any time before expiry of nine months from the end of FY in which the order under section 254, 263 or 264 of the Act is passed.
  • Section 153(5) is proposed to be amended to include an order passed by TPO under section 92CA of the Act in consequence to an order under section 263 of the Act.
  • Section 153(5A) is proposed to be newly inserted to provide time limit to the AO to modify the order of assessment or reassessment or re-computation passed in conformity with order of TPO passed under section 92CA of the Act, giving effect to an order or direction under section 263 of the Act, within two months from the end of the month in which the order of TPO is received by the AO.
  • Explanation 1 to the said section provides the time limit in certain cases which are required to be excluded while computing the period of limitation under the said section.
  • Consequent to the changes made in section 263 of the Act, it is proposed to modify clause (iii) of Explanation 1 to omit the reference made in respect of trusts or institution under the first regime ‘sub clause (iv) or (v) or (vi) or (via) of clause (23C) of Section 10’ to be excluded while computing the period of limitation.
  • The above amendments are proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Time limit for completion of assessment, reassessment and re-computation

[Section 153]

  • A new clause (xii) is proposed to be inserted in the Explanation 1 (supra) to provide that the period commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A of the Act and ending on the date on which the books of account or other documents, or any money, bullion , jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A of the Act, as the case may be, are handed over to the AO having jurisdiction over the assessee.
    • in whose case such search is initiated under section 132 or such requisition is made under section 132A of the Act; or
    • to whom any money, bullion, jewelry or other valuable article or thing seized or requisitioned belongs to; or
    • to whom any books of account or documents seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, or one hundred and eighty days, whichever is less, should be excluded while computing period of limitation for the purpose of assessment, reassessment or re-computation in respect of the assessee.
  • This amendment is proposed to come into effect retrospectively from 1 April 2021.

Time limit for completion of assessment under section 153A

[Section 153B]

  • Section 153B provides the time limit for completion of assessment or reassessment under section 153A in the case of an assessee in whose case a search has been conducted under section 132 or books of account, other documents or any assets are requisitioned under section 132A. It further provides the period of limitation for completion of assessment or reassessment under section 153C.
  • It is proposed to insert a new sub-section (4) in section 153B of the Act to provide that nothing contained in the said section shall apply to any search under section 132 or requisition done under section 132A of the Act on or after the 1 April 2021.
  • The above amendments are proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
  • It is proposed to insert a new Explanation to the said section, to provide for exclusion of the period commencing from the date on which a search is initiated under section 132 or a requisition is made under section 132A of the Act and ending on the date on which the books of account or other documents, or any money, bullion, jewellery or other valuable article or thing seized under section 132 or requisitioned under section 132A of the Act, as the case be, are handed over to the AO having jurisdiction over to the assessee, in whose case such search is initiated under section 132 or such requisition is made under section 132A of the Act, as the case may be or one hundred and eighty days, whichever is less.
  • The amendment is proposed to come into effect retrospectively from 1 April 2021.
VTPA Comments
  • The above amendments which are proposed in the name of rationalization are in substance extremely onerous on the taxpayer and gives wide powers to the AO.
  • The provisions in respect of reopening have been expanded in scope and the various safeguards which had evolved with jurisprudence, in the new regime of re-opening are being done away with.
  • It would have to be seen how the courts will interpret the new provisions of re-opening as the fine line between review of the AO’s order and reopening seems to be blurred.

Modification and revision of notice in certain cases

[Insertion of new Section 156A]

  • A new section 156A is proposed to be inserted relating to modification and revision of notice in certain cases.
  • Section 156A of the Act provides that where any tax, interest, penalty, fee or any other sum payable in respect of notice issued under section 156 of the Act is reduced in pursuance of any order passed by any adjudicating authority under Insolvency and Bankruptcy Code, 2016 (IBC), as a result of which the AO serves a notice modifying the demand payable in conformity with such adjudicating order, such revised notice shall be deemed to be a notice under section 156 of the Act.
  • It is further proposed to provide that where the order referred by the Adjudicating Authority is modified by National Company Law Appellate Tribunal or the Supreme Court, as the case may be, the AO shall modify the notice of demand accordingly.
  • This amendment will take effect from l April 2022 and will accordingly apply in relation to AY 2022-2023 and subsequent AYs.
VTPA Comments
  • There have been an increasing number of cases wherein companies’ adjudication under the IBC, wherein the demand payable has been modified by the Adjudicating Authority post adjudication. In order to give effect to the same under the Act, section 156A has been introduced to modify the demand payable by such companies.

Procedure when in an appeal by revenue an identical question of law is pending before Supreme Court

[Section 158AA]

  • Section 158AA of the Act relates to procedure when in an appeal by revenue, an identical question of law is pending before the Hon’ble Supreme Court, for same assessee in different AYs. With the introduction of section 158AB of the Act (discussed below) a sunset clause is proposed to be inserted to provide that no direction shall be given under the sub-section (1) of section 158AA of the Act on or after the 1st day of April, 2022.
  • This amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Procedure where an identical question of law is pending before the High Courts or Supreme Court

[Section 158AB]

  • New Section 158AB is proposed to be inserted after section 158AA of the Act to provide a procedure where an identical procedure of law is pending before the Hon’ble High Court (HC) or Hon’ble Supreme Court (SC).
  • Where the collegium [comprising of two or more Chief Commissioners (CCIT) or Principal Commissioners (PCIT) or Commissioners of Income-tax (CIT), as specified by the Board in this regard] is of the opinion that any question of law arising in the case of an assessee for any AY (‘relevant case’) is identical with a question of law already raised in his case or in the case of any other assessee for an AY, which is pending before the jurisdictional HC or the SC or in a special leave petition under Article 136 of the Constitution, against the order of the Appellate Tribunal or the jurisdictional HC, as the case may be, in favour of such assessee (‘other case’), in such case, it may, decide and intimate the CIT or PCIT not to file any appeal, at this stage, to the Appellate Tribunal or to the HC against the order of the Commissioner (appeals) or the Appellate Tribunal, as the case may be.
  • On receiving the information, the PCIT or CIT shall direct the AO to make an application in the prescribed form within a period of sixty days from the date of receipt of the order of the Commissioner (Appeals) or one hundred and twenty days from the date of receipt of the order of the Appellate Tribunal, stating that an appeal on the question of law arising in the relevant case may be filed when the decision on such question of law becomes final in the other case.
  • The above application shall be made only if an acceptance is received from the assessee that the question of law in the other case is identical to that arising in the relevant case. Otherwise, the PCIT or CIT shall proceed in accordance with the provisions contained in section 253(2) or in section 260A(2) of the Act.
  • Further it also provides that where the order of the Commissioner (Appeals) or the order of the Appellate Tribunal, is not in conformity with the final decision on the question of law in the other case, when received, the Principal Commissioner or Commissioner may direct the AO to appeal to the Appellate Tribunal or the jurisdictional High Court, as the case may be, against such order.

Procedure where an identical question of law is pending before the High Courts or Supreme Court

[Section 158AB]

  • Such appeal shall be filed within a period of sixty days from the date on which the relevant order is communicated to the Principal Commissioner or Commissioner as per the procedure specified by the Board.
  • This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments The above amendment may help in reducing litigation.

Dispute Resolution Committee

[Section 245MA]

  • In order to further reduce the number of disputes and provide early tax certainty to small and medium taxpayers, a new scheme was introduced by the Finance Bill, 2021, section 245MA pertaining to the constitution of Dispute Resolution Committee (DRC).
  • This section has been amended and a new sub-section 2A has been inserted to include a provision that enables the Assessing Officer to pass an order giving effect to the order or directions of the Dispute Resolution Committee under the said section :

(a) in a case where the specified order is a draft of the proposed order of assessment under sub-section (1) of section 144C, pass an order of assessment, reassessment or recomputation; or

(b) in any other case, modify the order of assessment, reassessment or recomputation

  • This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • The existing section does not contain any provision which will enable the Assessing Officer to pass an order giving effect to the order of the DRC and hence this will allow the new provisions to be implemented.

Appeals to the Appellate Tribunal

[Section 253]

Procedure of Appellate Tribunal

[Section 255]

  • In an effort to further strengthen the Faceless Appeals Scheme, provisions for notifying faceless schemes were introduced through the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from 01 November. 2020 for section 253 and through Finance Act, 2021 with effect from 01.04.2021 for section 255.
  • The dates of limitation notifying such schemes for section 253 and section 255 was 31 March 2022 and 31 March 2023 respectively.
  • As the schemes governing the procedures to be followed needs to be formulated after due consultations with Ministry of Law & Justice, it is proposed to extend the date for issuing directions to 31 March 2024.
  • This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • The essence of having the ITAT is to see that justice is meted out both in spirit and substance. As the ITAT is the final fact finding authority, it requires careful consideration of the factual aspects of the case. A personal hearing and debating the issues and giving an opportunity to be heard are the cornerstone of justice, embedding the principles of natural justice.
  • Therefore, moving towards a complete faceless appeals scheme may prove to be against such principles as has been held by the Hon’ble Supreme Court in a plethora of cases.

Revision of orders prejudicial to revenue

[Section 263]

  • Section 263 provides for revision of order which is erroneous in so far as it is prejudicial to the interests of revenue. While this includes an order passed by an Assessing Officer, there was no clarity as to who has the power under section 263 to revise the order of the Transfer Pricing Officer (TPO) passed under section 92CA.
  • It is thus proposed to amend the provisions of section 263 to bring within its ambit, the revision of order passed by the TPO.
  • It provides that the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or Commissioner who is assigned the jurisdiction of transfer pricing may call for and examine the record of any proceeding under this Act,
  • If he considers that any order passed by the TPO, working under his jurisdiction, to be erroneous in so far as it is prejudicial to the interests of revenue, he may pass an order directing revision of the order of TPO. – This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA comments
  • The Mumbai ITAT in the case of Essar Steel Ltd [TS-698-ITAT-2012(Mum)-TP] and Tata Communications Ltd. [[2014] 41 taxmann.com 486 (Mumbai – Trib.)] held that the CIT does not have power to revise the TPO’s order.
  • However, now with this amendment the jurisdictional authority under whom the TPO functions can revise the TPO’s order under section 263.

SPECIAL RATES OF TAX

Reference to TPO

[Section 92CA]

  • Section 92CA of the Act empowers the Assessing Officer (AO) to make a reference to a transfer pricing officer (TPO) with the previous approval of the Principal Commissioner or Commissioner, in relation to such transactions where the assessee has entered into an international transaction or specified domestic transaction in any previous year. On such reference by the AO, TPO carries out transfer pricing assessment and determines the arm’s length price of the transactions.
  • The Finance Act, 2020 empowered the Central Government to make schemes for the purpose of determination of arm’s length price by the TPO in a faceless manner and to issue directions and notifications upto 31 March 2022.
  • It is proposed to extend the aforementioned timeline for the Central Government by two years i.e., 31 March 2024.
  • This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter
VTPA Comments
  • The amendment provides extension of two years to the Central Government to ensure a smooth introduction of a faceless scheme for faceless transfer pricing proceeding.
  • Considering the complexity of transfer pricing it remains a moot point whether a faceless assessment would do justice to the same.

WITHHOLDING TAX PROVISIONS

Payment on transfer of certain immovable property other than agricultural land

[Section 194-IA]

  • Section 194-IA states that any person, being a transferee of certain immovable property other than agricultural land, shall at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon.
  • The threshold limit for above section is INR 50 lakh.
  • The proposed amendment now requires tax to be tax deducted at source on the stamp duty value of such property, whichever is higher.
  • Further, it is proposed that where the consideration for the transfer of immovable property and the stamp duty of such immoveable property is below INR 50 lakh, then no tax is deducible at source.
  • This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.

Payment of rent by certain individuals or Hindu undivided family

[Section 194-IB]

Special provision for deduction of tax at source for non-filers of income-tax return

[Section 206AB]

special provision for collection of tax at source for non-filers of income-tax return

[Section 206CCA]

  • Section 194-IB of the Act pertains to deduction of tax on rent paid by certain individuals or a HUF, for whom a simplified tax deduction system has been provided without requirement of TAN.
  • Section 194-IB of the Act is sought to be amended to provide, that provisions of section 206AB of the Act, which pertains to a special provision of higher deduction for non-filers of income tax, will not apply in relation to such transactions. A corresponding amendment has also been made to section 206AB of the Act.
  • Section 206CCA of the Act pertains to a special provision for higher collection in case of non-filers of income tax.
  • Sections 206AB and 206CCA of the Act, define ‘specified person’ to mean one who has not filed return of income for the AY relevant to the previous year immediately preceding the FY in which tax is to be deducted or collected, as the case may be, and the amount of tax collected and deducted at source is INR 50,000 or more in the said previous year. It is proposed to amend these sections to reduce the two-year requirement to one year.
  • Amendments are also proposed to be made to rectify certain drafting errors in sections 206AB and 206CCA of the Act, wherein the terms ‘deductor’ and ‘collector’ were used incorrectly, and to amend the phrase ‘filing of return’ to ‘furnishing of return’.
  • These amendments are proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.

Deduction of tax on benefit of perquisite in respect of business or profession

[Insertion of new section 194R]

  • A new section 194R is proposed to be introduced whereby a person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, is required to deduct tax at 10% of the value or aggregate of value of such benefit or perquisite.
  • In case the benefit or perquisite is wholly in kind, or partly in cash and partly in kind but such part in cash is not sufficient to meet the liability of deduction of tax in respect of the entire value of such benefit or perquisite, the person responsible for providing the benefit or perquisite is to ensure that tax has been paid.
  • The term ‘Person responsible for providing’ is defined to mean person providing such benefit or perquisite, or in case of a company, the company itself including the principal officer thereof.
  • The above provisions will not apply if:
    • The value of such benefit or perquisite do not exceed INR 20,000
    • In case of an individual or HUF, the total sales / gross receipts / turnover does not exceed INR 10,000,000 in case of business income or INR 5,000,000 in case of profession during the FY immediately preceding the FY in which such benefit or perquisite is provided.
  • This amendment is proposed to come into effect from 1 July 2022.
VTPA Comments
  • This would be burdensome requirement on the transferee of immoveable property

Consequences of failure to deduct or pay

[Section 201]

  • Section 201 of the of the Act deals with the consequences of failure to deduct tax or the failure to deposit the same after deducting, to the credit of the Central Government.
  • Sub-section (1A) of this section provides for the simple interest to be paid in case of such failure to deduct or deposit.
  • A second proviso has been inserted to sub-section (1A) which states where any order is made by the Assessing Officer for such default under 201(1), the interest shall be paid in accordance with such order made by the Assessing Officer.
  • This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.

Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.

[Section 206C]

  • Section 206 of the of the Act deals with the consequences of failure to collect tax or the failure to deposit the same after collecting to the credit of the Central Government.
  • A second proviso has been inserted after sub-section (7) which states where any order is made by the Assessing Officer for such default under 206C(6A), the interest shall be paid in accordance with such order made by the Assessing Officer.
  • This amendment is proposed to come into effect from 1 April 22, and accordingly would apply in relation to AY 2022-23 and thereafter.

OTHER AMENDMENTS

Definition of Slump Sale

[Section 2(42C)]

The definition of Slump sale under section 2(42C) is proposed to be amended to substitute the word ‘sales’ with ‘transfer’ as defined in section 2(47) of the Act.

This amendment is proposed to have come into effect retrospectively from 1 April 2021, and accordingly would apply in relation to AY 2021-22 and thereafter.

VTPA Comments
  • The Hon’ble Bombay High Court in the case of Bharat Bijlee Limited [2014] (46 taxmann.com 257) denied taxability of slump exchange in absence of monetary consideration. It observed that only if the transfer is by way of sale, it could be termed as a slump sale to attract section 50B of the Act.
  • The above decision was overruled by an amendment to section 2(42C) by the Finance Act, 2021. The amendment provided that slump sales include transfer of an undertaking by any means (and not only by way of sale) as slump sale and included taxation of slump exchange under the head capital gains. However, an anomaly remained in section 2(42C) of the Act with regard to the term ‘sales’ being used while referring to the value being assigned to assets and liabilities. The proposed amendment removes such anomaly.

Income not forming part of Total Income

[Section 10 (8)/(8A)/(8B) and (9)]

  • A proviso is proposed to be inserted to withdraw exemption available on specified income received by the following:
    • Individual who is assigned with duties in connection with any co-operative technical assistance program entered between Central Government and Government of foreign state
    • Consultant who receives remuneration/fee from the fund available to an international organization under a technical assistance grant agreement between the agency and the Government of a foreign State
    • Individual who is assigned with duties in India in connection with any technical assistance program and project in accordance with an agreement entered into by the Central Government and the agency
    • Family members accompanying above person in India
  • The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

No deduction shall be allowed relating to expenditure incurred in relation to income not includible in total income

[Section 14A]

Section 14A provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

It is proposed to amend section 14A(1) to provide so as to include a non-obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act.

It is also proposed to insert an Explanation to the said section to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of the said section shall apply and shall be deemed to have been always applied in a case where the income, not forming part of the total income, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not form part of the total income.

The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

VTPA Comments
  • The above amendment is introduced to overrule the decisions of the Supreme Court that no disallowance under section 14A of the Act can be made in cases where no exempt income has accrued, arisen or received by the assessee during an assessment year.
  • The Finance Bill proposes to overturn the below settled position in law as laid down by the Hon’ble Supreme Court in the case of CIT vs. Chettinad Logistics (P.) Ltd [2018] 95 taxmann.com 250 (SC), PCIT vs. GVK Projects and Technical Services Ltd ([2019] 106 taxmann.com 181 (SC) and various High Courts, which have held that in the absence of any exempt income, disallowance under Section 14A of the Act of any amount is not permissible.

Covid related measures

Definition of the term ‘perquisite’

[Section 17]

  • Section 17(2) provides the definition of the term ‘perquisite’ and proviso to the said clause provides certain exclusions which shall not be part of ‘perquisite’. Clause (ii) of the said proviso provides that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in certain specified cases shall not form part of perquisite.
  • A new Clause(ii) to the above proviso has been inserted to provide that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of any illness relating to COVID-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be forming part of ‘perquisite’.
  • The above amendment will take effect retrospectively from 1 April 2020 and will apply from AY 2020-2021.
VTPA Comments
  • The Finance Ministry has released a Press Statement dated 25 June 2021 providing relief measures towards medical treatment expenditure and compensation received by family members in relation to the death of an individual. These measures have now been introduced by way of the above amendment.

Covid related measures

Income from other sources

[Section 56(2)(x)]

  • Section 56(2)(x) provides that where any person receives, in any previous year, from any person or persons any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum shall be the income of the person receiving such sum. Proviso to the said clause provides for certain exclusions which shall not be part of the income specified in the clause.
  • It is proposed to amend the proviso to section 56(2)(x) and insert two new clauses (XII) and (XIII) in the proviso so as to provide that:
    • any sum of money received by an individual, from any person, in respect of any expenditure actually incurred by him on his medical treatment or treatment of any member of his family, in respect of any illness related to COVID-19 subject to such conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person;
    • any sum of money received by a member of the family of a deceased person, from the employer of the deceased person (without limit), or from any other person or persons to the extent that such sum or aggregate of such sums does not exceed ten lakh rupees, and where the cause of death of such person is illness relating to COVID-19 and the payment is, received within twelve months from the date of death of such person, and subject to such other conditions, as may be notified by the Central Government in this behalf, shall not be the income of such person.
  • The term ‘family’ in both the above clauses shall have the same meaning as assigned to in the Explanation 1 to section 10(5).
  • The above amendment will take effect retrospectively from 1 April 2020 and will apply from AY 2020-2021.
Cash credits

[Section 68]

  • Section 68 of the Act provides that where any sum is found to be credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
  • It is proposed to amend the first proviso to section 68 to provide that where the sum so credited consists of loan or borrowing or any such amount by whatever name called, any explanation offered by the assessee shall be deemed to be not satisfactory unless the:
    • the person in whose name such credit is recorded in the books of the assessee also offers an explanation about the nature and source of such sum so credited, and
    • such explanation in the opinion of the Assessing Officer has been found to be satisfactory.
  • Further, the second proviso to section 68 is also amended such that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.
  • The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.
VTPA Comments
  • The amendment now creates an onerous burden on the borrower, as in reality he may have no knowledge or access to the lender’s books. It remains to be seen how the courts will interpret this provision.

Carry forward and set-off of losses in case of certain companies

[Section 79]

  • Section 79(2) is proposed to be amended by inserting a new clause (f) which provides that the provisions of sub-section (1) shall not apply to an erstwhile public sector company subject to the condition that the ultimate holding company of such erstwhile public sector company, immediately after the completion of strategic disinvestment, continues to hold, directly or through its subsidiary or subsidiaries, at least fifty one per cent of the voting power of the erstwhile public sector company in aggregate.
  • Section 79(3) is proposed to be newly inserted to provide that notwithstanding anything contained in section 79(2), if the condition specified in clause (f) (as mentioned above) is not complied with in any previous year after the completion of strategic disinvestment, the provisions of section 79(1) shall apply for such previous year and subsequent previous years.
  • Explanation to the section has been amended to include the definition of the terms ‘erstwhile public sector company’ and ‘strategic disinvestment’ and it shall have the meaning assigned to in clause (ii) and (iii) of the Explanation to clause (d) of sub-section (1) of Section 72A respectively.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • The above amendment has been introduced in order to facilitate the strategic disinvestment of public sector companies (such as Air India, Neelachal Ispat Nigam Ltd, etc.)

No set off of losses consequent to search, requisition and survey

[Section 79A]

  • A new provision under Section 79A is proposed to be introduced after Section 79 of the Act.
  • The proposed section provides that notwithstanding anything contained in the Act, where consequent to a search proceeding under section 132 of the Act and section 132A of the Act or survey proceedings under section 133A of the Act [other than survey for withholding tax compliances under section 133A(2A) of the Act], total income of the taxpayer includes any undisclosed income, then, no set off of any loss (including unabsorbed depreciation) shall be allowed against such undisclosed income.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Avoidance of tax by certain transactions in securities

[Section 94]

  • Section 94 of the Act contains anti avoidance provisions to deal with transactions in securities and units of mutual fund which, inter-alia, include dividend stripping and bonus stripping.
  • It is proposed to amend section 94(8) such that the provisions of said section shall also be applicable to securities.
  • It is further proposed to substitute clause (aa) of the Explanation to the said section, so as to substitute and explain the definition of the expression ‘record date’.
  • It is also proposed to amend clause (d) of the aforesaid Explanation to amend the definition of the term ‘unit’, so as to include units of business trusts such as Infrastructure Investment Trust (InvIT) or Real Estate Investment Trust (REIT) or Alternative Investment Funds (AIFs).
  • The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.
VTPA Comments
  • The amendment now takes into account the below circumstances:
    • bonus stripping undertaken in case of securities,
    • units of InvIT or REIT or AIFs,
    • dividend stripping to the units of new pooled investment vehicles such as InvIT or REIT or AIFs
  • The Bangalore ITAT in the case of B.G. Mahesh [2014] (43 taxmann.com 158) and Pune ITAT in the case of Adar Poonawalla (ITA No.2252/PUN/2014) ruled in favor of the taxpayers by holding that there was no legislative authority to apply Section 94(8) of the Act to bonus stripping and deny capital losses intentionally created by the taxpayers. The said rulings would stand overruled by this proposed amendment.

Furnishing of updated return

[Section 139]

  • Section 139 deals with provisions for filing of return of income. It casts obligation on the assessee to file income tax return within a definite time period.
  • Newly inserted sub-section (8A) of section 139 provides that any person, whether or not he has furnished a return under sub-section (1) (4) or (5), for relevant assessment year may furnish an updated return of his income or the income of any other person in respect of which he is assessable under the Income-tax Act, for the previous year relevant to such assessment year, in the prescribed form, verified in the prescribed manner and setting forth such particulars as may be prescribed, at any time within twenty-four months from the end of the relevant assessment year.
  • However, the above would not apply if the updated return, is a return of a loss or has the effect of decreasing the total tax liability determined on the basis of return furnished under sub-section (1) (4) or (5) or results in refund or increases the refund due on the basis of return already furnished.
  • A person shall not be eligible to furnish an updated return under this sub-section, where:
    • a search has been initiated under section 132 or
    • books of account or other documents or any assets are requisitioned under section 132A or
    • a survey has been conducted under section 133A or
    • a notice has been issued under section 132 or 132A in the case of search and seizure of any other person
  • The above search should have been initiated or survey should have been conducted or requisition is made in the relevant assessment year or two assessment years preceding such assessment year.

Furnishing of updated return

[Section 139]

Cont…)

  • No updated return shall be furnished:
    • if an updated return has been already furnished for the relevant AY
    • any proceeding for assessment or reassessment or re-computation or revision is pending or has been completed for the relevant AY, or
    • the AO has information in respect of such person for the relevant AY in his possession under other relevant legislations prescribed, or
    • information for the relevant assessment has been received under an agreement referred to in sections 90 or 90A of the Act in respect of such person and the same has been communicated to him, prior to the date of his filing of such updated return, or
    • any prosecution proceedings have been initiated for the relevant AY in respect of such person prior to furnishing the updated return, or
    • he is a person or belongs to a class of persons, as maybe notified by CBDT in this regard.
  • It is also proposed to insert a clause in the Explanation to sub-section (9) of the said section to provide that a return filed under the proposed sub-section (8A) shall be defective unless such return is accompanied by the proof of payment of tax as required under the proposed section 140B of the Act.
  • Consequential amendments have been made under section 144, section, 153, section 234A, section 234B and section 276CC.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Furnishing of updated return

[Section 140B]

  • The proposed new section provides that in the case of an assessee, where return of income under sub-section (1) or (4) of section 139 has been furnished or not by such assesse shall be liable to pay such tax together with interest including interest under section 234A, 234B, 234C, and fee payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, along with the payment of additional income-tax, before furnishing such return.
  • The tax payable shall be computed after taking into account the following:–

(i) the amount of tax, if any, already paid as advance tax;

(ii) any tax deducted or collected at source;

(iii) any relief of tax claimed under section 89;

(iv) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India;

(v) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and

(vi) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD.

  • Such updated return shall be accompanied by proof of payment of such tax, additional income-tax, interest and fee.
  • It is also proposed that the additional income-tax, payable at the time of furnishing the return under sub-section (8A) of section 139, shall be equal to twenty-five per cent of aggregate of tax and interest payable, as determined above, if such return is furnished after expiry of the time available under sub-section (4) or sub-section (5) of section 139 and before completion of period of twelve months from the end of the relevant assessment year.
  • However, if such return is furnished after the expiry of twelve months from the last date of the relevant assessment year but before completion of the period of twenty-four months from the last date of the relevant assessment year, the additional income-tax payable shall be fifty per cent of aggregate of tax and interest payable, as determined above.
  • It is proposed to insert Explanation in sub-section (3) to provide that for the purpose of computing additional income-tax, ‘tax’ shall include surcharge and cess, by whatever name called, on such tax.

Furnishing of updated return

[Section 140B]

  • It is also proposed that if any difficulty arises in giving effect to the provisions of the proposed section, the Board may, with the approval of the Central Government, issue guidelines, by notification in the Official Gazette, for the purpose of removing the difficulty and every such guideline shall be laid before each House of Parliament.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Succession to business otherwise than on death

[Section 170]

Effect of order of tribunal or court in respect of business reorganization

[Insertion of new Section 170A]

  • Section 170 provides that in case of succession, the predecessor shall be assessed in respect of the income of the previous year in which the succession took place up to the date of succession and the successor shall be assessed in respect of the income of the previous year after the date of succession.
  • Section 170(2A) has been inserted, namely where there is a business reorganisation, the assessment or reassessment or other proceedings, made on the predecessor during pendency of such reorganisation, shall be deemed to have been made on the successor and all the provisions of this Act shall, so far as may be, apply accordingly.
  • Section 170A has further been added wherein in a case of business reorganisation, where prior to the date of order of a High Court or tribunal or an Adjudicating Authority any return of income has been furnished by the successor under section 139 to the relevant AY to which such order applies, such successor shall furnish, within a period of six months from the end of the month in which the said order was issued, a modified return in such form and manner, as may be prescribed, in accordance with such order.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Appeal by a person denying liability to deduct tax in certain cases

[Section 248]

Refund for denying liability to deduct tax in certain cases.

[Section 239A].

Appealable orders before Commissioner (Appeals)

[Section 246A]

  • Section 248 of the of the Act states that where no tax was required to be deducted on any income, other than interest, under section 195, but has been deducted by the payer, such payer may appeal to the Commissioner (Appeals) for a declaration that no tax was deductible on such income.
  • This section is amended to provide that no such appeal shall be filed on or after 1 April 2022.
  • A new section 239A is proposed to be inserted in order to enable the payer, who has made the deduction of tax under such an agreement or arrangement and borne the tax liability, when no tax deduction was required, to file an application for refund of such tax deducted before the Assessing Officer.
  • Once an application is made to the Assessing Officer, he may, by an order, accept or reject such application after giving reasonable opportunity of being heard to the applicant.
  • Section 239A(3) allows the Assessing Officer to make such enquiry as he considers necessary before passing an order as above.
  • The said order shall be passed within six months from the end of the month in which an application is received.
  • Such person also can, if he is not satisfied with the order of the Assessing Officer, file an appeal against such order before the Commissioner (Appeals).
  • Consequently, section 246A is also amended to include an order made under section 239A.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • The above amendment is beneficial for the payer as he can apply to the AO for refund of taxes deducted at source, instead of filing an appeal before the Commissioner (Appeals) for payments made to a non-resident.

Tax on Income of New Manufacturing Domestic companies

[Section 115BAB]

  • Section 115BAB(2)(a) requires that the domestic company should be set-up and registered on or after 1 day October 2019, and should have commenced manufacturing or production of an article or thing on or before 31 March 2023.
  • It is proposed to extend the date of commencement of manufacturing or production of an article or thing from 31 March 2023 to 31 March 2024.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • The above amendment will encourage multinational companies to set up manufacturing units in India to obtain concessional tax rate benefits.

Tax on certain dividends received from foreign companies.

[Section 115BBD]

  • Section 115BBD provides that in case of an Indian company whose total income includes any income by way of dividends declared, distributed or paid by a foreign company, in which the said Indian company holds twenty-six per cent or more in nominal value of the equity share capital, such dividend income shall be taxed at the rate of fifteen per cent.
  • A new sub-section (4) is inserted to withdraw the benefit of concessional rate of tax on the dividend income received by the specified Indian company from a foreign company in any AY beginning on or after 1 April 2023.
  • The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.
VTPA Comments
  • The amendment will bring foreign subsidiary / associate and domestic subsidiary at par in terms of taxability of receipt of dividend from such subsidiaries in the hands of Indian holding company.
  • However, if the Indian company declares dividend from such dividend received, then the foreign subsidiary / associate would be eligible for deduction under section 80M of the Act.

Special provisions for payment of tax (AMT) by certain persons other than a company

[Section 115JC and Section 115JF]

  • Section 115JC of the Act is proposed to be amended to reduce AMT for Co-operative societies from existing 18.5% to 15%.
  • Consequential amendment has been made in section 115JF (Definition of AMT).
  • The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

 Liability of Directors of a Private Company

[Section 179]

  • Section 179 provides that where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.
  • The amendments in the section aim to remove the anomaly by removing the words in liquidation from the marginal note, as the section applies to all companies.
  • Further, the words tax due is widened to include the word ‘fees’.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter

PENALTY AND PROSECUTION

Penalty where search has been initiated

[Section 271AAB]

Penalty in respect of certain income

[Section 271AAC] Penalty for false entry, etc., in books of account

[Section 271AAD]

  • Sections 271AAB, 271AAC, 271AAD of the Act provide for penalties for undisclosed income, unexplained credits or expenditures, or deliberate falsification or omission in books of accounts.
  • The above sections give powers to the Assessing Officer to levy penalty in eligible cases.
  • An amendment is proposed to also enable the Commissioner (Appeals) to levy penalty under these sections to that along with the Assessing Officer.
  • Therefore, in these sections, after the term ‘The Assessing Officer’, the words Commissioner (Appeals)’ is proposed to be inserted.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA comments
  • The Commissioner (appeals) will now have concomitant powers with Assessing Officer to levy penalties similar to sections 270A, 271, 271A, 271AA and 271G.
  • This amendment has been proposed to deter noncompliance among tax payers.

Penalty for failure to deduct tax at source

[Section 271C]

  • Section 271C of the Act pertains to penalty for failure to deduct tax at source.
  • 271(1)(b)(ii) is proposed to be amended to omit the term second proviso as the first proviso was already omitted earlier.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • The First Proviso to the section 194B was omitted vide Finance Act 1999 and hence this clarificatory amendment is made to remove the term ‘Second’.

Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspections, etc.

[Section 272A]

  • Section 272A provides for penalties for various non-compliances.
  • is proposed to be amended to increase the existing penalty under sub-section (2) from one hundred rupees to five hundred rupees for every day during which the failure continues.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Penalty Failure to comply with the provisions of Sections 269UC, 269UE and 269UL

[Section 276AB]

  • Section 269UP was introduced vide Finance Act, 2002 providing that the provisions of the Chapter XX-C shall not apply to, or in relation to, the transfer of any immovable property effected on or after 1 July 2002.
  • Therefore, the prosecution provisions u/s 276AB are no longer relevant and it is proposed to insert a second proviso to the said section so as to provide that no proceeding under this section shall be initiated on or after the 1 April 2022.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

 Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B

[Section 276B]

  • Section 276B of the Act pertains to penalty for failure to pay to the credit of the Central Government the tax deducted at source.
  • 276B(b)(ii) is proposed to be amended to omit the term ‘second’ proviso as the first proviso was already omitted earlier.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • The First Proviso to the section 194B was omitted vide Finance Act 1999 and hence this clarificatory amendment is made to remove the term ‘Second’.

Failure to furnish returns of income

[Section 276CC]

  • Section 276CC of the Act pertains to penalty for failure to furnish returns of income.
  • The proviso to this section, which exempts the levy of penalty in certain cases, is proposed to be amended to also include a return furnished under sub-section (8A) of section 139 within the time provided in that sub-section.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.

Punishment for second and subsequent offences

[Section 278A]

Punishment not to be imposed in certain cases

[Section 278AA]

  • Sections 278A and 278AA contain provisions for punishment with prosecution for failure to pay tax to the credit of Central Government under Chapter XVII-B for tax deducted at source.
  • However, these sections did not expressly contain similar punishment provisions for punishment with respect to failure to pay tax collected at source.
  • Thus, section 278A and 278AA are proposed to be amended to also include section 276BB which pertains to ‘Failure to pay the tax collected at source’.
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • This amendment now expressly also covers punishment provisions for failure to collect tax at source as the same was not captured in the section earlier

Submission of statements by producers of cinematograph films or persons engaged in specified activity.

[Section 285B]

  • Section 285B requires producers of cinematograph films to furnish a statement within thirty days from the end of such financial year or within thirty days from the date of the completion of the production of the film, containing particulars of payments of over fifty thousand rupees.
  • The scope of this section is proposed to be widened to also include persons engaged in specified activity that means:
    • any event management, documentary production, production of programmes for telecasting on television or over the top platforms or any other similar platform, sports event management, other performing arts or any other activity as the Central Government may, by notification in the Official Gazette, specify in this behalf
  • The amendment is proposed to come into effect from 1 April 2022, and accordingly would apply in relation to AY 2022-23 and thereafter.
VTPA Comments
  • With increasing digital platforms for production of various events, shows and other programs, it was considered necessary to bring within the ambit of this section such activities.
  • This widens the scope of the section so that new and emerging activities do not escape compliance.

RATES OF TAX

1.1. For Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person

Existing Tax Rates**
Total Income (INR) Rate (%) @
0 – 2,50,000# Nil
2,50,001 – 5,00,000# 5
5,00,001 – 10,00,000 20
10,00,001 and above 30

@ Health and Education cess of 4% is leviable on the amount of income-tax and surcharge.

# The basic exemption limit is INR 250,000 in case of every individual below the age of 60 years, INR 300,000 in case of resident individuals of the age of 60 years or more, and INR 500,000 for ‘very senior citizen’ in case of resident individuals of age 80 years and above.

** Where total income does not exceed INR 500,000, the assessee shall be entitled to a credit on the income-tax payable, not exceeding of an amount equal to hundred percent of the Income-tax payable or INR 12,500, whichever is less.

The surcharge on income-tax, for Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person, are as follows:

Total Income (INR) Surcharge (%)
5 million – 10 million 10
10 million – 20 million 15
20 million – 50 million 25
Above 50 million 37
  • The enhanced surcharge of 25% & 37%, as the case may be, is not levied, from income chargeable to tax under sections 111A, 112A and 115AD. Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15%.

Further, the individual / HUF should also consider the newly introduced concessional regime of taxation, as explained below.

Tax on incomes of individuals and Hindu Undivided Family under section 115BAC

  • As per the new section 115BAC introduced from the Finance Act, 2020, in the case of Individuals / HUFs, who do not claim exemptions and deductions as per the section, the below new concessional rates would be applicable as shown in the below table:
Total Income (INR) Tax Rate in %
0 to 2,50,000 NIL
From 2,50,001 to 5,00,000 5
From 5,00,001 to 7,50,000 10
From 7,50,001 to 10,00,000 15
From 10,00,001 to 12,50,000 20
From 12,50,001 to 15,00,000 25
Above 15,00,000 30
  • Section 115BAC has amended only the basic slab rates, and other provisions applicable to Individuals / HUFs, namely, rebate under section 87A, and the applicable rates of education cess and surcharge would be computed on the same basis as above, that is, under normal rates of tax.

1.2. For Others

There are no changes in the Income-tax rates in the Budget. Summary of the same is provided as under:

Description Existing Tax Rates (%)
Having Income
up to INR 10
million
Having Income from
INR 10
million to 100
million
Having
Income more
than INR 100
million
(Including Health and Education Cess @ 4%)
Regular tax as per Para E of the 1st Schedule to the Finance Act (Turnover up to INR 4000 mn) 26.00 27.82* 29.12**
Regular tax as per Para E of the 1st Schedule to the Finance Act (Turnover > INR 4000 mn and not covered below) 31.20 33.38* 34.94**
115BA 26.00 27.82* 29.12**
115BAA 25.17*** 25.17*** 25.17***
115BAB 17.16*** 17.16*** 17.16***
MAT@ 15.60 16.69* 17.47**
(of book profits) (of book

profits)*

(of book profits)**
Dividend Received from Foreign

subsidiary company

(section 115BBD)

15.60 16.69* 17.47**
Regular tax (Foreign Company) 41.60 42.43$ 43.68#
Regular tax (Firm) 31.20 34.944**
Alternate Minimum Tax (AMT) 19.24 21.55**
Alternate Minimum Tax (AMT) (Co-operative societies) 15.60^ 17.47**

*    Inclusive of surcharge @ of 7 %

** Inclusive of surcharge @ of 12 %

*** Inclusive of surcharge @ of 10 %

$ Inclusive of surcharge @ of 2 %

# Inclusive of surcharge @ of 5 %

@ MAT provisions would not be applicable for who has opted for special taxation regime under Section 115BAA & 115BAB

^ Sub-section (4) of section 115JC has been modified to reduce the AMT rate at which co­operative societies are liable to pay income-tax to 15%. Consequential amendment is also proposed in clause (b) of section 115JF in relation to the definition of ‘alternate minimum tax’.

****

Disclaimer : The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Author Bio

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Review us on Google

More Under Income Tax

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

June 2022
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
27282930