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Direct Tax Amendments proposed in the Finance Bill 1999 |
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RATIONALISATION AND SIMPLIFICATION Provisions to tax perquisites in case of stock option and sweat equity plans Many corporate bodies are offering stock option plans to their employees. In such plans, the stock is offered to the employee at a value less than market value. In such a situation a benefit accrues to the employee. To remove any uncertainty with regard to the taxability of such benefits, it is proposed to provide that when any such share, security is directly or indirectly, offered to any assessee by the company or any other person, the difference between the market value of the stock and the cost at which it is being offered to the employee shall be taxed as perquisite. This benefit shall be taxed in the year in which the right of such option is exercised or is exercised and transferred in the name of any other person. It is further proposed that the difference between the market value on the date of exercise of option and the sale consideration in the event of sale by the employee would be taxed as capital gains in his hands. Section 79 introduced by Companies (Amendment) Ordinance, 1998 provides that a company may issue sweat equity shares of a class of shares already issued to a class of employees. These shares may be issued at a discount or for consideration other than cash for providing know-how or making available rights in nature of intellectual property rights by whatever name called. It is proposed to treat the value of such shares as perquisite in the year in which such option is exercised by the employee or director as the case may be. Where the amount paid for such securities is ‘nil’, the perquisite value shall be the market value of such shares. A consequential amendment is also made to ‘define’ the cost of acquisition of such shares. In case such shares are ultimately sold, the fair market value of these shares at the time of exercise of option would be their cost of acquisition for the purposes of capital gain. The proposed amendment will take effect from the 1st day of April 2000 and apply in relation to assessment year 2000-2001 and subsequent years.
The existing provisions of section 36 (1)(viii) provide for deduction of an amount not exceeding 40% of the profits derived by a financial corporation engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, provided the amount is carried to a special reserve account. The deduction is, however, allowable only if the financial corporation or the company is approved by the Central Government. As a measure of simplification, the Bill proposes to remove the requirement of approval by the Central Government for the purposes of the said section. The proposed amendment will take effect from 1st April, 2000 and will, accordingly, apply in relation to the assessment year 2000-2001 and subsequent years. Amendments of sections 44AD, 44AE and 44AF to provide for claiming lower profits. Under the existing provisions of section 44AD, 44AE, and 44AF, presumptive tax schemes are provided for computing the profits and gains of the business of civil construction, the business of plying, hiring or leasing goods carriages and retail trade in any goods or merchandise, respectively. There is no requirement for the assessee to maintain books of account for such business and to get them audited, if the deemed profits and gains are taken as taxable profits of such business. The Bill proposes to provide an enabling clause for an assessee to claim his income to be lower than the deemed profits and gains, subject to the condition that the books of account and other documents are kept and maintained as required under section 44AA and the assessee gets his accounts audited and furnishes a report of such audit as prescribed under section 44AB.
Under the existing provisions of section 80HHB, 80HHE, 80-O, 80R, 80RR, and 80RRA, when the receipts in convertible foreign exchange are received after a period of six months from the end of the previous year, the approval of the Chief Commissioner or Commissioner is required to avail of the deduction. As obtaining such approval from the Chief Commissioner or Commissioner often results in delay, it is proposed to do away with such approval, as the Reserve Bank of India in any case monitors such remittances and accords approval in case of delay. As a result where remittances are brought after the period of six months, the approval of the Reserve Bank of India or any such authority authorised to deal with any law governing such receipts shall suffice. However, the requirement of a furnishing a certificate shall continue in the provisions. It is also proposed to amend section 155 to enable the assessing officer to amend the assessment order within a period of four years in such cases. These amendments will take effect from the 1st day of June, 1999. Amendment of section 80HHC Forty percent of income derived from the sale of tea grown and manufactured by the sellers in India is chargeable to tax as the rest is regarded as agricultural income. In some cases where the tea is being exported, the deductions under section 80HHC are being computed with reference to the composite income, including the income not chargeable to income-tax. To clarify doubts, it is proposed to provide that for the purposes of computing deduction under section 80HHC, the amount of income not being charged to tax under the Act shall in no case be eligible for deduction under the section. This amendment shall be effective retrospectively from the 1st day of April 1992.
It is proposed to amend section 253 of the Income-tax Act relating to appeals to the Appellate Tribunal. The existing provisions do not provide for an appeal to the Appellate Tribunal against an order passed under section 12A A relating to registration for a Trust or Institution. It is proposed to amend this section so as to insert a reference to Section 12AA so the appeal may be filed against an order passed under section 12AA. It is proposed to amend section 12A so as to provide that an application for registration of the Trust or institution which is required to be made in the prescribed form and manner to the Chief Commissioner or Commissioner, shall from 1st June, 1998 be made only to the Commissioner. In consequence to the above proposed amendment, it is further proposed to amend section 12AA of the Income-tax Act so as to provide that the order on an application for registration of a Trust or institution is to be made by the Commissioner only and not by the Chief Commissioner. It is also proposed to insert a new sub-section (1A) in section 12AA so as to provide that all applications pending before the Chief Commissioner on which no order has been made by him before 1st June, 1999 shall stand transferred from 1st June, 1999 to the Commissioner and the Commissioner may proceed with such applications from the stage at which it was on that day. The proposed amendment will take effect from 1st June, 1999.
Under the existing provision of section 80G of the Income tax Act, 1961, a deduction in respect of donations to certain funds, institutions etc. is provided. However, if such fund or institution has in its instrument any provision for the transfer or application at any time of the whole or any part of the income or asset for any purpose other than a charitable purpose, it cannot avail of the benefit under this section. It has also been provided that for the purpose of this section, ‘charitable purpose’ does not include any purpose, the whole or substantially the whole of which, is of a religious nature. Many institutions which are carrying out charitable work are often inspired by the tenets of religion. In order to allow them to show respect to this aspect without depriving them of the benefit of this section, it is proposed to amend the provisions of section 80G so as to provide that in case such institution or fund spend not more than five per cent of its income during the relevant previous year for religious purpose, the benefit of this section will not be denied to them. The proposed amendment will be effective retrospectively from the 1st day of April, 1978. No deduction of tax from interest on securities in certain cases Under the existing provisions of section 197A, an individual can receive the income from interest on securities without deduction of tax at source, on furnishing to the payer of such income a declaration to the effect that tax on his estimated total income will be ‘Nil’. With a view to mitigate the hardship faced by the tax exempt entities like trusts, provident funds, gratuity funds, superannuation funds etc., the Bill proposes to amend the said section so as to allow any person (other than a company or a firm) to receive such income from interest on securities without any deduction of tax at source on furnishing such declaration. The proposed amendments will take effect from 1st June. 1999.
Under the existing provisions, the seller is required to collect fax at source at the prescribed rate from the buyer of the goods specified in sub-section (1) of section 206C. To mitigate the genuine hardship faced by the buyers, the Bill proposes to provide for issue of certificate by the Assessing Officer for collection of tax at a lower rate than specified, in appropriate cases. The proposed amendments will take effect from 1st June, 1999. Omissions of transitory provisions and certain modifications It is proposed to amend clause (30) of section 2 so as to include in the definition of "non-resident", a person who is not ordinarily resident in India. This amendment will restore the earlier provision as it stood before its amendment by the Finance (No.2) Act, 1998. The proposed amendment will take effect from 1st April, 1999, and will accordingly, apply in relation to assessment year 1999-2000 and subsequent years. Proposal to rationalise the two provisos to clause (23C) of section 10 The Central Government before notifying a fund, trust or institution may call for any information and may hold any enquiry so as to determine toe genuineness of such fund, trust or institution. It is also proposed to empower the prescribed authority to call for information or to hold such enquiry as it deems fit before the University or other educational institution or a hospital is approved under clause (23C) of section 10. The proposed amendment will take effect from 1st April, 1999, and will accordingly, apply in relation to assessment year 1999-2000 and subsequent years.
Relates to Site Restoration Fund so as to omit the proviso in sub-section (7). This amendment is consequential to the omission of clauses of sub-section (3) of this section by Finance (No.2) Act, 1998. The proposed amendment will take from 1st April, 1999, and will accordingly, apply in relation to assessment year 1999-2000 and subsequent years. Section 115AD of the Income-tax Act relates to tax on income of the Foreign Institutional Investors from securities or capital gains arising from their transfer. It is proposed to amend clause (a) of sub-section (1) of section 115AD so as to exclude the income by way of dividends referred to in section 115-O from the income mentioned in this clause, so as to restore the provision as it stood prior to amendment by the Finance (No.2) Act, 1998. The proposed amendment will take effect from 1st April, 1999, and will accordingly, apply in relation to assessment year 1999-2000 and subsequent years. It is proposed to substitute the existing section 3 which defines the term "previous year" The proposed substitution will result in omission of transitory provisions which were applicable only for a limited period when the definition of "previous year" was amended to mean a uniform period of financial year immediately preceding the assessment year. As these provisions are no longer applicable, it is proposed to delete them. The Tenth Schedule of the Income-tax Act provides for modification of the provisions of the Income-tax Act in cases where the previous year in relation to the assessment year commencing on the 1st April, 1989 exceeds 12 months. The definition of "previous year" has been substituted vide clause 4 of the Bill so as to do away with the transitory provisions in section 3 of the Income-tax Act. As a consequence to the substitution of section 3 and deletion of the provisions relating to extended previous year, the Tenth Schedule is being omitted. The proposed amendment will take effect from 1st April, 2000.
Under the existing provisions contained in clause (iia) of sub-section (1) of section 36, a weighted deduction is allowed in respect of the expenditure incurred by the assessee on payment of salary to an employee who is totally blind or suffers from a permanent physical disability for any period of employment before 1st March, 1984. As these provisions are not applicable after 1st March, 1984, it is proposed to omit them. The proposed amendment will take effect from 1st April, 2000.] Section 40A of the Income-tax Act relates to expenses or payments that are not deductible in certain circumstances. Under the provisions of sub-section (7) of this section no deduction is to be allowed in respect of any provision made by the assessee for payment of gratuity to his employees unless the payment of gratuity has become payable during the previous year. Sub-clause (ii) of clause (b) of this sub-section contained a transitory provision in respect of any provision of gratuity made after 1st April, 1973 but before 1st April 1976. As these transitory provisions are no longer in operation, it is proposed to substitute sub-section (1) of section 194A relates to deduction of tax at source shall not apply in case of incomes credited or paid before 1st April, 1967.The proposed amendment will take effect from 1st April, 2000. It is proposed to amend section 194B of the Income-tax Act relating to deduction of tax at source from any payment made on account of winnings from lottery or crossword puzzle It is proposed to omit the existing first proviso of this section which provides that no deduction at source shall be made under this section from any payment made before 1st June, 1972. Consequential changes are also proposed in the second proviso. The proposed amendment will take effect from 1st April, 2000.
It is proposed to omit the existing proviso of this section which provides that no deduction at source shall be made under this section from any payment made before 1st June, 1978.The proposed amendment will take effect from 1st April, 2000. It is proposed to amend section 194H of the Income-tax Act relating to deduction of tax at source from any payment made on account of commission, brokerage, etc It is proposed to omit this section which provides that no deduction at source shall be made under this section from any payment made before 1st June, 1992. The proposed amendment will take effect from 1st April, 2000. Rationalisation of interest chargeable from the assessees. Under the existing provisions, the rates of interest chargeable from the assessees for various defaults vary from 15% to 18% per annum. In order to rationalise these rates the Bill proposes to prescribe a uniform rate of 18% per annum for various defaults. Accordingly, it is proposed to decrease the rate from 2% for every month or part of a month to 1.5 for every month or part of a month in respect of interest chargeable under section 234A for defaults in furnishing return of Income and under section 234B for defaults in payment of advance tax. It is further proposed to increase the rate from 15% per annum to 18% per annum in respect of interest chargeable under sub-section (1A) of section 201 for failure to deduct and pay tax at source. The proposed amendment will take effect from 1st June 1999.
Section 272A (2) of the Income-tax Act contains provision for levy of penalty for defaults of miscellaneous and continuous nature such as failure to answer questions, sign statements, furnish information, returns or statements and allow inspection etc. The amount of penalty in all these cases is provided at Rs. 100 to 200 for every day during which the delay or the default continues. However, maximum ceiling of not exceeding the tax payable has been provided in respect of defaults relatable to sections 203, 206 and 206C. The prescription of a scale of penalty does not have any practical value. In almost all cases, it is the minimum penalty which gets imposed at the appellate stage if not at the stage of Assesing Officer. Therefore, it is desirable to replace the scale of penalty from Rs. 100-200 to a definite amount of Rs. 100 for every day of default. This is also in keeping with the policy to reduce the area of discretion. The proposed amendment will take effect from 1st June, 1999. Rationalisation of provisions relating to reduction of litigation and other allied issues Finance (No.2) Act, 1998 introduced a number of measures to reduce mounting litigation and delay in disposal of appeals under direct tax enactment’s. The major amendments included direct appeal to High Court, introduction of a scale of fee for the Commissioner (Appeals) and enhancement of scale of fee payable before the Appellate Tribunal. These provisions have come into effect from 1st day of October, 1998. A number of suggestions have been received on the implementation aspects of these measures. Some of these measures require legal changes to rationalise and streamline the provisions. Keeping the above in view, following amendments have been proposed :-
The proposed amendments shall take effect on the 1st day of June, 1999.
Presently, there is no time for disposal of appeals filed before the Commissioner (Appeals) or the Appellate Tribunal under the Income-tax Act or the other direct tax enactment’s. In the absence of any statutory provision, there is considerable delay in the disposal of appeals. It is also seen that there is disinclination to take up the old appeals for disposal by the Commissioner (Appeals). To ensure accountability as well as to ensure disposal of appeals within a reasonable time-frame, it is proposed to provide that the Commissioner (Appeals), where it is possible, may hear and decide every appeal within a period of one year from the end of the financial year in which the appeal is filed. The Appellate Tribunal where it is possible may hear and decide every appeal within a period of four years from the end of the financial year in which the appeal is filed. Similar provisions have also been provided for the Wealth-tax Act and the Expenditure-tax Act. To discourage filing of frivolous appeals it is also proposed to empower the Appellate Tribunal to award costs in suitable cases under the Income-tax Act, and the Wealth Tax Act. The proposed provisions shall take effect from 1st June, 1999. Exclusion of two-wheeler from the purview of the motor vehicle for the purpose of filling return under proviso to section 139 (1) Proviso to section 139 (1) casts obligation on a person to file return of income on the basis of six specified economic criteria. One such criteria is the ownership or lease of a motor vehicle. The definition of motor vehicle in this section follows the definition given in clause (28) of section 2 of the Motor Vehicles Act, 1988. This definition includes vehicles less than four wheels having engine capacity of more than 25 cubic centimetre’s. It is, therefore, proposed that tow wheelers should be kept out of the relevant economic criteria of motor vehicle requiring filing of return under the proviso. The proposed amendment will take effect from 1st June, 1999.
The details and information to be furnished in the return of income and the statements and annexures to accompany the return of income are guide by the provisions of sub-sections (6), (6A) and (9) of section 139. Under the existing provisions contained in sub-section (6), the form of return requires the assessee to furnish the particulars of income exempt from tax, assets of the prescribed nature and value and prescribed expenditure and outgoing. The existing provisions of sub-section (6) may not allow to prescribe the requirement of furnishing particulars of bank account or credit card in the form of return. This is a handicap for the Department which requires the information regarding bank accounts for incorporating the bank account number in the refund voucher while issuing refund. Therefore, it is proposed to amend section 139 (6) to require the assessee to give the details of bank account and credit card in the prescribed form of return. The proposed amendment will take effect from 1st day of June, 1999. Self-assessment tax to be paid while filling returns for the block period in search cases Under section 140A of the Income-tax Act, the assessee is required to apply tax on the basis of income declared in the return and such tax is required to be paid before the return is furnished and the return is accompanied by the proof of such payment. The existing provisions of section 140A are not applicable to Chapter XIV-B relating of the assessment of the income of the block period in search and seizure cases. Therefore, the tax on the admitted income declared in the return cannot be collected till the assessment is completed. In view of the above, it is proposed to amend section 140A of Income-tax Act to provide for the requirement of payment of self-assessment tax at the time of filing the return under 158BC relating to block assessment of search cases. The amendment will take effect from 1st day of June, 1999.
Section 180 of the Income-tax Act is applicable for assessment of income or receipts of a lumpsum consideration received by an author or an artist for assigning away his interest in the copyright or royalty, where the literary or the artistic work has taken more than 12 months to be completed. The lumpsum consideration is allowed to be allocated amongst the previous year as per the prescribed rule. Section 180A provides that the assessment of consideration received or receivable by the resident individual for allowing the use of know-how developed by him is to be spread over to the receipt or receivable and two immediately preceding previous years in equal instalments. These provisions have a narrow applicability and have outlived their utility in recent years after rationalisation of structure of income-slabs for rate purposes and significant reduction of tax rates. The Expert Group set up for simplification and rationalisation of Income tax law also recommended the omission of these sections. Therefore, it is proposed to provide that these two sections shall cease to apply from the assessment year 2000-2001 onwards. Consequential
amendments |
