Finance act 2013 – FINAL 9 June 13 CA Sanjeev Lalan

Report
Finance Act ,2013
An Overview
CA Sanjeev Lalan
1
Tax Rates
Individual, HUF, AOP, BOI: No Change in threshold-limits or slabs
 Surcharge to be levied @ 10% where total income exceeds Rs. 1Crs.
 No Change in Edu Cess & S.H. Edu Cess of 2% and 1% respectively
 Effective tax rates shall be as under (subject to AMT):Taxable Income Slab
Tax Rates
General
Sr. Citizen
Very Sr. Citizen
NIL
NIL
NIL
2,00,001 upto 2,50,000
10.30%
NIL
NIL
2,50,001 upto 5,00,000
10.30%
10.30%
NIL
5,00,001 upto 10,00,000
20.60%
20.60%
20.60%
10,00,001 upto 1,00,00,000
30.90%
30.90%
30.90%
1,00,00,001 & above
33.99%
33.99%
33.99%
Upto 2,00,000
 A new section 87A has been inserted to provide rebate of upto Rs. 2,000/from tax payable by a resident individual in India having total income of upto
Rs. 5,00,000/-
2
Tax Rates
Firm/LLP/Corporates: No Change in basic tax rates
 For firm & LLP – Surcharge to be levied @ 10% where total income exceeds
Rs. 1Crs.
 For domestic company – Surcharge increased from 5% to 10% where total
income exceeds Rs. 10 Crs.
 For Foreign company – Surcharge increased from 2% to 5% where total
income exceeds Rs. 10 Crs.
 No Change in Edu Cess & S.H. Edu Cess of 2% and 1% respectively.
 The effective tax rates shall be as under:
Assessee
T. Income <=
Rs. 1crs.
T. Income > Rs.
1crs. < = Rs.
1crs.
T. Income > Rs.
10crs.
Firm / LLP
30.90%
33.99%
33.99%
D. Company
30.90%
32.45%
33.99%
F. Company
41.20%
42.024%
43.26%
 No change in AMT / MAT rates except for increase in surcharge
3
Tax Rates
TDS under chapter XVII – B to be inclusive of surcharge
 The amount of TDS under chapter XVII – B shall be increased by surcharge in
the following cases–
Payee
NR (other
company)
T. Income <= Rs.
1crs.
than No Surcharge
Foreign Company
No Surcharge
T. Income >
Rs. 1crs. < =
Rs. 1crs.
T. Income >
Rs. 10crs.
No Surcharge
Surcharge
10%
@
@ Surcharge
5%
@
Surcharge
2%
 Simply put, in case of a non-resident,TDS would be subject to surcharge.
4
Tax Rates
Securities Transaction Tax
 STT rates have been significantly revised by FA, 2013 as under–
Sl.
No
Nature of
transaction
Payable
by
Existing
Rates (%)
Revised
Rates (%)
1.
Delivery
based Purchaser
purchase of units of
EOF* through RSE**
0.1
NIL
2.
Delivery based sale of Seller
units of EOF* through
RSE**
0.1
0.001
3.
Sale of a futures in Seller
securities
0.017
0.01
4.
Sale of a unit of an EOF* Seller
to the Mutual Fund
0.25
0.001
* Equity Oriented Fund
** Recognized stock Exchange
(w.e.f. 01-June-2013)
5
Tax Rates
Commodities Transaction Tax
 Chapter VII of the Finance Bill 2013 introduces new levy in the form of
Commodities Transaction Tax (CTT), the brief features of which are as under–
Taxable Transaction : Sale of commodity derivatives in respect of
commodities other than agricultural commodities on recognized association.
Rate : 0.01% on sale value of commodity derivative to be paid by seller.
Applicability : From the date of notification in this regard (notification not
out yet).
 Allowance as deduction : Sub-clause (xvi) has been reinstated in section
36(1), for allowing the said CTT as an deduction while computing the income
arising out of commodity derivative transactions under the head “Profits and
gains of business and profession”.
6
Tax Rates
Rationalization of tax on income distributed by Mutual Fund
 Additional income tax payable u/s. 115R on income distributed to a individual
or HUF by a mutual fund other than a money market mutual fund or a
liquid fund has been brought at par with the income distributed to a
individual or HUF by a money market mutual fund or a liquid fund @
25% instead of erstwhile 12.5%.
 Further, section 115R has also been amended to provide tax @ 5% on income
distributed in respect of income distributed by a Mutual Fund under an
Infrastructure Debt Fund (IDF) scheme to a non-resident Investor to bring
parity between taxation of income from investment made by a non-resident
Investor in an IDF set up as a IDF-MF with that of an Infrastructure Debt Fund
(IDF) set up as a IDF-NBFC.
(w.e.f. 01-June-2013)
7
Individual Taxation
Assigned Keyman Insurance Policies
 Section 10(10D), inter alia, exempts sums received under a life insurance
policies other than keyman insurance policy.
 Till date, there was an ambiguity with respect to the definition of “Keyman
Insurance policy” which has been defined in Explanation 1 to the said section
The issue was whether it even includes even a policy which has been assigned
in favour of the keyman before its maturity and with respect to which the
subsequent payments were made by the keyman himself.
 In this regards, the air has now been cleared by amending the said explanation
to include with in its ambit a policy which has been assigned to a person, at
any time during the term of the policy, with or without consideration.
 In effect, Delhi High Court judgments in “CIT vs. Rajan Nanda [(2012) 349 ITR 8
(Del)]” and “Escort Heart Institute & Research Centre vs. CIT [(2013) 30
taxmann.com 4]” have been overruled by the amendment.
8
Individual Taxation
Immovable property received for inadequate consideration
 Presently, provisions of section 56(2)(vii)(b) are attracted only in respect of an
immovable property which is transferred “without any consideration” i.e. to
say, it doesn’t include, having regard to its stamp duty value, transfer for
“inadequate consideration”.
 This inequity is sought to be plugged by the Finance Act, 2013 by covering, in
the ambit of section 56(2)(vii)(b), both the scenario namely, transfer of an
immovable property, the stamp duty value of which exceeds Rs. 50,000/-,
without any consideration and also a situation where transfer is for
inadequate consideration, where the inadequacy, having regard to stamp duty
value exceeds Rs. 50,000/-.
 The said section has been further amended to provide that where the date of
agreement fixing the amount of consideration for the transfer of immovable
property and the date of registration are not same, the stamp duty value on
the date of agreement may be considered for the said transfer. However, the
said exception shall apply only in cases where amount of consideration or part
thereof for the transfer has been received by any mode other than cash on or
before the date of the agreement for the transfer of asset.
9
Fair Market Value u/r. 11U & 11UA u/s. 56

Section 56(2)(vii) and (viia) of the Income-tax Act,1961 (the Act) provides that the
taxpayer receiving specified properties without consideration or at a consideration
lower than the FMV, than the difference between FMV and consideration shall be
considered as income in the hands of the taxpayer.

Rule 11UA deals with determination of fair market value (FMV) for the purpose of
Section 56 and Rule11 defines certain terms used in Rule 11UA.

The Finance Act, 2012 inserted clause (viib) to Section56(2) of the Act, which
provides that a closely held company issuing shares to resident person for a
consideration higher than its FMV, then the difference of consideration over the
FMV of its shares shall be considered as income in the hands of issuing company.

As the provisions of Section 56(2)(vii)/(viia) and (viib) are governing different
circumstances, existing provisions of Rule 11UA were not sufficient to deal with
both the provisions. Therefore, Rule 11UA is amended to provide for specific
valuation principles applicable to unquoted equity shares under Section 56(2)(viib)
of the Act. Similarly, certain definitions under Rule 11U of the Rules are amended as
follows:
10
Cont…Fair Market Value u/r. 11U & 11UA u/s. 56
Amendment
FMV under Section FMV under Section 56(2)(viib)
56(2)(vii) / (viia)
Methods
to Net Assets Value as
calculate FMV of per
prescribed
equity shares
formula
continues
with certain need
based changes.
Taxpayer company has option to choose
from the following two methods:
Option 1 - Net Assets Value method as per
prescribed formula (same as applicable to
Section 56(2)(vii)/(viia));
OR
Option 2 - Discounted Free Cash Flow
method as determined by a merchant banker
or an accountant
Definition
of Balance sheet of the
Balance sheet
company as on the
date on which the
property
or
consideration
is
received
by
the
taxpayer as audited by
the auditor of the
company
Audited Balance sheet of the company,
adopted by the AGM, immediately preceding
the date on which the consideration is
received by the taxpayer, unless Balance sheet
of the company as on the date, on which the
consideration is received by the taxpayer is
drawn up and is audited by the auditor of the
company.
11
Cont…Fair Market Value u/r. 11U & 11UA u/s. 56
Amendment
FMV
under FMV under Section 56(2)(viib)
Section
56(2)(vii)
/
(viia)
Definition of Accountant
(relevant for identifying
person, other
than
merchant banker, who is
eligible for carrying out
valuation)
Same as under FCA (Fellow member of ICAI) not
Section 288 of being auditor or tax auditor of the
the Act. – no company.
change
12
Individual Taxation
Premium on LIP’s for persons with disabilities or disease
 Provisions of section 10(10D) & 80C have been amended to soften the
limitations for the applicability of the said provisions for the following
categories of persons, by enhancing the premium limit from 10% to 15% of
capital sum assured, namely–

persons with disabilities or persons with severe disabilities as referred to
in section 80U or

persons suffering from disease or ailment specified in rule 11DD made u/s.
80DDB.
13
Individual Taxation
Extension of benefit even for contributions made to health
schemes
 Provisions of section 80D has been extended so as to allow the benefits of
deduction of amount not exceeding Rs. 15,000/- in respect of any payment or
contribution made by the assessee to such other schemes as may be notified
by the Central Government.
14
Individual Taxation
Deduction in respect of interest on loan for acquiring
residential house property
 A new section 80EE has been introduced to provide additional benefit for the
first time home buyers in respect of interest payment on loan taken from any
financial institution for residential house property.
 However, the said benefit comes with certain restrictions and limitations which
are as under –
 The said deduction shall be applicable only to an individuals;

The deduction shall not exceed Rs. 1,00,000/- and shall be allowed only for
AY 2014-15;

In case the interest payable for AY 2014-15 is less than Rs. 1,00,000/-, the
unexhausted balance shall be allowed as deduction for AY 2015-16;

The loan has to be sanctioned by the financial institution between 01st
April, 2013 and 31st March, 2014

The amount of loan sanctioned does not exceed Rs. 25,00,000/-

The value of residential house property does not exceed Rs. 40,00,000/-.
15
Individual Taxation
Cont….Deduction in respect of interest on loan for acquiring
residential house property

The assessee does not own any residential house property on the date of
the sanction of the loan.

The assessee will not be eligible for claiming deduction with respect to the
said interest under any other section of the Act either for the same
assessment year or any other assessment year. (This primarily intents to
cover section 24(b) in its ambit)
16
Individual Taxation
Extension & Liberalization of Rajiv Gandhi Equity Savings
Scheme
 As per the present provisions of section 80CCG, a resident individual, being a
first time retail investor and whose total income during the previous year does
not exceed Rs. 10,00,000/- is eligible to claim a deduction of 50% up to
maximum of Rs. 25,000/- in the year of investment, subject to satisfaction of
certain other conditions. This deduction was initially available only once, i.e. in
the year in which investment is made for the first time.
 Finance Act, 2013 has extended the benefits of said section to investments
even in listed units of an equity oriented fund defined in section 10(38).
Further, it has also been provided, that the said benefit shall now be available
over a period of three consecutive assessment years beginning with the
assessment year in which investment is first made. Also, the condition as to
limit of total income of the individual investor in the year in which investment
is made has been enhanced to Rs. 12,00,000/- from current limit of Rs.
10,00,000/-.
 In this regards, Rajiv Gandhi Equity savings scheme, 2012 has been notified by
the CG vide notification no. 51 dated 23-11-2012.
17
Corporate Taxation
15% deduction on investment in new assets by manufacturing
company
 A new section 32AC has been inserted to allow to a company, a sum equal to
15% of the actual cost of the new assets acquired and installed between
31st March, 2013 and 01st April, 2015 if the aggregate amount of actual cost of
such new asset exceeds Rs. 100crs. This deduction is available only if the
company is engaged in manufacture or production of any article or thing. This
deduction is available for two years as under –
a) for AY 2014-15, 15% of the actual cost of the new assets acquired and
installed between 31st March, 2013 and 01st April, 2014
b) for AY 2015-16, 15% of the actual cost of the new assets acquired and
installed between 31st March, 2013 and 01st April, 2015 as reduced by the
amount of deduction allowed under clause (a), if any.
 For the purpose of this new section, “New asset” means any new plant and
machinery except the following:
ship and aircraft

any second hand P&M, whether used inside or outside India.
18
Corporate Taxation
Cont….15% deduction on investment in new assets by
manufacturing company

any P&M installed in any office premises or any residential accommodation
or a guest house

any office appliances (including computers or computer software)

any vehicle

Any P&M, the whole of the actual cost of which is allowed as deduction
whether as depreciation or otherwise
 However, if the said new asset is sold or otherwise transferred (except owing
to amalgamation or demerger), within 5yrs from the date of its installation,
the amount allowed as deduction under this section shall be taxable as income
of the PY in which the said asset is sold or otherwise transferred. The said
income shall be in addition to the gains arising on account of transfer of the
said new asset.
 Where the new asset is transferred in connection with the amalgamation or
demerger within a period of 5yrs from the date of its installation, the
deduction shall not be withdrawn. However, the above referred restriction on
selling and transfer of said new asset shall apply to amalgamated company or
resulting company, as the case may be.
19
Corporate Taxation
Disallowances of certain expenditures in case of State
Government Undertaking
 Till date there was ambiguity in relation to allowability of certain expenditure
in the form of privilege fee, licence fee, royalty, etc., levied or charged by State
Government exclusively on its own undertakings.
 To clarify this issue, section 40(a) has been amended by Finance Act, 2013 by
inserting a new sub-clause (iib), whereby now payments in the nature of
royalty, licence fee, service fee, privilege fee, service charge or any other fee or
charge, by whatever name called, which is exclusively levied on or which is
appropriated, directly or indirectly, from, a state Government Undertaking by
the State Government would be disallowed.
 Further, an explanation has also been inserted to the said sub-clause to define
what a State Government Undertaking is.
20
Corporate Taxation
Extension of the sunset clause under section 80IA for the
power sector
 Presently, under section 80IA(4)(iv), a deduction is allowed to an undertaking, if
it―
 is set up in any part of India for the generation or generation and
distribution of power, if it begins to generate power at any time between
1/4/1993 to 31/3/2013;
 starts transmission or distribution by laying a network of new transmission
or distribution lines at any time between 1/4/1999 to 31/3/2013;
 undertakes substantial renovation and modernisation of existing network of
transmission or distribution lines at any time between 1/4/2004 to
31/3/2013.
 However, now the said section has been amended to extend the time limit upto
31/3/2014 for the undertakings to commence the above activities to avail the
said deduction.
21
Corporate Taxation
Deduction on additional wages u/s 80JJAA restricted
 Under the existing provisions of section 80JJAA, 30% of amount of additional
wages paid to the new regular workmen employed by an Indian company in
its industrial undertaking engaged in manufacture or production of article or
thing is allowed as a deduction. This deduction is available for 3 AY’s including
the AY in which such employment is provided. Also, no deduction is available if
the industrial undertaking is formed by splitting up or reconstruction of an
existing undertaking or amalgamation with another industrial undertaking.
 Now, by FA 2013, the said section stands amended, restricting the benefit of
deduction merely to profits and gains derived from the manufacture of goods
in a factory instead of any industrial undertaking engaged in manufacture or
production of article or thing. Furthermore, the computation of additional
wages will be reckoned with employment provided in factory only and not in
respect of all the workmen employed by the assessee company.
 It has also been provided that the deduction shall not be allowed if the factory
is hived off or transferred from another existing entity or acquired by assessee
company as a result of amalgamation with another company.
 The reference to the word “undertaking” wherever it occurs in the
explanation, has been substituted by “factory” by inserting clause (iv) to the
explanation to define factory as per section 2(m) of the Factories Act, 1948.
 In effect, this amendment is meant to overcome decision of Bangalore Bench of
ITAT in ACIT v.Texas Instruments (India) (P.) Ltd. [(2008) 115 TTJ 976 (URO)].
22
Corporate Taxation
Additional Income-tax on buy-back of unlisted shares
 FA 2013, by inserting a new chapter XII-DA (sections 115QA to 115QC), has
provided that in case of a domestic company, which opts for distributing its
income by buying back its own unlisted shares from its shareholder, shall be
liable to pay additional income-tax @ 20% on such distributed income
without allowing any deduction against such income.
 For the said purposes, “distributed income” would mean the amount paid by
the company on buy-back of shares as reduced by the amount that was
received by the shareholders at the time of issuance of such shares.
 The said income has been made exempt in the hands of the shareholders by
inserting a new clause 34A to section 10.
 The said amendment has primarily been done to put a bar on tax avoidance
scheme which were being resorted to by many companies by buying back their
own shares rather than distributing surplus by way of dividends which
otherwise would have been subject to DDT u/s. 115-O.
 The said amendment shall take effect from 1st June, 2013
23
Corporate Taxation
Concessional rate of TDS on interest in case of certain rupee
denominated long-term infrastructure bonds
 In line with the existing provisions of section 194LC, which provides for
concessional rate of TDS @ 5% in respect of interest on money borrowed by
an Indian company in foreign currency and such borrowing is either under a
loan agreement or by way of issue of long-term infrastructure bonds, as
approved by the Central Government, a new section namely 194LD has been
inserted to extend the same benefit to investment made in a rupee
denominated bond of an Indian company or a Government security by
“Foreign Institutional Investors” and “Qualified Foreign Investor”.
 However, it has also been provided that in order to avail this benefit, it needs to
be ensured that the rate of interest on said bonds does not exceed the rate as
may be notified by the Central Government in this behalf.
 The said amendment shall take effect from 1st June, 2013.
24
Individual Taxation
Concessional rate of tax for non-residents on income referred
in section 194LC / 194LD
 Section 115A, which provides for special rates of tax for a non-resident has
been amended by FA, 2013, to ensure that interest income as referred to in
section 194LC & 194LD shall be charged @ of 5%.
 Consequential amendments have been made in section 115AD, which deals
with taxation on income of FII from securities or capital gains arising from
their transfer, to ensure that even FII are taxed @ 5% on the interest income
referred to in section 194LD.
 In addition to above, the requirement to furnish PAN u/s. 206AA has now been
exclusively removed in respect of payment of interest on long-term
infrastructure bonds, as referred to in section 194LC, to a NR, not being a
company or a foreign company.
25
Corporate Taxation
Extension of sunset clause for lower rate of tax on dividends
from specified foreign company
 Section 115BBD of Income-tax Act provides for taxation of gross dividends
received by an Indian company from a specified foreign company (in which it
has shareholding of 26% or more) at the rate of 15% if such dividend is
included in the total income for the Financial Year 2012-13 i.e. Assessment Year
2013-14.
 The above provision was introduced as an incentive for repatriation of income
earned by residents from investments made abroad subject to certain
conditions.
 In order to continue the tax incentive for one more year, section 115BBD has
been amended to extend the applicability of this section in respect of income
by way of dividends received from a specified foreign company in Financial Year
2013-14 also, subject to the same conditions.
26
Corporate Taxation
Removal of cascading effect of DDT even on dividends
received from specified foreign company
 Section 115-O was previously amended by FA 2012, and earlier Finance Act’s to
remove cascading effect of DDT wherein DDT paid dividends distributed by a
company’s subsidiary company was ultimately distributed by its holding
company (in both two-tier & multi-tier structures).
 In order to ensure removal of cascading effect of DDT even on dividends
specified in section 115BBD received from a specified foreign company as
well, the provisions of section 115-O has now been further amended by FA
2013 to provide that the amount subject to DDT would be reduced by amount
of dividend received by the domestic company during a financial year from a
specified foreign company as defined in 115BBD.
27
Corporate Taxation
Clarificatory amendment specifying amount eligible for
deduction as bad debts in case of banks
 Section 36(1)(vii) deals with the allowability of bad-debts w/off in books of
account of any assessee whereas section 36(1)(viia) deals with the allowability
of provision for bad and doubtful debts only in case of certain specified banks,
inter alia, which includes rural branches of certain specified banks.
However, proviso to section 36(1)(vii) provides that for an assessee, to whom
section 36(1)(viia) is applicable, deduction under said clause (vii) shall be limited
to the amount by which the bad debt written off exceeds the credit balance in
the provision for bad and doubtful debts account made under section 36(1)
(viia) of the Act.
 Hon’ble Supreme Court in case of “Catholic Syrian Bank Ltd. vs. CIT (2012)
343 ITR 270” has accepted the proposition that where separate accounts for
provisions for bad debts are maintained for rural and urban advances and if the
actual write-off relates to urban advances then same cannot be set-off against
provision for bad debts of rural advances. It has been held that provisions of
sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of
deductions and operate in their respective fields.
28
Corporate Taxation
Cont….Clarificatory amendment specifying amount eligible
for deduction as bad debts in case of banks
 As this was never the legislative intent, to overcome the above judicial
interpretation, section 36(1)(vii) has been amended by FA Act, 2013 by inserting
an explanation 2, to clarify that there shall be only one account maintained in
respect of provision for bad and doubtful debts under section 36(1)(viia) and
such account relates to all types of advances, including advances made by rural
branches.
It implies that, now for an assessee to which clause (viia) of section 36(1)
applies, the amount of deduction in respect of the bad debts actually written off
under section 36(1)(vii) shall be limited to the amount by which such bad debts
exceeds the credit balance in the provision for bad and doubtful debts account
made under section 36(1)(viia) without any distinction between rural advances
and other advances.
29
Corporate Taxation
Exemption to National Financial Holdings Company Ltd.
 National Financial Holdings Company Limited (NFHCL) is a company wholly
owned by the Central Government and was incorporated to succeed the
Specified Undertaking of Unit Trust of India, which itself was a successor to
erstwhile Unit Trust of India. In section 10 a new clause (49) has been inserted
to grant exemption in respect of any income of NFHCL.
30
Anti-Avoidance Provisions
Deeming provisions similar to section 50C made applicable to
assets held as SIT
 Provisions of section 50C, deeming stamp duty value to be the full value of the
consideration, is applicable only in case of transfer of any capital asset, being
land or building or both. The said section has no applicability in respect of
transfer of immovable property which is held as stock-in-trade by an assessee
[K.R. Palanisamy v. UOI (2008) 306 ITR 61 (Mad), CIT-II v. Kan Construction
and Colonizers (P.) Ltd. (2012) 208 Taxman 478 (All)].
 On similar lines, with the intention of deeming stamp duty value to be the full
value of the consideration for assets, being land or building or both held as
stock-in-trade by an assessee, a new section 43CA has been introduced in
“Chapter IV-D – Profits and gains of business or profession” wherein the
said assets (other than when they are held as capital asset) is sold for a
consideration less than the value adopted for stamp duty purpose by an
authority of State Government, then the value so adopted for stamp duty
purpose shall be deemed to be the value of the consideration received or
accruing as a result of such transfer for computing income under the heads
profits and gains.
 The remedies provided for in section 50C by allowing a reference to the
Valuation Officer and by treatment of value of stamp duty authority as final,
where Valuation Officer’s value exceeds the stamp duty valuation, are also
provided for in the matters falling within the purview of section 43CA.
31
Anti-Avoidance Provisions
Cont….Deeming provisions similar to section 50C made
applicable to assets held as SIT
 The said section further provides that where the date of an agreement fixing
the value of consideration for the transfer of the asset and date of registration
of the transfer of the asset are not same, the stamp duty value may be taken as
the value on the date of the agreement for transfer and not as on the date of
the registration of such transfer. This exception shall apply only in those cases
where amount of consideration or part thereof for the transfer has been
received by any mode other than cash on or before the date of the agreement
for transfer of asset. This particular provision is similar to that of amended
portion of section 56(2)(vii)(b).
32
Anti-Avoidance Provisions
Amendment in the definition of “speculative transaction” u/s.
43(5)
 Clause (5) of section 43 provides for the definition of “speculative
transaction”.
 The said clause, by virtue of a proviso, specifies certain transactions which shall
not be construed as a “speculative transaction”. FA, 2013 has made an
addition to this list of by inserting in its ambit “an eligible transaction in
respect of trading in commodity derivatives carried out in a recognized
association”i.e. to say that the said transaction shall not be considered as
speculative transaction.
 For the said amendment, certain expressions have been defined as under: "commodity derivative" - shall have the meaning as assigned to it in
Chapter VII of the Finance Act, 2013
 "eligible transaction" means any transaction,—
 carried out electronically on screen-based systems through member or
an intermediary, registered under the bye-laws, rules and regulations of
the recognized association for trading in commodity derivative in
accordance with the provisions of the Forward Contracts (Regulation)
Act, 1952 (74 of 1952) and the rules, regulations or bye-laws made or
directions issued under that Act on a recognized association; and
33
Anti-Avoidance Provisions
Cont…Amendment in the definition of “speculative
transaction” u/s. 43(5)
 which is supported by a time stamped contract note issued by such
member or intermediary to every client indicating in the contract note,
the unique client identity number allotted under the Act, rules,
regulations or bye-laws referred to in sub-clause (A), unique trade
number and permanent account number allotted under this Act;
 "recognized association" means a recognized association as referred to
in clause (j) of section 2 of the Forward Contracts (Regulation) Act, 1952
(74 of 1952) and which fulfills such conditions as may be prescribed and is
notified by the Central Government for this purpose;
34
Anti-Avoidance Provisions
Applicability of TDS on transfer of immovable property
 Under the existing provisions of the income tax Act, section 194LA provides
for deduction of tax at source @ 10% in case of transfer of immovable
property (other than agricultural land) only when such property is subject
to compulsory acquisition under any law for the time being in force,
where the aggregate of payments exceeds Rs. 2,00,000/-.
 With the intention of extending the TDS provisions on transfer of immovable
properties (other than agricultural land) on transfers otherwise than by
way of compulsory acquisition and also to curb the practise of not quoting
PAN or quoting of incorrect PAN with registrar or sub-registrar at the time of
registration of the properties, a new section 194-IA has been introduced by FA,
2013 which mandates deduction of tax at source @ 1% where payments are
made to a resident in excess of Rs. 50,00,000/-.
 For the compliance of aforesaid provisions, the deductor is not required to
procure a tax deduction account number u/s 203A.
 Similar provisions were sought to be introduced by Finance Bill, 2012, but was
dropped at the time of passage of the bill in parliament. The said provisions shall
now come into effect from 1st June, 2013.
35
New rules for TDS on immovable property u/s 194-IA

The CBDT by amending rules 30, 31, 31A of Income Tax Rules, 1962, vide
notification no. 39 dated 31.05.2013, has provided the mechanism for deduction and
payment of TDS u/s 194-IA, the salient features are as under:
Any sum deducted u/s. 194-IA shall be paid to the credit of the CG within the
period of 7 days from the end of the month in which the deduction is made.

TDS payment u/s. 194-IA shall be accompanied by a challan-cum-statement in
new form no. 26QB.

Where tax deducted is to be deposited accompanied by a challan-cum-statement
in form no. 26QB, the amount of tax so deducted shall be deposited to the credit
of the CG by remitting it electronically within the time specified in sub-rule (2A)
into the RBI or SBI or any authorized bank.

Every person responsible for deduction of tax u/s. 194-IA shall furnish the
certificate of TDS in form no. 16B to the payee within 15 days from the due date
for furnishing the challan-cum-statement in form no. 26QB.

Form 16B & 26QB have been made available online.
36
TCS u/s. 206(1D) now made applicable on bullion even if
weighing 10grams or less

TCS on cash sale of bullion and jewellery: Finance Act, 2012, in order to reduce the quantum of cash transaction in bullion
and jewellery sector and to curb the flow of unaccounted money, amended the
section 206C of the Income-tax Act by introducing a new sub- Section (1D) to
provide that the seller of bullion and jewellery should collect tax @1% from
buyer in cash the consideration is received in cash and such amount exceeds:
 Rs. 2 lakhs, on sale of bullion (excluding any coin or any article weighing
10grams or less);
 Rs. 5 lakhs, on sale of jewellery.
 However, FA, 2013, has done away with exception of excluding bullion in the form
of coin or any article weighing 10grams or less by bringing all the bullion
transaction exceeding Rs. 2 lakhs in the of TCS.
37
Anti-Avoidance Provisions
Cash contribution to any political party or electoral party or
electoral trust ineligible for deduction
 Currently, deduction is available for any contribution made, to any political
party or electoral trust, by an Indian company or any person (other than local
authority or artificial juridical person wholly or partly funded by the
Government) under sections 80GGB or 80GGC respectively.
 However, with the intention of discouraging cash payments by contributors
and curbing the stash of black money with political parties/electoral trust, the
said provisions have been amended by FA, 2013 by restricting the allowability of
deductions only if the contributions are made in a mode other than cash.
38
Anti-Avoidance Provisions
General Anti-Avoidance Rule (GAAR)
 The General Anti Avoidance Rule (GAAR) was introduced in the Income-tax
Act by the Finance Act, 2012. The substantive provisions relating to GAAR are
contained in Chapter X-A (consisting of sections 95 to 102) of the Income-tax
Act. The procedural provisions relating to mechanism for invocation of GAAR
and passing of the assessment order in consequence thereof are contained in
section 144BA. The provisions of Chapter X-A as well as section 144BA were
initially suppose to come into force with effect from 1st April, 2014.
 A number of representations were received against the provisions relating to
GAAR. Hence, an Expert Committee was constituted by the Government with
broad terms of reference including consultation with stakeholders and finalizing
the GAAR guidelines and a road map for implementation. The Expert
Committee’s recommendations included suggestions for legislative 12
amendments, formulation of rules and prescribing guidelines for implementation
of GAAR. The major recommendations of the Expert Committee have been
accepted by the Government, with some modifications. Some of the
recommendations accepted by the Government require amendment in the
provisions of Chapter X-A and section 144BA.
39
Anti-Avoidance Provisions
Cont…General Anti-Avoidance Rule (GAAR)
 In order to give effect to the recommendations the following amendments have
been made in GAAR provisions currently provided in the Act: The provisions of Chapter X-A and section 144BA will come into force with
effect from 1st April, 2016 as against the current date of 1st April, 2014.
Hence, the provisions shall apply from the assessment year 2016-17 instead
of assessment year 2014-15.
 An arrangement, the main purpose of which is to obtain a tax benefit, would
be considered as an impermissible avoidance arrangement. The current
provision of section 96 providing that it should be “the main purpose or one
of the main purposes” has been proposed to be amended accordingly.
 The factors like, period or time for which the arrangement had existed; the
fact of payment of taxes by the assessee; and the fact that an exit route was
provided by the arrangement, would be relevant but not sufficient to
determine whether the arrangement is an impermissible avoidance
arrangement. The current provisions of section 97 which provided that
these factors would not be relevant has been proposed to be amended
accordingly.
40
Anti-Avoidance Provisions
Cont…General Anti-Avoidance Rule (GAAR)
 An arrangement shall also be deemed to be lacking commercial substance, if it
does not have a significant effect upon the business risks, or net cash flows of
any party to the arrangement apart from any effect attributable to the tax
benefit that would be obtained but for the application of Chapter X-A. The
current provisions as contained in section 97 are proposed to be amended to
provide that an arrangement shall also be deemed to lack commercial substance
if the condition provided above is satisfied.
 The Approving Panel shall consist of a Chairperson who is or has been a Judge
of a High Court; one Member of the Indian Revenue Service not below the rank
of Chief Commissioner of Income-tax; and one Member who shall be an
academician or scholar having special knowledge of matters such as direct taxes,
business, accounts and international trade practices. The current provision of
section 144BA ,that the Approving Panel shall consist of not less than three
members being income-tax authorities and an officer of the Indian Legal Service
has been proposed to be amended accordingly.
 The directions issued by the Approving Panel shall be binding on the assessee as
well as the income-tax authorities and no appeal against such directions can be
made under the provisions of the Act. The current provisions of section 144BA
providing that the direction of the Approving Panel will be binding only on the
Assessing Officer have been proposed to be amended accordingly.
41
Anti-Avoidance Provisions
Cont…General Anti-Avoidance Rule (GAAR)
 The Central Government may constitute one or more Approving Panels as may
be necessary and the term of the Approving Panel shall be ordinarily for one
year and may be extended from time to time up to a period of three years. The
provisions of section 144BA have been proposed to be amended accordingly.
 The two separate definitions in the current provisions of section 102, namely,
“associated person” and “connected person” will be combined and there will be
only one inclusive provision defining a ‘connected person’. The provisions of
section 102 have been proposed to be amended accordingly.
 These amendments will take effect from 1st April, 2016 and will, accordingly, apply
in relation to the assessment year 2016-17 and subsequent assessment years.
42
Procedural Provisions
Defective Return
 Section 139(9) deals with a defective return. Explanation to Section 139(9)
provides a list of situations wherein a return shall be regarded as defective. FA,
2013, has extended the provisions of the said section even to a return on which
self-assessment tax along with with interest, if any, payable in accordance
with the provisions of section 140A, has not been paid on or before the date of
furnishing of the return.
 The above amendment shall take effect from 1st June, 2013.
43
Procedural Provisions
Additional requirement on the basis of which special audit
142(2A) can be directed
 As per the current provisions of income tax, an Assessing Officer (AO) can
direct an assessee to get its accounts audited if he deems it necessary having
regard to the nature and complexity of the accounts of the assessee.
 Till date, there has been many litigation with respect to the justifiability of AO’s
direction for getting assessee’s books audited and in majority of the cases,
Courts have ruled in favour of the assessee by interpreting the expression
“nature and complexity of the accounts” in a very restrictive manner.
 With the intention of avoiding any further litigations, the requirements for
directing the special audit has been extended to include in its ambit the
following: Volume of the accounts,
 Doubts about correctness of the accounts,
 Multiplicity of transactions in accounts,
 Specialized nature of business
 The above amendment shall take effect from 1st June, 2013.
44
Procedural Provisions
Electronic filing of Wealth-tax returns
 As per the current provisions of the Wealth Tax Act, 1957, a return of wealth is
mandatorily required to be filed in paper form and that too along with the
specified documents.
 Sections 139C and 139D of the Income-tax Act contain provisions for
facilitating filing of annexure-less return of income in electronic form by certain
class of income-tax assessees.
 On similar lines, FA, 2013, has amended Wealth Tax Act by introducing a new
section 14A, empowering Board to notify class or classes of persons who can
file return of wealth which may not be accompanied by statements, receipts,
certificates, audit reports, reports of registered valuer or any other documents,
which are otherwise required to be accompanied under any other provisions of
Wealth-tax Act.
 Furthermore, another new section 14B, has been introduced empowering
Board to notify class or classes of persons who would be mandatorily
required to file return of wealth electronically without any documents.
 However, the amendments even provides that such assessee would be required
to submit the documents on demand made by the Assessing Officer.
Consequential amendments in the section 46 – “power to make rules” by the
Board, are also made.
 The above amendment shall take effect from 1st June 2013.
45
Procedural Provisions
Amendment to clarify “Tax due” for the purpose of recovery
u/s 167C and 179
 Sections 167C and 179 provides for recovery of “tax due” from
partner/director (who was the partner / director of such LLP/Private Company
at any time during the previous year to which tax due relates) in case the same
could not be recovered from LLP / private company.
 The Delhi High Court in the case of Sanjay Ghai [(2012) 26 taxmann.com 203]
has interpreted the phrase “tax due” used in section 179 to hold that it does
not include penalty, interest and other sum payable under the Act. Similar view
has also been taken by Gujarat High Court in Maganbhai Hansrajbhai Patel v.
ACIT [(2012) 211 Taxman 386].
 As this was never the legislative intent, clarificatory amendments have been
made in both the sections by inserting a new explanation providing that the
expression “tax due” includes penalty, interest or any other sum payable under
the Act.
46
Procedural Provisions
Revision of Penalty u/s. 271FA on failure to furnish AIR u/s.
285BA
 Section 285BA(1) mandates furnishing of annual information return (AIR) by
the specified persons in respect of specified transactions within the time
prescribed under sub-section (2) thereof. Sub-section (5) of the section
empowers the Assessing Officer to issue notice if the annual information return
has not been furnished by the due date.
 In relation to the punishment for failure to furnish AIR, section 271FA provides
for a penalty of Rs. 100/- per day during the period for which the failure
continues. However, this penalty relates only to failure pertaining to AIR by
persons specified under sub-section (1) and does not cover in its ambit, failure
respond to a notice under sub-section (5).
 To remove such a flaw, section 271FA has been amended so as to include in its
ambit, a penalty of Rs. 500/- per day in case of failure to furnish return within
period specified in notice issued u/s. 285BA(5), from the date of expiry of the
period specified in the notice.
47
Procedural Provisions
Tax Residency Certificate
 The Finance Act, 2012 has amended the provisions of Section 90 and Section
90A of the Act to make the submission of a Tax Residency Certificate [“TRC”]
containing prescribed particulars compulsory for non-residents assessee’s to
avail benefits under the applicable Double Tax Avoidance Agreement [“DTAA”].
 Memorandum explaining the provisions of the Finance Bill, 2012, mentioned
that “TRC” would be a necessary but not a sufficient condition for claiming
benefits under the applicable DTAA. However the same was not incorporated
in the Income Tax Act and hence was lacking a statutory force.
 Though, the proposed Finance Bill, 2013 intended giving the above a legal
validity, but ultimately the final bill, as passed by Lok Sabha, abolished the same.
 Now, as per the amended provisions, a non-resident assessee who intends to
take the benefit of the said section, shall merely require to obtain a certificate
of his being a resident in any country outside India or specified territory
outside India, as the case may be, from the Government of that country or
specified territory. However, the assessee shall have to provide such other
documents and information, as may be prescribed.
48
Procedural Provisions
Cont…Tax Residency Certificate
 The “TRC” referred to above i.e. in sections 90(4) & 90A(4), has now been
notified by the CBDT vide notification no. 39/2012 dated 17-9-2012, inserting a
new rule 21AB along with introduction of new Form nos. 10FA & 10FB.
 As per the said notification, the certificate is to be obtained by an assessee, not
being a resident in India, from the Government of the country or the specified
territory shall contain the following particulars, namely: Name of the assessee;
 Status (individual, company, firm etc.) of the assessee;
 Nationality (in case of individual);
 Country or specified territory of incorporation or registration (in case of
others);
 Assessee's tax identification number in the country or specified territory of
residence or in case no such number, then, a unique number on the basis of
which the person is identified by the Government of the country or the
specified territory;
 Residential status for the purposes of tax;
 Period for which the certificate is applicable; and
 Address of the applicant for the period for which the certificate is
applicable;
49
Procedural Provisions
Cont…Tax Residency Certificate
 In has been further stated in the said rule that the certificate shall be duly
verified by the Govt of country/specified territory of the assessee who claims
to be a resident for the purposes of the tax.
 For procuring the said certificate, the assessee (resident in India) shall make an
application in Form no. 10FA to the AO.
 The AO shall issue the said certificate in Form No. 10FB.
50
Procedural Provisions
Certain exclusions while computing time limits specified in
section 153
 Section 153 of the Act, which deals with time limits for completion of
assessments and reassessments, inter alia, provides that while computing the
time limit for completing the special audit u/s. 142(2A) the period commencing
from the date on which AO directs the assessee to get his accounts audited and
ending with the last date on which the assessee is required to furnish a report
of such audit shall be excluded. However, the existing provision does not
provide for exclusion of time in case the direction of the Assessing Officer is
set aside by the court.
The said provision has, therefore, now been amended by FA, 2013, so as to
include in in its ambit, in addition to above, a situation where the direction is
challenged before a court, by excluding from the limitation period, the period
commencing from the date on which AO directs the assessee to get his
accounts audited and ending with the date on which the order setting
aside such direction is received by the commissioner.
51
Procedural Provisions
Cont…..Certain exclusions while computing time limits
specified in section 153
 Similarly, the said section 153, inter-alia, also provides for exclusion of the
period commencing from the date on which a reference for exchange of
information is made by an authority competent under an agreement referred to
in section 90 or section 90A and ending with the date on which the
information so requested is received by the Commissioner or a period of one
year, whichever is less, in computing the period of limitation.
In order to deal with practical situations and with the intention of providing
more clarity to the said provision, it has been amended to provide that the
period commencing from the date on which a reference or first of the
references for exchange of information is made by an authority competent
under an agreement referred to in section 90 or section 90A and ending with
the date on which the information requested is last received by the
Commissioner or a period of one year, whichever is less, shall be excluded in
computing the period of limitation.
 On similar lines, time limits specified u/s. 153B of the Act relating to the time
limit for completion of a search assessment has also been amended.
 These amendments shall take effect from 1st June, 2013.
52
Procedural Provisions
Clarificatory amendment to section 132B - Application of
seized or requisitioned assets
 As per the current provisions of section 132B, adjustments of seized assets is
permitted against any existing liabilities.
 While interpreting the said law, some of the judicial pronouncements, namely,
[Pandurang Dayaram Talmale (2004) 187 CTR 625 (Bom), Shri Ram S. Sarda v.
Dy. CIT (2012) 17 taxmann.com 23 (Rajkot)], have held that advance tax
liability is also an existing liability for the purposes of section 132B.
 As this was never the legislative intent behind enacting the said provision, in
order to overrule the flawed interpretation, a new explanation 2 has been
inserted in the said section clarifying that the “existing liability” does not
include advance tax payable in its ambit.
53
Agricultural Income & Land
Amendment in definition of capital asset
 The current definition of capital asset u/s. 2(14), inter alia excludes an
agricultural land subject to the fulfilment of the following conditions, namely: the land should not be situated within the jurisdiction of municipality or a
cantonment board having population of 10,000 or more as per the last
published census figures
And
 The land should not be situated within 8 Km of such municipalities or
cantonment board, which the Central Government may notify.
 Interpreting the said law, it was held in CIT vs. Madhukumar N. (HUF) [(2012)
208 Taxman 394 (Kar), that to classify a agricultural land as a capital asset for
the purposes of section 2(14), apart from other conditions, a notification from
the Central Government is a mandatory requirement that cannot be done away
with.
 Further, the courts have even interpreted that the distance is to be measured
as per the road distance and not as per the straight line distance on a
horizontal plain. [CIT vs. Lal Singh [2010] 325 ITR 588 (PUNJ & HAR), Laukik
Developers vs. DCIT [2007] 108 TTJ 364 (MUM)]
54
Agricultural Income & Land
Cont…Amendment in definition of capital asset
 However, with the intention of doing away with the requirement of notification
for classifying a agricultural land as capital asset, and clarifying certain other
issues, section 2(14) stands significantly amended as under:-
Now, an agricultural land shall be considered as a capital asset in the following
circumstances, namely: If the land is situated within the jurisdiction of municipality or a cantonment
board having population of 10,000 or more as per the last published census
figures;
Or
 If the land is situated in an area within the distance of 2 km, measured
aerially, from the local limits of any municipality or cantonment board and
which has a population of more than 10,000 but upto 1,00,000;
Or
 If the land is situated in an area within the distance of 6 km, measured
aerially, from the local limits of any municipality or cantonment board and
which has a population of more than 1,00,000 but upto 10,00,000;
Or
 If the land is situated in an area within the distance of 8 km, measured
aerially, from the local limits of any municipality or cantonment board and
which has a population of more than 10,00,000;
55
Agricultural Income & Land
Cont…Amendment in definition of capital asset
 Similar amendments have been made in section 2(1A) which defines
“agricultural income”, so as to exclude, from its ambit, income derived
from any buildings situated on or within immediate vicinity of agricultural land
which is classified as capital asset for the purposes of section 2(14).
 Futhermore, similar amendments have even been made to the definition of
“Urban land” in section 2 of Wealth-tax Act, 1957.
56
Other Major Amendments
100% Deduction for donations to National Children’s Fund
 The benefit of 100% deduction u/s 80G, has now been extended to National
Children’s Fund, referred to in clause (iiib) of sub-section (2) of section 80G,
which was erstwhile subject to merely 50% deduction.
57
Other Major Amendments
Taxation of Securitization Trusts and its investors
 Section 161(1A) of the Income-tax Act provides that in case of a trust if its
income consists of or includes profits and gains of business then income of such
trust shall be taxed at the maximum marginal rate in the hands of trust.
 The special purpose entities set up in the form of trust to undertake
securitization activities were facing problem due to lack of special dispensation in
respect of taxation under the Income-tax Act. The taxation at the level of trust
due to existing provisions was considered to be restrictive particularly where
the investors in the trust are persons which are exempt from taxation under the
provisions of the Income-tax Act like Mutual Funds.
 In order to facilitate the securitization process, Income Tax Act, 1961 has been
amended to provide a special taxation regime in respect of taxation of income of
securitization entities, set up as a trust, from the activity of securitization. Apart
from amendment of section 10, a new Chapter XII-EA has been inserted
providing for a special tax regime.The salient features of the special regime are : In case of securitization vehicles which are set up as a trust and the activities
of which are regulated by either SEBI or RBI, the income from the activity of
securitization of such trusts will be exempt from taxation.
58
Other Major Amendments
Cont…Taxation of Securitization Trusts and its investors
 The securitization trust will be liable to pay additional income-tax on
income distributed to its investors on the line of distribution tax levied in
the case of mutual funds. The additional income-tax shall be levied @ 25% in
case of distribution being made to investors who are individual and HUF and
@ 30% in other cases. However, no additional income tax shall be payable if
the income distributed by the securitization trust is received by a person
who is exempt from tax under the Act.
 Consequent to the levy of distribution tax, the distributed income received
by the investor will be exempt.
 The securitization trust will be liable to pay interest at the rate of 1% for
every month or part of the month on the amount of additional income-tax
not paid within the specified time.
 The person responsible for payment of income or the securitization trust
will be deemed to be an assessee in default in respect of amount of tax
payable by him or it in case the additional income-tax is not paid to the
credit of Central Government.
 This amendment will take effect from 1st June, 2013.
59
Other Major Amendments
Pass through status to certain Alternative Investment Funds
 Existing provisions of section 10(23FB) of the Income-tax Act provide that any
income of a Venture Capital Company (VCC) or Venture Capital Fund (VCF)
from investment in a Venture Capital Undertaking (VCU) shall be exempt from
taxation. Section 115U of the Income-tax Act provides that income accruing or
arising or received by a person out of investment made in a VCC or VCF shall
be taxable in the same manner as if the person had made direct investment in
the VCU.
 In other words, these sections provide a tax pass through status (i.e. income is
taxable in the hands of investors instead of VCF/VCC) only to the funds which
satisfy the investment and other conditions as are provided in SEBI (Venture
Capital Fund) Regulations, 1996. Further the pass through status is available only
in respect of income which arises to the fund from investment in VCU, being a
company which satisfies the conditions provided in SEBI (Venture Capital Fund)
Regulations, 1996.
 The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF regulations)
have replaced the SEBI (Venture Capital Fund) Regulations, 1996 (VCF
regulations) from 21st May, 2012.
 In order to provide benefit of pass through to similar venture capital funds as
are registered under new regulations and subject to same conditions of
investment restrictions in the context of investment in a venture capital
undertaking, section 10(23FB) now stands amended to provide that–
60
Other Major Amendments
Cont….Pass through status to certain Alternative Investment
Funds
 The existing VCFs and VCCs (i.e. which have been registered before
21/05/2012) and are regulated by the VCF regulations, as they stood before
repeal by AIF regulations, would continue to avail pass through status as
currently available.
 In the context of AIF regulations, the Venture Capital Company shall be
defined as a company and Venture capital fund shall be defined as a fund set
up as a trust, which has been granted a certificate of registration as Venture
Capital Fund being a sub-category of Category I Alternative Investment Fund
and satisfies the following conditions: That at least two-thirds of its investible funds are invested in unlisted
equity shares or equity linked instruments of venture capital undertaking.
 No investment has been made by such AIFs in a VCU which is an
associate company.
 Units of a trust set up as AIF or shares of a company set up as AIF, are
not listed on a recognized stock exchange.
 In the context of AIF regulations, the Venture Capital Undertaking shall be
defined as it is defined in the Alternative Investment Funds Regulations.
 This amendment will take effect retrospectively from 1st April, 2013 and will
accordingly apply in relation to assessment year 2013-14 and subsequent
assessment years.
61
Other Major Amendments
Cont….Pass through status to certain Alternative Investment
Funds
 Under the provisions of SEBI (Depositories and Participants) Regulations, 1996,
as amended in 2012, the depositories are mandatorily required to set up an
Investor Protection Fund;
 Under the existing provisions, section 10(23EA) provides that income by way of
contributions from a recognized stock exchange received by a Investor
Protection Fund set up by the recognized stock exchange shall be exempt from
taxation;
 On similar lines, it is proposed that income, by way of contribution from a
depository, of the Investor Protection Fund set up by the depository in
accordance with the regulations prescribed by SEBI will not be included while
computing the total income subject to same conditions as are applicable in
respect of exemption to an Investor Protection Fund set up by recognized
stock exchanges;
 However, where any amount standing to the credit of the fund and not charged
to income-tax during any previous year is shared wholly or partly with a
depository, the amount so shared shall be deemed to be the income of the
previous year in which such amount is shared.
62
Application for advance pricing agreement

The concept of Advanced pricing agreement (APA) was introduced by the Finance
Act, 2012, w.e.f. 1-7-2012 by enacting two new sections namely, 92CC & 92CD,
wherein the CG may enter into an advance pricing agreement with any person, to
determine the ALP or specifying the manner in which ALP is to be determined, in
relation to an international transaction to be entered into by that person.
(However, the said agreements are not made available to SDT)

The provisions of sub-section (9) of section 92CC authorized CBDT to prescribe a
scheme specifying the manner, form, procedure and any other matter in respect of
APA.

In this regards, new rules 10F to 10T has been enacted by the IT (Tenth Amdt.)
Rules, 2012, w.e.f. 30-8-2012.The contents of the scheme are briefed hereunder
Meaning of expression used in matters in respect of advance pricing
agreement (Rule 10F);

Persons eligible to apply (Rule 10G);

Pre-filing consultation (Rule 10H) – New Form 3CEC;

Application for advance pricing agreement (Rule 10-I) – New Form
3CED;

Withdrawal of application for agreement (Rule 10J) – New Form
3CEE;

Preliminary processing of application (Rule 10K);
63
Application for advance pricing agreement

Procedure (Rule 10L);

Terms of the agreement (Rule 10M);

Amendments to Application (Rule 10N);

Furnishing of Annual Compliance Report (Rule 10-O) – New Form
3CEF;

Compliance Audit of the agreement (Rule 10P);

Revision of an agreement (Rule 10Q);

Cancellation of an agreement (Rule 10R);

Renewing an agreement (Rule 10S);

Miscellaneous (Rule 10T).
64
Finance Act, 2012
Alternate
Minimum Tax (AMT)
Alternate
Minimum
Tax (AMT)

In order to widen the tax base vis-a-vis profit linked investments, Chapter XII-BA of
the Income-tax Act, 1961, which contains special provision relating to certain limited
liability partnerships has now been amended so as to make them applicable to any
person (other than company) who are claiming deduction under chapter VI –A
under the heading “C- Deduction in respect of certain incomes” or under
Section “10AA”.

Accordingly, section 115JC has been replaced by new section 115JC, the salient
features of which are as under:

Payment of Alternate Minimum Tax (AMT):
As per the provisions, there is a requirement to compute Adjusted Total Income
(ATI), in the following manner:Total income of any person (other than company) would be increased by:-


Deduction claimed, if any, under Chapter-VIA under the heading “C –
Deduction in respect of certain incomes” (under Section 80 H to Section 80
TT(other than Section 80 P));

Deduction claimed, if any, under Section 10AA
On this ATI, alternate minimum tax would be computed at the rate of 18.5%
(which is at par with MAT rates for Companies).
65
Finance Act, 2012
Cont…Alternate Minimum Tax (AMT)



With non-obstante clause, it is further provided that where regular Income-tax
payable for a previous year is less than the AMT, the AMT shall be deemed to be
the total tax liability of such person (just the way MAT provides).

However, in terms of section 115JEE, AMT would not be applicable to individual,
HUF, AOP, BOI or any artificial juridical person if the ATI does not exceed Rs. 20
lakhs.

Hence, AMT would now be applicable even to Firms without any threshold
limit just the way it is applicable to Limited Liability Partnership.
Credit of AMT in terms of section 115JD.

The current provisions relating to the credit of AMT paid against the tax paid
under the normal provisions would continue to apply.

The credit of AMT shall be available for a consecutive period of 10 succeeding
years.

With the intention of giving effects to above provisions, consequential changes
have been made in section 140A.
These amendment will take effect from 1st April, 2013 and will accordingly, apply
from the assessment year 2013-14.
66
Finance Act, 2012
Specified Domestic Transactions (SDT)


Brief Background

The Finance Bill 2012 extended the applicability of Transfer Pricing (TP)
Regulations to "specified domestic transactions” from F.Y. 2012-13.

A new insertion, section 92BA, defines SDT. Inter alia (more particularly defined
later), it provides that only a transaction, where the aggregate of specified
transaction exceeds a sum of Rs. 5Crs, it would be considered as SDT.

The existing provisions providing for tax holiday & related party transactions
paid emphasis on “fair market value” or “market value” of the transactions.
However, in the absence of specific guidelines for computation of such “value”
of goods and services, much was left to the discretion of both taxpayers and
Revenue, thus leading to ambiguity and litigation.

This amendment is based on the observations of the Supreme Court in case of
CIT vs. Glaxo Smithkline Asia (P) Ltd.

Hence a recommendation was made by the court so as to Transfer Pricing
Provisions should be extended to domestic transactions to “reduce litigation”
Sub-section (2A) has been inserted in Section 92 w.e.f. 1st April, 2013, which reads
as under:“Any allowance for an expenditure or interest or allocation of any cost or expense or any
income in relation to the specified domestic transaction shall be computed having regard
to arm’s length price”.
67
Sections Covered under SDT
Subsection 8 of Section
80-IA( Inter unit trf of
goods/services of the tax
payer claiming tax
holiday)
Section 40A(2)(b)
payments to specified
related parties
Domestic Transfer
Pricing Regulations
Subsection 10 of Section 80IA (Trf of goods/services
from the unit of tax payer
claiming tax holiday to a
person with close
connection)
Chapter VI-A or Section
10AA (where provisions of
Section 80IA are
applicable)
68
Transactions included as SDT
Section
Transactions/Examples
40A(2b)
Payments to Relatives:
Powers to the assessing officer to
disallow unreasonable expenses or
payments made to related parties.
However there was no criteria for
estimating the reasonableness of the
transaction
80A
Implication of Amendment on
Sections covered under SDT
The application of the arm’s length
standard to domestic intra group
transactions or with related parties in
goods or services with units/
undertakings/enterprises eligible for
certain income tax deductions will
ensure that companies do not misuse
the deductions by undertaking non
arm’s length transactions in order to
This Sec prescribes certain conditions to
increase the profits eligible for income
be applied while computing deduction
tax deductions or increasing losses.
from GTI. AO is empowered to recompute income (based on FMV) of the
undertaking, provided there are tr. With
related parties or other undertakings of
same entity
69
Transactions included as SDT
Sectio Deductions in respect of profits and gains from industrial
undertakings or enterprises engaged in infrastructure development,
n 80etc
IA
Sub
section
8 of
Section
80-IA
Goods or services held for the purposes
of the undertaking or unit or enterprise
or eligible business are transferred to any
other business carried on by the
assessee-Consideration received should
be at the market price
Sub
section
10 of
Section
80-IA
•It appears to the Assessing Officer that,
•owing to the close connection between
the assessee carrying on the eligible
business and any other person
•the course of business between them is
so arranged that the business transacted
between them produces to the assessee
more than the ordinary profits
•the Assessing Officer shall, in computing
the profits and gains of such business for
take the amount of profits as may be
reasonably deemed to have been derived
therefrom.
The application of the arm’s length
standard to domestic intra group
transactions or with related parties
in goods or services with units/
undertakings/enterprises eligible for
certain income tax deductions will
ensure that companies do not
misuse
the
deductions
by
undertaking non arm’s length
transactions in order to increase
the profits eligible for income tax
deductions or increasing losses.
70
Finance Act, 2012
Cont….Specified Domestic Transactions (SDT)
Definition of Related Party Expanded in sec 40A(2)(b)

Sub-Clause (iv) is modified by adding words- “or any other company carrying on
business or profession in which the first mentioned company has substantial
interest”.

This would bring under its purview transactions between subsidiaries of
common parent company holding more than 20% in both the Companies.
71
Cont…Specified Domestic Transaction
Analysis of Amendment







Deterrent for shifting of profits from a profit making entity to a loss making entity
There is no provision for “Corresponding Adjustment” i.e. it will lead to Double
Taxation
The penal consequences currently applicable to transfer pricing regulations are
also applicable to SDT.
The due dates for filing remains the same as applicable to Transfer Pricing Audits
i.e. 30th November.
Tax Payers will have to formalize their product pricing within group as detailed
documentation would be needed as a part of compliance
It would be possible for such taxpayers to utilize TP concepts and methodologies
(such as FAR analysis, benchmark driven pricing) for both commercial as well as
taxation purposes.
Benchmarking would pose problems for certain transactions such as – Director’s
remuneration
72
Cont…Specified Domestic Transaction
Procedural Aspect of SDT




Documentation: The taxpayers have also to maintain the documentation as
mentioned in section 92 D and obtain report in Form 3CEB from the Accountant
as per the provisions of Sec 92E.
Compliance: File form 3CEB along with their return (Sec 92E).
Methods: Follow the Transfer Pricing Methods as applicable to determine the
ALP.
Penal Provision: Be subject to penal provisions as provided U/s 271AA, 271G,
271BA and 271(1)(c).
73
Residuary method for computation of “arm’s
length price”

Section 92C(1) provides for various methods for determination of arm’s length
price in relation to an international transaction or specified domestic
transaction, which, inter alia includes under clause (f) of sub-section (1) “such
other method as may be prescribed by the board”.

In this regards, new rule 10AB has been enacted by the IT (Sixth Amdt.) Rules,
2012, w.r.e.f. 1-4-2012 (i.e. applicable for AY 2012-13 and subsequent years) which
provides for the methodology of determination of arm’s length price as under:
“any method which takes into account the price which has been charged or
paid, or would have been charged or paid, for the same or similar uncontrolled
transaction, with or between non-associated enterprises, under similar
circumstances, considering all the relevant facts”.
74
Relevant Amendments / Additions
to Income Tax Rules, 1962
75
Guidelines for setting up an Infrastructure Debt
Fund u/s 10(47) – New Rule 2F


Section 10(47) of the Income Tax Act, 1961, exempts any income of an
infrastructure debt fund (IDF) which is notified by the Central Government in the
Official Gazette, provided the fund is set up in accordance with guidelines as
may be prescribed.
In this regards, new rule 2F has been enacted by the IT (Fifth Amdt.) Rules, 2012,
w.e.f. 30-4-2012 which provides for the guidelines for setting up an Infrastructure
Debt Fund, the salient features of which are as under:
The IDF shall be a NBFC, set up in conformity with IDF-NBFC (Reserve Bank)
Directions, 2011.

The funds shall be invested only in PPP infrastructure projects, more
particularly described in the rule 2F.

The IDF shall issue rupee denominated bonds or foreign currency bonds.

In case of a non-resident investor, the minimum lock in period shall be of 3yrs.
However, at the time of first investment by such non-resident investor, the
minimum lock in period shall be of 5yrs.
The said NR’s investors are allowed to transfer the bond to another NR
investor within such lock in period.
 The maximum investment that can be made in an individual project or project
belonging to a group at any time shall be 25% of the corpus of the fund.
76
Cont…Guidelines for setting up an Infrastructure
Debt Fund u/s 10(47) – New Rule 2F
The IDF shall not make any investment in any project where its sponsor or the
associate enterprise or the group of such sponsor has a substantial interest.
 The IDF shall file its return of income u/s. 139(4C) on or before the due date.
For the purposes of the said Rule 2F, the following words shall have the following
meaning: “associate enterprise” – meaning as assigned to it in section 92A of the Act.
 "concern" – meaning as in clause (a) of Explanation 3 of sub-section (22) of
section 2 of the Act;
 "corpus" means the total funds of the Infrastructure Debt Fund raised for the
purpose of investment;
 "group" – meaning as defined in clause (mm) of section 2 of Securities and
Exchange Board of India (Mutual Funds) Regulations, 1996.



a person shall be deemed to have substantial interest in –

a company, if he is the beneficial owner (including beneficial ownership held
by one or more of his relatives, in case the person is an individual) of shares
(not being the shares entitled to a fixed rate of dividend whether with or
without a right to participate in profits) holding not less than 10 per cent of
the voting power; or
77
Cont…Guidelines for setting up an Infrastructure
Debt Fund u/s 10(47) – New Rule 2F

a concern other than a company if he is, at any time during the previous
year, beneficially entitled to not less than 20 per cent of the income of such
concern.

“relative” – similar to the meaning assigned to it in section 56(2)(vi) in Income
Tax Act, 1961.

“sponsor” – means a non-banking financial company, or a bank which is allowed
to act as sponsor of Infrastructure Debt Fund in accordance with the directions
of Reserve Bank of India.
78
Scheme for affordable housing project u/s 35AD

Finance Act, 2012, extended the benefits of deduction available u/s. 35AD towards
development of housing project under a scheme for affordable housing framed by
the CG or SG and notified by the board in this behalf.

In this regards, a new rule 11-OA has been inserted by the IT (First Amdt.) Rules,
2012, w.e.f. 2-1-2012 and also a new form - 3CN, has been inserted.

The provision of the rule states as under
the applicant shall apply for notification of the project in Form No. 3CN to
Member (IT), Central Board of Direct Taxes, Department of Revenue, Ministry
of Finance, North Block, New Delhi;

the manner / time-limits subject to which the approval may be granted or
withdrawn;

certain other issues;
Further, all the following conditions needs to be fulfilled by the project, for it to qualify for
the approval, namely:
the project shall commence on or after 1st April, 2011;

the project shall have prior sanction from the competent authority;

the project shall be on a plot of land which has a minimum area of one acre;
79
Cont…Scheme for affordable housing project u/s 35AD

at least 30% of the total allocable rentable area of the project shall comprise of
affordable housing units of Economically Weaker Sections (EWS) category;

at least 60% of the total allocable rentable area of the project shall comprise of
affordable housing units of EWS and Lower Income Group (LIG) categories;

at least 90% of the total allocable rentable area of the project shall comprise of
affordable housing units of EWS, LIG and MIG categories;

the balance 10% or less of the total allocable rentable area of the project may
comprise of other residential or commercial units;

the layout and specifications including design of the project shall be approved by
the State or Union territory Government or its designated implementing
agency;

the project shall be completed within a period of 5yrs from the end of the
financial year in which the project is sanctioned by the competent authority
empowered under the Scheme of Affordable Housing in Partnership framed by
the Ministry of Housing and Urban Poverty Alleviation, Government of India.

the assessee shall maintain separate books of accounts pertaining to capital
expenditure which is intended to be claimed as a deduction u/s 35AD;

the assessee shall file return of income within the relevant due date;
80
Cont…Scheme for affordable housing project u/s 35AD

Certain important definitions, for the said rule:
“affordable housing units” shall be of the following categories:-

“housing unit” means an independent residential unit with separate
facilities for living, cooking and sanitary requirements, distinctly separated
from other residential units within the building –

directly accessible from an outer door or through an interior door in a
shared hallway and not by walking through another household's living
space and

excluding any shared dining areas;
81
Cont…Scheme for affordable housing project u/s 35AD


“specified cities” shall mean the following:
Greater Mumbai urban agglomeration;

Delhi urban agglomeration;

Kolkata urban agglomeration;

Chennai urban agglomeration;

Hyderabad urban agglomeration;

Bangalore urban agglomeration;

Ahmedabad urban agglomeration;

District of Faridabad;

District of Gurgaon;

District of Gautam Budh Nagar;

District of Ghaziabad;

District of Gandhinagar; and

City of Secunderabad;
"total allocable rentable area" means the total rentable area of all the
proposed housing units or non-housing units but excluding the areas earmarked
for common facilities and services.
82
Income Tax Returns (ITR’s) – Rule 12

Rule 12 of the Income Tax Rules, 2012, deals with ITR’s, which are subject to the
following amendments for the AY 2013-14 relevant to FY 2012-13:-
Form SAHAJ (ITR 1) and Form SUGAM (ITR 4S)

Tax payers are mandatorily required to furnish their bank details irrespective of any
refund arising to them or not.

Earlier details of MICR code were required to be furnished. Now, instead of MICR
code, Indian Financial System Code (IFSC) is required to be quoted by the tax payer.
IFSC code is an eleven digit code assigned by Reserve Bank of India to identify every
banks branch uniquely, that are participating in National Electronic Fund Transfer
system in India

The said forms shall not be applicable to tax payers in the following circumstances:

If tax payers have losses under the head income from other sources then such
tax payers cannot utilize Form SAHAJ to file their income tax returns.

If a tax payer being is a ‘resident’ but ‘not ordinarily resident’ and has assets
located outside India or possesses authority to sign in any account located
outside India.

Tax payers claiming benefits under Section 90 and 90A of the IT Act.

If tax payers have income not chargeable to tax exceeding Rs. 5,000/-.
83
Cont…Income Tax Returns (ITR’s) – Rule 12
Amendments to Form ITR 2

In case of short term capital gains arising to a non-resident tax payer, gains earned
are to be bifurcated into shares / units on which Securities Transaction Tax (STT) has
been paid and on those on which STT has not been paid.

If a tax payer has claimed benefit under Section 54GB, the Permanent Account
Number (PAN) of the Company is to be provided.

A separate schedule FSI has been inserted requiring tax payers to declare ‘Details of
Income accruing or arising outside India’. The tax payer has to provide details like
country code, tax identification number, income earned under the five heads of
income and division of such income where a tax treaty is applicable and where not.

Schedule TR pertaining to details of taxes paid outside India has been amended to
provide for details of the relevant article of the tax treaty.

Schedule FA pertaining to ‘Details of Foreign Assets’ has been amended requiring a
tax payer to declare its account number if it has maintained a foreign bank account
or possesses signing authority for any account located outside India.

If a tax payer is a trustee of a trust formed outside India, the tax payer has to
provide details like country name, country code and the name and addresses of
trustees, settlers and the beneficiaries.
84
Cont…Income Tax Returns (ITR’s) – Rule 12
Amendments to Form ITR 3 and ITR 4

Schedule AL has been inserted requiring a tax payer to report details of their
personal assets and liabilities in India if the tax payer’s income exceeds Rs. 25 lakhs.

The assets covered under the said schedule are land, building, bank (including all
deposits), shares and securities, insurance policies, loans and advances given cash in
hand, jewellery, bullion, archaeological collections, drawings, painting, sculpture or any
work of art, vehicles, yachts, boats and aircrafts is provided. Further, the value has to
be reported at cost. The taxpayers can report any liability against these assets in the
schedule.
Electronic filing of Tax Audit Reports (TAR), Transfer Pricing (TPR) and
Minimum Alternate Tax Report (MATR) along-with income tax returns

Until last year tax payers filing their income tax returns electronically were not
required to enclose any papers / documents / reports with their income tax
returns. Now clause 2 of Rule 12 of the IT Rules has been amended to provide that
tax payers are required to file the aforesaid reports electronically along-with their
income tax returns.
85
Income Tax Returns (ITR’s) – Rule 12
Mandatory electronic filing of income tax returns

Last year individuals and Hindu Undivided Families having total income in excess of
Rs. 1 million were required to furnish their income tax returns electronically.
Pursuant to amendment in Clause 3 of Rule 12 of the IT Rules, not only individuals
or HUFs but all persons other than a company, charitable trusts, political parties,
scientific research associations, news paper agencies, colleges or universities etc.
earning income of more than Rs. 5 lakhs shall be required to mandatorily file
income tax returns in electronic form.

Clause (aab) has been inserted providing tax payers claiming benefits under Section
90 and 90A of the IT Act to mandatorily file income tax returns electronically.
Conclusion
The said notification shows the intention of the Indian government and tax authorities
to require tax payers to declare maximum details of their income and wealth. The
notification, by amending Rule 12 of the IT Rules serves a dual purpose for the Indian
tax authorities. Firstly it has widened the scope of electronic filing of income tax
returns for various taxpayers i.e. corporate and individuals and secondly aims to achieve
simplification of the procedural and administrative requirements.
All tax payers filing their income tax returns for the AY 2013 -2014 i.e. income earned
during the financial year 1 April 2012 to 31 March 2013, shall be required to adhere to
the aforesaid amendments.
86
Certificate for not treating a person to be assessee in
default u/s.201 – new rule 31ACB



As per the amended provisions of section 201 by FA, 2012, any person who fails to
deduct the whole or any part of the tax on the sum paid to a resident or on the
sum credited to the account of a resident shall not be deemed to be an assessee in
default in respect of such tax if such resident—
 has furnished his return of income under section 139;
 has taken into account such sum for computing income in such return of
income; and
 has paid the tax due on the income declared by him in such return of income,
 and the person furnishes a certificate to this effect from an accountant in such
form as may be prescribed:
In this regard, a new rule 31ACB has been introduced by the IT(Second Amdt.)
Rules, 2013 w.e.f. 19-2-2013 along with new form 26A, which states as under: The said certificate shall be furnished in new Form 26A to the Director General
of Income-tax (Systems) or the person authorized by the DGIT(systems);
 The DGIT (Systems) shall specify the procedures, formats and standards for the
purposes of furnishing and verification of the Form 26A and be responsible for
the day-to-day administration in relation to furnishing and verification of the
Form 26A in the manner so specified.
On similar lines, rule 37J along with form 27BA has been inserted with respect to
non treatment of the assessee to be in default on account of failure to collect
87
whole or part of tax at source.
Class / Cases where AO not required to issue notices for
6 AY’s pursuant to search or requisition.




As per the provisions of section 153A and 153C the AO is required to issue
notices, requiring the assessee to file return of income, for 6 AY’s in case the
assessee/or any other person wherefrom assets belonging to assessee has been
found, is subject to search u/s. 132 or requisition is made u/s. 132A
However, FA, 2012 amended the said provisions, by inserting new proviso, to state
that the CG, by way of rules, specify the class or classes of cases wherein the AO
will not be required to issue notice for assessing or reassessing the total income of
6 AY’s.
In this regards, the CG has come with new rule 112F, specifying the class / cases
where notices u/s. 153A / 153C are not required to be issued for 6AY’s, namely: where, a person is found to be in possession of any money, bullion, jewellery or
other valuable articles or things, whether or not he is the actual owner of such
money, bullion, jewellery etc. pursuant to search u/s132 or requisition u/s 132A;
and
 where, such search is conducted or such requisition is made in the territorial
area of an assembly or parliamentary constituency in respect of which a
notification has been issued under section 30 read with section 56 of the
Representation of the People Act, 1951 (43 of 1951), or where the assets so
seized or requisitioned are connected in any manner to the ongoing election in
an assembly or parliamentary constituency.
However, the said exceptions shall be applicable to cases where search u/s. 132 or
88
requisition u/s. 132A has taken place after the hours of poll so notified.
Forms subject to certain amendments
Following forms have been subject to certain amendments: Form 15G [declaration u/s. 197A(1) and section 197A(1A)]
 Form 15H [declaration u/s. 197A(1C)]
 Form 16 [certificate u/s. 203 of the Income-Tax Act, 1961 for TDS under salary]
 Form 16A [certificate u/s. 203 of the Income-Tax Act, 1961 for TDS other than
salary]
 Form 24Q [quarterly statement for TDS - Salary]
 Form 26Q [quarterly statement for TDS – other than Salary]
 Form 27C [declaration u/s. 206(1A) for obtaining goods without collection of tax]
 Form 27D [certificate u/s. 206C for TCS]
 Form 27EQ [quarterly statement for TCS]
 Form 27Q [quarterly statement for TDS – NR other than salary]
 Form 29C [Report u/s. 115JC – other than company]
89
CA Sanjeev Lalan
Mobile: +91 9323525932
E-mail: [email protected]
Address: 4A, Kaledonia-HDIL,
2nd Floor, Sahar Road,
Near Andheri Station (E),
Mumbai – 400 069, India.
Tel :
+91 22 6625 6363 /
Fax :
+91 22 6625 6364
90

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