CIRCULAR NO. 1/2007, DATED 27-4-2007
Taxation Laws (Amendment) Act, 2006 Explanatory Notes on the amendments.
1. Introduction
1.1 The Taxation Laws (Amendment) Act, 2006 (hereafter referred to as the Act) as passed by the Parliament, received the assent of the President on the 13th July, 2006 and has been enacted as Act No. 29 of 2006. This circular explains the nature and effect of the amendments with reference to provisions existing before these amendments to the Income-tax Act, 1961.
2. Changes made by the Act.
2.1 The Act has amended sections 2, 10, 12A, 35, 35AC, 35CCA, 40, 40A, 56, 80GGA, 139, 143, 155, 194-I, 194J, 246A, 275 and 288B of the Income-tax Act, 1961.
3. Powers and functions of Tax Recovery Officer.
3.1 The existing provisions of clause (44) of section 2 of the Income-tax Act, 1961 provide that a Tax Recovery Officer means any income-tax officer who may be authorised by the Chief Commissioner or Commissioner, by general or special order in writing, to exercise the powers of a Tax Recovery Officer.
3.2 The provisions of the said clause have been amended so as to enable a Tax Recovery Officer, if he is authorised by the Chief Commissioner or Commissioner, by general or special order in writing, to exercise the powers and functions which are conferred on or assigned to an Assessing Officer under the Income-tax Act, 1961 and which may be prescribed.
3.3 This amendment takes effect from 13
th July, 2006.
[section 2]
4. Exemption of income of North-Eastern Development Finance Corporation Limited.
4.1 Section 86 of Finance Act, 1996 granted exemption from income-tax for a period of ten years to the North-Eastern Development Finance Corporation Limited, set up in 1995. This exemption was thus available only up to assessment year 2005-06. The exemption has been extended for a further period of four years, during which it shall be gradually phased out. To this end, a new clause (23BBF) has been inserted in section 10 of the Act to provide for exemption from income-tax for any income of the North-Eastern Development Finance Corporation Limited being a company formed and registered under the Companies Act, 1956. The proviso to clause (23BBF) phases out the exemption of income beginning with inclusion of 20% of the total income for tax for the assessment year 2006-07, 40% for the assessment year 2007-08, 60% for the assessment year 2008-09, 80% for the assessment year 2009-10 and 100% for the assessment year 2010-11. The exemption under this clause shall be fully phased out in assessment year 2010-11 and no exemption will be available in this assessment year and subsequent assessment years.
4.2 Applicability: Assessment year 2006-07 onwards.
[Section 3]
5. Removal of the requirement of renewal of notification issued under sub-clauses (iv) and (v) of section 10(23C).
5.1 Under the Eighth Proviso to section 10(23C), any notification issued by the Central Government in terms of sub-clause (iv) or sub-clause (v) of the said section has, at any one time, effect for such assessment year or years, not more than three assessment years, including an assessment year or years commencing before the date on which the notification is issued.
5.2 A need has been felt to dispense with the requirement of periodic renewal of notifications. The requirement of periodic renewal of notifications has been resulting in delays in their renewal. In order to overcome delays, the eighth proviso to section 10(23C) has been amended so as to provide that the above mentioned limit of effectivity for three assessment years shall be applicable in respect of notifications issued by the Central Government under sub-clause (iv) or sub-clause (v) before the date on which Taxation Laws (Amendment) Bill, 2006 receives the assent of the President.
5.3 The Taxation Laws (Amendment) Bill, 2006 received the assent of the President on 13.07.2006. Therefore, on account of the above amendment any notification issued by the Central Government under the said sub-clause (iv) or sub-clause (v), on or after 13.07.2006 will be valid until withdrawn and there will be no requirement on the part of the assessee to seek renewal of the same after three years.
5.4 Applicability: Notifications issued on or after 13th July, 2006.
[Section 3]
6. Providing a time limit for issue of notification under sub-clauses (iv)and (v) or for approval under sub-clauses (vi) and (via) of section 10(23C).
6.1 Under the existing provisions of clause (23C) of section 10, in respect of application made under the First Proviso, there is no time limit for issue of notification under sub-clauses (iv) and (v) or for grant of approval under sub-clauses (vi) and (via) or for passing an order rejecting such application. Resultantly, applications remain pending for long.
6.2 Since a time limit is necessary to expedite disposal of applications, a new proviso has been inserted in section 10(23C) to provide that where an application under the first proviso to the said section is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under sub-clause (iv) or sub-clause(v) shall be issued or approval under sub-clause (vi) or sub-clause (via) shall be granted or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received. The assent of the President was received on 13.07.2006.
6.3 Applicability: Applications made on or after 13th July, 2006.
[Section 3]
7. Requirement of getting the accounts audited and furnishing of Audit Report by fund or trust or university or other educational institution or hospital or other medical institution referred to in sub-clauses (iv),(v),(vi) or (via) of clause (23C) of section 10.
7.1 Under the existing provisions of section 10(23C), there is no requirement on the part of any fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clauses (iv), (v), (vi) or (via) of section 10(23C) to furnish audited accounts along with the return of income.
7.2 A new tenth proviso has been inserted in section 10(23C) which provides that if the total income of any entity referred to in sub-clauses (iv), (v), (vi) and (via) of section 10(23C), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount not chargeable to tax in any previous year, it shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 and shall furnish such audit report along with the return of income for the relevant assessment year. The report must be in the prescribed form duly signed and verified by the accountant and setting forth such particulars as may be prescribed. For this purpose, Form No. 10BB has been notified vide notification S.O. 1176 (E) dated 25.7.2006.
7.3 Applicability: Assessment year 2006-07 onwards.
[Section 3]
8. Raising of threshold limit for audit of accounts by a charitable or religious trust or institution.
8.1 One of the conditions to be fulfilled for availing exemption under sections 11 and 12 as contained under the existing provisions of clause (b) of section 12A is that the accounts of the trust or institution for the previous year should have been audited in any case in which the total income of the trust or institution as computed under the Income-tax Act, 1961 without giving effect to the provisions of section 11 and section 12 exceeds fifty thousand rupees in that previous year and furnish the report of such audit along with the return of income for the relevant assessment year in the prescribed form.
8.2 The exemption limit or the maximum amount which is not chargeable to income-tax in any previous year is revised from time to time. Therefore, the aforesaid condition regarding the total income of the trust or institution exceeding fifty thousand rupees in any previous year has been amended to provide for the requirement of getting the accounts audited if in the previous year the total income exceeds the maximum amount which is not chargeable to income-tax.
8.3 Applicability: Assessment year 2006-07 onwards.
[Section 4]
9. Guidelines, manner and conditions on the basis of which approval is to be granted under section 35(1)(ii) and section 35(1)(iii).
9.1 Prior to amendments by the Taxation Laws (Amendment) Act, 2006 (No.29 of 2006), the provisos to clauses (ii) and (iii) of sub-section (1) of section 35 did not provide for any guidelines or manner or conditions in relation to grant of approval of the Central Government to a scientific research association, university, college or other institution. This had been resulting in delay in the processing of applications received for approval from such entities. There was, therefore, a need to provide for a step-by-step manner to be followed by the applicants, the manner in which their applications would be processed and the conditions subject to which the approval was to be granted to a scientific research association under clause (ii) of sub-section (1) of section 35 and to a university, college or other institution under clause (iii) of sub-section (1) of section 35.
9.2 The existing provisos to clause (ii) and clause (iii) of sub-section (1) of section 35 have, therefore, been amended to lay down that the applicant scientific research association, university, college or other institution shall be approved in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed. The guidelines, manner (including application Forms) and conditions have since been prescribed vide notification bearing S.O. 1856 (E) dated 30.10.2006.
9.3 Further, the Taxation Laws (Amendment) Act, 2006 has envisaged the possibility of the Assessing Officers denying deduction in the computation of income in the case of the donors if approval granted to a scientific research association, university, college or other institution is withdrawn for not fulfilling the prescribed conditions or for not following the guidelines. Keeping such possibility in view, an Explanation has been inserted after clause (iii) of sub-section (1) of section 35 to clarify that the deduction to which an assessee (i.e. donor) is entitled on account of payment of any sum by him to a scientific research association or university or college or other institution, shall not be denied merely on the ground that subsequent to payment of such sum by the assessee, the approval granted to any of the aforesaid entities is withdrawn.
9.4 The expression prescribed authority appearing in the second proviso to sub-section (1) of section 35 had been substituted by the expression Central Government by the Finance Act, 1999. While doing so, the word authority appearing towards the end of the said second proviso had been missed to be substituted by the word Government. The Taxation Laws (Amendment) Act, 2006 has, thus, made a corrective amendment in the said second proviso. The word authority has been substituted by the word Government.
9.5 Further, the Act has amended the third proviso to provide that the outer limit of the period of effectivity of a notification for three assessment years shall be applicable in respect of a notification issued by the Central Government under clause (ii) or clause (iii) before the date of assent of the President to the Taxation Laws (Amendment) Bill, 2005. Resultantly, any notification issued on or after the date of assent shall remain in force until approval granted to any entity is withdrawn.
9.6 The Act has inserted the fourth proviso to provide that in respect of an application received on or after the date of assent to the Taxation Laws (Amendment) Bill, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed before expiry of twelve months from the end of the month in which application for approval is received by the Central Government.
9.7 Applicability: Assessment year 2006-07 onwards.
[Section 5]
10. Deduction in the case of an assessee (i.e. the donor) not to be denied if approval is withdrawn in the case of the National Laboratory, etc. (i.e. the donee) Section 35(2AA)
10.1 The Act has amended sub-section (2AA) of section 35 by renumbering the Explanations therein on account of insertion of a new Explanation. The new Explanation has been numbered as Explanation 1 and the existing Explanation as Explanation 2. Explanation 1 so inserted clarifies that the deduction to which an assessee is entitled on account of payment of any sum by him to a National Laboratory, University, Indian Institute of Technology or a specified person for the approved programme [as referred to in the said sub-section (2AA)] shall not be denied to the assessee (i.e. the donor) merely on the ground that after payment of such sum by him, the approval granted to any of the aforesaid entities (i.e. the donee entities) has been withdrawn.
10.2 Applicability: Assessment year 2006-07 onwards.
[Section 5]
11. Deduction in the case of an assessee (i.e. the donor) not to be denied if approval is withdrawn in the case of the donee Section 35AC
11.1 The Act has amended section 35AC of the Income-tax, 1961 by insertion of an Explanation after sub-section (2). The Explanation so inserted clarifies that the deduction to which an assessee (i.e. the donor) is entitled on account of payment of any sum by him to a public sector company or a local authority or to an association or institution shall not be denied to the assessee merely on the ground that after payment of such sum by him, the approval granted to such association or institution has been withdrawn or the notification notifying the eligible project or scheme referred to in section 35AC has been withdrawn.
11.2 Applicability: Assessment year 2006-07 onwards.
[Section 6]
12. Deduction in the case of an assessee (i.e. the donor) not to be denied if approval is withdrawn in the case of the donee Section 35CCA
12.1 The Act has amended section 35CCA of the Income-tax, 1961 by insertion of an Explanation after sub-section (2A) of the said section. The Explanation so inserted clarifies that the deduction to which an assessee is entitled on account of payment of any sum by him to an association or institution shall not be denied to the assessee merely on the ground that after payment of such sum by him, the approval granted to the programme of rural development or, as the case may be, to the association or institution has been withdrawn.
12.2 Applicability: Assessment year 2006-07 onwards.
[Section 7]
13. Deduction not to be allowed in the computation of income if tax is not deducted on payments of rent and royalty Section 40(a)(ia)
13.1 In accordance with the existing provisions of sub-clause (ia) of clause (a) of section 40, failure to deduct tax, as referred under the provisions of Chapter XVII-B, or pay tax after deduction from amounts payable, to a resident, as interest, commission or brokerage, fees for professional services or fees for technical services, or amounts payable to a resident contractor or sub-contractor, results in disallowance of such payments in the computation of income of the payer.
13.2 The Act has amended the aforesaid sub-clause (ia) of clause (a) of section 40 to extend the existing provisions to payments of rent and royalty. Sub-clause (ia) so amended also provides for the definitions of the terms rent and royalty.
13.3 Applicability: Assessment year 2007-08 onwards.
13.4 In a few representations received after the passage of the Taxation Laws (Amendment), Bill, 2005 and assent thereto on 13th July, 2007, apprehensions were expressed that the provisions of section 40(a)(ia) amended as above would be effective from assessment year 2006-2007 (i.e. in respect of the payments made in financial year 2005-2006) whereas the amended provisions of section 194-I relating to deduction of tax at source on rent and those of section 194J relating to deduction of tax on fees for professional or technical services had been inserted in section 40(a)(ia) with effect from 13th July, 2006, a date which would relate to assessment year 2007-08 and not to 2006-07. It is, therefore, necessary to clarify that in any case in which tax is not deducted from payment of rent or royalty during the financial year 2005-2006, no disallowance in the computation of income would be required in terms of the amended provisions of section 40(a)(ia). A perusal of sub-clause (ia) makes it clear that a disallowance is attracted only when tax is deductible at source under Chapter XVII-B and it is not deducted or not paid to Government account. Since tax is deductible under the amended provisions of section 194-I and section 194J from 13th July, 2006, assessment year 2007-2008 would the first relevant assessment year in which a disallowance would be attracted for not deducting or not depositing the tax in terms of the provisions of section 40(a)(ia).
[Section 8]
14. Expenses or payments not deductible in certain circumstances Section 40A
14.1 The existing provisions contained in sub-section (3) and sub-section (4) of section 40A provide that twenty per cent. of the expenditure shall not be allowed as a deduction if payment in a sum exceeding twenty thousand rupees is made, against such expenditure, otherwise than by a crossed cheque or crossed bank draft.
14.2 A crossed cheque or crossed bank draft is not a non-negotiable instrument. This has, at times, resulted in crossed cheques being endorsed making it difficult to trace final payee and thus defeating the provisions of section 40A(3). However, as per the RBIs instructions to commercial banks, an account payee cheque or account payee bank draft cannot be credited to any account other than the account of the payee. The Act has accordingly amended the aforementioned sub-section (3) and sub-section (4) to substitute the expression a crossed cheque drawn on a bank or by a crossed bank draft, in both the sub-sections, by an account payee cheque drawn on a bank or account payee bank draft.
14.3 These amendments take effect from 13th July, 2006.
[Section 9]
15. Rationalisation of the provisions of clause (v) of sub-section (2) of section 56 relating to any sum of money received without consideration.
15.1 The existing provisions of clause (v) of sub-section (2) of section 56 provide that any sum of money exceeding twenty-five thousand rupees received without consideration by an individual or a Hindu undivided family on or after 1.9.2004 from any person, is chargeable to income-tax under the head Income from other sources. The proviso to the said clause lists the following receipts to which the clause does not apply:
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer.
15.2 The Act provides that the aforementioned provisions of clause (v) shall be applicable in respect of any sum of money, exceeding the specified amount, received on or after 1.9.2004 but before 1.4.2006.
15.3 The Act has also provided for the following exclusions to which the provisions of clause (v) of section 56(2) shall not apply:
(i) any sum of money received from any local authority as defined in the Explanation to clause (20) of section 10; or
(ii) any sum of money received from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(iii) any sum of money received from any trust or institution registered under section 12AA.
15.4 The aforementioned three exclusions, as provided by the Act, had become effective from 13th July, 2006. These three exclusions were, however, intended to be made effective from 1st April, 2005. Clause 16 of the Finance Bill, 2007, therefore, proposes the three exclusions would be deemed to have been inserted with effect from 1st April, 2005.
15.5 Further, a new clause (vi) has been inserted in sub-section (2) of section 56 to provide that where any sum of money is received without consideration after 1.4.2006 by an individual or a Hindu undivided family from any person or persons and the aggregate value of all such sums received during the previous year exceeds Rs. 50,000/-, the whole of the aggregate value of such sums shall be included in the total income of such individual or Hindu undivided family under the head income from other sources.
15.6 The Act further provides that the clause shall not applicable to any sum of money received
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer; or
(e) from any local authority as defined in the Explanation to clause (20) of section 10; or
(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g) from any trust or institution registered under section 12AA.
15.7 For the purposes of the new clause (vi), the term relative has been defined in the Explanation thereto to mean the -
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendent of the individual;
(vi) any lineal ascendant or descendent of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi).
15.8 The definition of the term relative in the new clause (vi) of section 56(2) is identical to its definition in clause (v).
15.9 Applicability: Assessment year 2007-08 onwards.
[Section 10]
16. Deduction in the case of an assessee (i.e. the donor) not to be denied if approval is withdrawn in the case of the donee Section 80GGA.
16.1 The Act has amended section 80GGA of the Income-tax Act, 1961 inserting an Explanation each after clause (aa) in respect of the entities covered in clause (a) and clause (aa), clause (b) and clause (bb) of sub-section (2) to clarify that the deduction to which an assessee is entitled in respect of any sum paid by him to a scientific research association, university, college or other institution or to an association or institution for carrying out the programme of rural development, or to a public sector company, or to a local authority or to an association or institution for carrying out the eligible project or scheme referred to in section 35AC, respectively, shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee the approval granted or, as the case may be, the notification has been withdrawn.
16.2 Applicability: Assessment year 2006-07 onwards.
[Section 11]
17. Furnishing of the return of income mandatory in the case of a university, college or other institution Section 139
17.1 The existing provisions of clause (e) of sub-section (4C) of section 139 provide that every fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of section 10 shall, if the total income in respect of which such entities are assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed Form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of the Income-tax Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).
17.2 The Act expands the scope of the aforementioned provisions of clause (e) of sub-section (4C) of section 139 whereby any university or other educational institution referred to in sub-clause (iiiad) and any hospital or other institution referred to in sub-clause (iiiae) will also be required to furnish their return of income for the previous year, if the total income in respect of which such entities are assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, in the prescribed Form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of the Income-tax Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).
17.3 Applicability: Assessment year 2006-07 onwards.
17.4 A university, college or other institution may not as such be required to furnish the returns of income. It has, however, been decided that the entities approved under clause (ii) or clause (iii) of sub-section (1) of section 35 of the Income-tax Act, 1961 should be required to furnish their returns of income. Clause (b) of section 12 of the Act accordingly provides for this requirement and lays down that every university, college or other institution referred to in clause (ii) and clause (iii) of sub-section (1) of section 35, which is not required to furnish its return of income or loss under any other provision of section 139, shall furnish its return in respect of its income or loss in every previous year and that all the provisions of the Income-tax Act, 1961 shall apply to such return as if it were a return under sub-section (1) of section 139.
17.5 Applicability: Assessment year 2006-07 onwards.
[Section 12]
18. Recommendation of the Assessing Officer for withdrawal of approval to the Central Government Section 143
18.1 The Act provides for the guidelines, the manner and the conditions in accordance with which an application made by a scientific research association, university, college or other institution shall be approved under clause (ii) or clause (iii) of sub-section (1) of section 35 of the Income-tax Act, 1961. The Act has also made amendments in section 35 which provide for one time approval which means the approval is to remain in force unless it is withdrawn.
18.2 A proviso has been inserted after the first proviso in sub-section (3) of section 143 to require the Assessing Officer to satisfy himself as to the activities of the university, college or other institution referred to in clause (ii) or clause (iii) of sub-section (1) of section 35 and if the activities are not being carried out in accordance with all or any of the conditions subject to which any of the said entities had been approved, the Assessing Officer may after giving a reasonable opportunity of showing cause to the concerned entity send a proposal to the Central Government recommending withdrawal of approval. The Central Government may by order withdraw the approval and forward a copy of the order to the concerned university, college or other institution and to the Assessing Officer.
18.3 Applicability: Assessment year 2006-07 onwards.
[Section 13]
19. Amendment of section 155 to enable the Assessing Officer to allow deduction in respect of convertible foreign exchange received or brought into India.
19.1 Under the existing provisions of section 155(13), the Assessing Officer has power to rectify an assessment order wherein deduction under sections 80HHB, 80HHC, 80HHD, 80HHE, 80R, 80-O etc. has not been allowed on the amount of foreign exchange which has not been received in convertible foreign exchange in India but is subsequently received or brought into India with the approval of the competent authority.
19.2 Similar provisions are not available in respect of the provisions of sections 10A, 10B and 10BA. Sections 10A, 10B and 10BA also provide that foreign exchange may be brought into India within six months from the end of the financial year or within such time as may be extended by the competent authority. However, under the existing provisions of section 155, the Assessing Officer is not empowered to rectify his assessment order wherein deduction under sections 10A, 10B or 10BA has not allowed on the amount of foreign exchange which has not received in convertible foreign exchange in India but has subsequently been received or brought into India with the approval of the competent authority.
19.3 With a view to enable the assessing officer to rectify the orders under sections 10A or 10B or 10BA, sub-section (11A) has been inserted in section 155 of the Income-tax Act so as to provide that where in the assessment for any year, the deduction under section 10A or section 10B or section 10BA has not been allowed on the ground that such income has not been received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, has not been brought into India, by or on behalf of the assessee with the approval of the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange and subsequently such income or part thereof has been or is received in, or brought into, India in the manner aforesaid, the Assessing Officer shall amend the order of assessment so as to allow deduction under section 10A or section 10B or section 10BA, as the case may be, in respect of such income or part thereof as is so received in, or brought into, India. The provisions of section 154 shall, so far as may be, apply thereto, and the period of four years shall be reckoned from the end of the previous year in which such income is so received in, or brought into, India.
19.4 This amendment takes effect from 13th July, 2006.
[Section 14]
20. Expansion of the scope of tax deduction at source on rent under section 194-I
20.1 Under the existing provisions contained in section 194-I, tax is required to be deducted at source on payment of rent. The term rent has been defined in the Explanation to the said section to, inter alia, mean payment for use of any building (including factory building) together with furniture, fittings and the land appurtenant thereto whether or not such building is owned by the payee.
20.2 The Act has amended the existing definition of rent in the Explanation to section 194-I to provide that the provisions of the said section are applicable whether the items are rented separately or jointly. The Act also expands the list of items by inclusion of machinery, plant and equipment for the purposes of deduction of tax at source under section 194-I.
20.3 This amendment takes effect from 13th July, 2006.
20.4 Subsequent to passage of the Bill and assent thereto on 13th July, 2006, several representations were received to the effect that the rate of deduction of tax at source at twenty per cent was too high for rent received from hiring of machinery, plant or equipment. After examination of such representations, a rate of ten per cent. has been proposed, in the Finance Bill, 2007 effective from 1st June, 2007, as the rate of TDS in respect of rent for use of any machinery or plant or equipment.
[Section 15]
21. Expansion of the scope of tax deduction at source on Fees for professional or technical services under section 194J.
21.1 Under the existing provisions contained in sub-section (1) of section 194J, tax is required to be deducted at source on any payment of a sum to a resident exceeding twenty thousand rupees by way of fees for professional services or fees for technical services at the rate of five per cent. of such sum.
21.2 The Act has amended the aforementioned sub-section (1) to include payment of royalty and any sum referred to in clause (va) of section 28 for applicability of the provisions of the said sub-section to such payments. The term royalty has been defined in the Explanation to the amended section and shall have same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9. The threshold limit for deduction of tax on both the payments has been retained at twenty thousand rupees.
21.3 This amendment takes effect from 13th July, 2006.
[Section 16]
22. Rationalisation of the provisions of section 275 regarding bar of limitation for imposing penalties.
22.1 The existing provisions of sub-section (1) of section 275 provide the time limitation for imposing penalty under Chapter XXI of the Income-tax Act, 1961, as under:-
(i) In a case where relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, an order imposing a penalty shall not be passed after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later. However, this limitation is applicable only if the Commissioner (Appeals) passed the order before 1st June, 2003 disposing of the appeal made to him;
(ii) In a case where relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after 1st June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later;
(iii) In a case where the relevant assessment or other order is the subject matter of revision under section 263 or section 264, after the expiry of six months from the end of the month in which such order of revision is passed;
(iv) In any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.
22.2 A new sub-section (1A) in section 275 has been inserted so as to facilitate the revision of an order for the imposition of penalty or dropping the proceedings for the imposition of penalty, on the basis of subsequent revision of assessment by Commissioner (Appeals) or Appellate Tribunal or High Court or Supreme Court or under section 263 or section 264 by the Commissioner. It has been provided in the said sub-section that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner(Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253 or an appeal to the High Court under section 260A or an appeal to the Supreme Court under section 261 or revision under section 263 or section 264 and an order imposing or enhancing or reducing penalty or dropping the proceedings for the imposition of penalty is passed before the order of the Commissioner(Appeals) or, the Appellate Tribunal or, the High Court, or the Supreme Court is received by the Chief Commissioner or the Commissioner, or the order of revision under section 263 or 264 is passed, an order imposing or enhancing or reducing penalty or dropping the proceedings for the imposition of penalty may be passed on the basis of assessment as revised by giving effect to such order of the Commissioner(Appeals) or, the Appellate Tribunal or, the High Court, or the Supreme Court or order of revision under section 263 or 264. A revision order under this sub-section can again be revised under this sub-section.
22.3 In the first proviso to the said sub-section (1A), it has been provided that no order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings under said sub-section shall be passed without hearing the assessee or giving him a reasonable opportunity of being heard , and after the expiry of six months from the end of the month in which the order of the Commissioner (Appeals) or, the Appellate Tribunal or, the High Court, or the Supreme Court is received by the Chief Commissioner or the Commissioner, or the order of revision under section 263 or section 264 is passed.
22.4 In the second proviso to the said sub-section (1A), it has been provided that the provisions of section 274 shall apply in respect of the order imposing or enhancing or reducing penalty under this sub-section.
22.5 Further, a clause (ja) has been inserted in sub-section (1) of section 246A of the Income-tax Act,1961 so as to provide for an appeal to the Commissioner (Appeals) against an order of imposing or enhancing penalty under sub-section (1A) of section 275.
22.6 These amendments take effect from 13th July, 2006.
[Sections 17 and 18]
23. Rounding off of tax, etc.
23.1 The existing provisions of section 288B of the Income-tax Act, 1961 provide that the amount of tax (including tax deductible at source or payable in advance), interest, penalty, fine or any other sum payable, and the amount of refund due, under the provisions of the Income-tax Act, shall be rounded off to the nearest rupee.
23.2 The said section has been substituted by a new section providing that any amount payable, and the amount of refund due, under the provisions of the Income-tax Act, 1961, shall be rounded off to the nearest multiple of ten rupees and for this purpose any part of a rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple of ten.
23.3 This amendment takes effect from 13th July, 2006.
[Section 19]
