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Suggestions of ICAI relating to Direct Taxes considered in the amendments to Finance Bill, 2012 as passed in Lok Sabha.
May, 14th 2012
Suggestions of ICAI in its Post Budget Memorandum-2012 considered in the amendments to Finance Bill, 2012 as passed by
the Lok Sabha

Clause in   Section          Proposed Amendment                Suggestion Given in Post-Budget             Suggestions considered
   Bill                                                             Memorandum, 2012
 No.11C
 of 2012
    as
 passed
 by Lok
 Sabha
   3         Section     The Finance Bill, 2012 proposed      The definition of income under section   This suggestion has been
            2(24)(xvi)   to insert clause (viib) in section   2(24) should be amended to include       considered by inserting sub-
            read with    56(2) to provide that if the         any sum of money referred to in          clause (xvi) in section 2(24) to
             section     consideration for shares is in       section 56(2)(viib).                     include, in the definition of
              56(2)      excess of the fair value of the                                               income,     any      consideration
                         shares,         the     aggregate                                             received for issue of shares as
                         consideration received in excess                                              exceeds the fair market value.
                         of the fair value determined as
                         per method prescribed or
                         substantiated by the company to
                         the Assessing Officer based on
                         the value of its assets, would be
                         taxable as the income of a
                         closely held company.
                         However, no consequential
                         amendment was made in section
                         2(24) to include the same in the
                         definition of income.
Clause in    Section         Proposed Amendment              Suggestion Given in Post-Budget           Suggestions considered
   Bill                                                           Memorandum, 2012
 No.11C
 of 2012
    as
 passed
 by Lok
 Sabha
   25        Section     As per para 35 of page 7 of the A clause may be incorporated in the        Section 80CCG has been inserted
             80CCG       Speech of the Finance Minister, Finance Bill, 2012 to give effect to the   to    give    effect to     the
                         a new scheme called Rajiv above proposal.                                  announcement made by the
                         Gandhi Equity Savings Scheme                                               Finance Minister.
                         was proposed to be introduced.
                         New retail investors, who invest
                         Rs.50,000 directly in equities and
                         whose annual income is below
                         Rs.10 lakhs, would be entitled for
                         deduction of 50% of their
                         investment.
                         However, there was no clause in
                         the Finance Bill, 2012 to give
                         effect to this proposal.





   41       Chapter X-   1.) Under the GAAR Provisions, It was suggested that:                      a) The Finance Bill, 2012, as
               A         as proposed by the Finance Bill, 1. The   constitution   of    the         passed by the Lok Sabha, has
             General     2012, the onus of proof that the    Approval Panel may include             deleted section 96(2) which cast
              Anti-      transaction does not invoke         members from judiciary bodies,         onus onus on the assessee to
Clause in    Section        Proposed Amendment               Suggestion Given in Post-Budget           Suggestions considered
   Bill                                                           Memorandum, 2012
 No.11C
 of 2012
    as
 passed
 by Lok
 Sabha
            Avoidance   GAAR was on the assessee.          independent of the Income Tax           prove that a particular case does
              Rule                                         Department.                             not invoke the provisions of
             Section                                                                               GAAR.
                        2) The Finance Bill, 2012 also 2. The initial burden of proof must
            96(2) and                                      be placed on the Revenue                b) The Finance Bill, 2012, as
                        provided for constitution of an
             section                                       Authorities, to prima facie make        passed by the Lok Sabha,
                        Approving Panel, comprising of
             144BA
                        officers of rank of Commissioner   out a case for invoking GAAR.           provides for constitution of an
                        and above, by the Board to                                                 Approving Panel consisting of not
                        dispose of, the reference within a                                         less than three members
                        period of six months from the end                                          comprising of income tax
                        of the month in which the                                                  authorities not below the rank of
                        reference was received from the                                            Commissioner and an officer of
                        Commissioner.                                                              the Indian Legal Service not
                                                                                                   below the rank of Joint
                                                                                                   Secretary to the Government of
                                                                                                   India.
   57        Section    Sub-section (4) of section 115U     Section 115U may be suitably           Section 115U(4) which provided
              115U      providing for exemption from        amended to clarify the correct         for exemption from DDT and TDS
                        dividend distribution tax and tax   intention of law as laid down in the   in the hands of the VCC/VCF is
                        deduction at source in the hands    Explanatory Memorandum i.e.            proposed to be retained, which
                        of the Venture Capital Company      taxability of income in the hands of   implies that the VCC/VCF will
Clause in   Section       Proposed Amendment               Suggestion Given in Post-Budget           Suggestions considered
   Bill                                                         Memorandum, 2012
 No.11C
 of 2012
    as
 passed
 by Lok
 Sabha
                      and Venture Capital Fund was        the investor and deduction of tax at   continue to be exempt from the
                      proposed to be substituted. The     source from such income by the         applicability of DDT.         The
                      intention as spelt out in the       VCC/VCF and non-applicability of       suggestion of ICAI in this regard
                      Explanatory Memorandum was to       dividend distribution tax in the       has been accepted. In addition,
                      tax income on accrual basis in      hands of the VCC/VCF.                  the VCC/VCF have also been
                      the hands of the investor and                                              exempt from the responsibility of
                      provide for deduction of tax at                                            deducting tax at source.
                      source by the VCC/VCF.
                      However, it is possible that the
                      amended language of law may
                      lead to an interpretation that
                      dividend distribution tax is
                      attracted on such payment, since
                      the specific exemption given by
                      sub-section (4) is proposed to be
                      removed, in which event there
                      would be no question of
                      deduction of tax at source since
                      the last proviso to section 194
                      specifically excludes from its
Clause in   Section       Proposed Amendment                Suggestion Given in Post-Budget              Suggestions considered
   Bill                                                          Memorandum, 2012
 No.11C
 of 2012
    as
 passed
 by Lok
 Sabha
                      scope, dividends referred to in
                      section 115-O. This seemed to
                      be an inadvertent drafting error
                      requiring rectification.


                      The Finance Bill, 2012 contained     The Institute has suggested in its        The Finance Minister, in his
                      certain amendments to clarify the    introductory portion that retrospective   speech on 7.5.2012, clarified that
                                                                                                     the retrospective clarificatory
                      intent of law which were             amendments should not affect
                                                                                                     amendments          now        under
                      proposed to be given effect to       completed assessments.                    consideration of Parliament will
                      retrospectively. For example, the                                              not be used to reopen any cases
                      amendments in section 2(14), 9,                                                where assessment orders have
                      195 etc. to bring to tax indirect                                              already been finalized. The
                      transfers of capital assets, where                                             Central Board of Direct taxes
                      the underlying assets are located                                              would issue a policy circular to
                      in India.                                                                      clearly state this position after the
                                                                                                     passage of the Finance Bill.
 
 
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