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In this article, the proposed amendments by The Finance (No. 2) Bill, 2009
relating to sections 56(2), 57, 145A, 271(1) Explanation 5A and 281B, are
briefly discussed. These amendments proposed in the Finance (No. 2) Bill, 2009,
are aimed towards rationalizing the provisions of the Income-tax Act, 1961 (“the
Act”) in order to bring out the true and correct intention of the legislature
for enacting the above provisions.
1. Section 56 (2): Income
from Other Sources
Existing provision
Existing provisions of
section 56(2) of the Act provides a list of certain incomes will be
specifically be chargeable under the head, ‘Income from other source’.
Proposed Amendment
The Finance (No. 2) Bill,
2009 seeks to amended sub-section (2) of section 56 of the Act, so as to
insert a clause (viii) after newly inserted clause (vii) which provides that
any income received by the assessee by way of interest on compensation or on
enhanced compensation referred to in sub-section (2) of section 145A, shall be
chargeable to Income-tax under head income from other sources.
Reason for the Amendment
The amendment is made with
the intent to tax the interest income earned by the assessee on delayed /
enhanced compensation specifically under the head, ‘Income from other
sources’.
Effective Date
This amendment will take
effect from 1-4-2010 and will, accordingly, apply in relation to the
assessment year 2010-11 and subsequent years.
2. Section 57: Deduction
Existing provision
The existing provisions of
section 57 of the Act provides that the income chargeable under the head,
‘Income from other sources’ shall be computed after making the deductions
specified the section.
Proposed Amendment
The Finance (No. 2) Bill,
2009 seeks to amend section 57 of the Act so as to insert a clause (iv) after
existing clause (iii) to provide that in the case of income referred to in
newly inserted clause (viii) of sub-section (2) of section 56, a deduction of
a sum equal to fifty per cent (50%) of such income shall be allowed to the
assessee. The clause further proposes to provide that no other deduction shall
be allowed to the assessee under any other clause of section 57 of the Act.
Reasons for the Amendment
The amendment is made to
provide for deduction out of the interest income earned by the assessee on the
delay in receipt of compensation or enhanced compensation. The section also
provides, to restrict the deduction to only fifty per cent (50%) of the amount
of such interest income received by the assessee by providing that no further
deduction under the section shall be available to the assessee while computing
such income.
Effective Date
This amendment will take
effect from 1-4-2010 and will, apply in relation to the assessment year
2010-11 and subsequent years.
3. Section 145 A: Method of
Accounting in certain cases
Existing provision
Existing provisions of
section 145A of the Act provides that valuation of purchase and sale of goods
and inventories for the purpose of determination of income chargeable under
the head, ‘Profit and gain of business or profession’ shall be in accordance
with the method of accounting regularly applied by the assessee and the same
will be further adjusted to include the amount of tax, duty, cess or fees
under any law in force, paid / incurred by the assessee to bring the goods to
its location.
Proposed Amendment
The Finance (No. 2) Bill,
2009 seeks to amend the section 145A of the Act to provide that the interest
received by an assessee on compensation or on enhanced compensation, as the
case may be, shall be deemed to be the income of the assessee for the year in
which it is received by him.
Reason for the Amendment
The Act provides that income
chargeable under the head ‘Profits and gains of business or profession’ or
‘income from other sources’, shall be computed in accordance with either cash
or mercantile system of accounting regularly employed by the assessee.
However, the Hon’ble Apex Court, in the case of, Rama Bai v/s. CIT [(1990) 181
ITR 400 (SC)] held that arrears of interest computed on delayed or enhanced
compensation shall be taxable on accrual basis. This has caused undue hardship
to tax-payers. With a view to mitigating the hardship, it is proposed to amend
section 145A of the Act to provide that the interest received by an assessee
on compensation or enhanced compensation shall be deemed to be his income for
the year in which it is received, irrespective of the method of accounting
followed by the assessee.
Effective date:
This amendment will take
effect from 1-4-2010 and will, accordingly, apply in relation to the
assessment year 2010-2011 and subsequent years.
4. Section 271 (1)
Explanation 5 A: Penalty
Existing provisions
Existing provisions of
Explanation 5A to sub-section (1) of section 271, provides that where, in the
course of search initiated under section 132 on or after the 1-6-2007 the
assessee is found to be owner of:
(i) any money, bullion,
jewellery or other valuable article or thing and the assessee claims that such
assets have been acquired by him by utilizing his income for any previous
year; or
(ii) any income based on any
entry in any books of account or other documents or transactions and the
assessee claims that such assets or entry in the books of account or other
documents represents his income for any previous year;
which has ended before the
date of the search and the due date for filing the return of income for year
has expired and the assessee has not filed the return, then, such income
declared by him in any return of income furnished on or after the date of the
search, shall be deemed to have been concealed by the assessee or the assessee
shall be held to have furnished inaccurate particulars of such income.
Proposed Amendment
The Finance (No.2) Bill, 2009
seeks to substitute a new Explanation 5 A to section 271(1) of the Act in
place of existing the Explanation 5A to clarify that where the return of
income for such previous year has been furnished before the said date, but the
discovered assets or the income has not been declared by the assessee in such
return. Then, in such case, the assessee shall for the purposes of section
271(1)(c) the Act be, deemed to have concealed the particulars of his income
or furnished inaccurate particulars with respect to such income.
Reason for the Amendment
The intend of the legislature
is to enlarge the scope of Explanation 5A to section 271(1) (c) and treat the
income as deemed to be concealed by assessee under the provisions of section
271(1) (c) of the Act in cases where the assessee has filed the return of
income for any previous year and it is found during the course of search, that
the assessee has not disclosed in the return for such previous year the
income/ assets of found during the course of search.
Effective date
As the original Explanation
was inserted from 1-6-2007 the present amendment will take effect
retrospectively from 1-6-2007 and apply in cases where search under section
132 is initiated on or after 1-6-2007.
5. Section 281 B:
Provisional attachment to protect revenue in certain cases
Existing provisions
The existing provisions of
section 281B of the Act empower the assessing officer to make provisional
attachment of the assets of the assessee during the pendency of any
proceedings for assessment or reassessment. However, the second proviso to
sub-section (2) to section 281B of the Act provides that where an application
has been made by the assessee under section 245C(1) of the Act before the
Settlement Commission then, the time taken by the Settlement Commission for
admission should be excluded for computing the period of limitation of the
provisional attachment order under section 281B of the Act.
Proposed Amendment
The Finance (No. 2) Bill,
2009 proposes to insert a third proviso in sub-section (2) of section 281B to
provide that the period during which the proceedings for assessment or
reassessment are stayed by an order or injunction from any court shall be
excluded from the period of operation of the provisional attachment order.
Reason for the Amendment
The validity of provisional
attachment made by the assessing officer remains in force for the period of
six months or for such extended period as provided in first proviso to section
281B of the Act. In some cases upon the writ petitions filed by the assessee
before the Hon’ble Supreme or the Hon’ble High Courts, the Court may stay the
assessment proceedings. Usually, such stay granted by the courts remains in
force for many years, during which the validity of provisional attachment
order expires. To overcome such situations, it is proposed to provide that the
period, during which the proceedings for assessment or reassessment are stayed
by any Court, such period shall be excluded while calculating the period of
operation of provisional attachment order under section 281B of the Act.
Effective date
This amendment will take
effect retrospectively from 1-4-1988 and will, apply in relation to the
assessment year 1988-89 and subsequent assessment years.
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