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1. Definitions – Manufacture – Clause 3 - S 2 (29BA).
Clause 3 of the Finance Bill
2009 has sought to introduce sub section 29BA in section 2 of the Income Tax
Act wherein the manufacture is defined for the first time The amendment is to
take effect retrospectively from 1st April, 2009 and would apply in relation
to Assessment Year 2009-2010 and subsequent years. . The amendment read as
follows:
S.2 (29BA)
“manufacture” with its grammatical variation, means a change in a non-living
physical object or article or thing –
(a) resulting in
transformation of the object or article or thing into a new and distinct
object or article or thing having a different name, character and use or ,
(b) bringing into
existence of a new and distinct object or article or thing with a different
chemical composition or integral structure.
As there was no definition
under income tax Act, there was lot of litigation to decide the issue whether
manufacture or not. The above definition of the term “manufacture” would be
applicable to various provisions of the Act and especially the provisions
under Chapter VI-A where income based deduction is claimed by industrial
undertaking in accordance with the provisions of the Act. The insertion of
this definition is quite essential for defining the term “manufacture” under
the following provisions S.32AB, S.80HH, 80HHA, 80HHB, 80HHHBA, 80HHC, 80HHF,
80-I, 80-IA, 80-IAB, 80-IB and 80JJAA.
For the purposes of section
10AA, explanation 1 (iii) “manufacture” shall have the same meaning as
assigned to it in clause (r) od section 2 of the Special Economic Zones Act,
2005. Similarly for the purpose of section 10B, Explanation 4 explains this
section as “manufacture or produce” shall include the cutting and polishing of
precious and semi –precious stones.
Whether the proposed
definition is broad enough to cover the manufacture of items produced in non
physical form such as computer software ,or up gradation of software etc.
which may not result into new thing and distinct object or article nor does
its existence result in different chemical composition or integrals structure
si a debatable issue.
Special Economic Zone Act
2005, defines ‘manufacture’ as under:-
S. 2(r) “manufacture” means
to make, produce, fabricate, assemble, process or bring into existence, by
hand or by machine, a new product having a distinctive name, character or use
and shall include processes such as refrigeration, cutting, polishing,
blending, repair, remaking, re-engineering and includes agriculture,
aquaculture, animal husbandry, floriculture, horticulture, pisciculture,
poultry, sericulture, viticulture and mining;
It is suggested that, in the
proposed definition under the Income-tax Act, after the word, ‘or thing in to
a new, or distinct object, would have been more appropriate, rather than the
word, and’
In Aspinwall & Co. Ltd vs.
CIT (2001) 251 ITR 323 (SC)
The court held that the word
‘manufacture ‘ has to be given a meaning as in understood in common parlance.
It is to be understand as meaning the production of articles for use from raw
materials by giving such materials new forms, qualities or combination whether
by hand labour or machines. If change is made in article result in new and
different article then it would amount to manufacture activity.
As going through various
judicial precedent it brings to our notice that various definition such has
“production” and “article” has not be defined under various Acts and Rules.
More importance with regard to “production” as meaning of “production” would
have wider meaning than “manufacture”. In case an amendment would have been
introduce with regard to insertion of definition “production” and
“manufacture” both then there would have been a clear air with regard to
interpretation of this words under various section of the Act. Now , with
insertion of definition term “manufacture” has been defined but the term
“production “ is still required to be taken as per the dictionary meaning or
so interpreted by various judicial decisions.
In India Cine Agencies vs.
CIT (2008) 220 CTR 223 (SC) / (2009) 308 ITR 98 (SC)
The court held that
conversion of jumbo rolls of photographic films in to small flats and rolls in
desired size amounts to manufacture or production eligible for deduction under
section 32AB.
In Vijay Ship Breaking
Corpo vs. CIT (2008) 175 Taxman 77 (SC),
The court held that Ship
breaking activity results in production of distinct and different article and
therefore, assessee doing said activity would be entitled to Deduction under
section 80 HHA and 80 I.
The principle laid down by
the apex court may be relevant for deciding the whether manufacture or not. As
there is specific definition under the income tax Act , the same may be relied
on for deciding all pending matters in different stages, it can be argued as
clarificatory in nature.
2. Reassessment – Income
escaping assessment-Clause . 57. S. 147, 148 (2)
As per the provisions of the
Indian Income Tax Act, 1961 of Sec. 147 income escaping assessment before the
insertion of new Explanation stands as below :
if the Assessing Officer has
reason to believe that any income chargeable to tax has escaped assessment for
any assessment year, he may, subject to the provisions of sections 148 to 153,
assess or reassess such income and also any other income chargeable to tax
which has escaped assessment and which comes to his notice subsequently in the
course of the proceedings under this section, or recompute the loss or the
depreciation allowance or any other allowance, as the case may be, for the
assessment year concerned (hereafter in this section and in sections 148 to
153 referred to as the relevant assessment year) :
Provided that where an
assessment under sub-section (3) of section 143 or this section …………………
or to disclose fully and truly all material facts necessary for his
assessment, for that assessment year:
[Provided further that
the Assessing Officer may assess or reassess such income, other than the
income involving matters which are the subject-matter of any appeal,
reference or revision, which is chargeable to tax and has escaped assessment.]
Explanation 1. Production
before ………………
Explanation 2. For the
purposes ……………….
Clause 57 of the Finance Bill
2009 proposes to insert Explanation 3 to s.147 relating to income escaping
assessment which reads as follows:
Provided that for the purpose
of assessment or reassessment under this section, Assessing Officer may assess
or reassess income in respect of any issue which has escaped assessment and
such issues comes to his notice subsequently in the course of the proceedings
under this section, notwithstanding that the reasons for such issue have not
been included in the reason recorded under sub-section (2) of Sec 148. “
This amendment to take effect retrospectively from 1st April, 1989 and will
apply accordingly in relation to the assessment year 1989-90 and subsequent
years.
With the amended brought by
this clause, the AO has been given powers to reassess the income in respect of
any income which comes to his notice and has escaped assessment in the course
of reassessment inspite of the fact that the reasons for such issue have not
been included in the reason recorded while initiating the proceedings.
The Explanation 3 can be
effective in wider sense when read with the Proviso mention under the s.147
where it read as follows “may assess or reassess such income, other than the
income involving matters which are the subject-matter of any appeal”. As
explanation 3 also mentions as follows “Assessing Officer may assess or
reassess income in respect of any issue which has escaped assessment and such
issues comes to his notice subsequently in the course of the proceedings”
which seems to draws it supports from the proviso mention under the section
147 which was brought inserted by the Finance Act, 2008 and was effective from
1-4-2008. This effective get retrospectively from the year 1-4-1989 with the
insertion of Explanation 3 inserted as per the Finance Bill. Thus, the
proposed amendment will widen the powers of the Assessing Officer given by the
amendment in 2008 and now, the assessee is devoid from taking the ground that
the addition proposed was not mentioned in the reasons for reassessment and
therefore his case is not covered by the second proviso.
In CIT vs. Shri Ram Singh
(2008) 306 ITR 343 (Raj.).
If in the course of
proceedings under s. 147, the AO were to come to conclusion, that any income
chargeable to tax, which, according to his “reason to believe”, had escaped
assessment for any assessment year, did not escape assessment, then, the mere
fact, that the AO entertained a reason to believe, albeit even a genuine
reason to believe, would not continue to vest him with the jurisdiction, to
subject to tax, any other income, chargeable to tax, which the AO may find to
have escaped assessment, and which may come to his notice subsequently, in the
course of proceedings under s. 147. It is a different story that for such
other income, the AO may have recourse to such other remedies, as may be
available to him under law, but then, once it is found, that the income,
regarding which hehad “reason to believe” to have escaped assessment, is not
found to have escaped assessment, the AO is required to withhold his hands, at
that only. Once the AO came to the conclusion, that the income, with respect
to which he had entertained “reason to believe” to have escaped assessment,
was found to have been explained, his jurisdiction came to a stop at that, and
he did not continue to possess jurisdiction, to put to tax, any other income,
which subsequently came to his notice, in the course of reassessment
proceedings, which were found by him, to have escaped assessment.
Vipin Khanna vs. CIT
(2002) 255 ITR 220 ( P & H) held that AO cannot launch enquiry on the grounds
not covered in reassessment notice.
The proposed retrospective
amendment further clarifies that assessing officer while making assessment
under section 147 can make any other addition which comes to his notice during
the course of assessment which does not form part of the reasons recorded at
the time of issuance of notice.
This amendment will lead to
lot of litigation , the assessing officer may try to reassesee all the issues
which has became final. When assessment is reopened the assessee can not make
a claim which he has not claimed in the original assessment in view of
judgment of supreme court in CIT vs. Sun Engineering Works P . Ltd ( 1992) 198
ITR 297 (SC) there fore giving unrestricted power to A.O may lead to
unintended litigation. It is suggested that making amendment retrospectively
to over come the decision of High court may not be considered as good tax
policy.
It may be noted that similar
provision is not introduced for the reopening of assessment under wealth tax
Act.
The amendment Explanation may
be challenged before the Court as the amendment has it violates the right of
those Assessee whose matter is pending with regard to the assessment for the
year 1989-90 onwards. While those whose assessments are completed before the
introduction of the amendment escape this amendment.
3. Special provision for
full value of consideration, On the basis of “stamp valuation authority”. Clause
– 25 – S. 50C
Section 50C of the Income Tax
Act relating to special provision for full value of consideration in certain
cases inserted by Clause 25 of the Finance Bill, 2009.
As per the present provision,
section includes transactions which are not registered with the stamp duty
valuation authority and are executed by an agreement to sell or by power of
attorney.
The amendment to this section
has taken place to provide that where the consideration received or accruing
as a result of transfer by an assessee of a capital asset, being land or
building or both, is less than the value adopted or assessed or
assessable by an authority of a State Government for the purpose of
payment of stamp duty in respect of such transfer, the value so adopted or
assessed or assessable shall be deemed to be the full value of the
consideration received or accruing as a result of such transfer for computing
capital gain.
Further, it is also proposed
to insert a new explanation so as to clarify the meaning of the term
‘assessable’.
The term ‘assessable’ means
“the price which the stamp valuation authority would have, notwithstanding
anything to the contrary contained in any other law for the time being in
force, adopted or assessed, it were to referred to such authority for the
purpose of the payment of the stamp duty”.
This amendment will take
effect from 1st October, 2009 and shall accordingly the apply in relation to
transactions undertaken on or after such date.
The amendment extends to the
transfer of stamp duty on assets which is not registered with the Stamp Duty
Valuation Officer. Further, the value of the capital assets of the assessee
shall be determined by the authority of a State Government who would compute
the value and the value which would be arrived by such authority would be the
value as regard to full consideration. But no mechanism has been setup or
suggested to find out the value of the Transfer capital Assets and this
amendment would only apply to transaction taken place after 1st October, 2009.
In Carlton Hotel (P)
Ltd. vs. ACIT (2009) 122 TTJ 515 (Luck.) the tribunal held that where
immoveable property is transferred by a partner to the firm a capital
contribution and registration does not take place by payment of stamp duty
,the case would be covered under section 45 (3 ) and provisions of section 50
C can not be invoked .
The word “assessable”
may lead to lot of unintended litigation. The taxing the capital gain
on notional basis may not be up held by the court in an appropriate case. All
most all transaction of immovable property the A.O may try to adopt the
readyrecnor of state Government of determining the assessable value.
The constitutional validity
with regard to 50C has been upheld by upon by High Court of Madras in
K.R.Palanisamy & Ors. vs. Union of India [(2008) 306 ITR 61] it is
stated in s. 50C as a real value cannot be regarded as a notional or
artificial value and such real value is determinable only after hearing the
assessee as per the statutory provisions stated supra. There is no indication
either in the provisions of s. 50C of IT Act or s. 47A of the Stamp Act or
rules made thereunder about the adoption of the guideline value. Hence, the
contention that s. 50C is arbitrary and violative of Art. 14 cannot be
accepted.
4. Service of Notice, etc.
Clause 766 –S.282
Clause 76 of the Bill seeks
to substitute section 282 of the Income-tax Act which relates to service of
notice generally. Under the existing provisions contained in the said section
a notice or requisition under the Act may be served on the person therein
named either by post or as if it were a summons issued by a court. It is
proposed to provide that the service of notice or summon or requisition or
order or any other communication may be made by delivering or transmitting a
copy thereof by post or courier service or in such manner as provided in the
Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of
summons; or in the form of any electronic record as provided in Chapter IV of
the Information Technology Act, 2000; or by any other means of transmissions
as may be provided by rules made by the Board in this behalf It is also
proposed that the Board may make rules providing for the addresses (including
the address for electronic mail or electronic mail message) to which such
communication may be delivered. This amendment to take effect from 1st
October, 2009.
This is welcome provision.
The Government can save the time and money for by sending the notice by
electronic media.
5. Allotment of Document
Identification Number – Clause 77 – S. 282B
Clause 77 of the Bill seeks
to insert a new section 282B of the Income-tax Act relating to allotment of
Document Identification Number. It is proposed to insert a new section 282B in
the Income-tax Act so as to provide that every income tax authority shall
allot a computer generated Document Identification Number in respect of every
notice, order, letter or any correspondence issued by him to any other
income-tax authority or assessee or any other person and such number shall be
quoted thereon. It is further proposed that where the notice, order, letter or
any correspondence issued by any income-tax authority does not bear a Document
Identification Number, such notice, order, letter or any correspondence shall
be treated as invalid and shall be deemed never to have been issued. It is
also proposed to provide that every document, letter or any correspondence,
received by an income-tax authority or on behalf of such authority, shall be
accepted only after allotting and quoting of a computer generated Document
Identification Number. It is also proposed to provide where the document,
letter or any correspondence received by any income-tax authority or on behalf
of such authority does not bear Document Identification Number, such document,
letter or any correspondence shall be treated as invalid and shall be deemed
never to have been received.
This amendment will take
effect from 1st October, 2010.
It is proposed with this
insertion that notice, order, letter or any correspondence does not bear a
IT-DIN then all such would be treated has an invalid and would be deemed to
have been never been issued.
Further, it also clarifies
that all documents, correspondence received by the income tax authority or on
behalf of an authority will be accepted only after allotting and quoting
computer generated IT-DIN. This to take effect from 1st October,2010.
Incase the assessee is able
to show the reasonable cause the documents cannot be treated as invalid.
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