AMCO BUDGET 2013 (UPDATES)

7/30/2019 AMCO BUDGET 2013 (UPDATES)

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May 5, 2013

Dear Friends,

Mr. Chidambaram has always presented Budgets when growth was strong. This was his first

slump Budget and by this time next year we will know whether his maths works out.

The FM has at one stroke partly re-written several DTAA by taxing the buy-back of the shares

in the hands of the Indian Companies. This will deny the DTAA benefit and also the tax credit

to non-resident investors. He has also sizably increased the taxes on Royalty and FTS. The

GAAR has been deferred but not its rigor.

The DTC is work in progress and is intended to be based on best international practices and

brought back to the parliament before the end of the Budget session. There is a proposal to

set up a Tax Administration Reform Commission. A consensus has been reached between the

Centre and the States on the introduction of the GST. The FM has promised to come to

Parliament with changes in retrospective amendments after resolving the Vodafone row.

This note has been modified and updated to cover the last minute amnedments carried out in

the Bill in the Parliament.

Thanks and regards

Anand Mehta

Director

A copy is also available on our website http://www.amcount.com& www.amcoportal.com

This material is prepared by Smart Consultants Pvt. Ltd., a Company established under the Indian Companies Act, 1956.

While due care has been taken to ensure the accuracy of the information contained herein, no warranty, express or implied, is beingmade, by Smart Consultants Pvt. Ltd. as regards the accuracy and adequacy of the information contained herein. The information inthis material is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. Theinformation is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before makingany decision or taking any action that might affect your personal finances or business, you should consult a qualified professionaladviser. This material is intended only for the use of the entity / person to whom it is addressed and the others authorized to receive iton their behalf. The recipient is strictly prohibited from further circulation of this material.

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Union Budget 2013-14

FINANCE BILL, 2013HIGHLIGHTS &COMMENTS

SMART CONSULTANTS PVT.LTD.

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Index

Section A- Direct Taxes

1 Agricultural Land 11 Insurance

2 Bad Debts Banks 12 Investment Allowance

3 Buy-back of Shares 13 Property : Interest on Loan

4 Deduction Power 14 Securitization Trust

5 Deduction New Workman 15 SET

6 DTAA 16 SET VDS

7 Foreign Co. Royalty/FTS 17 STT and CTT

8 GAAR 18 TDS

9 GAAR Mechanism 19 Venture Capital

10 Income : Transfer of Property

Section B Miscellaneous Amendments

Section C Finance Bill 2013 Objectives

Section D - Rates of Tax on Income



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direct taxes

Sr. No. Subject

1 Agricultural Land

AmendedSec. +/- w.e.f.

2(1A), ITA IT,2(ea)(b),WTA

AY 2014-15

Highlights

1. It is proposed to modify the followingprovisions:

a. Sec 2(1A),ITA = Agricultural Incomeb. Sec 2(14),ITA = Capital Assetc. Sec 2(ea),WTA= Urban Land

2. At the 3 places, the parameters are proposedto be changed -Land which is situatedwithin (a) 2, (b) 6 and (c) 8 km, aeriallyfrom the local limits of the Municipality havingpopulation of

(a) more than 10,000 but less than 1 Lac,(b) more than 1 Lac but less than 10 Lacs; and

(c) more than 10 Lacs respectively will be consideredto be Agricultural Land.

Comments

1. Presently the above parameters are used asunder:

a. Sec 2(1A),ITA, situation of the building, incomewherefrom is not exempt;b. Sec 2(14),ITA = situation of land , capital gain fromwhich is not exempt; andc. Sec 2(ea),WTA= Urban Land which is taxable.

2. Presently, the land is defined on acombination of distance in km. and population as

(a) land within the local limits of the Municipalityhaving population of more than 10,000 or

(b) within 8 km of such areas as may be notified bythe CG.

3. Now, it is been sought to rationalize and bringthese parameters within the Act itself.

4. The distance is now defined to be measuredaerially or as the crow flies. This shall deal withthe controversy created by the decisions in

Satinder Pal Singh (188 Taxmann 54)(P&H), Ashok Shukla(139 ITR 666)(Indore),Lokik Developers (105 ITR

657) (Mum). Of course a question willarise as to where does one get suchaerial distance from ?

5. The population of the area will bedetermined based on the lastpreceding census whose figures havebeen published before the first day ofthe previous year. [NEW]

Sr. No. Subject

2 Bad Debts Banks

Amended

Sec. +/- w.e.f.36(1)(viii) AY 2014-15

Highlights1. The bill proposes to insert a newExplanation 2 to section 36(1)(vii) toclarify that for the purposes of theproviso to section 36(1)(vii) andsection 36(2)(v), only one accountreferred to therein is made in respectof provision for bad and doubtfuldebts under section 36(1)(viia) andsuch account relates to all types of

advances, including advances madeby rural branches. Therefore, in termsof the proposed amendment, for anassessee to whom clause (viia) ofsection 36(1) applies, the amount ofdeduction in respect of the bad debtsactually written off under section 36(1)(vii) shall be limited to the amount bywhich such bad debts exceeds thecredit balance in the provision for badand doubtful debts account madeunder section 36(1)(viia) without anydistinction between rural advances

and other advances;

Comments1. Recently, the Honble SupremeCourt in the case of Catholic SyrianBank Ltd. (343 ITR 270)held that theproviso to section 36(1)(vii)appliesonly to provision made for bad anddoubtful debts relating to rural


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advances. Thus, it has been interpreted that boththe deductions u/s 36(1)(vii) and u/s 36(1)(viia)are independent and separated educations. It hasalso been interpreted that there are separateaccounts in respect of provision for bad anddoubtful debt under clause (viia) for ruraladvances and urban advances and if the actual

write off of debt relates to urban advances, then, itshould not be set off against provision for bad anddoubtful debts made for rural advances.

2. The proposal will overrule such cases.

Sr. No. Subject

3 Buy-back of Shares

Amended

Sec. +/- w.e.f.

115QA/B/C.10(34A)

1 June 2013

Highlights1. Presently shares brought back by theCompany are taxed in the hands of the Share-holders.

2. There could be two types of buy-back.

a. In respect of quoted sharesb. In respect of un-quoted shares.

3. As regards (b) above, there is a proposal nowto

a. Tax the same on the hands of the Company u/s.115QA andb. Exempt the same in the hands of the shareholderu/s. 10(34).

Comments1. The provisions are on the same lines asDividend Distribution Tax. However the followingtable will demonstrate the subtle differences:

Non ResidentShareholder

UnlistedIndianCompany

Existing Situation

Distributionof Dividend Exempt

DDT @16.22%

Buy back ofshares Taxable but

could beexemptunder sometreaties

May have totake care ofTDS

Proposed Situation

Distributionof Dividend Exempt

DDT @ 17%

Buy back ofshares Variable

Tax @22.66%

2. In respect of listed shares theprovisions of Sec 46A will continue toapply.

3. This will unsettle the position thatprevailed hitherto for certain foreigncompanies with favorable provisionsin DTAA that the amount received onbuy back of shares is exempt exceptwhen the revenue established it to bea case of avoidance of tax in cases of

a. XYZ India 206 taxman 631 (AAR),b. Armstrong world India 349 ITR 303(AAR),c. A in re 343 ITR 455 (AAR)

4. To an investor, this will mean thatthe entire proceeds will be taxed andnot only the gain (i.e. after deductingthe indexed cost). To a non-residentassessee, it will also mean losing theexemption under treaty and also credit

in home country.

5. The provisions of this chapterapply: [NEW]

a Only in respect of buy-back which isunder section 77A of the 1956 act;b. If such buy-back is carried out by adomestic company; andc. The shares bought back are not listedon any recognized stock exchange inIndia.

In other words, where the buy-back is notunder section 77A of the 1956 Act orwhere the buy- back is by a foreigncompany or the buy-back is of listedshares, this chapter will not apply and theprovisions of section 46A and otherapplicable provisions of the Act willcontinue to govern the tax implications.We shall see more about such cases inlater paragraphs.


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6. In other words, now the Scheme will work asunder: [NEW]

a. A domestic unlisted company that buys back its ownshares under section 77A of the 1956 Act is requiredunder section 115QA to pay tax on distributed incomeas defined therein at the rate of 20% (plus applicable

surcharge).

b. The term "distributed income" is defined in theExplanation to sub-section (1) of section 115QA tomean the consideration paid by the company on buy-back of shares as reduced by the amount which wasreceived by the company for issue of such shares.Thus, if the shares are of face value of Rs. 10 each thatwere issued at a premium of Rs. 5 per share, and if theconsideration for buyback is Rs. 100 per share, thenthe distributed income would be ` 85 (i.e., Rs. 100minus Rs. 15) and tax thereon would be Rs. 17 (being20% of Rs. 85). This tax would be payable by thecompany in addition to the tax (if any) on its totalincome.

c. The shareholder, on the other hand, enjoys completeexemption from tax under the newly inserted section10(34A).

7. Various implications of this new provision.[NEW]

a. Buy-back of shares under section 77A of the 1956Act is permitted out of: (i) free reserves; (ii) sharepremium account; and (iii) proceeds of the new issue ofshares. Now, a buy-back from items (ii) and (iii) couldclearly not be regarded a a distribution of income of the

company. Unlike section 115-O which applies todistribution of dividend which is nothing but distributionof income of the company, buy-back in such caseswould not be a distribution of income. There is,therefore, a grave doubt as to whether tax on such buy-back can pass the test of being a tax on income inorder to pass the test of constitutional validity.

b. The title of the newly inserted chapter is SpecialProvisions Relating to Tax on Distributed Income ofDomestic Company for Buy-Back of Shares. Indeed,as explained above, in all cases, the tax on the amountpaid on buy-back may not qualify as a tax ondistributed income of the domestic company. To thatextent the title is misleading.

c. In the illustration we saw in para 6b above, assumethat the shareholder had acquired the shares at a costof Rs. 50. The shareholder would be liable to tax oncapital gains of Rs. 50 (Rs. 100 minus Rs. 50) and thattoo subject to indexation. 20% tax on long term capitalgain would work out to Rs. 10 (ignoring indexation).However, the tax payable by the company under thenew provision would be Rs. 17, being 20% of Rs. 85.Clearly this is a case of double taxation. To the extent

of the tax on the difference between thecost of acquisition (Rs. 50) and the issueprice (Rs. 15), it is not a tax on income ofthe shareholder. Such tax cannot,arguably, stand the test of being tax onincome so as to be constitutionally valid.

d. A shareholder earning capital gains onbuy-back was in a position to set off hisloss under the head capital gains againstthe gains on buy-back. However, this newscheme shall not permit set off of suchlosses, if any.

e. Indeed, even though this tax isdescribed as additional income-tax in thehands of the company, the company willnot be in a position to set off any lossesthat it might have incurred in its businessagainst the so called distributed income.This again reinforces the contention thatthis is not a tax on income at all.

f. The income is exempt in the hands ofthe shareholder. Therefore, in view ofsection 14A, the shareholder will not be ina position to claim any deduction inrespect of expenses that he may have toincur in connection with transfer of theshares. Under section 46A, however, itwas possible for the shareholder to claimdeduction for such expenses.

8. Was such a provision necessary?[NEW]

a The Explanatory Memorandum explainsthe reason for this enactment in thefollowing words:

Unlisted Companies, as part of taxavoidance scheme, are resorting to buyback of shares instead of payment ofdividends in order to avoid payment of taxby way of DDT particularly where thecapital gains arising to the shareholdersare either not chargeable to tax or aretaxable at lower rate. In order to curb suchpractice it is proposed to amend the

Act

b. From the above, it seems that thegrievance of the law makers is as regardsnon-taxability and as regards lowerrate. Interestingly, lower rate cannot bean issue because, capital gains aretaxable at the rate of 30% if short-termand 20% if long-term, whereas, the DDT ischargeable under section 115-O at therate of 15%! Besides, it is also intriguing tonote that if the intention of the legislators


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11 Cases to which this Chapter shall not beapplicable [NEW]

Some of the instances where this chapter shallnot apply could be:

a. Where the shares are purchased by thecompany pursuant to the scheme arrangementunder sections 391 to 394 of the 1956 Act suchbuy back is not one under section 77A and henceits taxability will continue to be governed bysection 46A;

b. Where the shares are cancelled pursuant to theprovisions for reduction of capital under section77 read with 100 of the 1956 Act this also is nota buy-back under section 77A. The amountreceived, to the extent of accumulated profits willbe taxed as dividend under section 2(22)(d) of the

Act;

c. Where the shares bought back are those of anunlimited company as unlimited companies arenot governed by section 77 and hence are able toreduce its capital independent of anyrequirements of section 77A of the 1956 Act;

d. Where the shares bought back are of a foreigncompany the normal capital gains provisionsread with the relevant tax treaty provisions shallcontinue to govern taxation of such buy-backs;

e Where the shares bought back are of a listedcompany;

f. Redemption of preference shares at apremium this will continue to be charged ascapital gains in view of the decision of theSupreme Court in the case of Anarkali Sarabai vs.CIT 224 ITR 422 (SC).

g. Conversion of preference shares intoequity or equity into preference such conversionis generally treated as transfer for tax purposes[see Addl. CIT vs. Trustees of HEH NizamsFamily Trust (1976) 102 ITR 248(AP) and hence

liable to capital gains tax.

12. Concluding remarks [NEW]

The tendency of robbing Tom to pay Peter, isbecoming more and more popular. We alreadyhave section 115-O where the tax on income ofthe shareholder is made the responsibility of thecompany itself and section 115R where the tax on

income of the unit holder is made theresponsibility of the mutual fund. Wenow have section 115TA where thetax on income distributed to investorsis the responsibility of thesecuritization trust and we have thissection 115QA, where the tax on

capital gains of the shareholder is nowthe responsibility of the companybuying back the shares. With theseprovisions, coupled with theexpansion of scope of the TDSprovisions, I hope that in March 2014,we will get no phone calls from thepay more advance tax on the 15th ofMarch so that their targets are met!

Sr. No. Subject

4 Deduction - Power

Amended

Sec. +/- w.e.f.80IA(4) AY 2014-15

Highlights1. The Sunset Clause has beenextended from 31st March 2013 to 31st

March 2014.

Comments

1. This time limit applies toundertakings which commence theirbusiness of generation and / or

distribution, transmission ordistribution of power, completesubstantial renovation andmodernization of the existingtransmission or distribution lines on orbefore this date.

Sr. No. Subject

5 Deduction New Workman

Amended

Sec. +/- w.e.f.

80JJAA AY 2014-15

Highlights1. The present provision fordeduction is being modified asexplained below:

a. Eligibility: Profits and Gains derivedfrom an Industrial undertaking changedto Manufacture of Goods in a Factory


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b. Dis-qualification now includes the factory which ishived-off or transferred from another company.

CommentsThe provision was originally intended only forcreation of employment for the blue collaremployee. However, it has been used for other

sector also. The proposal speak to make thecorrection.

Sr. No. Subject

6 DTAA

Amended

Sec. +/- w.e.f.

90/90A AY 2013-14& AY 2016-17

Highlights1. There are two situations of Double TaxationRelief.

a). In respect of Agreement between countries u/s. 90and

b) In respect of Agreement between Associations u/s.90A.

2. There are changes proposed for both thesituations;

a) Under proposed Sec.90(2A)/90A(2A), theprovisions of GARR will have to be read into the

Agreement even if the same are not beneficial to theAssessee.

b) Under proposed Sec. 90 (5)/90A(5) the TaxResidency Certificate (TRC), shall be a necessary but

and a sufficient condition. [NEW]

3. These proposal should applicable as under:

a) In respect of 2a) above, w.e.f AY 2016-17

b) In respect of 2b) above, w.e.f.AY 2013-14

Comments1. This will overrule the decision of the SupremeCourt in the case of Azadi Bachao Andolan (263ITR 706)(SC).

2. There was a controversy and uproar andwhile passing the Financial Bill finally, the FinanceMinister moved an amendment to ensure that theTRC is sufficient proof of Residence. [NEW]

Sr. No. Subject

7 Foreign Co. Royalty/FTS

Amended

Sec. +/- w.e.f.

115A AY 2014-15

Highlights1. Uniform increased rate of 25% (plusSC/EC).

2. Applicable to non-residents andforeign companies not having a PE inIndia.

Comments1. At present various rates wereapplicable depending on the period duringwhich the Agreement was entered-before31/5/1997 (30%) between 31/5/.19975and 1/6/2005 (20%) and after 1/6/2005(10%). Now, for all Agreements after

31/3/1976, there will be uniform rate of taxof 25%.

2. The rationale given is that the tax rateswere lower than those provided in anumber of DTAAs.

3. Of course, the rate is subject to benefitunder DTAA.

4. However, admittedly the rise is reallysteep and the burden may be passed onto the Indian Companies after all.

Sr. No. Subject

8 GAAR

Amended

Sec. +/- w.e.f.

95 102 AY 2016-17

Highlights

1. The department can apply GAAR inaddition to -

a. SAAR orb. Any other Provision.

2. Main Steps in GAAR

a. Show Impermissible AvoidanceArrangement.b. Determine Consequences.

Show Impermissible AvoidanceArrangement.


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3. Impermissible Avoidance Arrangement.

a. There is an Arrangementb. The main purpose=Tax Benefit

---- and ----ca. Creates Rights/Obligations beyond Arms Lengthcb. Results in misuse or abuse of Actcc. lacks Commercial Substancecd. manner not bona fide

4. Arrangement

meansa. Any step in or any part or whole ofb. Any transaction, operation, scheme, agreement orunderstandingc. Whether enforceable or notand includesd. the alienation of any property in such transaction,operation, scheme etc.

5. Tax Benefit

a. Includes

aa. Reduction, avoidance, deferral of tax or otheramount payableab. as per the provisions of the Act or a Treaty

b and also includes

ba. reduction in total income orbb. increase in loss

c. For determining whether a Tax benefit exists.

ca. Many parties = one party.cb. Accommodating Party = Main Party.cc. a and b = one party.cd. Corporate Veil= No Veil

d. If the main purpose of even a step in or the partof an arrangement is to obtain tax benefit, thewhole of the arrangement shall be presumed tohave been carried out for the main purpose ofobtaining tax benefit unless proved to the contraryby the Assessee.

6. Lacks Commercial Substance, if

a. substance different from form; orb. Involves Round Trip Financing, An

Accommodating Party, off-setting elements, conduitand disguise true value, location, source, ownershipand control of funds.c. Without substantial commercial purpose.d. Without significant effect on the business risk ornet cash flow.

where the following are relevant butnot sufficient considerations.

a. Period for which it exists.b. Taxes are paid.c. Exit route is provided.

7. Round Trip Financing

a. Series of fund transfers.b. No substantial commercial purpose.

8. Accommodation Party.a. Purpose is to obtain Tax benefit.

Deal with the IAA

9. Main thrust

a. Consequencesb. Manner

10. Consequences include denial oftax benefit or benefit under a treaty.

11.Manner could be such as deemedappropriate and may include thefollowing:

a. Many steps = one step.b. IAA = no arrangement.c. Disregarding the accommodating party.d. Connected persons = one person.

For this purpose,a. Equity = Debt and vice versab. Capital = Revenue Item and viceversac. Expenditure/Reduction can be re-characterized.

12. Terms defined.

a. Arrangement.b. Assetc. Benefit

d. Connected Persone. Fundf. Party.g. Relativeh. Stepi. Tax benefit.

j. Tax Treaty


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13. CBDT is authorized to prescribe guidelinesand conditions for applying this chapter.

Comments:

In order to give effect to the recommendations thefollowing amendments have been made in GAAR

provisions currently provided in the Act:

1. The following are detailed differencesbetween the current provisions and the proposedchanges-

a. The provisions of Chapter X-A and section 144BAwill come into force with effect from April 1, 2016 asagainst the current date of April 1, 2014.

b. An arrangement, the main purpose of which is toobtain a tax benefit, would be considered as animpermissible avoidance arrangement. The currentprovision of section 96 providing that it should be "the

main purpose or one of the main purposes" has beenproposed to be amended accordingly.

c. The factors like, period or t ime for which thearrangement had existed, the fact of payment of taxesby the Assessee; and the fact that an exist route wasprovided by the arrangement would be relevant but notsufficient to determine whether the arrangement is animpermissible avoidance arrangement. The currentprovisions of section 97 which provided that thesefactors would not be relevant has been proposed to beamended accordingly.

d. An arrangement shall also be deemed to belacking commercial substance, if it does not have a

significant effect upon the business risks, or net cashflows of any party to the arrangement apart from anyeffect attributable to the tax benefit that would beobtained but for the application of Chapter X-A. Thecurrent provisions as contained in section 97 areproposed to be amended to provide that anarrangement shall also be deemed to lack commercialsubstance if the condition provided above is satisfied.

e. The Approving Panel shall consist of aChairperson who is or has been a Judge of a HighCourt; one member of the Indian Revenue Service notbelow the rank of Chief Commissioner of Income-tax;and one Member who shall be an academic or scholarhaving special knowledge of matters such as direct

taxes, business accounts and international tradepractices. The current provision of section 144BA, thatthe Approving Panel shall consist of not less than threemembers being income-tax authorities and an officer ofthe Indian Legal Service has been proposed to beamended accordingly.

f. The directions issued by the Approving Panel shallbe binding on the Assessee as well as the income-taxauthorities and no appeal against such directions can

be made under the provisions of the Act.The current provisions of section 144BAproviding that the direction of the

Approving Panel will be binding only onthe Assessing Officer have been proposedto be amended accordingly.

g. The Central Government mayconstitute one or more Approving Panelsas may be necessary and the term of the

Approving Panel shall be ordinarily for oneyear and may be extended from time totime up to a period of three years. Theprovisions of section 144BA have beenproposed to be amended accordingly.

h. The two separate definitions in thecurrent provisions of section 102, namely"associated person" and "connectedperson" will be combined and there will beonly one inclusive provision defining a"connected person". The provisions of

section 102 have been proposed to beamended accordingly.

i. Consequential amendments in othersections relating to procedural matters are

also proposed.

2. Right from the day the proposalwas made in the Parliament. It againbecame subject matter of discussionand one is not sure as to when andwhat will be the final shape of things?Will it meet the same fate as the DTC,the Companies Bill and the GST

which are being discussed over thelast several years but no concreteshape as evolved.

3. A balance of consideration mustevolve in respect of GAAR vs. SAAR.the following are the specificinstances of SAAR.

a. Section 40A(2) Expenses orpayments are not deductible in certaincircumstances involving related parties.

b. Section 80-1A(8) Market value

concept to be followed in relation totransactions with tax exempt entities.

c. Sections 92 to 92F Transfer PricingRegulations applicable to internationaltransactions, which have also been madeapplicable to domestic transactions by theFinance Act, 2012.


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d. Section 93 Avoidance of Income-tax by transferof income to non-residents through transfer of assets,rights or interest.

e. Section 94 Avoidance of Income-tax by transactionsin securities assets, rights or interest.

f. Section 94A Transactions with persons located innotified jurisdictions.

g. Section 2(22)(e) - Deemed dividend.

h. 40(a)(ia) Disallowance of expenses for non-deduction of tax at source.

i. Section 9 Scope of Income deemed to accrue orarise in India, Vide the Finance Act, 2012, it scope hasbeen widened to overrun the Supreme Courts ruling inVodafone and some other cases.

j. Section 43(1) Explanations 1 to 13 Determination of actual cost of assets ignoring

agreements etc. in certain cases.

4. Tax treaties also provide certain anti-avoidance rules which may be considered to beSAAR. For instance, Limitation of Benefit (LOB)Clause and concept of beneficial ownership.

Sr. No. Subject9 GAAR Mechanism

Amended

Sec. +/- w.e.f.

144BA AY 2016-17

Highlights1. The present section 144BA has beensubstituted by a new Section.

2. The procedure in brief is as under:

a. AO makes a reference to CIT

b. CIT if he concurs with AO to issue notice to Ac. If A does not object, CIT can issue directionsd. If an objects, CIT to make reference to ApprovingPanel (AP)e. AP makes inquiries and issues directionsf. Directions of AP final, not appealable.g. AO proceeds to make the orderh. AO gets approval of CIT if tax determinedi. A can appeal to ITAT against AO but not to DRP.

CommentsThere is an elaborate procedure toensure that full justice is done whileimplementing GAAR.

Sr. No. Subject

10 Income : Transfer of Property

Amended

Sec. +/- w.e.f.

43CA/56(2) AY 2014-15

Highlights1. There are two changes in respectof deemed income on transfer of animmovable property.

a. Deemed Gain in hands of seller

It is proposed to introduce Sec. 43CA, todeem incase of transfer of asset other

than Capital Asset, being Land and/orBuilding, the Stamp Duty value to be thefull value of consideration

b. Deemed Income in the hands ofrecipient:

It is proposed to modify sec. 56(2)(vii)(b)to cover transfer of any immovableproperty without consideration or withoutadequate consideration.

2. In both the cases, where there is atime gap between the date of

Agreement and the date ofRegistration, the former date will beapplicable. This of course will beapplicable if the payment is madebefore the former date.

Comments

1. Sec 43CA is import of Sec. 50C,applicable to a Capital Asset to thecase of Current Asset.

2. This will overrule the decisions inthe cases of

a. KAN Constructions (ALL) 20 Taxmann.Com 381b. Tiruvendgudem investment PLimited(320 ITR 345(Mad)c.Excellent Land Developers Limited ( 1ITR 563 (Trib) (Delhi).d. K.R. Palanisamy (180 Taxman 253)(Mad)


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2. Sec 56(2)(vii)(b) extends the original lawwhich was applicable only if there was noconsideration to a case where there is aconsideration but there is a shortfall. This mayoverrule the decisions in cases of -

a. Vallabhbhai(27 taxmann. Com 306)( AHD)b. Harley Street (38 SOT 486)( Ahd)c.Khoobsurat Resorts (P)Ltd (211 Taxman 510) (Del).d.Suzaina foods (P) Ltd. (ITA No. 2731/Ahd/2010)

3. There could be genuine difficulties in the caseof a distress sale.

The FM may clarify that once income is taxed u/s56, it will not be again taxed u/s 69 asunexplained investment.

4. This will import various controversies u/s.50C.including whether it applies to transfer oftenancy rights, whether the value given by aValuation Officer is final or some amount ofleeway is possible and whether a reference to aValuation Officer is mandatory in cases where the

Assessee pleads that the Fair Market Value islower than Stamp Duty Values. All these andmore controversies will continue whiledetermining business income as well.

5. In cases where the date of fixing the value ofthe agreement precedes the date of registrationand some amount of consideration has beendischarged on or before the date of such

agreement, otherwise than in case, then theAssessee is now given the right to plead that thestamp duty value on the date of the agreementfixing the price be adopted rather than the valueon the date of registration - and this would be abeneficial provision for an Assessee.

6. The above amendment would have aramification in computing business incomeparticularly because income from real estatetransactions is often computed using thepercentage completion method.

7. Further, it does appear that immenseimportance is being given to stamp duty valueswhich re revised in an ad hoc manner at thebeginning of every financial year.

Sr. No. Subject

11 Insurance

Amended

Sec. +/- w.e.f.

10(10D) +/- AY 2014-15

.Highlights1. There are two types of Insurancewhich are covered.a, On persons with disability (refer Sec.80U) disease (refer Sec.80DDB)

b. On the Keyman

2. As regards (a) above, there aretwo events which are relevant in thisregard.i). Payment of the Insurance Premium.ii). Receipts of the Insurance Proceeds.

In both these events i) and ii), presentsections 80C and 10(23D) excludeInsurance where the premium is morethan 10% of the sum insured. It isproposed to change this limit to 15%.

3. As regards (b) above, it has beenprovided that the assignment of suchpolicy will not make any difference.

Comments

1. As regards (a) above, the benefithas been increased.

2. As regards (b) above, a benefitwas conferred in the cases of

a. Rajan Nanda (349 ITR 1)(Del),b. Escorts Heart Institute (30taxmann.com 4) (Del) that if the policyis assigned to the beneficiary, itceases to be a Keyman Policy andaccordingly the proceeds will beexempt u/s 10(23D). This is nowtaken back.

Sr. No. Subject

12 Investment Allowance

Amended

Sec. +/- w.e.f.

32AC,ITA + A.Y. 2014-15

Highlights.1. This is a new provision on thelines of the former section 32AB ofInvestment Allowance.

2 The eligibility criteria is as under:


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a. The Assessee is a Company.b. Engaged in manufacture of Article or thing.c. It acquires a new asset.d. Which excludes office appliances or machineryinstalled in Office, vehicles and those items which havebeen fully written off in the year of purchase itself.e. Such assets are acquired from 1/4/2013 to31/3/2016.f. The cost of such assets is more than Rs.100 Cr.

3. The deduction is @ 15% of such cost which isallowed in the second year if the test of Rs 100crores is met in that year.

4. If the asset is sold within a period of 5 years,the deduction is withdrawn. This provision doesnot apply to transfer in the course of amalgamation or demerger but the successorcompany has to finish the balance of the 5 yeartenor.

Comments1. The deduction under this section is in additionto depreciation and additional depreciationadmissible u/s 32.

2. It is not deductible for MAT u/s 115JB.

3. In the year of sale within 5 years, the taxabilitymentioned earlier will be over and above theCapital Gains tax.

Sr. No. Subject

13 Property : Interest on LoanAmended

Sec. +/- w.e.f.

80EE AY 2014-15

Highlights1. A new deduction is proposed for a newhousing loan.

2. The following are the conditions:

a. Assessee is an individual.b. Loan sanctioned between 1/4/13 and 31/3/14.c. Loan does not exceed Rs. 25 Lacs.d. The value of the house does not exceed Rs. 40Lakhs.e. The Assessee does not own any other house.f. The loan is from a Financial Institution or aHousing Finance Company.

3. It is basically a one-time deduction of amountup to Rs. 1,00,000. If the interest for AY 2014-15

is less than Rs 1,00,000, the balancewill be deductible in the AY 2015-16.

Comments

1. This deduction is over and abovethe deduction of Rs 1,50,000 in

respect of interest on loans for selfoccupied house u/s 24(b).

Sr. No. Subject

14 Securitization Trust

Amended

Sec. +/- w.e.f.

10(23DA/10(35A)/115TA

1/6/2013.

Highlights1. Various amendments are proposed

for a Securitization Trust (ST).

a. Sec 10(23DA) to exempt any income ofSTb. Sec 10(35A) to exempt income from STc. Sec 115TA, to tax distribution by ST

Comments1. There are two places whereSecuritization has been approved:

a. SEBI (Public Offer and Listing ofSecuritized Debt Instruments)Regulations, 2008; and

b. Guidelines on Securit ization ofStandard Assets issued by the RBI.

2. Under the new scheme:

a. Any income of a ST is exemptb. When ST distributed income, ST itselfhas to pay tax at 25%/30% dependingwhether the receiver is other than acompany or a company;c. Such income is exempt in the hands ofthe receiver.

3. This scheme is similar to the

present scheme of taxation in case ofmutual funds.

4. Background [NEW]

a. "Secularization" is a financialtransaction in which assets are pulled andsecurities representing interest in the pool


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are issue to the investors representing undividedinterest in such assets.

b. A company which has given large number of loansagainst the assets and wants to further expand thebusiness has three options - either to borrow or toinfuse the more capital or by selling interest in theexisting loan accounts in the pool to the investors.These existing loan accounts are pooled as "portfolio"and transferred to a separate company/ trust known asSpecial Purpose Vehicle (SPV). The investors investinto the SPV for the purpose of funding the purchase ofportfolio. This activity is known as Securitization. Incase of securitization, risk and reward of portfolio loansare transferred to SPV and therefore, to the investors.For investors, securitization creates diversified pool orportfolio which can generate higher rate of return aswell as the positive difference between the acquiredprice of portfolio and future realization.

c. In typical example, owner (originator) of the FinancialAssets sells those assets to a SPV to whom the cash

flows from the financial assets transferred. The SPVsubsequently distributes the collection and incomegenerated from the assets to the investors of that SPV.Generally, the SPV is a trust from where incomepasses to the investors.

5. The need [NEW]

The Finance Bill, 2013 proposes to introducespecial provisions relating to taxation ofincome of securitization entities, set up as trustsand distribution of income by them to theinvestors. Securitization trusts have been definedto mean a trust being a

a. Special purpose distinct entity regulated under theSEBI (Public Offer and listing of Securitized DebtInstruments) Regulation, 2008 and,

b. Special Purpose Vehicle regulated by the guidelineson securitization of standard assets issued by ReserveBank of India.

c. The securitization industry has been facing severaltaxation issues. At times, the investor of the SPV areMutual Funds, and if the Mutual Fund Income isexempt, whether SPV (Trust) shall be liable (to theextent of share of Mutual Fund) to tax or not wasalways a question. The litigation was on, however the

Finance Bill has attempted to address this litigation.

6. The coverage [NEW]

From the provisions of Finance Bill, it appearsthat following transactions of securitization mayqualify under relevant provisions.

a. Transactions of Securitization ofStandard Assets as regulated by RBI(Bank and NBFCs)

b. Transactions of Securitization wheresecurities are listed on Stock Exchanges.

c. For such qualifying transactions, thefollowing are implications.

* Any income of securitization trust fromactivity of securitization is exempt(10(23DA).)

* There are no tax on income of aninvestor by virtue of section 10(35A).

* The trust has to pay tax on distributedincome (section 115TA)

7. The out-reach [NEW]

The provisions pertaining toSecuritization are laid down in threedifferent sections inserted in theFinance Bill. i.e. (1) 10(23DA),(2)10(35A) and (3) 115TA to 115TC.

a. As per Section 10(23DA)- any incomeof a securitization trust from the activityof securitization is exempt. These termshave to be understood from Securities andExchange Board India (Public Offer andListing of Securitized Debt Instruments)Regulations, 2008 Para 2(1)(r) and RBIGuidelines on Securitization of Standard

Assets

b. Section 10(35A) any income by wayof distributed income referred to in section115TA received from a securitization trustby any person being an investor of thesaid trust is proposed to be exempted.

c. Sections 115A to 115C provide thescheme of taxation. The tax is basically onthe amount of income distributed @25%/30% depending on the recipient. Ithas to be paid within 15 days on a grossamount and the usual terms like furnishingof statement, consequences of failure to

pay and recovery thereof apply.

11. An evaluation [NEW]

a. The object of introducing this chapter isto put to the rest litigation issues regardingtaxation of securitization trusts, which inone opinion is not fully achieved. One willhave to wait for notifications, clarificationsand final enactment.


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b. Section 10(23DA) and section 10(35A) areapplicable from 1st April, 2013 and additional taxationscheme on distributed income under Chapter XII EA isapplicable from 1st June 2013, the effective date willalways be 1st June 2013. Any distribution prior to thisdate will continue to be governed by existingprovisions.

c. The additional income distribution tax to be paid bysecuritization trust is 25% plus surcharge fordistributed income in case investors are individuals andHUF and 30% plus surcharge if distributed income inother case.

d. In case the Investors are individuals, HUF, there isapparent disadvantage for not getting benefit of basicexemption limits. This is because SPV has to bear thetax at 25% +SC flat. Even the expenses cannot bededucted by the investors as the income the provisionsof section 14A and rule 8D in relations to the exemptincome received through distributed income.

e. It is also not known why the words additionalincome distribution tax has been used?

f. The amount of additional tax is on the incomedistributed to the investor. How the same will becalculated is again going to be a debate as normallythe distribution amount encompasses capitalcomponent accumulation of income and the income outof activities other than securitization also. If thedistribution is in parts whether the initial paymentswould be considered as a repayment of capital orincome or proportionate of both, may lead to litigation.

g. Though there is a direct relief for mutual fund

industry, whether securitization industry as a whole willrevive or not, has to be seen.

Sr. No. Subject

15 SET

Amended

Sec. +/- w.e.f.

Various

Highlights1. Rate of Service-tax: There has been nochange in the rate of service tax and the effective

rate of service tax remains unchanged at 12.36%.

2. Abatement w.e.f 1-3-2013 : the abatementavailable for construction of a complex, building,civil structures etc. is being reduced from theexisting 75% to 70% for construction other thanresidential properties having a carpet area upto2000 sq. ft or where the amount charged is lessthan Rs. 1 Crore.

3. Amendment to Negative List: w.e.f the date of enactment of the FinanceBill.

a. Service by way of education, as part ofan approved vocational education course,

is a negative list item and hence not liableto service tax. The definition of approvedvocational course in section 65B(11) isbeing proposed to be changed to includecourses run by an industrial traininginstitute or an industrial training centreaffiliated to State Council forVocational Training and to delete coursesrun by an institute affiliated to the NationalSkill Development Corporation.

b. Any process amounting tomanufacture or production of goods is anegative list item and hence not liable toservice tax. The definition of process

amounting to manufacture or productionin section 65B(40) is being expanded toinclude processes under the Medicinaland Toilet Preparations (Excise Duties)

Act, 1955.

c. The negative list entry in sub-clause(i) of clause (d) of section 66D is beingmodified by deleting the word seed. Thiswill allow the benefit to all other testing inrelation to agriculture or agriculturalproduce.

Comments

The above provisions are self-explanatory.

Sr. No. Subject

16 SET VDS

Amended

Sec. +/- w.e.f.

VCES Enactment of the Bill

Highlights1. There is a new scheme to becalled Service Tax Voluntary

Compliance EncouragementScheme,2013(VCES)

2. Objectives:

a. to encourage voluntary compliance bythe defaulters, who have failed to declaretrue liability or have not paid their servicetax dues,


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b. to provide one time amnesty by way of waiver ofinterest, penalty and immunity from prosecution.

3. Commencement: VCES comes into force fromthe date of enactment of the Finance Bill

4. Tax Dues covered:

a. Service tax due or payable under the Act or anyother amount due or payable under section 73A for theperiod in October 2007 to 31st December 2012.

b. In other words, the tax payable by the declarant forthe month of January, 2013 and the subsequentmonths are not covered by VCES

.5. Eligibility:

Any persona. liable for registration but not registeredb. If registered,

ba. has not filed service tax return orbb. failed to disclose his true liability In the returns

c. However, the following persons are not eligible,

ca.Any person to whom any notice or order ofdetermination of liability is issued under section 72(Best Judgment assessment), section 73 (Recovery ofservice tax) or section 73A (amount collected asservice tax but not deposited) before in March, 2013;

cb. Any person who has disclosed his true liability In

the returns filed but has not paid the disclosed amountof service tax or part thereof;

cc.If a person has been Issued any notice or order ofdetermination earlier, he is not eligible to avail thebenefit of the scheme for the tax dues pertaining to anysubsequent period on the same issue covered in thenotice or the order.

cd. Where an inquiry or. investigation is pending as on1st March 2013, in respect of non-levy, non-payment,short payment or short levy of service tax, initiated byway of search of premises, issue of summons,requirement of production of accounts, document orother evidence or

cd. Audit initiated and pending as on March 2013

6. Immunity granted:

Once a declaration is accepted and tax dues are paidalong with interest, the declarant shall get immunityfrom:a. Interestb. penalty

c. prosecutiond. any other proceedings under the Act.

7. Obligations of the declarant:

a. Filing of declaration In the prescribedform to the designated authority on orbefore 31st December 2013.b. Payment to be made under the scheme:

ba. Not less than 50% of the declared taxdues by 31st December, 2013

bb. The remaining amount of tax dues onor before 30th June, 2014. If such amountis not paid by 30th June, 2014, the samemay be paid by 31st December 2014. Insuch a case interest is to be paid atapplicable rate from lit July, 2014 till thedate of payment

bc. Furnishing details of payment madefrom time to time under this scheme alongwith a copy of acknowledgement of thedeclaration to the designated authority

8. Other Points:

a. The designated authority shall issue anacknowledgment of:

aa. the declaration flied;ab. discharge of declared dues in themanner to be prescribed.

b. Where the Commissioner of CentralExcise has a reason to believe that thedeclaration made under this scheme issubstantially false, he shall, for reasonsrecorded in writing serve a show causenotice on the declarant in respect of thetax dues not paid or short paid.

c. No show cause notice can be Issuedafter the expiry of one year from the dateof declaration.

d. If the declarant fails to pay any taxdues, either full or in part, as declared byhim, such dues along with interest thereonshall be recovered under normal recoveryproceedings under the Act.

e. Any amount paid under the declarationshall not be refunded under anycircumstances.

Comments


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This is a VDS option which may put the pastissues at rest for many innocent assessees.

Sr. No. Subject17 STT and CTT

Amended

Sec. +/- w.e.f.

105 24,FA1336, ITA

1-6-2013

Highlights1. There is a proposal to reduce the rates ofSTT at various levels

a. From 0.1% to Nil % in respect of Delivery basedpurchase of units of an equity oriented fund entered

into in a recognized stock exchange levied on apurchaser.

b. From 0.1% to Nil % in respect of Delivery basedsale of units of an equity oriented fund entered into in arecognized stock exchange levied on a Seller.

c. From 0.02% to 0.01% in respect of Sale of futuresin securities levied on a Seller.

d. From 0.25% to Nil % in respect of Sale of a unit ofan equity oriented fund to the mutual fund levied on aSeller.

2. There is a new levy in the form of Commodities Transaction Tax (CTT). It is leviedin respect of Sale of commodity derivative enteredon a recognized association at a rate of 0.01%payable by Seller.

3. A deduction is provided u/s. 36(1)(xv) fromthe Profit and Gains of Business.

Comments [NEW]

1 On one hand a new levy is introduced in theform of CTT and on other hand, there is awelcome deduction in an existing levy of STT.

2. CTT will not be applicable on AgriculturalCommodities. It will be applicable only on acommodity derivative which as per Chapter VIIof Finance Bill means - a contract for delivery ofgoods which is not a ready delivery contract; or acontract for differences which derives its valuefrom prices or indices of prices of such underlyinggoods; or of related services and rights, such with

reference to weather and having abearing on the commodity sector.

3. The CTT will be levied from a dateto be notified in the Official Gazette.

4. Recognized Associations have not

been defined under the bill. However,the bill provides that the words andexpressions used but not defined inthis chapter and defined in theForward Contracts (Regulations) act,1952, the Income-tax Act, 1961 or therules made thereunder, shall have thesame meanings respectively assignedto them in those Acts. Section 2(j)ofthe Forward Contracts (Regulations)

Act,1952 defines RecognizedAssociation as follows:

5."Recognized Association" means anassociation to which recognition forthe time being has been granted bythe Central Government under Sec. 6in respect of goods or classes ofgoods specified in such recognition.

6. All the Association concerned withthe regulations and control ofbusiness relating to forward contractsin commodities, which are notified u/s.15 of the Forward Contr4acts(Regulations) Act, 1952 have to obtain

recognition from the CentralGovernment.

7. At present 22 exchanges arerecognized /registered for forward/futures trading incommodities.

8. Every recognized association shallcollect the CTT from the seller whoenters into taxable commoditytransactions in or through therecognized association.

9. CTT collected during any calendarmonth will have to be paid byrecognized association by the seventhday of the month immediatelyfollowing the said calendar month.

10. In addition to above, provisionsrelated to filing of returnsrectifications, assessments, appeal,


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interest and penalty are also prescribed forrecognized associations.

11. It may be noted that the budget speech ofFinance Minister under para 149 mentions thatthe trading in commodity will not be considered asa 'speculative transaction' and CTT shall be

allowed as deduction if the income from suchtransaction forms part of business income.However, the corresponding amendment u/s.43(5) of the Income-tax Act, 1961 related tospeculative transaction has not been made.

12. The bill also provides that the Centr4alGovernment may, by notification in the OfficialGazette, make rules for carrying out theprovisions of this chapter.

Sr. No. Subject

18 TDSAmended

Sec. +/- w.e.f.

194-1A 1-6-2013

Highlights1. There are two changes re; TDS.

a. Transfer of Immovable Property.b. Interest to NR/FC from Indian Company.

2. As regards Transfer of Immovable Property,

a. Deductor: The Transferee responsible for payingthe consideration.b. Exemption : Consideration


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one page challan based on PAN but there are nosimilar provisions in the current proposed amendment.Note - There is a last minutes change while passingthe Finance Bill the buyers are exempted from

obtaining the TAN/PAN[NEW]

e. Mercifully the amendment does not require proof ofTDS for registration of the transaction like in thepreceding year's proposal.

5. Form the government's perspective, they wouldnow be able to collect a 1% tax even in caseswhere the transaction is not reported and will notbe able to chase the transferor as well.

Sr. No. Subject

19 Venture Capital

Amended

Sec. +/- w.e.f.

10(23FB) AY 2013-14

Highlights1. Sec. 10(23FB) Explanation 1, is beingsubstituted by a fresh Explanation.

2. If defines a Venture Capital Company (VCC),A Venture Capital Fund (VCF) and VentureCapital Undertaking (VCU).

3. These definitions use SEBI (Venture CapitalFund) Regulation 1996 (VCFR 96) and the SEBI(Alternative Investment Funds) Regulation 2012(AIFR 12) which have replaced the former w.e.f.

21st May 2012.

4. A VCC thus means a Company, and VCFmeans of Fund which have been grantedregistration as

(a) VCF under VCFR 96 or(b) VCF under AIFR 12

5. However, for (b) above there arethe following sub-conditions:

(a) Not listed on a Stock Exchange.(b) Invested > 2/3rd.in unlisted VCU.(c.) Not invested where Director or asubstantial

Shareholder holds Equity >15%.

Comments1. Presently the scheme is as under

a. Sec. 10(23FB): exempts income ofVCC/VCFb. Sec. 115U taxes the investor directly

2. The SEBI (Alternative InvestmentFunds) Regulation 2012 havereplaced the SEBI (Venture CapitalFund) Regulation 1996 w.e.f. 21st May

2012.

3. The Amendment seeks to extendthe benefit to the AIFs, whilecontinuing the original scheme forVCC/VCFs.

4. However, in the process someadditional conditions have beenstipulated.

MiscellaneousAmendments

Proposed

Section

amended

Particulars w.e.f.


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Income tax Act, 1961

10(23ED) Any income by way of contributions received byan Investor

Protection Fund from a Depository (NSDL/CDSL). However if any

such income is shared with the Depository, the same is taxable.

AY 2014-15

10(VII) After clause (48), the following clause shall be inserted namely:-

(49) any income of the National Financial Holdings CompanyLimited, being a company set up by the Central Government, of

any previous year relevant to any assessment year commencing

on or before the 1st day of April 2014.

AY 2014-15

80CCG The deduction has been expanded

a. Eligibility: Those whose GTI


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Gianchand Gupta (2002) 80 ITD 548 (Del).Raghu Nandan Lal (2002) 82 ITD 436 (Chd).

However, a contrary view to the above is also expressed in thefollowing decisions.

Ramjilal Jagannath & Ors.(2000) 241 ITR 758 (MP).Goldtax Furnishing Industries (2001) 73 TTJ (Del) 223.

In many cases, all the assets of the assessee are seized duringthe course of search and the assessee is not having sufficientmoney to make payment of advance tax. In such a situation, theassessee could resort to getting the seized assets adjustedagainst advance tax liability and could avoid the burden of interestu/ss. 234A, 234B for payment of advance tax when the assets areseized by the department, the above decisions favouring theassessee were of a great help in reducing the interest burden.

Further, the courts have also taken a view that the adjustmentagainst the advance tax liability can be made only after the

determination of the tax liability u/s. 132(5) and first appropriatingthe seized assets against the liability arising as a result ofsearch. Accordingly the above amendment could have beenavoided since the interest of revenue as regards the tax liabilitypursuant to search was any way protected, having first charge onthe seized assets and adjustment against advance tax waspermissible only in respect of the remainder of the seized assets.

Explanation 2 is proposed to be inserted with effect from 1stJune, 2013. However, it is also stated that the Explanation issought to be inserted For the removal of doubts. Accordingly itseems that the said Explanation will be applicable to all theapplications which are pending as on 1st June, 2013.

The amendment would result in additional liability towards interestunder sections 234A, 234B and 234C since now the seizedassets would not be allowed to be appropriated against the

Advance Tax Liability of the assessee.

139(9)

[NEW]

Now even non-payment of self-assessment tax will make the

return defective.

The Delhi High Court had held in the case of Sudhir Sareen vs.CIT (2000) 239 ITR 440 (Del.) that the Return of income istreated as defective in a case where the proof of payment of Self-

assessment tax is not accompanied with the Return of Income.

As per the Explanatory Memorandum, has been noticedthat a large number assessees are filing their returns of incomewithout payment of self-assessment tax. The amendment is madewith a view to not to permit such practice of filing returns withoutpayment of self-assessment tax.

1-6-2013

142(2A) The list of reasons why the AO can direct a Special Audit is being 1-6-2013


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[NEW] expanded to include apart from the nature and complexity of the

accounts, the volume of the accounts, doubts about the

correctness of the accounts, multiplicity of transactions in

accounts and specialized nature of business activity of the

Assessee. This may take care of cases like DLF Commercial

Projects ( Delhi)( 212 Taxman.com 43)

As per the Explanatory Memorandum, the expression nature andcomplexity of the accounts has been interpreted in a veryrestrictive manner by various courts. The restrictive manner byvarious courts. The amendment is sought to be made with a viewto expand the scope of clause (2A) of section 142.

Background

In the case of Bata India Ltd. vs. CIT (2002) 257 ITR 622 (Cal), itis held that appointment of special auditor is not justified merelyon the ground that some vital information was not ascertainablefrom the accounts.

In Rajesh Kumar & Others vs. DCIT (2006) 287 ITR 91 (SC), theApex Court observed that the expression complexity wouldmean the state or quality of being intricate or complex or that it isdifficult to understand. Difficulty in understanding would howevernot lead to the conclusion that the accounts are complex innature.

Further, recently the Bombay High Court in the case ofNickunj Eximp Enterprises Pvt. Ltd. vs, Asst. CIT (2012) 346 ITR6 (Bom), has observed that the primary requirement of section142(2A) is a recording of an opinion by the assessing officerhaving regard to the nature and complexity of the accounts of the

Assessee and the interest of the revenue that it is necessary toget the accounts audited in terms of the said section. Theassessing Officer must do so before he orders special audit. TheHigh Court further observed that recourse cannot be taken to theprovisions of section statutory requirements.

Comments

The amendment is sought to be made to overcome some straydecisions of Courts where on facts of the relevant cases, theprovisions of section 142(2A) were held to be not applicable. Withthis amendment, the scope of the section 142(2A) will be widenedconsiderably and it will be difficult for an assessee to avoid thespecial audit on reasoning that the accounts are not complex in

nature. The amendment will take within its ambit the situationswhere the accounts are voluminous or where the assessing officerhas doubts about the correctness of the accounts or where thereis multiplicity of transactions or specialized nature of businessactivities.

As such, the scope is widened to a great extent. The worst part inthe amendment is the reference to doubt about the correctness


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of the accounts. In most of the cases, the assessing officer maydoubt the correctness of the accounts and in such cases itwill be possible for him to order special audit. This will give lot ofdiscretionary powers to the assessing officers and may result inunnecessary hardship to many genuine assessees. Even though,the section has the inbuilt provision of approval of higherauthorities, in practical life it is very common for the higherauthorities to grant approvals without really going to the merits ofthe case. Here it may not be out of content to note that usually thespecial audit is ordered when the assessment about to get timebarred.

Whether amendment will be applicable to pending assessments?

Since section 142 is primarily a procedural provision, theamendment will be also applicable in respect of all theassessments which are pending as on 1st June, 2013.

Accordingly the amended provisions can get triggered evenfor assessments for A.Y. 2011-12 or 2012-13 which may bepending as on 1st June, 2013. Though the amendment is not

retrospective, it will certainly be retro operative in that sense.

153/ 153B Period during which assessee challenges the direction of the AO

to get the accounts audited and the date the direction was set

aside to be excluded from computing period of limitation. Period

during which AO makes a reference for information to be

excluded from computing period of limitation.

1-6-2013

153D In case assessee has applied GAAR, then the prior approval will

be required in the search cases of the CIT and not Joint CIT

AY 2016-17

167C / 179 These sections which permit recovery of tax from the partners/directors of any tax due from an LLP/PLC. It was held in caseslike Dinesh T Tailor (326 ITR 85)(Bom), Maganlal H Patel (26

Taxmann.com 226)(Guj),H.Ebrahim (332 ITR 122)(Kar),SanjayGhai (26 Taxmann.com 203) that this term does not coverinterest and penalty. The amendment overrides such cases.

1-6-2013

194LC Benefit of concessional rate of tax of 5% extended to rupee

denominated long term infrastructure bonds (and not loans) if the

non resident or foreign company has deposited money fin foreign

currency in a designated account and such money after

conversion into rupees is utilized for subscribing to such bonds.

1-6-2013

271FA Failure to submit AIR report after the AO issues notice- the

penalty increased to Rs 500 per day from Rs 100 per day.

AY 2014-15

Sch IV For being a Recognized Provident Fund (RPF), the establishment

for which it has been set up need to be exempt u/s 17 of theProvident Fund Act. The time limit for the same is being extended

from time to time. Now it has been extended to 31st march, 2014.

AY 2013-14

Wealth tax Act, 1957

14A/14B Wealth tax returns also will be now filed electronically 1-6-2013

It was clarified that no Wealth Tax was imposed on the Form land.

The FM said that it was a unfortunate canard being spread.


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[NEW]

The Finance Bill, 2013 -

ObjectivesAs per the memorandum the following are the objectives of the Bill.

Sr Particulars

1 Additional Resource Mobilization

Commodities Transaction Tax (CTT), Taxation of Income by way of Royalty or fees for

Technical Services.

2. Measures to Promote Socio-Economic Growth

Incentive for acquisition and installation of new plant or machinery by manufacturing company.

3. Relief and Welfare Measures.

Rebate of Rs. 2000/- for individuals having total income up to Rs. 5 Lakhs, Deduction in

respect of interest on loan sanctioned during Financial Year 2013-14 for acquiring residential

house property, Raising the limit of percentage of eligible premium for life insurance policies of

persons with disability or disease,

Deduction for contribution to Health Schemes similar to CGHS, Expanding the scope of

deduction and its eligibility under section 80CCG, Exemption to income of Investor Protection

Fund of depositories, One hundred percent deduction for donation to National Childrens Fund,

Exemption to National Financial Holdings Company Limited, Lower rate of tax on dividends

received from Foreign Companies, Removal of the cascading effect of Dividend Distribution

Tax (DDT), Concessional rate of withholding tax on interest in case of certain rupeedenominated long-term infrastructure bonds, Taxation of Securitization Trusts, Securities

Transaction Tax (STT), Pass through Status to certain Alternative Investment Funds.

4. Widening of Tax Base and Anti Tax Avoidance Measures.

Tax Deduction at Source (TDS) on transfer of certain immovable properties (other than

agricultural land), Additional income-tax on distributed income by company for buy-back of

unlisted shares, Computation of income under the head Profits and gains of business or

profession for transfer of immovable property in certain cases, Taxability of immovable

property received for inadequate consideration.

5. Rationalization Measures

General Anti-avoidance rule (GAAR), rationalization of tax on distributed income by the Mutualfunds, Enabiling provisions for facilitating electronic filing of annexure-less return of net wealth,

Dis-allowance of certain fee, charge etc. in the case of State Government Undertakings,

Amendment in the definition of Capital Asset, Keyman Insurance Policy, Contribution not to be

in cash for deduction under Sec. 80GGB and section 80GGC, Clarification of the phrase tax

due for the purposes of recovery in certain cases, Deduction for additional wages in certain

cases, Tax Residency Certificate, Application of seized assets under section 132B, Return of

income filed without payment of self-assessment tax to be treated as defective return,

Direction for special audit under sub-section (2A) of section 142, Penalty under section 271FA


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for non-filing of Annual Information Return, Extension of time for approval in part A of the

fourth Schedule to the Income-tax Act, 1961, Clarification for amount to be eligible for

deduction as bad debts in case of banks,

The Tax Rates

There are no changes in the tax slabs, rates of income taxor rates of Education Cess and Secondary and HigherEducation Cess.

Surcharge has been levied/increased as mentionedbelow:

TOTALINCOME

Individuals, HUFs,AoP&BoI, CHS,

Firms

DomesticCompanies

Foreign Companies

A.Y.2013-14

A.Y.2014-15

A.Y.2013-14

A.Y.2014-15

A.Y.2013-14

A.Y.2014-15

UptoRs 1cr.

Nil Nil Nil Nil Nil Nil

>Rs 1 CrRs 10 Cr Nil 10% 5% 10% 2% 5%

It is the surcharge of 10% which is what is popularlyknown as Taxing the Rich. The FM has admitted that thiswill cover only 42800 individuals who were declaredincome above Rs. 1 Crore. This will have an impact onthe expatriate employees also where if the Companieshave agreed on a net of tax package, the burden will passto the Company.

Surcharge at the rate of 10% will be applicable onMinimum Alternate tax payable by companies (Section

115JB), Alternate minimum tax payable by persons otherthan companies (Section 115JC), Dividend distribution tax(Section 115-O), tax on income distributed by Mutual fund(Section 115R), tax on income distributed bySecuritization trusts (Section 115TA), and tax on buy backof unlisted shares of domestic companies (Section115QA).


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The effective marginal tax rates will be as under:

Person Total Income

UptoRs. 1 Crore Above Rs. 1Cr UptoRs. 10 Cr.

Above Rs. 10 Cr.

Individual 30.90% 33.99% 33.99%

Firm 30.90% 33.99% 33.99%

DomesticCompany

30.90% 32.445% 33.99%

ForeignCompany

41.20% 42.024% 43.26%

Certain key existing provisions and corresponding amendments inprovisions of Chapter X-1 and section 14BA proposed in the Bill are

summarized hereunder. At present places reference to therecommendations given by Dr. Parthasarathi Shome Committee( referred to as "Shome Committee") are given in the RemarksColumn.

Particulars Existing Provisions Proposed Amendments Remarks

Effective Dater ofGAAR Provisions(Clause 2w4 of theFinance Bill, 2013Part (A)

Assessment year 2014-15

Assessment Year 2016-17 Shome Comrecommended GAAR effective from A.Y. 2017

Meaning of

ImpermissibleAvoidanceArrangement (Section96 of the Act, ChapterX-A)

An arrangement would

be an impermissibleavoidance arrangementif the "the mainp0urpose or one of themain purposes" was toobtain a tax benefit.

An arrangement would be

an impermissible avoidancearrangement only if the"main purpose" is to obtaina tax benefit (subject toother prescribed conditions).

Same as per

Committee recommend


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actors relevant fordetermining as towhether thearrangement lackscommercialsubstance or not.

a. Period or timefor which thearrangementexists.b. Payment of taxes, directly orindirectly, underthe arrangement.c. Availability ofan exit route isprovided by thearrangement.

(Section 97(4).

As per the existingprovisions thementioned factors werenot considered to berelevant

As per the proposedamendments the mentionedfactor4s are considered tobe relevant but not sufficientfor determination of commercial substance.

Same as per Committee recommend

Additional criteria fordetermination of commercialsubstance of anarrangement. [Section97(1)(d)]

Not in existence As per the proposedamendments, anarrangement shall bedeemed to be lackingcommercial substance, if itdoes not have significanteffect upon the businessrisks., or net cash flows ofany party to thearrangement.

Same as per Committee'srecommendation.


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Approving Panel(Section 144BA)

The Approving Panelshall consists of not lessthan three membersbeing income-taxauthorities not below therank of Commissionerand an officer of theIndian Le3gal Servicenot below the rank ofJoint Secretary to theGovernment of India.

The approving Panel isproposed to have thefollowing composition.

a. A Chairperson who is orhas been a judge of aHigh Court.

b. One Member of theIndian Revenue3Service not below therank of Chief Commissioner of income-tax

c. One Member who shallbe an academic or scholar having specialknowledge of direct-taxes, businessaccounts and

international tradepractices.

Shome ComRecommended as follow

The Approving Panel consist of five meincluding Chairman.The Approving Panel consist of five meincluding Chairman.

d. The Chairman shoa retired judge of thCourt.

e. Two members shofrom outside Goveand persons of emdrawn from the fiaccountancy, ecoor business

knowledge of matincome-tax

f. Two members shoChief CommissionIncome-tax; or oneCommissioner anCommissioner.

Binding nature ofdirections issued;[Section 144BA(14)]

The directions issued bythe Approving Panelshall be binding only onthe Assessing Officer.

As per the proposedamendments, the directionsissued by the ApprovingPanel shall be binding onthe assessee as well as theincome tax authorities andno appeal against suchdirections can be madeunder the

provisions of the Act.

Shome Committee dprescribe any such dire

Term of ApprovingPanel [Section144BA(17)]

Not prescribed. It is proposed that the termof the Approving Panel shallbe ordinarily for one yearand may be extended fromtime to time up to a period ofthree years.

Shome Committee dprescribe any such dire

Definition of 'Associated Person'and 'Connectedperson' [Section102(4)]

There are two separatedefinitions given

It is proposed to combineboth the definitions;Comments:However, the definition isinclusive in nature and is notrestrictive or definitive assuggested by the ShomeCommittee.

The Shome Comrecommended that th"Connected Perso9n" mrestricted only to "AssoEnterprise" as define92A of the Act.


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Securities Transaction Tax (STT)

It is proposed to reduce Securities Transaction Tax (STT) ontransactions in specified securities as under:

Nature of taxable securitiestransaction Value on which STTpayable Payable by Existing Rates(%) Prop

Delivery based purchase of units ofan equity oriented fund entered intoin a recognized stock exchange

Price at which unitsare purchased

Purchaser 0.10. N

Delivery based sale of units of anequity oriented fund entered into in arecognized stock exchange

Price at which unitsare sold

Seller 0.10. 0.0

Sale of futures in securities P)rice at which futureis traded

Seller 0.017. 0.

Sale of a unit of an equity orientedfund to the mutual fund

Price at which unitsare sold

Seller 0.25 0.0

This amendment will take e3ffect form 1st June 2013.

The following transactions, the rate of STT has not been changed.

For following transactions, the rate of STT has not been changed.

Nature of taxable securities transaction Value on which STTpayable

Payable by

Delivery based purchase of equity shares enteredinto in a recognized stock exchange

Price at which shares arepurchased

Purchaser

Delivery based sale of equity shares entered into ina recognized stock exchange

Price at which shares arepurchased.

Seller

Non-delivery based transactions in equity shares orunits of an equity oriented fund entered into in arecognized stock exchange

Price at which shares/unitsare sold

Seller

Sale of an option in securities Option Premium Seller

Sale of an option in securities where optionexercised

Settlement price of an option Purchaser

Sale of unlisted equity shares under an offer for sale Price at which shares aresold

Seller

Documents

AMCO BUDGET 2013 (UPDATES)