THERE IS SNACK AND LADDER GAME BETWEEN FM AND TAX LAWYERS. TAX LAWYERS WIN CASES ON THE BASIS OF INTERPRETATION OF ACT ……..THE JUDICIARY DELIVERS THE JUDGEMENT IN FAVOUR OF ASSESEE ……….AND FM IN THE BUDGET BY AMENDMENT IN LAW ( RETROSPECTIVE EVEN) REVERSES THE JUDGEMNT .
SOME EXAMPLES IN THE CURRENT BUDGET ARE AS FOLLOWS;
Streamlining the definition of “charitable purpose”
Section 2(15) of the Act defines “charitable purpose” to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under
section 10(23C) or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the “advancement of an object of general public utility” as is included in the fourth limb of the current definition of “charitable purpose”. Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision.
With a view to limiting the scope of the phrase “advancement of any other object of general public utility”, it is proposed to amend section 2 (15) so as to provide that “the advancement of any other object of general public utility” shall not be a charitable purpose
(a) any activity in the nature of trade, commerce or business or,
(b) any activity of rendering of any service in relation to any trade, commerce or business,
for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity.
This amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years. [Clause 3]
Amendment to the provisions of section 40A(3) of the Income-tax Act,
Section 40A(3)(a) of the Income-tax Act, 1961 provides that any expenditure incurred in respect of which payment is made in a sum exceeding Rs.20,000/- otherwise than by an account payee cheque drawn on a bank or by an account payee bank draft, shall not be allowed as a deduction. Section 40A(3)(b) also provides for deeming a payment as profits and gains of business or profession
if the expenditure is incurred in a particular year but the payment is made in any subsequent year in a sum exceeding Rs. 20,000/- otherwise than by an account payee cheque or by an account payee bank draft. However, the provisions of this section are subject to exceptions as provided in Rule 6DD of the Income-tax Rules, 1962.
Section 40A(3) is an anti tax-evasion measure. By requiring payments to be made by an account payee instrument, it is possible to verify the genuineness of the transaction thereby mitigating the risk of evasion. It has come to notice that the provisions of section 40A(3) are being circumvented by splitting a particular high value payment to a person into several cash payments, each below Rs.20,000/-. This splitting is also resorted to for payments made in the course of a single day. Courts have also held that the statutory limit in section 40A(3) applies to payment made to a party at one time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. According to the judicial opinion, the words used are ‘in a sum’, i.e., single sum.
Therefore, irrespective of any number of transactions, where the amount does not exceed the prescribed amount in each transaction, the rigours of section 40A(3) will not apply.
To overcome the splitting of payments to the same person made during a day as referred above and to increase the efficacy of the provision, the amendment seeks to substitute the present provision to provide that where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty
thousand rupees, the disallowance of such expenditure shall be made under the proposed sub-section (3) of section 40A or the payment shall be deemed to be the profits and gains of business or profession under the proposed sub-section (3A) of section 40A, as the case may be.
To illustrate with an example, let us assume a taxpayer has incurred an expenditure of Rs 40,000/-. The taxpayer makes separate payments of Rs 15,000/-, Rs 16,000/- and Rs 9,000/- all by cash, to the person concerned in a single day. The aggregate amount of payment made to a person in a day, in this case, is Rs 40,000/-. Since, the aggregate payment by cash exceeds Rs 20,000/-,
Rs. 40,000/- will not be allowed as a deduction in computing the total income of the taxpayer in accordance with the proposed amendment. The proviso to the proposed sub-section (3A) provides that in certain prescribed cases and circumstances the provisions of proposed sub-sections (3) and (3A) shall not apply
This amendment will take effect from 1st April, 2009 and will accordingly apply in relation to assessment year 2009-10 and subsequent assessment years. [Clause 9]
Satisfaction for initiation of penalty under section 271 (1)
Sub-section (1) of section 271 of the Income-tax Act empowers the Assessing Officer to levy penalty for certain offences listed
in that sub-section. It is a requirement that the Assessing Officer is required to be satisfied before such a penalty is levied.
There is a considerable variance in the judicial opinion on the issue as to whether the Assessing Officer is required to record
his satisfaction before issue of penalty notice under this sub-section. Some judicial authorities have held that such a satisfaction
need not be recorded. However, Hon’ble Delhi High Court in the case of CIT Vs. Ram Commercial Enterprises Ltd. (246 ITR 568)
has held that such a satisfaction must be recorded by the assessing officer.
Given the conflicting judgements on the issue and the legislative intent, it is imperative to amend the Income tax Act to
unambiguously provide that where any amount is added or disallowed in computing the total income or loss of an assessee in any
order of assessment or reassessment; and such order contains a direction for initiation of penalty proceedings under sub-section
(1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the assessing officer for initiation
of penalty proceedings under sub-section (1).
Similar amendment has also been proposed in the Wealth-tax Act.
These amendments will take effect retrospectively from 1st April, 1989. [Clauses 48, 58]
Service of notice and the time limit for issuance of notice under section 143 (2) of the Income-tax Act
Sub-section (2) of section 143 of the Income-tax Act provides that the notice under this sub-section shall be served on the assessee within a period of twelve months from the end of the month in which the return is furnished. Further, the service of such notice must be affected in a manner laid down in sections 282, 283 and 284 of the Income-tax Act, read with General Clauses Act.
Instances have come to the notice of the department, where notices under sub-section (2) of section 143, though issued by registered post within twelve months from the end of the month in which the return was furnished, have been held ‘invalid’ on the ground that the notice was actually received by the assessee after the limitation date and there was no ‘service’ as postulated under the section. This is notwithstanding the fact that the assessee has attended the assessment proceedings in response
to the notice served on him. Instances have also come to notice where the orders of the assessing officer is being quashed on the consideration that there is no evidence of issue or service of notice, even though the assessee and his authorized representative have attended the hearing before the Assessing Officer during the assessment proceedings. Further, the design of the limitation period with reference to the end of the month leads to administrative inconvenience in as much as the last day of every month
becomes a time barring date.
In order to address these issues and to reduce litigation, it is proposed to insert a new section 292BB in the Income-tax Act to provide that where an assessee has appeared in any proceeding or cooperated in any inquiry related to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act has been duly served upon him in time in accordance with the relevant provision of the Act. Further, such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was, -
(a) not served upon him; or
(b) not served upon him in time; or
(c) served upon him in an improper manner.
Similar amendment is also proposed in the Wealth-tax Act.
Further, it is also proposed to amend clause (ii) of sub-section (2) of section 143 to provide that the notice under sub-section
(2) of section 143 shall be served on the assessee within a period of six months from the end of the financial year in which the return
is furnished.
This amendment will take effect from 1st April, 2008. [Clauses 29, 52]
Consequence of non-filing of appeal in respect of cases where the tax effect
is less than the prescribed monetary limit
There is a prescribed dispute resolution mechanism under the Income-tax Act. In this regard, the Central Board of Direct Taxes
have issued instructions from time to time directing Departmental Officers to not file an appeal if the tax effect is less than the monetary
limit prescribed by it.
The Hon’ble Supreme Court in M/s. Berger Paints India Ltd. Vs. CIT, Kolkata, (Civil appeal Nos. 1081 to 1083 of 2004) has held
that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one
assessee, then it is not open to the Revenue to challenge the correctness in the case of other assessees without just cause.
Department’s appeals are being dismissed by judicial authorities on the consideration that the disputed issue was not agitated in
the case of the same assessee or in the case of any other assessee.
The underlying objective of Board’s instruction is to reduce litigation in small cases. With a view to protecting the Revenue’s
right to file or not to file an appeal, It is proposed to insert a new section 268A so as to provide that –
• The Board may issue orders, instructions or directions to other income tax authorities, fixing such monetary limits as it may
deem fit. Such fixing of monetary limit is to be for the purpose of regulating filing of appeal or application for reference by
any income tax authority under the provisions of this Chapter.
• Where an income-tax authority has not filed any appeal or application for reference on any issue in the case of an
assessee for any assessment year, due to abovementioned order/instruction/direction of the Board, such authority shall
not be precluded from filing an appeal or application for reference on the same issue in the case of –
(a) the same assessee for any other assessment year; or
(b) any other assessee for the same or any other assessment year.
• Where no appeal or application for reference has been filed by an income tax authority pursuant to the above mentioned
orders/instructions/directions of the Board, it shall not be lawful for an assessee to contend that the income tax authority
has acquiesced in the decision on the disputed issue by not filing an appeal or application for reference in any case.
• The Appellate Tribunal or Court shall have regard to the above mentioned orders/ instructions/directions of the Board and
the circumstances under which such appeal or application for reference was filed or not filed in respect of any case.
• Every order/instruction/direction which has been issued by the Board fixing monetary limits for filing an appeal or application
for reference shall be deemed to have been issued under sub-section (1) of this new section and all the provisions of this
section shall apply to such order/instruction/direction.
This amendment will take effect retrospectively from 1st April, 1999. [Clause 47]
CAclubindia
