ANALYSIS OF THE FINANCE (No. 2) BILL, 2019No2)-Bill-2019.pdf · 2019-07-19 · (No.2) Bill, 2019, which may be modified before it receives the approval and assent of the Parliament

FOR PRIVATE CIRCULATION ONLY

BANSI S. MEHTA & CO. CHARTERED ACCOUNTANTS

BUDGET 2019 ANALYSIS OF

THE FINANCE (No. 2) BILL, 2019

BANSI S. MEHTA & CO.

CHARTERED ACCOUNTANTS Finance (No. 2) Bill, 2019 - Analysis

FOR PRIVATE CIRCULATION ONLY 1

Preface

This e-booklet highlights the key proposals put forth by the Honourable Finance Minister in

her Union Budget 2019-20. This e-booklet is for private circulation amongst clients and

professional colleagues of Bansi S. Mehta & Co. only. It is not for general circulation and is

under no circumstances an offer, invitation or solicitation of any kind. This e-booklet is

intended to be a succinct overview of the proposals put forth and is neither to be construed as

comprehensive nor as to render taxation, legal, economic or financial advice. This e-booklet

should not be relied upon for taking any actions/ decisions on the contents of the e-booklet

and proper professional/ legal advice should be sought.

Further, this e-booklet contains only the proposals and amendments as given in the Finance

(No.2) Bill, 2019, which may be modified before it receives the approval and assent of the

Parliament and the President.

The material used in the preparation of this e-booklet has been sourced from various sources

including the speech of the Finance Minister, websites of the Government and other publicly

available information. While all reasonable care has been taken in preparation of this e-

booklet, we accept no responsibility for any errors it may contain or for any omissions or

otherwise or for any loss, howsoever caused or sustained, by the person who relies on it.




LIST OF ABBREVIATIONS

Abbreviations Full Name

AE Associated Enterprise/s

AIF Alternative Investment Funds

APA Advanced Pricing Agreement

ARE Alternate Reporting Entity

AY Assessment Year

BM Black Money (Undisclosed Foreign Income And Assets) And

Imposition Of Tax Act, 2015

Benami Act The Prohibition Of Benami Property Transactions Act, 1988

CIT(A)/Commissioner

(Appeal)

Commissioner of Income-tax (Appeals)

CbCR Country-by-Country Report

CBDT Central Board of Direct Taxes

DPIIT Department for Promotion of Industry and Internal Trade

ESOP’s Employees Stock Option Plan

EM / Memorandum Explanatory Memorandum

FA Finance Act

FB Finance Bill, 2019

GST Goods and Service Tax

Hon’ble Honourable

HUF Hindu Undivided Family

IBC Insolvency and Bankruptcy Code, 2016

IFSC International Financial Service Centre

Ind AS Indian Accounting Standard

NBFC Non-banking Financial Companies

OBU Offshore Banking Unit

PAN Permanent Account Number

PCIT Principal Commissioner of Income-tax

PGBP Profit and Gains from Business or Profession

PFI Public Financial Institution

RBI Reserve Bank of India

ROR Resident and Ordinarily Resident

RNOR Resident but Not Ordinarily Resident

RSE Recognized Stock Exchange

SEZ Special Economic Zone




Abbreviations Full Name

SFT Statement of Financial Transaction

SFC State Financial Corporation

SIIC State Industrial Investment Corporation

STT Securities Transaction Tax

STCG Short-term Capital Gains

NR Non Resident

TDS Tax Deduction at Source

IBC Insolvency and Bankruptcy Code, 2016

VCU Venture Capital Undertaking




INDEX

CHAPTER CONTENT PAGE NO.

I RATES OF INCOME TAX 5

II INDIVIDUALS & SMALL TAX PAYERS 8

III TRANSFER PRICING AND TAXATION OF NON

RESIDENTS

12

IV SHARES, SECURITIES, CAPITAL MARKETS &

FINANCIAL SERVICE SECTOR

24

V LESS CASH ECONOMY 32

VI PROCEDURAL AMENDMENTS, PENALTY &

PROSECUTION

36

VII SECTOR SPECIFIC AMENDMENTS 44

VIII REMOVAL OF DIFFICULTIES 57

IX AMENDMENT TO ALLIED LAWS 59




CHAPTER – I

RATES OF INCOME TAX

1.1. BASIC TAX RATE:

There has been no change in the rates of income-tax for all categories of assessees

liable to pay income-tax for the A.Y. 2020-21 except in case of domestic companies.

The rates of income-tax for A.Y. 2020-21 are as follows:-

a) For every individual (other than those mentioned in b and c below) or Hindu

Undivided Family, every association of persons or body of individuals,

whether incorporated or not, or every artificial juridical person referred to in

section 2(31)(vii) of the Income-tax Act, 1961:

SLAB APPLICABLE

RATE OF TAX

Upto Rs. 2,50,000 Nil

Rs. 2,50,001 to Rs. 5,00,000 5%

Rs. 5,00,001 to Rs.10,00,000 20%

Above Rs.10,00,000 30%

b) For resident individual, who is of the age of sixty years or more but less than

eighty years at any time during the previous year:

SLAB APPLICABLE

RATE OF TAX

Upto Rs.3,00,000 Nil

Rs. 3,00,001 to Rs. 5,00,000 5%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%




c) For resident individual, who is of the age of eighty years or more at any time

during the previous year:

SLAB APPLICABLE

RATE OF TAX

Upto Rs. 5,00,000 Nil

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

d) In the case of every co-operative society:

SLAB APPLICABLE

RATE OF TAX

Upto Rs. 10,000 10%

Rs. 10,000 to Rs. 20,000 20%

Above Rs. 20,000 30%

e) In case of firm and local authority 30%

f) In case of domestic company:

The tax rate has been reduced in case of certain companies from 30% to 25%.

Earlier, the concessional tax rate of 25% was applicable for domestic

companies whose total turnover or gross receipts in the previous year 2017-18

does not exceed Rs. 250 crores. The limit of Rs. 250 crores has been increased

to Rs. 400 crores to cover medium level enterprises.

TURNOVER/GROSS RECEIPTS APPLICABLE

RATE OF TAX

(i) where its total turnover or the gross

receipt in the previous year 2017-18

does not exceed Rs. 400 crs;

25%

(ii) other than those referred to in item

(i)

30%

g) In case of foreign company: 40%




1.2. Surcharge & Education Cess:

Earlier, surcharge, in case of Individual/ HUF/ BOI/ AOP/ Artificial Juridical Person,

was chargeable at the rate of 10% on the tax if the total income of the assessee

exceeded 50 lakhs and 15% on tax if the total income exceeded 1 crore.

Now, it is proposed to enhance the above rates by introducing slabs (based on total

income) for levy of surcharge. For the aforesaid category of person, surcharge is

proposed to be levied at the rate of 25% having a total income exceeding two crore

rupees but not exceeding five crore rupees and to be levied at the rate of 37% having a

total income exceeding five crore rupees.

Surcharge for other persons remains unchanged. Marginal relief has been provided in

all cases where surcharge is proposed to be levied.

Health and Education Cess remains same at the rate of 4% of the total of Income

Tax and Surcharge. No marginal relief is available in respect of such case.

Impact of the proposed increase in the rate of Surcharge on effective rate of tax

(including health and education cess), for the aforesaid category of assessees, having

total income exceeding Rs. 50 lakhs is as under:

Income

Existing Proposed

Increase in

Effective Rate Basic

Effective Rate

(including

surcharge and

cess @ 4%)

Basic

Effective Rate for

the upper-most

slab (including

surcharge and

cess @ 4%)

Upto 2.5L 0% 0% 0% 0% -

2.5L to 5L 5% 5.20% 5% 5.20% -

5L to 10L 20% 20.80% 20% 20.80% -

10L to 50L 30% 31.20% 30% 31.20% -

50L to 1cr 30% 34.32% 30% 34.32% -

1cr to 2cr 30% 35.88% 30% 35.88% -

2cr to 5cr 30% 35.88% 30% 39.00% 3.12%

Above 5cr 30% 35.88% 30% 42.74% 6.86%




CHAPTER – II

INDIVIDUALS & SMALL TAX PAYERS

1. TDS ON PAYMENT BY INDIVIDUAL/HUF TO CONTRACTORS AND

PROFESSIONALS

1.1 Background [Section 194M]:

Presently, u/s. 194C and 194J, only individual and HUF whose turnover/gross receipts

cross limits prescribed u/s. 44AB of the Act are liable for deduction of tax at source

on payment made towards professional fees or made for works contract. However,

there is no liability on an individual or HUF to deduct tax at source on any payment

made to contractor or professional for personal use or for business use if the

turnover/gross receipts therefrom do not exceed the limit specified in 44AB of the

Act.

1.2 Proposed Amendment [FB – Cl. 46]:

The FB vide Clause 46 proposes to insert a new section 194M in the Act, to provide

that any individual or HUF, not covered u/s. 194C and 194J paying to any resident:

i) on account of professional fees or for carrying out any work;

ii) shall deduct tax at source at the rate of 5%;

iii) on the sum, or aggregate of sums, if such sum, or aggregate of such sums,

exceeds fifty lakh rupees in a year paid or credited in a year to such person;

The deduction shall be at the time of credit of sum or payment thereof (in cash or by

issue of a cheque or draft or by any other mode), whichever is earlier.

The deductor falling under the proposed section 194M would not be required to

obtain TAN.

1.3 Rationale of the Proposed Amendment:

The Memorandum to FB states that substantial amount by way of payments made by

individuals or HUFs in respect of contractual work or for professional service, for

their personal use or for business use, is escaping the levy of TDS and leaves

possibility of tax evasion. Hence, to plug this loophole, the aforesaid provision is

being proposed.




2. MANDATORY FURNISHING OF RETURN OF INCOME BY CERTAIN

PERSONS

2.1 Background [Section 139]:

Section 139 deals with furnishing of returns. Subject to certain exceptions, Individuals

and HUFs whose total income does not exceed the maximum amount not chargeable

to tax, are not required to file a Return of Income.

Further, currently, a person claiming rollover benefit of exemption from capital gains

tax on investment in specified assets like house, bonds etc., is not required to furnish a

return of income, if after claim of such rollover benefits, his total income is not more

than the maximum amount not chargeable to tax .

2.2 Proposed Amendments [FB – Cl. 39]:

It is proposed to amend section 139 of the Act by inserting Explanation 1 so as to

provide that a person shall be mandatorily required to file his return of income, if

during the previous year, he

(i) has deposited an amount or aggregate of the amounts exceeding one crore

rupees in one or more current account maintained with a banking company or

a co-operative bank; or

(ii) has incurred expenditure of an amount or aggregate of the amounts exceeding

two lakh rupees for himself or any other person for travel to a foreign country;

or

(iii) has incurred expenditure of an amount or aggregate of the amounts exceeding

one lakh rupees towards consumption of electricity; or

(iv) fulfils such other prescribed conditions, as may be prescribed.

It is also proposed to amend the sixth proviso to section 139 of the Act to provide that

a person who is claiming such rollover benefits on investment in a house or a bond or

other assets, under sections 54, 54B, 54D, 54EC, 54F, 54G, 54GA and 54GB of the

Act, shall necessarily be required to furnish a return, if before claim of the rollover

benefits, his total income is more than the maximum amount not chargeable to tax.


This amendment is proposed to ensure that individuals and HUFs indulging in high

value transactions furnish their return of income despite their total income not

exceeding the maximum amount chargeable to tax.




2.4 Our Comments:

This amendment is the new avatar of the earlier ‘one by six’ scheme contained in

proviso 1 to section 139(1) mandating furnishing of returns by individuals and HUFs.

In respect of requirement of filing returns by assessees claiming exemption u/s. 54

etc. there is nothing in the section to indicate that the exemption shall not be available

if the return is not filed. However, the normal consequences of non-filing of the return

in terms of penalty and prosecution would apply.

3. INCENTIVE TO CENTRAL GOVERNMENT EMPLOYEES UNDER 80C OF

THE ACT

3.1 Background [Section 80C]:

Section 80C deals with deduction upto Rs.1,50,000 in computing the total income of

individuals and HUFs in respect of life insurance premium, deferred annuity,

contributions to provident funds etc. Presently there are no express provisions under

the Act with respect to deduction u/s.80C on contribution being made by employees

to Central Government pension schemes.


It is proposed to insert clause (xxv) to provide deduction u/s.80C to employees of the

Central Government making a contribution to a specified account of pension schemes

of the Central Government referred to in section 80CCD for a fixed tenure of not less

than 3 years.


This amendment is proposed to enable Central Government employees to avail of

more options of tax saving investments under the National Pension Scheme.

4 INCENTIVES TO CENTRAL GOVERNMENT EMPLOYEES UNDER 80CCD

OF THE ACT

4.1 Background [Section 80CCD]:

Section 80CCD deals with deduction in respect of contribution to pension scheme of

the Central Government. Presently, u/s. 80CCD of the Act, in respect of any

contribution by the Central Government or any other employer to the account of the

employee referred to in the section, the assessee shall be allowed a deduction in the

computation of his total income, of the whole of the amount contributed by the

Central Government or any other employer to the extent of ten per cent of his salary

in the previous year.





It is proposed to increase the limit of deduction on account of contribution made by

the Central Government to the account of the employee from upto ten percent of his

salary to fourteen percent of his salary.


This amendment is proposed to enable Central Government employees to be able to

claim greater deduction in case enhanced contributions.

4.4 Our Comments:

Presently, Central Government employees and other employees are treated at par and

both are eligible for a deduction of the whole of the contribution as does not exceed

ten percent of the salary of the employee. However, the proposed amendment gives

the benefit of fourteen percent only to Central Government employees.

5. DEDUCTION TO INDIVIDUALS IN RESPECT OF INTEREST PAID ON

LOAN TAKEN FOR PURCHASE OF ELECTRIC VEHICLE

5.1 Proposed Amendments [FB – Cl. 25- Section 80EEB]:

It is proposed to insert section 80EEB to allow deduction upto Rs. 1,50,000/-for the

interest payable by an individual on a loan taken by him for the purchase of an electric

vehicle.

Further, it is proposed to allow such a deduction only if such a loan is sanctioned by

the financial institution between April 1, 2019 and March 31, 2023.


This amendment is proposed with a view to improve environment and to reduce

vehicular pollution.




CHAPTER – III

TRANSFER PRICING AND TAXATION OF NON RESIDENTS

1. INCOME DEEMED TO ACCRUE OR ARISE IN INDIA:


1.1.1 Income is taxed in India based on receipt or accrual and the scope of total

income to be taxed in the hands of the assessee for any previous year is

determined having regard to the residential status of the assessee.

Income – ROR RNOR NR

Received in India

Deemed to be received in India

Accrued or arises in India

Deemed to accrue or arise in

India

Accrued or arises outside India *

________________

ROR – Resident and Ordinarily Resident; RNOR – Resident but Not Ordinarily

Resident; NR – Non Resident

*Restricted to income from business controlled or profession set-up in India

1.1.2 Section 9 provides for income which are deemed to accrue or arise in India.


1.2.1 It is proposed to insert clause (viii) in section 9(1) to provide that receipts

referred to u/s. 56(2)(x) which are deemed to be income u/s. 2(24)(xviia),

arising from any sum of money paid, or any property situated in India

transferred, on or after the 5th day of July, 2019 by ‘a person resident in India’

to ‘a person outside India’ shall be deemed to accrue or arise in India.

1.2.2 This amendment will be effective from April 1, 2020 and will, accordingly,

apply in relation to A.Y. 2020-21 and subsequent assessment years. However,

the receipt has to be on or after July 5, 2019.


To ensure that gift of money or property made by residents to persons outside India

are subject to tax in India.

1.4 Our Comments:

1.4.1 The proposed amendment has opened a Pandora’s box of issues and has put

the basic fundamentals of income-tax law to test. For instance –




(a) Section 56(2)(x) deems gift of money or property to be income in the

hands of the recipient. Can gift or deemed income ever accrue in the

first place;

(b) What is the scope of section 9? Is it deeming ‘accrual’ or deeming

‘place of accrual to be India’;

(c) The proposed amendment covers sum of money paid or property

transferred after July 5, 2019. Does that infer that transactions prior to

the said date were not chargeable to tax under the Act?

(d) Whether ‘person outside India’ means only non-resident or covers

residents as well. The EM suggests that the proposed amendment

covers receipt of money or property by a non-resident.

(e) Where a non-resident receives, say, shares of an Indian company from

another non-resident, would the provisions of section 56(2)(x) apply,

especially post the amendment; can it be said that transfer and receipt

is completed outside India on signing and delivery of transfer from

outside India, despite the situs of such shares being in India;

(f) For receipt of immovable property, the transfer is complete on

registration of the sale deed and which happens in India for an

immovable property in India and hence, even under existing section 5,

a non-resident was taxable, so is there an overlap between section 5

and proposed insertion u/s.9?

(g) Would the proposed amendment cover fresh issue of shares?

(h) How will the TDS mechanism work where a property is gifted or

transferred at a lower value? In the absence of withholding tax, can a

donor be treated to be an assessee-in-default? Will his liability u/s.163

as an agent of non-resident continue?

1.4.2 The proposed amendment certainly raises more questions than answers.

2. RELAXATION IN CONDITIONS OF SPECIAL TAXATION REGIME FOR

OFFSHORE FUNDS:

2.1 Background [Section 9A]:

2.1.1 Section 9A provides for a safe harbour in respect of offshore funds. It provides

that the fund management activity carried out by an eligible investment fund

through an eligible fund manager acting on behalf of such fund in India shall

not constitute business connection of such fund in India. The section also

provides that the eligible investment fund shall not be resident in India u/s. 6

merely because eligible fund manager undertaking fund management activity

on its behalf is situated in India.




2.1.2 The benefit of section 9A is available subject to the fulfilment of certain

conditions by the eligible investment fund and the eligible fund manager.

2.1.3 Sub-section (3) of section 9A provides for the conditions for the eligibility of

the fund. These conditions inter-alia, are related to residence of fund, corpus,

size, investor broad basing, investment diversification and payment of

remuneration to fund manager.

(a) Clause (j) thereof provides that the corpus of the fund shall not be less

than one hundred crore rupees and the first proviso thereto provides

that if the fund has been established or incorporated in the previous

year, the corpus of fund shall not be less than one hundred crore rupees

at the end of such previous year:

(b) Clause (m) thereof provides that the remuneration paid by the fund to

the fund manager is not less than the arm's length price of the said

activity :


2.2.1 It is proposed to amend the first proviso to clause (j) to provide that the corpus

of the fund shall not be less than one hundred crore rupees at the end of a

period of six months from the end of the month of its establishment or

incorporation or at the end of such previous year, whichever is later;

2.2.2 It is proposed to amend clause (m) to provide that the remuneration paid by

the fund to an eligible fund manager in respect of fund management activity

undertaken by the fund manager on its behalf is not less than the amount

calculated in such manner as may be prescribed.

2.2.3 These amendments will take effect retrospectively from 1st April, 2019 and

shall apply to the assessment year 2019-20 and subsequent assessment years.


Removal of certain constraints based on representations received for relaxing certain

conditions in the implementation of regime of fund managers and to give an impetus

to fund management activities in India.

3. CLARIFICATION WITH REGARD TO PROVISIONS OF SECONDARY

ADJUSTMENT AND GIVING AN OPTION TO ASSESSEE TO MAKE ONE-

TIME PAYMENT:

3.1 Background [Section 92CE]:

3.1.1 Section 92CE requires an assessee to carry out secondary adjustment where

the primary adjustment to transfer price has been made suo moto; or made by

the Assessing Officer and accepted by him; or is determined by an advance

pricing agreement; or is made as per safe harbour rules; or is arising as a result




of resolution of an assessment through mutual agreement procedure under an

bilateral tax treaty.

3.1.2 The said provisions require repatriation of excess money (i.e. the difference

between the arm’s length price and value of international transaction) to India

and if the same is not repatriated within the prescribed time, the excess money

shall be deemed to be an advance made by the assessee to the associated

enterprise and interest on such advance, computed in the prescribed manner

shall be treated as income of the assessee.

3.1.3 Further, the existing proviso to section 92CE(1) provides that secondary

adjustment shall not be made if, the amount of primary adjustment made in

the case of an assessee in any previous year does not exceed one crore rupees

‘and’ the primary adjustment is made in respect of an assessment year

commencing on or before April 1, 2016.

3.2 Proposed Amendments [FB – Clause No. 30]:

It is proposed to amend section 92CE of the Act to provide that:

3.2.1 the condition of threshold of one crore rupees and of the primary adjustment

made upto assessment year 2016-17 are alternate conditions. The word ‘and’

appearing the first proviso to section 92CE(1) has been substituted by ‘or’;

3.2.2 the provision of this section shall apply to the advance pricing agreements

signed on or after April, 1 2017;

3.2.3 no refund of the taxes already paid till date under the pre-amended section

92CE(1) (i.e. existing provisions) would be allowed;

3.2.4 the assessee shall be required to calculate interest on the excess money or part

thereof;

3.2.5 the excess money may be repatriated from any of the associated enterprises of

the assessee which is not resident in India;

The amendments proposed above will take effect retrospectively from the

April 1, 2018 and will, accordingly, apply in relation to A.Y. 2018-19 and

subsequent assessment years.

The amendments mentioned below will be effective from September 1, 2019.

3.2.6 in a case where the excess money or part thereof has not been repatriated in

time, the assessee will have the option to pay additional income-tax at the rate

of 18% on such excess money or part thereof in addition to the existing

requirement of calculation of interest till the date of payment of this additional

tax. The additional income-tax shall be further increased by applicable

surcharge and cess.




3.2.7 the additional tax so paid shall be the final payment of tax and no credit shall

be allowed in respect of the amount of tax so paid;

3.2.8 no deduction in respect of the amount on which such tax has been paid, shall

be allowed under any other provision of the Act; and

3.2.9 if the assessee pays the additional income-tax, he will not be required to make

secondary adjustment or compute interest from the date of payment of such

tax.


Several concerns have been expressed regarding effective implementation of

secondary adjustments regime and seeking clarity in law. In order to address such

concerns and to make the secondary adjustment regime more effective and easy to

comply with, it is proposed to bring the above amendments.

3.4 Our Comments:

3.4.1 The proposed amendment to the proviso to section 92CE(1) puts to rest the

controversy on interpretation of the term ‘and’.

3.4.2 The alternate of paying additional tax, is akin to dividend distribution tax. In

various countries, there are two models for secondary adjustment – Loan

model, which India adopted last year and dividend model, which is proposed

to be brought in now. The proposed alternate seems to be a better option as

matter ends on payment of additional tax and there is no need to compute

interest every year, as in reality the funds may never be repatriated.

3.4.3 The proposed amendment of repatriation of excess money from any AE

resident outside India address the concern of repatriation in a case where the

arm’s length price has been arrived at based on Transactional Net Margin

Method whereby it is not possible to quantify the primary adjustment AE-

wise.

4. CLARIFICATION WITH REGARD TO POWER OF THE ASSESSING

OFFICER IN RESPECT OF MODIFIED RETURN OF INCOME FILED IN

PURSUANCE TO SIGNING OF THE ADVANCE PRICING AGREEMENT:

4.1 Background [Section 92CD]:

4.1.1 Sub-section (1) of section 92CD requires an assessee to file a modified return

in accordance with and limited to advance pricing agreement (“APA”), within

three months of entering into the agreement where the original return of

income has been filed prior to the date of entering into the APA.

4.1.2 Sub-section (3) of section 92CD provides that where assessment or

reassessment proceedings for an assessment year relevant to a previous year to

which the APA applies has been completed before the expiry of period

allowed for furnishing of modified return under sub-section (1), the Assessing




Officer shall, in a case where modified return is filed, ‘proceed to assess or

reassess or recompute’ the total income of the relevant assessment year having

regard to and in accordance with the agreement.

4.2 Proposed Amendment [FB – Clause No. 29]:

4.2.1 It is proposed to amend the said sub-section (3) to provide that in cases where

assessment or reassessment has already been completed and modified return of

income has been filed by the taxpayer under sub-section (1) of said section,

the Assessing Officers shall pass an order modifying the total income of the

relevant assessment year determined in such assessment or reassessment,

having regard to and in accordance with the APA.

4.2.2 Accordingly, the words “proceed to assess or reassess or recompute the total

income of the relevant assessment year” appearing in the existing section

92CD, are proposed to be substituted with the words “pass an order modifying

the total income of the relevant assessment year determined in such

assessment or reassessment, as the case may be,”

4.2.3 This amendment will take effect from September 1, 2019.


4.3.1 The amendment is proposed to address the apprehensions expressed on use of

the words ‘assess or reassess or recompute’, which may lead to the Assessing

Officer starting fresh assessment or reassessment in respect of completed

assessments or reassessments of the assessees who have modified their returns

of income in accordance with the APA entered into by them, while the

intention of the legislature is to allow the Assessing Officer to merely modify

the total income consequent to modification of return of income in pursuance

to APA.

4.4 Our Comments:

4.4.1 Since the amendment is prospective from September 1, 2019, it cannot be

extended to the pending assessments at present.

4.4.2 It is arguable that since the amendment is clarificatory in nature, it will have a

retrospective effect.

5. MAINTENANCE, KEEPING AND FURNISHING OF INFORMATION AND

DOCUMENT BY CERTAIN PERSONS:

5.1 Background [Section 92D]:

5.1.1. Section 92D(1) as worded presently provides that every person who has

entered into an international transaction or specified domestic transaction shall

keep and maintain the prescribed information and document in respect thereof.




5.1.2. Proviso thereto inserted vide Finance Act, 2016 required a constituent entity of

an international group to furnish a Master File as prescribed under Rule 10DA,

subject to fulfillment of thresholds of consolidated group revenue and

international transactions prescribed under the same Rule.


It is proposed to substitute section 92D w.e.f. April 1, 2020, to inter alia indicate that

the information and document to be kept and maintained by a constituent entity of an

international group, and filing of Master File, shall be applicable even when there is

no international transaction undertaken by such constituent entity.


The proposed amendment is brought in to plug the interpretation that Master File is

required to be furnished only where a constituent entity has entered into an

international transaction.

5.4 Our Comments:

Master File is basically a blueprint of the international group and would be a common

document insofar as filing in India is concerned. The proposed amendment would

unnecessarily increase hassles for the international group and also result into

duplication of data.

6. EXEMPTION FOR INTEREST PAYABLE TO A NON-RESIDENT ON

MASALA BONDS

6.1 Background [Sections 10 & 194LC]:

6.1.1 Section 194LC provides for a lower rate of withholding tax on interest payable

to a non-resident by an Indian company or business trust in respect of monies

borrowed by it from a source outside India by way of issue of rupee

denominated bond before July 1, 2020.

6.1.2 Consequent to review of the state of economy on September 14, 2018 by the

Prime Minister, the Finance Minister announced a multi-prolonged strategy to

contain the Current Account Deficit and augment the foreign exchange inflow.

6.1.3 In order to incentivise low cost foreign borrowings through offshore rupee

denominated bond, vide press release dated September 17, 2018, CBDT

announced grant of exemption on interest income referred in para 2.1.1 above,

in respect of rupee denominated bonds issued outside India during the period

September 17, 2018 to March 31, 2019 and consequently, no tax was required

to be deducted on the payment of interest in respect of the said bonds.




6.2 Proposed Amendments [FB – Cl. 6(I)]:

6.2.1 The exemption announced through the said press release is proposed to be

incorporated under the Act by inserting clause (4C) in section 10.

6.2.2 This amendment is proposed to be effective from April 1, 2019 and will,

accordingly, apply in relation to the assessment year 2019-20 and subsequent

assessment years.


It is a legislative amendment in lieu of the assurance given vide the press release.

6.4 Our Comments:

In the absence of any income chargeable to tax under the Act, tax is not required to be

withheld under section 194LC. The same is also brought out in the press release as

well as the EM.

7. RELAXING THE PROVISIONS OF SECTIONS 201 AND 40 OF THE ACT IN

CASE OF PAYMENTS TO NON-RESIDENTS

7.1. Background [Sections 40(a)(i) & 201(1)]:

7.1.1 Section 201(1) of the Act provides that the payer, including principal officer

who has not complied with the TDS provisions shall be deemed to be an

assessee-in-default in respect of such tax.

7.1.2 The first proviso thereto provides a dispensation from being treated as an

assessee-in-default where the payee is a resident and

(a) has furnished his return of income u/s. 139,

(b) has taken into account such sum for computing income in such return

of income;

(c) has paid the tax due on the income declared by him in such return of

income; and

(d) furnishes an accountant’s certificate to this effect in the prescribed

form and

7.2. Proposed Amendments [FB – Cl. 10 & Cl. 49]:

7.2.1 It is proposed to amend the said proviso to section 201(1) to extend the benefit

to the payer even in cases where the payee is a non-resident.




7.2.2 Consequently, it is also proposed to amend the proviso to sub-section (1A) of

section 201 to provide for levy of interest till the date of filing of return by the

non-resident payee (as is the case at present with resident payee).

These amendments will take effect from 1st September, 2019.

7.2.3 It is proposed to insert second proviso to section 40(a)(i) to provide that where

an assessee fails to deduct tax in accordance with the provisions of Chapter

XVII-B on any sum paid to a non-resident, but is not deemed to be an assessee

in default under the first proviso to section 201(1), then it shall be deemed that

the assessee has deducted and paid the tax on such sum on the date of

furnishing of the return of income by the payee referred to in that proviso.

Thus, there will be no disallowance under section 40(a)(i) in respect of such

payments. This amendment will take effect from 1st April, 2020.

7.3. Rationale of the Proposed Amendment:

The amendment is proposed to remove the anomaly as under the existing provisions

relief is available to a deductor in respect payments made to a resident.

7.4. Our Comments:

7.4.1 Noticeably, the effective dates of the proposed amendments u/s. 201(1) and

u/s. 40(a)(i) are different, which would lead to an absurdity that for

expenditure incurred with respect to non-residents between April 1, 2018 to

August 31, 2018, the payer may still be treated as an assessee-in-default and

thus, would not get a deduction, despite of satisfying the conditions of the first

proviso.

7.4.2 In most cases, TDS on remittance to a non-resident is borne by the resident

payer itself and the proposed amendments may not be applicable.

7.4.3 In most cases, non-residents do not furnish return of income in India, in which

event the payer would not be able to claim the deduction.

8. ONLINE FILING OF APPLICATION SEEKING DETERMINATION OF TAX

TO BE DEDUCTED AT SOURCE ON PAYMENT TO NON-RESIDENTS


8.1.1 Section 195(2) requires the deductor to make an application to the Assessing

Officer to determine the appropriate proportion of such sum chargeable to tax,

if such deductor considers that the whole of such sum would not be income

chargeable in the case of the recipient.

8.1.2 Section 195(7) prescribes for similar application and determination by

Assessing Officer, in case of specified class of persons or cases, irrespective of

whether any sum is chargeable to tax or not under the provisions of the Act.




8.1.3 Currently, the applications have to be made manually.


8.2.1 It is proposed to amend the provisions of sub-sections (2) and (7) of section

195 section to allow for prescribing the form and manner of application to the

Assessing Officer and also for the manner of determination of appropriate

portion of sum chargeable to tax by the Assessing Officer.

8.2.2 The proposed amendments will take effect from November 1, 2019.


The amendment is proposed in order to use technology to streamline the process,

which will not only reduce the time for processing of such applications, but shall also

help tax administration in monitoring such payments.

8.4 Our Comments:

The proposed amendment is to improve effectiveness of tax administration by online

filing of application seeking determination of tax to be deducted at source on payment

to non-residents with effect from November 1, 2019.

9. RATIONALISATION OF PROVISION RELATING RECOVERY OF TAX IN

PURSUANCE OF AGREEMENTS WITH FOREIGN COUNTRIES:


9.1.1 The existing provisions of section 228A provide for recovery of tax in

pursuance of agreements with foreign countries.

9.1.2 Where the Board receives a certificate from a foreign country for recovery of

tax from a person having a property in India, the Board may forward the

certificate to any Tax Recovery Officer within whose jurisdiction such

property is situated.

9.1.3 Similarly, where an assessee is in default or deemed to be in default in making

a payment of tax, the Tax Recovery Officer may, if the assessee has property

in a country outside India, forward to the Board a certificate, for recovering

the taxes


9.2.1 It is proposed to amend the said section to provide for tax recovery where

details of property of the persons are not available but the said person is a

resident in India.

9.2.2 It is also proposed to amend the said section so as to provide for tax recovery,

where details of property of an assessee in default under the Act are not

available but the said assessee is a resident in a foreign country.




9.2.3 The proposed amendments will take effect from September 1, 2019.


To provide assistance in recovery of tax as per treaty obligation in pursuance of

agreements with foreign countries:

9.4 Our Comments:

The proposed amendments are a measure towards providing rationalisation of

provision relating recovery of tax in pursuance of agreements with foreign countries

with effect from September 1, 2019.

10. CLARIFICATION REGARDING DEFINITION OF THE “ACCOUNTING

YEAR” IN SECTION 286 OF THE ACT

10.1. Background [Section 286]:

10.1.1 Section 286 contains provisions relating to specific reporting regime in the

form of Country-by-Country Report (“CbCR”) in respect of an international

group. It provides that every parent or alternate reporting entity (“ARE”),

resident in India shall furnish CbCR for every reporting accounting year,

within the time limit provided in the said section.

10.1.2 Currently, the term ‘accounting year’ has been defined under clause (a) of

Explanation to section 286 to mean –

(i) a previous year, in a case where the parent entity or alternate reporting

entity is resident in India; or

(ii) an annual accounting period, with respect to which the parent entity of

the international group prepares its financial statements under any law

for the time being in force or the applicable accounting standards of the

country or territory of which such entity is resident, in any other case;

10.2. Proposed Amendments [FB – Cl. 67]:

10.2.1 It is proposed to omit the words ‘alternate reporting entity’ from sub-clause (i)

referred in para 1.1.2 above. Accordingly, the reporting accounting year for an

ARE, resident in India is proposed to be the accounting year applicable to the

parent entity.

10.2.2 This amendment is clarificatory in nature and will have a retrospective effect

from April 1, 2017 and will, accordingly, apply in relation to the assessment

year 2017-18 and subsequent assessment years.




10.3. Rationale of the Proposed Amendment:

10.3.1 Several concerns have been expressed that in case of ARE resident in India

whose ultimate parent entity is not resident in India, the reporting accounting

year would always be the accounting year applicable to the said parent entity

and cannot be the previous year of the ARE resident.

10.3.2 In order to address such concerns and to bring clarity in law, it is proposed to

suitably amend section 286.




CHAPTER – IV

SHARES, SECURITIES, CAPITAL MARKETS AND FINANCIAL

SERVICE SECTOR

1. TAX ON EXCESS SHARE PREMIUM

1.1 Background [Section 56(2)(viib)]:

1.1.1 Section 56(2)(viib) essentially provides for taxation of excess share premium

to be taxed as “Income from other sources” in the hands of the company

issuing shares at such excess premium. The excess is to be measured as the

difference between the issue price and the fair market value. Such fair market

value is to be computed in the manner specified in the section. This provision

applies only to shares issued by closely held companies to resident

shareholders.

1.1.2 The first proviso to section 56(2)(viib), in clause (i), grants exemption to issue

of shares by a venture capital undertaking to a venture capital fund. The term

“venture capital fund”, as defined, includes only Category I AIF.

1.1.3 In clause (ii), it grants exemption to issue of shares by a company as may be

notified by the Central Government. As per notification no. 24/2018/F. No.

370142/5/2018-TPL (PT) dated May 24, 2018, the section is not applicable to

issue of shares by “start ups” which are granted approval by the Inter-

Ministerial Board of Certification as per DPIIT notification.


1.2.1 Clause (i) of the first proviso (referred to in para 1.1.2 above) is proposed to

be amended so as to grant exemption from application of this section to issue

of shares by a venture capital undertaking even to a Category II AIF.

1.2.2 Besides, a new proviso is proposed to be added (as second proviso) which has

the effect of withdrawing the exemption granted to an issue of shares by a

“start up” if the condition specified in the exemption notification is breached

by the start up in a subsequent year. The proposed second proviso states that in

case of such failure to comply with the conditions, any consideration received

for issue of shares that exceeds face value shall be deemed to be the income of

the year in which such failure has taken place.





1.3.1 As far as the proposed amendment to clause (i) is concerned, the explanatory

memorandum states that “currently the benefit of exemption is available to

Category I AIF. With a view to facilitate VCUs to receive funds from

Category II AIF, it is proposed to amend the section.

1.3.2 In respect of the newly proposed second proviso, the explanatory

memorandum states that “certain notifications issued under this sub-clause by

the Central Govt. provide for exemption, subject to the fulfilment of certain

conditions. With a view to ensure compliance to the conditions, it is proposed

to withdraw the exemption and treat it as income of the year in which the

failure to comply has taken place.

1.4 Our Comments:

1.4.1 As far as the newly proposed second proviso is concerned, the latest

notification issued by the Central Government is Notification No. SO 1131(E)

[NO. 13/2019 (F. No. 370142/5/2018-TPL(PT)] dated March 5, 2019.

1.4.2 As per this notification, a start up will be eligible for exemption under section

56(2)(viib) if it fulfils the conditions specified in DPIIT notification number

G.S.R. 127(E), dated February 19, 2019.

1.4.3 The said DPIIT notification, in para 4, lays down following conditions:

(i) It is recognised by DPIIT;

(ii) Aggregate paid up share capital and share premium of the start up does

not exceed Rs. 25 crores; and

(iii) It does not invest in certain specified assets like land, buildings (other

than used for business etc.), shares and securities, capital contribution

to other entities, jewellery, artwork etc. for a period of 7 years from the

year in which shares are issued at a premium.

1.4.4 In case of revocation of recognition or in case of investment made in any items

mentioned in (iii) above during the first 7 year period, the exemption granted

u/s. 56(2)(viib) would get withdrawn and there would be tax liability in which

the condition is breached.

1.4.5 The amount to be treated as income is stated in the proposed new proviso as

“any consideration received for issue of shares that exceeds the face value of

such share”. It appears that the amount to be treated as income can only be the

excess of consideration over the fair value and not the face value as stated in

the provision. This appears to be a mistake and needs to be rectified.




2. TAX ON BUYBACK OF LISTED SHARES

2.1 Background [Section 115QA / 10(34A)]:

2.1.1 Section 115QA of the Act provides for tax on buyback of unlisted shares by a

company from its shareholders. Tax is payable by the company buying back

unlisted shares at the rate of 20% on the amount of consideration paid by the

company on buyback as reduced by the issue price that was received by the

company when the said shares were issued.

2.1.2 Determination of issue price may pose challenges in different situations like

shares issued on merger, demerger, bonus shares etc. To bring certainty as

regards such determination, Rule 40BB provides mechanism of determination

of issue price under different situations like that.

2.1.3 Correspondingly, section 10(34A) provides for exemption from tax on any

income arising to the shareholder (i.e. whether capital gains or business profits

depending upon whether the shares are held as capital asset or stock-in-trade)

on account of such buyback.

2.1.4 Section 46A of the Act makes provisions for taxation of capital gains in the

hands of the shareholder on buyback of shares by the companies. As of now,

this provision is not effective for gains on buyback of unlisted shares in view

of the exemption u/s. 10(34A). It is, however, relevant in case of buyback of

listed shares.

2.2 Proposed Amendment [Clause 36 / 6(III)]:

2.2.1 Section 115QA is proposed to be amended so as to expand the scope of

taxation under this section to buyback of shares of listed companies as well.

2.2.2 Correspondingly, the exemption provided in section 10(34A) is also broad-

based so as to exempt from tax the gains arising in the hands of the

shareholder on buyback of even listed shares.

2.2.3 Section 46A of the Act has, however, not been repealed or amended.


2.3.1 The explanatory memorandum classifies this amendment under the heading

“Strengthening anti-abuse measures”. It says that the section was originally

introduced “to check the practice of unlisted companies resorting to buy-back

of shares instead of paying dividends” and that “instances of similar tax

arbitrage have now come to notice in case of listed shares as well, whereby

listed companies are also indulging in such practice of resorting to buyback of

shares, instead of payment of dividends”.




2.4 Our Comments

2.4.1 At the outset, to label all buyback by listed entities as tax avoidance exercise

is, with due respect, unjust and uncalled for. Dividend declaration by

companies follow some set policies applying the principles of conservatism

and prudence. Buyback is not always in lieu of dividend. Buyback gives

option to a shareholder to exit or reduce his holdings, whereas dividend gives

no such option. Besides, buyback improves financial ratios like earnings per

share and return on equity by reducing the equity base, while dividend does

not do that. Buyback regulations permit reservation of certain percentage of

buyback size for small shareholders. There is no such reservation qua

dividend.

2.4.2 Be that as it may. This provision will result in steep taxation, the quantum

being much larger than the tax on capital gains that would have been paid by

the shareholder u/s. 46A. This is because, while capital gains would have been

computed on the difference between the buyback price and the cost of

acquisition in the hands of the shareholders, the buyback tax will be computed

on the difference between the buyback price and the issue price of the shares.

This steep taxation would mean that the shareholders’ disposable surplus will

immensely go down.

2.4.3 There would be challenges in determining the issue price of the shares that are

bought back in view of the fact that the shares of listed entities would be in

demat form and in a case of large cash surplus entities, there may have been

various corporate activities in the past, like, bonus, rights, mergers, demergers,

ESOPs etc. and each lots will have different issue price. The buyback is from

which lot is virtually impossible to figure out for large listed entities. Rules

will have to be appropriately modified to make the section workable in this

respect.

2.4.4 The buyback tax will be paid by the company as “additional income tax”.

Now, in the case of a non-resident shareholders, they may be liable to pay

capital gains tax in their country of residence on the difference between the

buyback price and the cost of acquisition. There are grave doubts as to

whether such non-resident shareholders would ever get tax credit in their

home countries in respect of the buyback tax paid by the company despite tax

treaties providing for prevention of double taxation. This is because the

buyback tax is on the company while the capital gains tax is on the

shareholder.

2.4.5 Section 46A will now no more be applicable in any case of buyback, except,

in limited cases like buyback of shares by a foreign company from its Indian

shareholder.

2.4.6 These amendments are made effective from July 5, 2019. Ordinarily, this

means that the provisions are applicable for AY 2020-21. However, the

normal rule that the law applicable on the first day of the assessment is not, in

that sense, absolute. In the context of this amendment, it would be appropriate




to infer that all buybacks effected on or after July 5, 2019 will get covered

under the new provision1.

3. POWER TO EXEMPT FROM APPLICATION OF SEC. 50CA / 56(2)(x)

3.1 Background [Section 50CA/56(2)(x)]:

3.1.1 Section 56(2)(x) provides for taxation of the excess of fair market value of any

property received by a person over the consideration paid by him in case of

certain defined properties and subject to certain exceptions, as income from

other sources. Similarly gift of cash is taxable under this provision in the

hands of the recipient.

3.1.2 Section 50CA provides for taxation of capital gains on transfer of unquoted

shares based on the fair value of such shares in case the actual consideration is

lower than the fair value. Fair value in such cases is determined as per the

prescribe Rule 11UA.

3.1.3 Section 56(2)(x) provides for taxing the excess of fair value of certain property

received by an assessee over the consideration paid by him therefor. Fair value

is to be determined as per Rule 11UA even for the purposes of this section.

This section, however, is not applicable in certain cases which are exempted

under clauses (I) to (X) of the proviso to that section.

3.1.4 Section 50CA, however, does not enjoy any such specific exemptions.

3.2 Proposed Amendment [Clause 19 / 21(iii)(B)]:

3.2.1 A proviso is proposed to be inserted in section 50CA to empower the Central

Government to prescribe rules for exempting such class of persons and subject

to such conditions as it may prescribe from application of this section.

3.2.2 Similarly, a new clause (XI) is added in the proviso to section 56(2)(X) to

empower the Central Government to prescribe rules for exempting receipts

from prescribed class of persons from the rigours of that provision.


3.3.1 It states that determination of fair market value based on prescribed rules may

result in genuine hardship in certain cases where the consideration for transfer

is approved by certain authorities and the person transferring has no control

over such determination. In order to provide relief in such cases, this power to

prescribe rules is introduced.

3.4 Our Comments:

Such cases could be the cases where approval has been received from Charity

Commissioner for transfer of immovable property at particular price, or where the

1 See e.g. CIT v. Best & Co. (P) Ltd. 119 ITR 830 (Mad).




High Court has ordered sale or transfer of an asset at a particular price in a

commercial litigation or where property is acquired by the Government or similar

authority in an auction under any law etc. One will have to wait for the rules to be

framed in this behalf.

4. PASS THROUGH OF LOSSES – AIF- CATEGORY I & II

4.1 Background [Section 115UB]:

4.1.1 Section 115UB, inter alia provides for “pass through” of income earned by

Category I & II Alternative Investment Funds (“AIF’s”). The only exception

to this is the income chargeable under the head “profits and gains from

business or profession”, which is taxed at the fund level itself.

4.1.2 Income other than “PGBP”, is exempt in the hands of the Investment fund and

is taxable in the hands of the unit holder.

4.1.3 Sub-section (2) to section 115UB deals with carry forward and set-off of

losses of an investment fund. The current regime, does not permit the pass

through of losses and the such unabsorbed losses are retained at the fund level

and are not allocated to the unit holder .The mechanism provided for carry

forward and set-off of loss of the fund is as under:

a) Compute Total Income without giving effect to exemption u/s.

10(23FBA) –

b) Set -off inter head losses in the computation of the fund itself without

allocating anything to the unit holders ;

c) The unabsorbed losses are to be carried forward and set-off of losses

by the Investment Fund in future, as per the normal provisions of

Chapter VI - dealing with set-off of losses.


4.2.1 The sub-clauses (i) and (ii) sub-section (2) of section 115UB are substituted to

provide that :

a) The unabsorbed Losses under the head “PGBP” shall be permitted to

be carried forward and set-off in the hands of the fund as per normal

provisions of Chapter VI;

b) The Losses other than loss under the head “PGBP” shall not be

considered as pass through in the hands of the unit holders, if such loss

relates to a unit which is not a held by a unit holder for a period of at

least twelve months;

4.2.2 Besides, a new sub-section is proposed to be added (2A), which has the effect

of permitting pass-through status for losses other than the PGBP loss, in the




hands of unit holder holding the units of the fund as on 31 March 2019. The

proposed section provides that the loss other than the loss under the head

PGBP, accumulated at the fund level as on 31 March 2019, shall be deemed to

be the loss of the unit holders, who held that the unit of the funds as on 31

March 2019. Such loss would be permitted to be carried forward by such unit

holder for the remaining period, by taking the year of incurring such loss as

the first year and shall be eligible to be set-off as per the normal provisions of

Chapter VI.


4.3.1 The rationale spelt out in the Explanatory memorandum for providing a pass

through for loss other than loss under the head “PGBP” is to remove the

genuine difficulty faced by Cat I & II AIF’s by awarding pass-through status

to the unit holders for loss other than the loss under the head “PGBP”.

4.4 Our Comments:

4.4.1 Whether for the purpose of computing the “period of 12 months” in the hands

of the unit holder whether the previous unit holder’s period would also be

included;

4.4.2 Ambiguity as regards to date from which the “period of 12 months” in the

hands of the unit holder, has to be computed.

4.4.3 The loss other than the loss under the “PGBP”, to the extent is not considered

pass through, by virtue of the unit holder holding the units for less than 12

months, would be permitted to be carry forward in the hands of the fund or

would it lapse.

5. CONCESSIONAL RATE OF STCG U/S 111A TO CERTAIN EQUITY

ORIENTED FUNDS

5.1 Background [Section 111A/112A]:

5.1.1 The Finance Act 2018, introduced the provisions of section 112A, which

provides for concessional rate of long term capital gains tax at 10% on transfer

of certain units of an equity oriented funds. Further, clause (a) of Explanation

to section 112A defines equity oriented fund as a fund which is set up under a

mutual fund scheme specified under clause 10(23D) and such funds invests

either in other funds which are listed on the RSE or in equity shares of

companies listed on the stock exchange.

5.1.2 Section 111A of the Act provides for concessional short term capital gains tax

on transfer of units of equity oriented funds, which refer to the definition of

equity oriented fund as defined u/s 10(38) of the Act.

5.1.3 Now as per section 10(38) of the Act, equity oriented fund is defined to mean

“a fund which is set up under a mutual fund scheme specified under clause




10(23D) of the Act and where the invisible funds are invested in equity shares

of domestic companies, to the extent of more than 65% of the total proceeds of

such funds.

5.2 Proposed Amendment [Clause 32]:

5.2.1 Now, the definition of equity oriented fund as provided in section 111A has

been amended to extend the benefit of concessional rate of short term capital

gain tax on transfer of units of such funds which has investments in funds.

5.2.2 In other words, the definition of “equity oriented fund” in section 111A would

now take us to the definition of equity oriented fund as defined u/s 112A.

5.2.3 Now, due to the proposed amendment, the concessional rate of tax on short

term capital gain as provided u/s. 111A would also be available on transfer of

units of fund of funds.

5.2.4 The proposed amendment will take effect from April 1, 2020 i.e. from A.Y.

2020-21 prospectively.


5.3.1 Various fund of funds were set up for the purpose of smooth divestment of Central

Public Sector Enterprises. To increase the demand and liquidity of the units of fund of

funds as well as to show them lucrative to the common public, Finance Act, 2018 had

provided for concessional rate of tax on long term capital gain u/s. 112A for transfer

of units of such fund of funds.

5.3.2 The aforesaid amendment has been brought to incentivise such funds of funds

which was earlier restricted to funds investing in equity shares of domestic

companies listed on stock exchange.

5.4 Our Comments:

The proposed amendment may increase the liquidity and tradability of units of fund of

funds due to reduced rate of tax on short term capital gains along with long term

capital gains. This amendment may further fasten the divestment process of Central

Public Sector Enterprises and more fund availability to the Central Government to

meet the fiscal deficit.




CHAPTER – V

LESS CASH ECONOMY

1. RECOGNISING ELECTRONIC MODE OF PAYMENT:

1.1 Background [Section 13A, 35AD(8), 40A(3), 43(1), 43CA(4), 44AD, 50C, 56(2)(x),

80JJAA, 269SS, 269ST, 269T]:

Presently, there are various sections (as captioned above) in the Act which discourage

making payment and encourage receipt by account payee bank draft or by use of

electronic clearing system through a bank account. These provisions specify limits

within which other mode of payments may be preferred for the subject transactions.

1.2 Proposed Amendment [FB – Cl. 8]:

It is proposed to amend, vide clauses 8, 9, 11, 12, 14, 16, 18, 21, 27, 57, 58, 60, such

provisions to recognize other electronic mode of payment, in addition to the already

existing permissible modes of payment. Such other electronic mode of payment

would be prescribed by the Central Government. These amendment would be

effective from April 1, 2020, i.e. AY 2020-21.

2. MANDATING PROVISION OF FACILITY FOR ACCEPTANCE OF

PAYMENT THROUGH ELECTRONIC MODE

2.1 Background [Section 269SU]:

Presently, provisions such as section 44AD of the Act encourage assessee to provide

facilities for accepting payments through electronic modes. However, provision of

such facilities is not mandatory. The proposed section 269SU intends to make

providing facilities for accepting payments through electronic modes mandatory for

certain persons.

2.2 Proposed Amendment [FB – Cl. 59 and Cl. 62]:

2.2.1 Clause 59 of the FB seeks to insert a new section 269SU in the Act w.e.f.

November 1, 2019 wherein it is proposed that every person carrying on

business whose total sales, turnover or gross receipts, as the case may be, in

business exceeds fifty crore rupees during the immediately preceding previous

year, shall provide facility for accepting payment through the prescribed

electronic modes, in addition to the facility for other electronic modes of

payment.

2.2.2 It is also proposed to insert Sec. 271DB in the Act w.e.f. November 1, 2019 to

levy penalty on the person for failure to comply with provisions of the

proposed section 269SU. The quantum of penalty is prescribed as five




thousand rupees for every day during which such failure continues. The

section further provides that in cases where such person proves that there were

good and sufficient reasons for such failure, penalty shall not be imposable.

2.2.3 A consequential amendment is also made in the Payment and Settlement

Systems Act, 2007 by inserting Section 10A which would provide that

notwithstanding anything contained in the Payment and Settlement Systems

Act, 2007, no bank or system provider shall impose any charge upon anyone,

either directly or indirectly, for using the electronic modes of payment

prescribed under section 269SU of the Act.


The proposed sections have been introduced in order to achieve objective of the

Government to move towards a less cash economy and to reduce generation and

circulation of black money as well as to promote digital economy.

2.4 Our Comments:

This amendment is to further encourage other electronic modes of payment in

addition to the already existing modes of receipt. Further, it covers only businesses

whose total sales, turnover or gross receipts, as the case may be, in business exceeds

fifty crore rupees. Thus, small businesses fall outside the purview of this amendment

thereby not increasing their compliance burden.

3 TAX ON WITHDRAWAL OF CASH FROM BANK / POST OFFICE

ACCOUNT [SECTION 194N]

3.1 Background:

Presently, there are various provisions in the Act which discourage transactions in

cash, such as sections 13A, 40A(3), 269SS, 269T, 269ST. However, there is no

section in force which provides for deduction of tax at source in respect of any

withdrawal being made by an account holder from his bank account or post office

account.


3.2.1 It is proposed to insert a new section 194N, which provides that the following

persons, i.e.:

- a banking company to which the Banking Regulation Act, 1949 applies

(including any bank or banking institution referred to in Section 51 of

that Act); or

- a co-operative society engaged in carrying on the business of banking;

or

- a post office,

which is responsible for paying any sum or aggregate of sums, in excess of

one crore rupees, in cash, during the previous year to any person (referred to




as the recipient in the section) from an account maintained by the recipient

with such person shall, at the time of payment of such amount, deduct an

amount equal to two per cent of sum exceeding one crore rupees as income-

tax.

3.2.2 The above provision shall not apply to any payment made to the following:

- Government;

- any banking company or co-operative society engaged in carrying on

the business of banking or a post office;

- business correspondent of a banking company or co-operative society,

engaged in carrying the business of banking as per the guidelines of

RBI or under RBI Act;

- any white label automated teller machine operator of a banking

company or co-operative society authorized by RBI under the Payment

and Settlement System Act, 2007; or

- such other person or class of persons, which the Central Government

may, specify by notification in consultation with the Reserve Bank of

India.


Though cash withdrawals from a bank account form part of the banking system, such

cash may be paid to various persons who may not be under the tax net and thus there

starts circulation of cash in parallel economy. In order to restrict cash flow in parallel

economy, the FB, vide clause 46, proposes to insert Section 194N in the Act to

promote digital payments and discourage the practice of making business payments in

cash.

3.4 Our Comments:

3.4.1 The proposed insertion raises several questions from both the deductor as well

as the deductee’s point of view:

a) Whether a deduction of ‘income-tax’ can be mandated on any

withdrawal from an account holder’s own bank/post office account as

such withdrawal is not in the nature of “income”.

b) Would there be any difficulty in claiming credit of the taxes so

deducted under the proposed section in absence of any income?

c) Would such TDS be deemed to income under section 198 of the Act?

d) From the deductor’s perspective, would the threshold for deduction of

tax be computed by aggregating all the withdrawals in one particular

account or by aggregating all the withdrawals of an account holder




from all his accounts with the said bank/post-office? In other words,

whether the aggregation applies qua an account or an account holder

for computing the threshold limited?

e) How would deduction of tax work in case of joint account holders and

trusts?

3.4.2 The above raised issues, if not resolved effectively, would result in significant

hardship to both the deductor and the deductee.




CHAPTER – VI

PROCEDURAL PROVISIONS, PENALTY AND PROSECUTION

1. ‘INTERCHANGEABILITY’ OF PAN AND AADHAR NUMBER AND

MANDATORY QUOTING IN PRESCRIBED TRANSACTIONS AND

PENALTY ON FAILURE THEREOF

1.1 Background [Section 139A & 272B]:

1.1.1 Section 139A of the Act provides, in clauses (i) to (iv), circumstances under

which it is mandatory on the part of an assessee to apply for and obtain PAN

and quote the same in the correspondences with the authorities.

1.1.2 Existing section 272B provides for penalty for non-compliance of section

139A which requires application for allotment of PAN and quoting of PAN

while entering into certain transactions.

1.2 Proposed Amendments [FB – Cl. 40 & 64]:

1.2.1 It is proposed to add a new clause (vii) to existing section 139A(1) to enable

the Government to prescribe more types of transactions where PAN would be

required to be mandatorily quoted.

1.2.2 It is also proposed to insert a new sub section viz. (5E) to section 139A which

provides that where an assessee has not been allotted a PAN but possesses

Aadhaar Number can quote Aadhaar Number in place of PAN for the purpose

of the Act. It further provides that even where PAN is allotted, the assessee

may quote Aadhaar Number in lieu of PAN if he has intimated his Aadhaar in

accordance with the provisions of sub section (2) of section 139AA.

1.2.3 It is further proposed to insert sub section (6A) to provide that every person

entering into the prescribed transactions to not only quote PAN or Aadhaar

Number on the documents pertaining to such transactions but also authenticate

such PAN and Aadhaar Number is such manner as may be prescribed. Further,

another sub section (6B) is proposed to be inserted requiring every person

receiving documents referred to in sub section (6A) shall ensure that PAN or

Aadhaar, as the case may be has been duly quoted and also authenticated as

required.

1.2.4 Corresponding amendments are made in section 272B which imposes penalty

to ensure proper compliance of the provisions relating to quoting and

authentication of PAN or Aadhaar Number.





1.3.1 As per the Explanatory memorandum, clause (vii) is proposed to be inserted to

keep an audit trail of large number of transactions and for widening and

deepening the tax base.

1.3.2 It is stated that sub-section (5E) is proposed to be added to as to make the use

of PAN and Aadhaar Number interchangeable for the purpose of the Act.

1.4 Our Comments:

1.4.1 While it is suggested that PAN and Aadhaar Number can be used

‘interchangeably’, the provisions only provide for use of Aadhaar Number in

lieu of PAN and not vice versa. Further, proposed amendment in section

139AA may rule out the possibility of PAN being used in lieu of Aadhaar

Number.

1.4.2 While sub section (5E), being a non-obstante provision, proposes to enable an

assessee to quote Aadhaar Number in lieu of PAN required to be furnished

under the Act, there is no corresponding amendment in another non-obstante

provision of section 206AA which provides a higher rate for deduction of tax

at source for failure to furnish PAN.

2. CONSEQUENCES OF NOT LINKING PAN WITH AADHAAR

2.1 Background [Section 139AA]:

2.1.1 Section 139AA of the Act mandates quoting of Aadhaar Number at the time of

making an application for allotment of PAN and at the time of furnishing the

return of income.

2.1.2 Sub section (2) of section 139AA provides that every person who has been

allotted PAN as on July 1, 2017 and who is eligible to obtain Aadhaar Number

shall intimate the Aadhaar Number to such authority in such form and manner

as may be prescribed on or before the date to be notified by the Central

Government in the Official Gazette.

2.1.3 Proviso to sub section (2) of section 139AA provides that in case of failure to

intimate the Aadhaar Number, PAN of the assessee would be deemed to be

invalid and other provisions of the Act shall apply as if the assessee has not

applied for allotment of PAN.





2.2.1 It is proposed to amend section 139AA(2) to the effect that failure to intimate

Aadhaar Number shall not result in PAN being ‘invalid’ but it will result in

PAN being ‘inoperative’ in a prescribed manner.

2.2.2 The amendment will take effect from September 1, 2019.


2.3.1 It is stated that the amendment is proposed in order to protect validity of

transactions previously carried out through PAN such that the PAN would be

made inoperative in a prescribed manner, and not invalid.

2.4 Our Comments:

2.4.1 The amendment seems to have been proposed to comply with the directions of

Hon’ble Supreme Court in case of Binoy Viswam Vs. Union of India (2017)

396 ITR 66 wherein it was held that the provision which has the impact of

rendering PAN void ab intio would unsettle the settled rights thereby undoing

all the acts done by a person on the basis of such a PAN is to be read down by

making it clear that it would operate prospectively.

2.4.2 However, the amendment in the section proposes to make PAN ‘inoperative

after the date so notified in such manner as may be prescribed’. Thus, the

notification and the rules to be prescribed in this regard would assume

relevance to analyse whether or not the directions of Hon’ble Supreme Court

are followed in spirit.

For instance, if due to the failure of linking the Aadhaar with the PAN, the

PAN is made inoperative prospectively after the notified date it may still affect

the settled rights of the assessee in case a refund is determined in assessment

of any earlier year which has not been issued on the date from when PAN is

made inoperative.

3 RATIONALISATION OF PROVISIONS RELATING TO CLAIM OF

REFUND


3.1.1 Existing section 239 requires a claim of refund under Chapter XIX to be made

in Form no. 30 prescribed under Rule 41 and also provides for time limit for

making such a claim.


3.2.1 It is proposed to substitute the words “in the prescribed form and verified in

the prescribed manner” with the words and figures “by furnishing return in

accordance with the provisions of section 139” and to correspondingly omit




sub-section (2) of section 239 providing for time limit to file Form No. 30 for

the claim of refund.


3.3.1 In order to simplify the procedure for claim of refund, it is proposed to amend

the said section so as to provide that every claim for refund under Chapter

XIX of the Act shall be made by furnishing return in accordance with the

provisions of section 139 of the Act.

3.3.2 Sub-section (2) which provided for time limits for making a claim would be

omitted as the time limits for furnishing returns u/s 139 of the Act is already

provided under that section.

3.4 Our Comments:

3.4.1 The proposed amendment shall do away with the duplication of compliance

by the assessee, since now the claim of refund by an assessee made in the

return of income filed by it would be sufficient for processing the claim.

3.4.2 Also, one may contend that the benevolent provision shall apply

retrospectively to avoid conflicts where the time limit prescribed under sub

section (2) of section 239 were not at par with the time limit provided for

furnishing return of income u/s 139.

4 ELECTRONIC FILING OF STATEMENT OF TRANSACTIONS ON WHICH

TAX HAS NOT BEEN DEDUCTED


Existing section 206A casted an obligation on any banking company or co-operative

society or public company paying interest referred in section 194A to a resident not

exceeding rupees forty thousand and rupees five thousand as the case maybe and thus

not deducting tax to furnish a quarterly returns in the prescribed forms (Form No.

26QA & Form 26QAA under Rule 31AC & 31ACA respectively) reporting such

transactions on a floppy, diskette, magnetic cartridge tape, CD-ROM or any other

computer readable media.


4.2.1 It is proposed to amend the section to provide for furnishing of return in such

manner and form as maybe prescribed.

4.2.2 Further it is also proposed to insert a sub-section (3) which shall provide for

correction for rectification of any mistake.





4.3.1 At present, the section provides for filing of such statements on a floppy,

diskette, magnetic tape, CD-ROM, or any other computer readable media.

Though it is not given in the proposed amendment, it is observed from the

explanatory memorandum that this amendment is proposed to enable e-filing

of such quarterly returns in a manner as may be prescribed.

4.3.2 It is also proposed to provide for correction of such statements for rectification

of any mistake or to add, delete or update the information furnished. Sub-

section (2) provided for time limits for making a claim would be omitted as

the time limits for furnishing returns u/s 139 of the Act is already provided

under that section.

5 RATIONALISATION OF PENALTY PROVISIONS RELATING TO UNDER-

REPORTED INCOME


Existing section 270A contains provisions relating to penalty for under-reporting and

misreporting of income. The existing provisions provide for various situations for the

purposes of levy of penalty under this section, however the situation where return is

filed for the first time u/s 148 is not covered.


5.2.1 It is proposed to amend section 270A to include returns furnished for the first

time u/s 148 under the purview of this section, to facilitate levy of penalty in

case if there is any under-reporting or misreporting of income during the same.

5.2.2 Further, it is proposed to substitute this amendment with effect from the 1st

day of April, 2017.


5.3.1 At present, this section does not contain the mechanism for determining under-

reporting of income and quantum of penalty to be levied in the case where the

person has under-reported income and furnished the return of income for the

first time under section 148 of the Act. Thus to do away with this anomaly in

the provisions, abovementioned amendment is proposed.

5.4 Our Comments:

5.4.1 The abovementioned amendment is proposed to take effect retrospectively

from April 1, 2017 and apply in relation to assessment year 2017-2018 and

onwards.




5.4.2 However, since the amended provision creates a ‘levy’ for the first time, one

may contend that it is a substantive provision and thus cannot apply

retrospectively in light of decision of Hon’ble Supreme Court in case of CIT

Vs. Vatika Township (P.) Ltd. (2014) 367 ITR 466.

6 RATIONALISATION OF THE PROVISIONS OF SECTION 276CC

6.1 Background [Section 276CC]:

If a person fails to furnish returns of income, prosecution is initiated u/s 276CC.

However, if a person has not furnished return of income voluntarily u/s 139(1) or the

return of fringe benefits u/s 115WD(1), then such person, other than a company, shall

not be proceeded against if the tax payable by such a person on the total income

determined on regular assessment, as reduced by the advance tax, if any, paid, and

any tax deducted at source, does not exceed three thousand rupees.


6.2.1 It is proposed that prosecution will not be initiated against a person under this

section if there is a failure to furnish return of income u/s 139(1) or the return

of fringe benefits u/s 115WD(1) and total tax payable by such person, other

than company, after giving credit of prepaid taxes does not exceed rupees ten

thousand.

6.2.2 Further, previously the credit of only advance tax and tax deducted at source

was available to the assessee. Now, it is proposed to even give credit of self-

assessment taxes, if any paid before the end of the relevant assessment year

and tax collected at source.


6.3.1 The explanatory memorandum states that the intent of the said provision was

always to take into account pre-paid taxes, while determining the tax payable.

Hence, the amendment is proposed so as to make the legislative intention clear

and to include the self-assessment tax, if any, paid before the expiry of the

assessment year, and tax collected at source for the purpose of determining tax

liability.

6.3.2 Further, in order to rationalise the existing threshold limit of the tax payable

u/s 276CC, it is proposed to be increased to rupees ten thousand.

6.4 Our Comments:

To the extent that the amendment is intended to make the legislative intention clear, it

is arguable that it applies retrospectively. In other words, even though the amendment

is made effective from April 1, 2020, to the extent it relates to giving credit for all

prepaid taxes, it can be contended to be clarificatory and hence retrospective.




7. WIDENING OF SCOPE OF STATEMENT OF FINANCIAL TRANSACTIONS

(SFT) AND CORRESPONDING PENAL PROVISIONS

7.1 Background [Section 285BA & 271FAA]:

7.1.1 Section 285BA casts an obligation on certain specified persons like Banks,

Financial Institutions, Mutual Funds etc. to furnish Statement of Financial

Transaction (‘SFT’) reporting certain specified financial transactions or

reportable account in prescribed form to prescribed authority being

Director/Joint Director of Income Tax as per Rule 114E.

7.1.2 Section 271FAA provides for penalty in certain cases for furnishing inaccurate

information in SFT.

7.2 Proposed Amendments [FB – Cl. 63 & 66]:

7.2.1 It is proposed to introduce a clause ‘(l)’ to sub-section (1) of section 285BA,

wherein the scope of section 285BA is widened to cover person, other than

those referred to in clauses (a) to (k), as maybe prescribed.

7.2.2 It is also proposed to remove the current threshold of rupees fifty thousand on

aggregate value of transactions during a financial year for furnishing of

information.

7.2.3 It is also proposed to amend the provisions of sub-section (4) of aforesaid

section so as provide that if the defect in the statement is not rectified within

the time specified therein, the provisions of the Act shall apply as if such

person had furnished inaccurate information in the statement as against

treating the same as invalid.

7.2.4 Amendments are also proposed in section 271FAA to increase its applicability

to all the entities requited to file SFT.

7.3 Rationale of the Proposed Amendments:

The proposed amendments are aimed to widen the scope of SFT with an objective to

ensure that Department gets information of various transactions to enable the

proposed pre-filling of return of income. Further, in order to ensure that SFT is filed

and the data filled therein is correct appropriate amendment to penal provisions is

proposed.

7.4 Our Comments:

Though penalty provisions have been expanded to levy penalty in case of furnishing

of inaccurate data is SFT but there is no proper mechanism is proposed to ensure that

the person in respect of whom inaccurate data is furnished in the SFT can get the

same rectified in a time bound manner. Thus, in cases where inaccurate data is

furnished in the SFT and the same is not rectified by the person furnishing the same in




a timely manner then the assessee would have no choice but to rectify the said data in

the pre filled Return of Income while filling the Return of Income. This will lead to a

situation that there will be a mismatch between disclosure made by an assessee in the

Return of Income and the erroneous details available with the department from the

SFT that may lead to additions in the assessment of that assessee.

8 ENHANCING TIME LIMITATION FOR SALE OF ATTACHED PROPERTY

UNDER RULE 68B OF THE SECOND SCHEDULE OF THE ACT

8.2 Background [Rule 68B of Second Schedule of the Act]:

The existing provision of Rule 68B of the Second Schedule of the Act provides that

no sale of immovable property attached towards the recovery of tax, penalty etc. shall

be made after the expiry of three years from the end of the financial year in which the

order in consequence of which any tax, penalty etc. becomes final.


It is proposed to substitute the period of three years to seven years and further

proposed to insert a proviso that the Board may, for the reasons to be recorded in

writing, extend the period by a further period of three years.


As the explanatory memorandum suggests the amendment is intended to protect the

interest of the revenue, especially in those cases where demand has been crystallised

on conclusion of the proceedings.

8.5 Our Comments:

8.5.1 Through this extension, the Department will now effectively be able to make

sale of attached immovable property within a period of 10 years from the end

of the financial year in which the order giving rise to a tax, penalty etc. has

become conclusive.

8.5.2 Previously CBDT had tried to extend the abovementioned time limit to 4 years

by way of a notification dated March 1, 1996 bearing Notification No.

S.O.164(E). However Hon’ble Supreme Court in case of Commissioner of

Income-tax Vs. S.V. Gopala Rao 396 ITR 694 (SC) has held that, circular

issued by the CBDT under section 119 to amend provisions contained in rule

68B of the Second Schedule to the Income-tax Act, 1961 is ultra vires.

8.5.3 Thus it can be seen that to protect the interests of revenue, government has

brought this amendment under the Finance Bill.




CHAPTER – VII

SECTOR SPECIFIC AMENDMENTS

A. INTERNATIONAL FINANCIAL SERVICES CENTRE

1. EXEMPTION FOR INTEREST PAYABLE TO NON-RESIDENT

1.1 Proposed Amendments [FB – Cl. 6]: New section 10(15)(ix)

1.1.1 It is proposed to insert sub-clause (ix) in clause (15) of section 10 to exempt

any income by way of interest payable to a non-resident by a unit located in

the IFSC in respect of monies borrowed by it on or after September 1, 2019.

1.1.2 The proposed amendment will be from AY 2020-21.


As per the EM, this provision is inserted to incentivise and facilitate external

borrowings by units located in the IFSC.

2. CAPTITAL GAIN EXEMPTION FOR TRANSACTION ON STOCK

EXCHANGE IN IFSC EXPANDED

2.1 Background [Section 47(viiab)]:

Clause (viiab) in Sec. 47 was inserted by the FA 2018 to provide that the transfer of a

capital asset, being bond or Global Depository Receipt referred to in section 115AC,

rupee denominated bond of an Indian company or a derivative, by a non-resident on a

recognised stock exchange located in any IFSC and where the consideration for such

transaction is paid or payable in foreign currency, will not be regarded as a transfer

for the purpose of section 45 of the Act.


2.2.1. The scope of the term “capital asset” is widened to include notified securities

in addition to the existing categories.

2.2.2. It is proposed to amend clause (viiab) to also exempt transfers of capital assets

made by a “specified fund” located in the IFSC, deriving income solely in

convertible foreign exchange and of which all the units are held by non-

residents.

2.2.3. The term “specified fund” means Category III Alternative Investment Fund

regulated under the SEBI (AIF) Regulations, 2012.




2.2.4. The proposed amendment will be applicable from AY 2020-21.


As per the EM, the proposed amendment is inserted with a view to provide tax-neutral

transfer of specified securities by Category III Alternative Investment Fund (AIF) in

IFSC.

3. CLAIM FOR DEDUCTION U/S. 80LA OF THE ACT

3.1 Background [Section 80LA]:

Presently, section 80LA of the Act provides for profit linked deduction of an amount

equal to hundred per cent of income for five consecutive AYs and fifty percent of

income for the next five consecutive AYs. Such deduction is allowed on the income

from-

3.1.1. Offshore Banking Units (“OBU”) in SEZ;

3.1.2. Banking undertaking in an SEZ or other undertaking which develops,

develops and operates or develops, operates and maintains an SEZ; and

3.1.3. Any unit of an IFSC.


3.2.1. It is proposed to substitute sub-section (1) by a new provision which will only

cover OBU, other provisions remaining unchanged.

3.2.2. It is further proposed to insert new sub-section (1A) for a unit in an IFSC for

which a deduction of hundred percent of income for ten consecutive

assessment years, at the option of the assessee, out of fifteen years, beginning

with the assessment year relevant to the previous year in which permission u/s

23 of the BRA or SEBI or any other relevant law was obtained..

3.2.3. Consequential changes are proposed in sub-section (2).

3.2.4. The proposed amendment will be applicable from AY 2020-21.


As per the EM, the proposed amendment is made to further incentivise operations in

the IFSC.




3.4 Our Comments:

3.4.1. The proposed amendment is applicable from A Y 2020-21. Hence, existing

units which have received approval prior to A.Y 2020-21 will be eligible as

well.

3.4.2. If an existing unit has started claiming deduction prior to AY 2020-21, it can,

claim hundred percent tax holiday for the balance period remaining out of ten

consecutive A.Y., within the fifteen year period.

3.4.3. If an existing unit has not yet started claiming deduction under the old

provision, it can claim hundred percent deduction for ten AY starting from AY

2020-21 within such fifteen year period.

3.4.4. If a unit has incurred loss in any year (after beginning to claim the deduction)

prior to A.Y 2020-21, that year too would be considered in computing the 10

year period under the new provision.

3.4.5. There is no provision analogous to section 80-IA(5), in section 80LA. What

will be the fate of past losses and depreciation of the unit while computing

deduction for year in which there is profit, is unclear.

4. DIVIDEND DISTRIBUTION TAX BY COMPANIES IN IFSC

4.1 Background [Section 115-O]:

Section 115-O (8) of the Act provides that no tax on distributed profits shall be

chargeable in respect of the total income of a company, being a unit of an IFSC,

deriving income solely in convertible foreign exchange, for any assessment year on

any amount declared, distributed or paid by such company, by way of dividends on or

after the 1st day of April, 2017, out of its current income, either in the hands of the

company or the person receiving such dividend.


It is proposed to amend sub-section 8 to provide that any dividend paid by a company

out of current income or accumulated income as a unit in the IFSC, after April 1, 2017

shall also not be liable for tax on distribution of profits.

The proposed amendment will be applicable with effect from September 1, 2019.


As per the EM, this amendment is proposed to facilitate distribution of dividend by

companies operating in IFSC out of accumulated profits.




4.4 Our Comments:

The date of April 1, 2017 is taken to relate the original amendment in sub-section (8)

of section 115-O made by the FA 2016.

5. TAX ON DISTRIBUTED INCOME TO UNIT HOLDERS

5.1 Background [Section 115R]:

Section 115R of the Act provides that any amount of income distributed by the

specified company or a Mutual Fund to its unit holders shall be chargeable to tax and

such specified company or Mutual Fund shall be liable to pay additional income-tax

on such distributed income.


5.2.1. It is proposed to insert third proviso to sub-section (2) of section 115R to

provide that no additional income-tax shall be chargeable in respect of any

amount of income distributed out of its income derived from transactions

made on a recognised stock exchange located in any IFSC, on or after the

September 1, 2019, by a Mutual Fund located in an IFSC, deriving income

solely in convertible foreign exchange and of which all the unit holders are

non-residents.

5.2.2. The proposed amendment will be applicable with effect from September 1,

2019.


As per the EM, this amendment is proposed to incentivize relocation of Mutual Funds

in the IFSC.

5.4 Our Comments:

The mutual funds are subject to stringent guidelines under the law. Under the existing

regulations, the Mutual Fund may not be able to comply with all the conditions of the

proposed amendment. To enable the mutual funds take the benefit of this amendment,

suitable amendments would also be required in the SEBI and FEMA regulations.

6. TAX ON DIVIDENDS, ROYALTY AND TECHNICAL SERVICE FEES IN

THE CASE OF FOREIGN COMPANIES


Section 115A of the Act provides for the method of calculation of tax payable by a

non-resident (not being a company) or by a foreign company where the total income

includes any income by way of dividend (other than referred in section 115-O),

interest, royalty and fees for technical services; etc. Sub-section (4) of section 115A




prohibits any deduction under chapter VIA (which includes section 80LA) in

computing such total income.


It is proposed to insert a proviso to sub-section (4) that the conditions contained in

sub-section (4) shall not apply to a deduction allowed to a unit in an IFSC u/s. 80LA

of the Act.

The proposed amendment will be applicable from AY 2020-21.


This amendment is inserted with a view to ensure that deduction claimed by the units

located in IFSC is not restricted in any manner and they can claim full deduction.

B. NON BANKING FINANCIAL COMPANIES

7. CERTAIN DEDUCTIONS TO BE ALLOWED ON PAYMENT BASIS

7.1 Background [Section 43B]:

Section 43B grants deduction in respect of certain expenses on actual payment

regardless of the year in which the liability to pay such sum was incurred under the

method of accounting regularly employed by the assessee. One category of expenses

is interest on loan from scheduled banks, co-operative banks, PFIs, SFC, SIIC, etc.


.

7.2.1 It is now proposed to insert clause (da) under section 43B of the Act to

provide that interest on any loan or borrowing from a “deposit taking NBFC”

or “systematically important non-deposit taking NBFC” shall be allowed only

when the said interest is actually paid. The terms “deposit taking NBFC”

“systematically important non-deposit taking NBFC” and “NBFCs” are to take

meanings from the relevant provisions of the RBI Act, 1934.

7.2.2 It is proposed to introduce transitional provision in Explanation 3AA that if an

assessee is allowed deduction in respect of such interest in AY 2019-20 or

earlier in which the liability to pay was incurred, no further deduction shall be

allowed under clause (da) on payment basis.

7.2.3 It is further proposed to introduce Explanation 3CA that any interest converted

into loan or borrowing shall not be deemed to be actually paid.

7.2.4 The proposed amendment applies from A.Y. 2020-21.





As per the EM, the amendment is proposed as per “matching principle” in taxation

whereby interest on certain categories of bad or doubtful debts by NBFCs is proposed

to be taxed on receipt basis. [See amendment in section 43D]

7.4 Our Comments:

As to whether the lender is one of the categories of the NBFCs is a challenge for the

tax auditor of the borrower for reporting in clause 26 of Form 3CD. What kind of

documentation should the tax auditor call for, is a question.

8. SPECIAL PROVISION FOR TAXING INTEREST INCOME

8.1 Background [ section 43D]:

Section 43D inter alia provides that interest income of certain categories of bad or

doubtful debts received by certain institutions or banks or corporation or companies

will be chargeable to tax in the previous year in which it is credited to its profit and

loss account or actually received, whichever is earlier. This provision is an exception

to the accrual system of accounting and overrides all other provisions of the Act. At

present, the benefit of this provision is available to PFIs, scheduled banks, co-

operative banks, SFC, SIICs and housing finance companies. However, NBFCs did

not have this dispensation even though they are well regulated by RBI.


It is proposed to amend section 43D to include “deposit taking NBFC” or

“systematically important non-deposit taking NBFC” in the categories of lenders

which can recognise interest income on certain bad and doubtful debts on the earlier

of receipt or credit to profit and loss account.

The proposed amendment applies from A.Y 2020-21.


As per the EM, the amendment is proposed to provide level playing field to certain

categories of NBFCs who are adequately regulated with Banks & Finance institution

who are allowed the benefit of S.43D.

8.4 Our Comments:

8.4.1 The Supreme Court in the case of Vasisth Chay Vyapaar Ltd [2019] 410 ITR

244 (SC) has affirmed the decision of the Delhi High Court that interest

income on sticky loans shall be recognised only where the same is actually

received. The principle in 410 ITR 244 (SC) is being followed by lower

authorities regularly on the issue of income recognition.

8.4.2 The amendment would help to reduce litigation in cases of NBFCs.




C. REAL ESTATE: PROVISIONS TO PROMOTE HOUSING INDUSTRY

9. DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR

CERTAIN HOUSE PROPERTY

9.1 Background [Section 80EE]:

Section 80EE grants deduction of. Fifty Thousand rupees from total income of an

individual in respect of interest on loan taken by him from a financial institution for

acquisition of a residential house from A.Y. 2017-18.This deduction is subject to

certain conditions, viz:

9.1.1 The loan has been sanctioned during the financial year 2016-17.

9.1.2 The loan amount sanctioned is Rs. Thirty Five Lakhs.

9.1.3 The value of the residential house does not exceed Fifty Lakhs.

9.1.4 The assessee does not own any residential house on the date of sanction of the

loan.

9.2 No other deduction under any other provision of the Act is available once the assessee

gets deduction for interest u/s 80EE.

9.3 Proposed Amendment [ FB- clause 25]- New section 80EEA:

9.3.1 It is proposed to insert a new section 80EEA to provide deduction of One

Lakh and Fifty Thousand rupees in respect of interest on loan taken for a

residential houses with the following conditions:

1.3.1.1 The loan has been sanctioned during the financial year 2019-20.

1.3.1.2 The stamp duty value of residential house does not exceed Forty Five

Lakhs rupees.

1.3.1.3 The assessee does not own any residential house on the date of

sanction of the loan.

9.4.2 No other deduction under any other provision of the Act is available once the

assessee gets deduction for interest u/s 80EEA.

9.4.3 The proposed amendment is applicable from A.Y. 2020-21.





The EM explains the rationale behind insertion of section 80EEA as the need to

provide an impetus to the “Housing for all” objective of the Government and to

enable home buyers to have low cost housing funds at their disposal.

9.6 Our Comments:

9.6.1 Section 80EE applied to loans taken only during the F.Y. 2016-17. The

proposed amendment will extend the deduction to housing loans taken during

the F.Y. 2019-20.

9.6.2 The term value was not defined earlier which is now defined. Thus, there is a

greater clarity on this aspect.

9.6.3 The enhanced limit of deduction will be beneficial to home buyers.

10. DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM HOUSING

PROJECTS:

10.1 Background [ Section 80-IBA]

Under the existing provisions of section 80-IBA, an assessee gets a deduction of

hundred percent of the profits derived from the business of developing and building

housing projects approved after June 1, 2016 but before March 31, 2020. The

deduction was subject to certain conditions.

10.2 Proposed amendment [ FB-clause 26]

It is proposed to amend the conditions for projects approved on or after September 1,

2019. For ready reference a comparison of the conditions pre and post Sept 1, 2019 is

given below.

Condition Projects approved

Pre Sept 1, 2019

Projects approved

Post Sept 1, 2019

Area of plot Not less than one

thousand square metre

where the project is

Bengaluru, Chennai,

Delhi NCR, Hyderabad,

Kolkata and Mumbai

Metropolitan region.

Not less than two

thousand square metre


located in any other area.




Single or multiple

project

Single Single

Carpet area of

residential unit

Thirty square metre for

Chennai, Delhi, Kolkata

and Mumbai

Sixty square metre in

other areas

Sixty square metre in

Bengaluru, Chennai,


Kolkata and Mumbai


Ninety square metre


located in any other area.

Stamp Duty

Value

Not specified Rupees Forty Five Lakhs

Utilisation of FSI Not less than Ninety

Percent of FSI

permissible where the

project is in Chennai,

Delhi, Kolkata or

Mumbai.

Not less than Eighty

Percent of FSI

permissible in other

regions.

Not less than Ninety

Percent of FSI permissible


Bengaluru, Chennai,


Kolkata and Mumbai


Not less than Eighty

Percent of FSI permissible

in other regions.

Separate books of

account for the

housing project

Required to be maintained Required to be maintained

The proposed amendments are applicable from A.Y. 2020-21.

10.3 Rationale for the Proposed Amendment:

The EM states that the proposed amendments are being made to align the definition of

“affordable housing” u/s 80-IBA with the definition under the GST Act.

D. START UPS – INCENTIVES FOR START-UPS

11. ROLL OVER BENEFIT ON LTCG FOR INVESTMENT IN START-UPS:

11.1 Background [Section 54GB]:

Section 54GB provides for roll-over benefit where the long-term capital gains arises

from transfer of a residential property (a house or a plot of land) and the assessee

before filing its return of income u/s.139(1) of the Act utilises the net consideration

for subscription/investment in eligible start-ups and satisfies various other conditions

provided therein. The proposed amendments to this section seeks to relax some of

these conditions.





11.2.1 The minimum limit of shareholding of the assessee is proposed to be reduced

to 25% instead of 50% prescribed earlier. Hence, now, if the eligible assessee

holds more than 25% of shareholding/investment in the eligible start-up, then

he will be entitled to the benefits of the said section;

11.2.2 It is proposed that the restriction of transfer/sale of new asset, being computer

or computer software shall be for the period of 3 years as against 5 years (pre-

amendment).

11.2.3 The sunset clause of transfer of residential property for investment in eligible

start-ups has been extended to March 31, 2021 from March 31, 2019.


To facilitate the ease of doing business in case of eligible start-ups.

11.4 Our Comments:

The proposed relaxations are in order to encourage the growth of start-ups.

12. LAPSE OF LOSSES IN CASE OF CHANGE IN SHAREHOLDING OF START

UPS (SECTION 79):


The restriction provided for carry forward and set off of losses on change in

shareholding in section 79 was relaxed in case of closely-held start-ups via Finance

Act, 2017, whereby carry forward and set off of losses was allowed if all the

shareholders continue to hold the shares on last day of previous year in which set-off

is claimed and the last day of the previous year in which loss was incurred. Hence, as

long as all the shareholders continued to hold shares of the start-up, losses were

allowed to be carried forward and set-off even if there was more than 51% dilution in

the shareholding of the company. However, situation where there was less than 51%

dilution in the company yet some shareholders had sold their stake, was not covered

in the section. In such a case, as per the present language of the section, the start-ups

would lose their losses, though the same is allowed in case of other companies in

general making them worse off than a non start up companies. The proposed

amendment seeks to address this anomaly.


It is now proposed that the loss incurred by the closely-held start-ups would be

allowed to be carried forward if either of the following conditions are satisfied:

loss of any year would be allowed to be carried forward as per the provisions

of the Act, if shares carrying not less than 51% of the voting power were




beneficially held by persons who beneficially held the same on the last of the

year in which the loss was incurred; or

loss incurred during 7 years beginning from the year in which the company is

incorporated shall be allowed to be carried forward and set off even if there is

more than 51% dilution, where all the shareholders holding the shares carrying

voting power on the last day of the year in which loss was incurred continue to

hold those shares on the last day of the year in which set off is claimed.


The proposed amendment mainly rationalises the present provision that was brought

in 2017 allowing the start-ups to carry forward losses even if the founders sell their

stake. In other words, the proposed amendment allows the shareholders of the start-up

companies to sell their shareholding to the extent of 49%.

12.4 Our Comments:

The Explanatory Memorandum suggests that the condition that the losses

should be incurred in the first 7 years is also proposed to be deleted. However,

the language of the amendment does not suggest so.

The aforesaid proposed amendment has been made effective from April 1,

2020, however, the same should have been made effective with retrospective

effect from April 1, 2018 so that the anomaly could have been addressed in

past years too.

E. DISTRESSED COMPANIES

13. INCENTIVES FOR DISTRESSED COMPANIES


Section 79 presently provides for relaxation in case of change in shareholding

pursuant to a resolution plan approved under Insolvency and Bankruptcy Code, 2016

(IBC) after affording a reasonable opportunity of being heard to the jurisdictional

Principal Commissioner or Commissioner.

13.2 Proposed Amendments [FB – Cl. 22 and 34]:

It is now proposed to extend same benefit even in case of other distressed companies.

Section 79 is proposed to be amended to provide that it would not apply to a company

and its subsidiary and the subsidiary of such subsidiary, where,––

(i) the NCLT, on an application moved by the Central Government under section

241 of the Companies Act, 2013 (that the affairs of the company are being

conducted in a manner prejudicial to public interest), has suspended the Board

of Directors of such company and has appointed new directors nominated by

the Central Government, under section 242 of the said Act; and




(ii) a change in shareholding of such company, and its subsidiary and the

subsidiary of such subsidiary, has taken place in a previous year pursuant to a

resolution plan approved by the Tribunal under section 242 of the Companies

Act, 2013 after affording a reasonable opportunity of being heard to the

jurisdictional Principal Commissioner or Commissioner.

Consequential amendment is brought in section 115JB which provides that aggregate

amount of unabsorbed depreciation and loss (excluding depreciation) brought forward

shall be allowed to be reduced in case of such companies, its subsidiaries and the

subsidiary of such subsidiary;

It is also clarified that company shall be subsidiary of another company if such other

company holds more than half in nominal value of equity capital.


The proposed amendment provides relaxations to such distressed companies.

13.4 Our Comments:

The proposed amendment is applicable only where the application is filed by the

Central Government under section 241(2). It would not apply where application is

filed by member of the company under section 241(1).

F. CHARITABLE TRUSTS

14. CANCELLATION OF REGISTRATION OF THE TRUST OR INSTITUTION

14.1 Background [Section 12AA]:

Section 12AA provides for manner of granting of registration or cancellation of trust

and institution. In order to grant registration, the Principal Commissioner of Income-

tax (‘PCIT’) was to make inquiries about the genuineness of the trust.


14.2.1 The proposed section enlarges the scope of the PCIT to satisfy himself about

the compliances under other law which are material for the purpose of

achieving the objects of the trust before granting registration;

14.2.2 Further it is also proposed that where non-compliance of other laws has

occurred and the same is not disputed or attained finality then he can cancel

the registration of the trust.

14.2.3 The proposed amendment would be applicable from September 01, 2019.





In order to ensure that the trusts do not deviate from their main objects, the aforesaid

amendment is proposed.

14.4 Our Comments:

14.4.1 The proposed amendment seeks to nullify the decision of the Hon’ble

Bombay High Court in case of DIT(E) v. G.K.R. Charities [(2013) 214

Taxman 555].

14.4.2 The aforesaid amendment raises following issues:

- Can mere non-compliance of the other laws (which may include state

laws) result in denial/cancellation of the registration of trust;

- What is a material compliance of the requirement under the other laws

in the course of achieving the objects of the trust would be very

difficult to ascertain;

- Proposed amendment may affect the genuine trust which is engaged in

running schools, hospitals where there may be non-compliance in

respect of one of the activity/division of that trust;

- It would also significantly delay the time in granting the registration

and thus, the hamper the receipt of donation from donors;

- Would it also apply to religious trusts?

- Whether it would lead to exit tax u/s. 115TD – Tax on accreted income

of trust.




CHAPTER – VIII

REMOVAL OF DIFFICULTIES

1. FACILITATING DEMERGER OF IND AS COMPLIANT COMPANIES

1.1 Background [section 2(19AA)]:

One of the existing conditions of tax neutral demergers is that the resulting company

should record the property and the liabilities of the undertaking at the value appearing

in the books of accounts of the demerged company.

1.2 Proposed Amendments [FB- Cl. 3]:

Ind AS – 103 – Business combination requires the resulting companies to record the

assets and the liabilities of the undertaking at fair value as on the date of acquisition.

The proposed amendment is to give effect to the said standard. Accordingly, in case

of Ind AS compliant companies, the demerger would be considered tax neutral even if

the properties and liabilities are recorded in accordance with Ind AS 103.

1.3 Our Comments:

The aforesaid proposed amendment has been made effective from April 1, 2020. It is

arguable that since the said amendment is introduced to remove hardship in cases of

Ind AS compliant companies, the said amendment is curative in nature1 and shall be

treated as retrospective in nature but in order to avoid any litigation it would be better

if the said amendment is specifically made retrospective.

2. PROVISION OF CREDIT OF RELIEF PROVIDED UNDER SECTION 89

2.1 Background [Section 140A, 143, 234A, 234B and 234C]:

Earlier, the provisions did not provide for relief under section 89 while computing tax.

2.2 Proposed Amendments [FB – Cl. 42, 43, 52 to 54]:

The proposed amendment provides that while computing the amount of tax payable,

any relief allowable under the provisions of section 89 be reduced from tax payable

on total income to compute the amount of interest.

1 See CIT V. Alom Extrusion 319 ITR 306 (SC), Allied Motors V. CIT 224 ITR 205 (SC)




3. TDS ON LIFE INSURANCE POLICY RECEIPTS NOT EXEMPT U/S.

10(10D):

3.1 Background [Section 194DA]:

Under Section 194DA, TDS is required to be deducted on any sum paid under a life

insurance policy which is not exempt under section 10(10D) at rate of 1%.


The proposed amendment provides that tax shall be deducted at the rate of 5% on the

amount of income comprised therein instead of 1% on entire sum received under the

said life insurance policy. The said amendment is proposed to be made effective from

September 01, 2019.

3.3 Rationale of the proposed Amendment:

The aforesaid proposed amendment is proposed to remove the hardship that were

faced by the tax payers due to mismatch of the gross amount on which TDS has been

deducted which used to appear in Form 26AS and amount of income as reflected in

Return of Income.




CHAPTER – IX

AMENDMENT TO ALLIED LAWS

1. RATIONALISATION OF THE BLACK MONEY (UNDISCLOSED FOREIGN

INCOME AND ASSETS) AND IMPOSITION OF TAX ACT, 2015 (“THE BM

ACT”) [CLAUSES 195 TO 198]

1.1. Retrospective expansion of scope of the BM Act to include non-residents and not

ordinarily resident [Clause 195]

1.2. Presently, under the BM Act, the term ‘assessee’ is defined to mean a person, being a

resident other than not ordinarily resident in India within the meaning of clause (6) of

section 6 of the Income-tax Act, by whom tax in respect of undisclosed foreign

income and assets, or any other sum of money, is payable under this Act and includes

every person who is deemed to be an assessee in default under this Act. Hence, only

residents are covered within the scope of said Act.

1.3. It is proposed to retrospectively amend the definition of ‘assessee’ under the BM Act

to mean person being a resident in India within the meaning of section 6 of the

Income-tax Act, in the previous year, or a person being a non-resident or not

ordinarily resident in India within the meaning of clause (6) of section 6 of the

Income-tax Act, in the previous year, who was resident in India either in the previous

year to which the income referred to in section 4 relates, or in the previous year in

which the undisclosed asset located outside India was acquired.

1.4. Hence, the scope of the term ‘assessee’ is proposed to be expanded to cover such

persons, who even though may be non-residents or not ordinarily residents in the

present, were residents in the previous year in which black money was generated or

an undisclosed asset located outside India was acquired.

1.5. Further, a proviso is also proposed to be inserted to said definition to provide that the

‘previous year’ of acquisition of the undisclosed asset located outside India shall be

determined without giving effect to the provisions of section 72(c) of the BM Act.

Section 72(c) of the BM Act provides that where any asset has been acquired or made

prior to commencement of this Act, and no declaration in respect of such asset is

made, such asset shall be deemed to have been acquired or made in the year in which

a notice under section 10 is issued by the Assessing Officer and the provisions of this

Act shall apply accordingly. Hence, for the purpose of determining the residency

status of the person, the deeming provisions of section 72(c) would not apply and the

actual year in which the undisclosed asset was acquired would be considered.




1.6. As per the Explanatory Memorandum, said amendments are being proposed to clarify

the legislative intent behind enacting the BM Act, which was to tax such foreign

income and assets, which were not charged to tax under the Income-tax Act.

Accordingly, said amendment is proposed to take effect retrospectively from July 1,

2015.

1.7. Clarificatory amendment [Clause 196]

1.8. Section 10 of the BM Act empowers the assessing officer to either assess or reassess

the undisclosed foreign income and asset and determine the sum payable by the

assessee. However, the word ‘reassess’ was inadvertently missed at few places in the

section.

1.9. The proposed amendment merely rectifies said mistake and adds the word

‘reassess/reassessment’ at relevant places.

1.10. The same is to take effect retrospectively from July 1, 2015.

1.11. Power of Commissioner (Appeals) to enhance or reduce penalty levied by the

assessing officer [Clause 197]

1.12. Presently, under section 17 of the BM Act, in respect of an appeal filed against an

order imposing penalty, the Commissioner (Appeals) is empowered either to confirm

or cancel the order.

1.13. It is proposed to amend section 17 prospectively permitting the Commissioner

(Appeals) to even vary the penalty order so as to enhance or reduce the penalty.

1.14. The proposed amendment will take effect from September 1, 2019.

1.15. Power to issue directions by Joint Commissioner extended to the BM Act [Clause

198]

1.16. Under section 84 of the BM Act, various provisions of the Income-tax Act have been

made to apply even to the BM Act, with necessary modifications.

1.17. The proposed amendment seeks to make one more provision, namely section 144A of

the Income-tax Act, applicable to the BM Act.

1.18. Section 144A allows the Joint Commissioner, wherever he considers necessary or

expedient to do so having regard to the nature of the case or the amount involved or

for any other reason, to issue such directions as he thinks fit for the guidance of the

Assessing Officer to enable him to complete the assessment and such directions shall

be binding on the Assessing Officer. However, where the directions so issued are

prejudicial to the assessee, an opportunity to be heard needs to be first provided to the

assessee.

1.19. The said amendment would take effect prospectively from September 1, 2019.




2. RATIONALISATION OF THE INCOME DECLARATION SCHEME, 2016

[CLAUSES 199 AND 200]

2.1. Permission to make delayed payment under the Scheme along with interest

[Clause 199]

2.2. In the year 2016, an Income Declaration Scheme, 2016 (‘the Scheme’) was initiated

via Chapter IX of the Finance Act, 2016, providing an opportunity to persons who had

not paid taxes in full in the past to come forward and declare their undisclosed

income. Under said scheme, the declaration to be valid, needed be filed on or after

June 1, 2016 and on or before September 30, 2016. Further, the taxes were allowed to

be paid in installments, with 1st installment of 25% to be paid by on or before

November 30, 2016. Section 187(3) of the Scheme provided that non-payment of tax,

etc. on or before the notified due dates would render the declaration invalid and it

shall be deemed to have never been made under the Scheme.

2.3. Representations were made by assessees that where they had failed to make the

payment within due date, they should be allowed to make delayed payment and that

the declaration should not be considered invalid.

2.4. In order to address this concern in genuine cases, an amendment is proposed in

section 187 of the Finance Act, 2016 to provide that where the amount of tax,

surcharge and penalty, has not been paid within the due date, the Central Government

may notify the class of persons who may make the payment of such amount on or

before a notified date, along with the interest on such amount, at the rate of one per

cent of every month or part of a month, comprised in the period, commencing on the

date immediately following the due date and ending on the date of such payment.

2.5. Hence, it is proposed to allow notified persons to pay the taxes, surcharge and penalty

payable under the Scheme along with interest on such amount, at the rate of one per

cent of every month or part of a month, comprised in the period, commencing on the

date immediately following the due date and ending on the date of such payment.

2.6. In fact, on January 16, 2017, an instruction (Instruction No. 2 of 2017) was issued by

the CBDT, allowing to condone the delay in case of declarants who had paid their

first instalment before November 31, 2016, but the same was not cleared by the bank

on or before that day, provided the same was cleared by December 5, 2016.

2.7. Said amendment is proposed to take effect from June 1, 2016.

2.8. Provision allowing refund of excess payment under the Scheme [Clause 200]

2.9. The existing section 191 of the Scheme provides that any amount of tax, surcharge or

penalty paid in pursuance of a declaration made under the Scheme shall not be

refundable.

2.10. In order to address genuine concerns of the declarants, a retrospective amendment is

proposed in the section to allow refund of the amount paid in excess of the amount

payable under the Scheme in case of class of persons to be notified.




2.11. This amendment will take effect retrospectively from June 1, 2016.

3. RATIONALISATION OF PROVISIONS RELATING TO SECURITIES

TRANSACTION TAX (STT) [CLAUSE 193]

3.1. As per the existing provisions section 99 of the Finance (No.2) Act, 2004, the value of

taxable securities transaction in respect of sale of an option in securities, where option

is exercised, shall be, the settlement price.

3.2. In order to rationalise the levy of STT where the option is exercised, it is proposed to

amend the said section so as to provide that value of taxable securities transaction in

respect of sale of an option in securities, where option is exercised, shall be the

difference between the strike price and the settlement price.

3.3. This amendment will take effect from September 1, 2019.

4. RATIONALIZING THE PROVISIONS OF THE PROHIBITION OF BENAMI

PROPERTY TRANSACTIONS ACT, 1988 (“THE BENAMI ACT”) [CLAUSES

172 TO 176]

4.1. Power of authority to conduct inquiry, etc. [Clause 172]

4.2. Presently, section 23 of the Benami Act provide that the Initiating Officer can conduct

any inquiry or investigation in respect of any person, place, property, assets,

documents, books of account or other documents, in respect of any other relevant

matters under this Act only after obtaining prior approval of the Approving Authority.

4.3. It is proposed to insert an Explanation to said section to clarify that the approval of

Approving Authority is not required where the Initiating Officer has already initiated

proceedings by issuing notice under section 24(1) of the Benami Act. Hence, where

proceedings are already in progress, the Initiating Officer can make inquiries and

investigations without taking prior approval from the Approving Authority.

4.4. This amendment will take effect retrospectively from November 1, 2016.

4.5. Rationalisation of various time limits under the Act. [Clauses 173 and 174]

4.6. Presently, under various sections of the Benami Act, the time limit is computed from

the date of issue of notice.

Section 24(3), dealing with provisional attachment of property, provides for

attachment of property for a period of ninety days from the date of issue of

notice under section 24(1) of the Benami Act.

Section 24(4), dealing with passing of order, provides for passing of order

within ninety days from the date of issuing notice under section 24(1).




4.7. In order to rationalize the aforesaid provisions, it is proposed to amend the foregoing

provisions to provide that the period of ninety days shall be reckoned from the end of

the month in which the notice under section 24(1) is issued and not the date of issue

of notice.

4.8. The proposed amendment would essentially increase the time limit available to the

Initiating Officer. This amendment will take effect from 1st day of September, 2019.

4.9. Further, while computing the period of limitation under following provisions, it is

proposed to exclude the period during which the proceeding is stayed by an order or

injunction of any court.

Section 24(4), dealing with passing of order by the Initiating Officer;

Section 24(5), requiring the Initiating Officer to refer the order passed to the

Adjudicating Authority;

Section 26(7), dealing with passing of order by the Adjudicating Authority.


4.11. Insertion of new section 54A [Clause 175]

4.12. It is proposed to insert a new provision, section 54A, to provide for levy of penalty of

Rs. 25,000 for failure to comply with the summons issued under section 19(1) or to

furnish information as required under section 21 of the Benami Act.

4.13. Penalty would be separately leviable for the failures. Further, it is mandatory to

provide an opportunity to be heard before levying the penalty. Also, the provision

provides for respite where the person can show that there was good and sufficient

reason for the failure to comply with notice issued.

4.14. The proposed amendment would discourage non-compliance with the notices issued.

This amendment will take effect from September 1, 2019.

4.15. Insertion of new section 54B [Clause 175]

4.16. It is proposed to insert new provision, section 54B, to allow admission of entries in

the records or other documents in the custody of an authority as evidence in any

proceedings for the prosecution of any person for an offence under the Benami Act.

The entries so admitted as evidence can be proved by the authority in either of the

following manner:

by production of the records or other documents in the custody of the authority

containing such entries; or

by production of a copy of the entries certified by the authority having custody

of the records or other documents under its signature stating that it is a true

copy of the original entries and that such original entries are contained in the

records or other documents in its custody.





4.18. Amendment to section 55. [Clause 176]

4.19. Presently, under section 55 of the Benami Act, no prosecution can be instituted

against any person in respect of any offence under that Act without the previous

sanction of the Central Board of Direct Taxes.

4.20. It is proposed to amend said section so as to provide that no prosecution shall be

instituted against any person in respect of any offence under the said Act without the

previous sanction of the competent authority. The competent authority is not yet

defined or notified.





CONTACT US


Chartered Accountants

Mumbai Office

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Tel: +91 22 22014922 / 22004002 / 22068409 / 22004008 / 9 / 66360763

Email: [email protected]

Website: www.bsmco.net

Other Office (Mumbai)

11-13, Botawala Building, 2nd floor, Horniman Circle, Fort, Mumbai – 400 001.

Tel: +91 22 22661255 / 0275 / 5275 / 0821 / 1557



B. S. M. ASSOCIATES

Chartered Accountants

New Delhi Office

417, World Trade Centre, 4th floor, Babar Road, Connaught Place, New Delhi – 110 001

Telefax: +91 11 41522771



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Documents

ANALYSIS OF THE FINANCE (No. 2) BILL, 2019No2)-Bill-2019.pdf · 2019-07-19 · (No.2) Bill, 2019, which may be modified before it receives the approval and assent of the Parliament