With an effort to decode and simplify the amendments of Finance Bill, 2017, we bring to you a summary of the amendments vide a series of editions beginning from today. 

 

1. Rates of Taxes

The rates of income-tax in case of individuals is as follows: 

Upto Rs. 2,50,000	Nil
Rs. 2,50,001 to Rs. 5,00,000	5 per cent
Rs. 5,00,001 to Rs. 10,00,000	20 per cent
Above Rs. 10,00,000	30 per cent

 

The rates of income-tax in case of domestic company shall be twenty five per cent of the total income if the total turnover or gross receipts of the previous year 2015-16 does not exceed fifty crore rupees and in all other cases it shall be thirty per cent of the total income.

Surcharge of 10 per cent on income of all individuals above Rs 50 lakh and less than Rs 1 crore and surcharge of 15 per cent on income above Rs 1 crore is proposed.

 

Additional Resource Mobilisation

 

2. Sec. 115BBDA : Rationalization of taxation of income by way of dividend

Amendment : It is proposed to amend Sec. 115BBDA regarding taxation of dividend exceeding Rs. 10 lakhs to make it applicable to all resident assessees except domestic company and certain funds, trusts, institutions.

 

3. Sec. 194-IB: Deduction of tax at source in the case of certain Individuals and Hindu undivided family 

Amendment : It is proposed to insert a new Sec. 194IB to extend requirement of deducting tax at source from rent payments to Individuals or HUF (other than those covered u/s 44AB) where such rent exceeds Rs. 50,000 for a month or part of month. TDS is to be deducted at @ 5%. Amendment will take effect from June 1, 2017. 

 

Measures for Promoting Affordable Housing and Real Estate Sector

 

4. Sec. 2(42A) : Incentives for Promoting Investment in immovable property

Amendment : It is proposed to amend Sec. 2(42A) in order to reduce the period of holding of immovable property from 36 months to 24 months for to qualify as long term capital gain.

 

Relevant Ruling(s)
1. ITO vs Sudip Roy [TS-6792-ITAT-2016(KOLKATA)-O]	Indexation benefit for property inherited in 2002 - Capital Gains, Period of Holding, Cost of acquisition
2. CIT vs Shakuntala Devi [TS-5809-HC-2016(KARNATAKA)-O]	Exemption u/s. 54 - sale deed not registered within 2 years

 

5. Sec. 80-IBA : Rationalisation of Provisions of Section 80-IBA to promote Affordable Housing

Amendment : Sec. 80IBA provides for 100% deduction in respect of the profits and gains derived from developing and building certain housing projects subject to specified conditions. The conditions specified, inter alia, include the limit of 30 sq.mt for the built-up area of residential unit in respect of project located in 4 metros or within 25 kms from the municipal limits of the 4 metros. Further, in order to be eligible to claim deductions, the project shall be completed within a period of 3 years. It is proposed to amend the section to relax certain conditions as below:

 

i) Size of residential unit shall be measured by taking into account the "carpet area” and not the "built-up area";

ii) The restriction of 30 sq. mt on the size of residential units shall not apply to the place located within a distance of 25 kms from the municipal limits of 4 metros.

iii) The condition of period of completion of project for claiming deduction to be increased to 5 years.

 

6. Sec. 10(37A) : Tax incentive for the development of capital of Andhra Pradesh

Amendment : With a view to provide relief to an individual / HUF who was the owner of such land as on June 2, 2014, and has transferred such land under the land pooling scheme notified under the provisions of Andhra Pradesh Capital Region Development Authority Act, 2014, it is proposed to insert a new clause (37A) in Sec. 10 to provide that in respect of said persons, capital gains arising from following transfer shall be exempt –

 

i) Capital asset being land or building or both, under land pooling scheme

ii) Sale of LPOCs by the said persons received in lieu of land transferred under the scheme.

iii) Sale of reconstituted plot or land by said persons within 2 years from the end of the financial year in which the possession of such plot or land was handed over to the said persons.

 

Amendment will take effect retrospectively, from April 1, 2015.

 

Further amendment to Sec. 49 so as to provide that where reconstituted plot or land, received under land pooling scheme is transferred after the expiry of 2 years from the end of the financial year in which the possession of such plot or land was handed over to the said assessee, the cost of acquisition of such plot or land shall be deemed to be its stamp duty value on the last day of the second financial year after the end of financial year in which the possession of such asset was handed over to the assessee is proposed. 

 

7. Sec. 45(5A) : Special provisions for computation of capital gains in case of joint development agreement

Amendment :

i) It is proposed to insert a new sub-section (5A) in Sec. 45 so as to provide that in case of an assessee being individual / HUF, who enters into a JDA/ specified agreement , capital gains shall be chargeable as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

ii) Stamp duty value of his share, being land or building or both, in the project on the date of issuing of said certificate of completion as increased by any monetary consideration received, if any, shall be deemed to be the full value of the consideration.

iii) Proposed regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. In such a situation, capital gains as determined under general provisions of the Act. These provisions would be effective from April 1, 2018

iv) It is also proposed to insert a new Sec. 194IC so as to provide that in case any monetary consideration is payable under the specified agreement, tax at the rate of 10% shall be deductible from such payment. This amendment will take effect from April 1, 2017.

 

 

Relevant Ruling(s)
1. C S Atwal vs CIT [TS-5389-HC-2015(PUNJAB & HARYANA)-O]	Date of JDA may be construed as date of transfer if passing of complete control over the property indicated
2. Chaturbhuj Dwarkadas Kapadia [TS-1-HC-2003(BOM)-O]	Absent registration of JDA, it was not enforceable under general law and transaction would not fall u/s 2(47)(v)
3. ITO vs N S Nagaraj [TS-6072-ITAT-2014(BANGALORE)-O]	Assessee liable for capital gains tax upon execution of joint development agreement (‘JDA’), pursuant to which assessee divested land possession to the developer

  

8. Sec. 55 : Shifting base year from 1981 to 2001 for computation of capital gains

Amendment : It is proposed to amend Sec. 55 so as to provide that the cost of acquisition of an asset acquired before April 1, 2001 shall be allowed to be taken as FMV as on April 1, 2001 and the cost of improvement shall include only those capital expenses which are incurred after April 1, 2001. Consequential amendment also proposed in Sec. 48 so as to align the provisions relating to cost inflation index to the proposed base year. Amendments will take effect from April 1, 2018.

 

9. Sec. 54EC : Expanding the scope of long term bonds under 54EC

Amendment : Sec. 54EC benefit would also be available to investment in any bond redeemable after 3 years which has been notified by the Central Government in this behalf. Amendment will take effect from April 1, 2018.

 

10. Sec. 23 : No notional income for house property held as stock-in-trade

Amendment : It is proposed to amend the Sec. 23 (dealing with determination of ALV) to provide exemption to property held as stock in trade from provisions requiring the treatment of second house as “deemed to be let out property”. The benefit would be available for the period up to 1 year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority. Amendment will take effect from April 1, 2018. 

 

 

Relevant Ruling(s)
1. Sharan Hospitality Private Limited [TS-6964-ITAT-2016(MUMBAI)-O]	Vacancy allowance u/s 23(1)(c) available only when property actually let, ‘intention-to-let’ irrelevant
2. Indra S Jain vs ITO [TS-349-ITAT-2012(MUM)-O]	Vacancy allowance not available where property not actually let-out throughout the year

 

Measures for Stimulating Growth

 

11. Sec. 194LC : Extension of eligible period of concessional rate of TDS u/s 194LC from 2017 to 2020 

Amendment : It is proposed to amend Sec. 194LC to provide that the concessional TDS rate of 5%on interest payment will now be available in respect of borrowings made before the July 1, 2020. Amendment proposed shall take effect from April 1, 2018 i.e., AY 2018-19. It is further proposed to extend the benefit of Sec. 194LC to rupee denominated bond issued outside India for the period before the July 1, 2020. Amendment proposed shall take effect from April 1, 2016.

 

12. Sec. 194LD : Extension of eligible period of concessional tax rate u/s 194LD from 2017 to 2020

Amendment : It is proposed to amend Sec. 194LD to provide that the concessional rate of 5% TDS on interest will now be available on interest payable before July 1, 2020. Amendment proposed shall take effect from April 1, 2018.

 

13. Sec. 79 : Loss carry forward restriction u/s 79 due to shareholding change rationalized for startups 

Amendment : It is proposed to amend Sec. 79 to provide that where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested and being an eligible start-up as referred to in Sec. 80IAC, loss shall be carried forward and set off against the income of the previous year, if all the shareholders of such company which held shares carrying voting power on the last day of the year or years in which the loss was incurred, being the loss incurred during the period of seven years beginning from the year in which such company is incorporated, continue to hold those shares on the last day of such previous year. Amendment proposed shall take effect from April 1, 2018. 

 

Relevant Ruling(s)
1. Yum Restaurants (India) Pvt Ltd vs ITO [TS-5021-HC-2016(DELHI)-O]	Intra-group share transfer triggers Sec 79; Ultimate Holding company not 'beneficial' owner
2. CIT vs AMCO Power Systems Ltd [TS-5514-HC-2015(KARNATAKA)-O]	Change in voting power and not shareholding, relevant for applicability of section 79

 

14. Sec. 80-IAC : Start-up tax holiday available for 3 years out of 7 years as against earlier period of 5 years 

Amendment : In view of the fact that start-ups may take time to derive profit out of their business, it is proposed to provide that deduction u/s 80IAC can be claimed by an eligible start-up for any 3 consecutive AYs out of 7 years beginning from the year in which such eligible start-up is incorporated. Amendment proposed shall take effect from April 1, 2018.

 

15. Sec. 115JAA, Sec. 115JD : MAT credit carry forward extended up to 15 years 

Amendment : With a view to provide relief to the assessees paying MAT, it is proposed to amend Sec. 115JAA to provide that MAT credit determined under this sec can be carried forward up to 15AYs immediately succeeding the AYs in which such tax credit becomes allowable. Similar amendment is proposed in Sec. 115JD so as to allow carry forward of Alternate Minimum Tax (AMT) paid u/s 115JC up to 15 AYs in case of non-corporate assessee. It is further proposed to amend sec 115JAA and 115JD so as to provide that the amount of tax credit in respect of MAT/AMT shall not be allowed to be carried forward to subsequent year to the extent such credit relates to the difference between the amount of foreign tax credit (FTC) allowed against MAT/AMT and FTC allowable against the tax computed under regular provisions of Act other than the provisions relating to MAT/AMT. Amendment proposed shall take effect from April 1, 2018. 

 

Relevant Ruling(s) :
1. Adani Gas Ltd vs ACIT [TS-5282-ITAT-2016(AHMEDABAD)-O]	Resulting Company entitled to pro-rata TDS and advance-tax & MAT credit post demerger
2. Srei Infrastructure Finance Ltd[TS-5638-HC-2016(CALCUTTA)-O]	MAT Credit u/s 115JAA brought forward from earlier years is to be set off against tax including surcharge and education cess and not before charging surcharge and education cess

 

 

16. Sec. 43D, Sec. 43B : Extension of scope of Sec. 43D to co-operative banks 

Amendment : It is proposed to amend Sec. 43D so as to include co-operative banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. This is with a view to provide a level playing field to co-operative banks vis-à-vis scheduled banks and to rationalize the scope of the Sec. 43D· Further amendment is made to Sec. 43B of the Act to provide that any sum payable by the assessee as interest on any loan or advances from a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank shall be allowed as deduction if it is actually paid on or before the due date of furnishing the return of income of the relevant previous year. Amendment proposed shall take effect from April 1, 2018.

 

Relevant Ruling(s) :
1. PCIT vs Shri Mahila Sewa Sahakari Bank Ltd [TS-5802-HC-2016(GUJARAT)-O]	“Banking company" would take within its sweep a co-operative bank; CBDT's Circular F .No. 201/21/84-ITA-II providing for non-taxability of interest not received for three years to banking companies, applies even to co-operative banks
2. ACIT vs Daivadnya Sahakara Bank Niyamit [TS-6078-ITAT-2015(PANAJI)-O]	Assessee is a cooperative bank and is not a scheduled bank, therefore Sec. 43D is not applicable. Cooperative bank has been omitted by the Finance Act, 2007 from the definition of scheduled bank as per Sec. 36(1)(viia) of the Act.
3. ACIT vs Solapur Siddheshwar Sahakari Bank Ltd [TS-6646-ITAT-2014(Pune)-O]	Interest income relatable to NPAs of a co-operative bank was not includible in total income on accrual basis since the same did not accrue to the assessee

 

17. Sec. 36(1)(viia) : Deduction limit in respect of provision for bad and doubtful debts available to banks increased from 7.5% to 8.5% 

 

Amendment : In order to strengthen the financial position of the entities specified in the sub-clause (a) of Sec. 36(1) (viia), it is proposed to amend the said sub-clause to enhance the present limit from 7.5% to 8.5 % of the amount of the total income (computed before making any deduction under that clause and Chapter VIA). Amendment proposed shall take effect from April 1, 2018. 

 

Relevant Ruling(s) :
1. Canara Bank vs JCIT [TS-5461-ITAT-2016(BANGALORE)-O]	Bangalore ITAT confirms Revenue’s action of adopting total income after setting off brought forward loss for calculating deduction u/s 36(1)(viia) (which provides for deduction in respect of provision for bad and doubtful debts to banks) in the hands of assessee-bank for AY 2006-07
2. Parbhani Dist. Central Cooperative Bank Ltd vs ACIT [TS-6370-ITAT-2016(PUNE)-O]	Deduction u/s 36(1)(viia) unavailable without making any provision for bad and doubtful debts in the books of account

 

Transparency in Electoral Funding

 

18. Sec 13A : Amendments to bring transparency in political funding

Amendment : It is proposed to amend Sec. 13A to provide for additional conditions for availing the benefit of exemption by political parties, namely, (i) no donations of Rs.2000 or more is received in cash (i.e. otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bonds) , (ii) political party furnishes return in accordance with Sec. 139(4B) on or before the due date specified therein. Further, in order to address the concern of anonymity of the donors, it is proposed to amend the said section to provide that the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.

 

Amendment will take effect from April 1, 2018. 

 

Relevant Ruling(s) :
1. Common Cause[TS-5053-SC-1996-O]	SC held that the political parties have to file the return of income and the Government of India should appoint an enquiring body to find out why the mandatory provisions of filing of return was not followed by the political parties and why no action was taken
2.DravidaMunnetraKazhagam[TS-5669-HC-2002(MADRAS)-O]	Madras HC ruled out exemption u/s.13A for period prior to AY 1979-1980 and held sec. 13A to be ‘operative for and from assessment year 1979-80 only.

 

Promoting Digital Economy

 

19. Sec. 80G :Amendment of Sec. 80G to disallow cash donation exceeding Rs. 2,000 

 

Amendment : It is proposed to amend Sec. 80G so as to provide that no deduction shall be allowed in respect of donation of any sum exceeding Rs. 2,000 unless such sum is paid by any mode other than cash. Amendment will take effect from April 1, 2018.

 

Relevant Ruling(s) :
1. Chief Accounts Officer, Bruhat Bangalore MahanagaraPalike vs ITO[TS-693-ITAT-2014(BANG)-O]	Donations may be made by supplying goods of various kinds including building, vehicle or any other tangible property but such donations, though convertible in terms of money, do not fall within the scope of Sec. 80G entitling an assessee to deduction

 

20. Sec.269ST, Sec. 271DA, Sec. 206C : Insertion of Sec. 269ST & 271DA providing for restriction on cash transactions 

Amendment : It is proposed to insert Sec. 269ST to provide that no person shall receive an amount of Rs. 3 lakhs or more, (i) in aggregate from a person in a day, (ii) in respect of a single transaction and (iii) in respect of transactions relating to one event or occasion from a person; in cash. This restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank. Further, such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on which the proposed restriction on cash transactions shall not apply. Transactions of the nature referred to in Sec. 269SS are proposed to be excluded from the scope of the said section. It is also proposed to insert new Sec. 271DA to provide for levy of penalty on a person who receives a sum in contravention of Sec. 269ST. Penalty is proposed to be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the JCIT.

It is also proposed to consequentially amend the provisions of Sec. 206C to omit the provision relating to TCS @ 1% of sale consideration on cash sale of jewellery exceeding Rs. 5 lakhs.

 

Amendment will take effect from April 1, 2017.

 

Ease of Doing Business

 

21. Sec. 44AA :Increasing threshold limit for maintenance of books of accounts in case of Individuals/HUF 

Amendment: It is proposed to amend the provisions of Sec. 44AA to increase monetary limits of incomeand total sales or turn over or gross receipts, etc. for maintenance of books of accounts from Rs.1,20,000 to Rs. 2,50,000 and from Rs. 10 lakhs to Rs. 25 lakhs, respectively in the case of Individuals and HUF carrying on business or profession. Amendment will take effect from April 1, 2018.

 

22. Sec. 44AB : Exclusion of certain specified person from requirement of audit of accounts u/s 44AB 

Amendment: In order to reduce compliance burden of the small tax payers and facilitate the ease of doing business, it is proposed to amend Sec. 44AB to exclude the eligible person, who declares profits for the previous year in accordance with the provisions of Sec. 44AD(1) and his total sales, total turnover or gross receipts, as the case may be, in business does not exceed Rs. 2 crore in such previous year, from requirement of audit of books of accounts u/s 44AB. Amendment will take effect from April 1, 2017.

 

Relevant Ruling(s) :
1. Anju Haldia [TS-88-ITAT-2016(JPR)]	Provisions of Sec. 44AD inapplicable if gross receipts exceed the eligible limit

 

 

23. Sec. 44AD :Amendment to Sec. 44AD for 6% tax rate on turnover received otherwise than cash 

Amendment : It is proposed to amend Sec. 44AD to reduce the existing rate of deemed total income of 8% to 6% in respect of the amount of such total turnover or gross receipts received by an account payee cheque / bank draft / use of electronic clearing system through a bank account during the previous year or before the due date specified in Sec. 139(1) in respect of that previous year. However, the existing rate of deemed profit of 8% referred to in Sec. 44AD, shall continue to apply in respect of total turnover or gross receipts received in any other mode. Amendment will take effect from April 1, 2017.

 

Relevant Ruling(s) :
1. Awasthi Traders vs CIT [TS-5147-SC-2016-O]	Provisions of Sec. 44AD inapplicable if gross receipts exceed the eligible limit
2. Ram Prasad Bhattavs ACIT [TS-5082-ITAT-2015(CUTTACK)-O]	Provisions of Sec. 44AD can be applied in case of best judgement assessment u/s 144

 

 

24. Sec. 40A(3) : Amendment to Sec.40A(3) to reduce cash expenditure limit to Rs. 10,000

Amendment :Amendment to Sec.40A(3) to reduce cash expenditure limit to Rs. 10,000 - It is proposed to amend the provision of Sec. 40A to provide the following:

1. To reduce the existing threshold of cash payment to a person from Rs. 20,000 to Rs. 10,000 in a single day; i.e. payment in cash above Rs. 10,000 to a person in a day, shall not be allowed as deduction in computing business income;
2. Deeming a payment as profits and gains of business of profession if the expenditure is incurred in a particular year but cash payment is made in any subsequent year of a sum exceeding Rs. 10,000 to a person in a single day; and
3. Expand the specified mode of payment under sub-section of Sec. 40A to payment by using electronic clearing system through a bank account.

Amendment will take effect from April 1, 2018.

 

Relevant Ruling(s) :
1. Durga Bhavani Motor’s India Pvt Ltd[TS-6274-ITAT-2015(CHENNAI)-O]	Provisions of Section.40A(3) deals only with revenue expenditure and not capital expenditure
2.International Ships Stores Suppliers [TS-6866-ITAT-2016(MUMBAI)-O]	- mere finding of the purchase transactions as genuine would not take the same beyond the scope and ken of Sec 40A(3) disallowance

 

25. Sec 9(1) : Clarity relating to Indirect transfer provisions

Amendment : In order to address concerns raised by stakeholders seeking clarification on the scope of indirect transfer provisions, it is proposed to amend Sec. 9(1)(i) so as to clarify that the Explanation 5 shall not apply to any asset or capital asset mentioned therein being investment held by non-resident, directly or indirectly, in a Foreign Institutional Investor (‘FII’), as referred to in clause (a) of the Explanation to Sec.115AD, and registered as Category-I or Category II Foreign Portfolio Investor under the SEBI (Foreign Portfolio Investors) Regulations, 2014 made under the SEBI Act, 1992, as these entities are regulated and broad based. The proposed amendment is clarificatory in nature. Amendment will take effect retrospectively from April 1, 2012.

 

Relevant Ruling(s) :
[T9S-509-HC-2014(DEL)-O]	No recourse can be taken to Explanation 5 so as to enlarge the scope of Section 9(1) of the Act & cast the net of tax on gains or income that may arise from transfer of an asset situated outside India, which derives bulk of its value from assets outside India
[TS-5008-AAR-2007-O]	Even if the transaction relating to the capital asset took place outside India, if the capital asset was situated in India, the profits and gains therefrom accrued in India in consonance with the provisions of section 9(1) (i) and were assessable under the head ‘Capital gains’.
[TS-23-SC-2012-O]	Section 9(1) (i) is not a ‘look through’ provision and the word ‘through’ in section 9 cannot be interpreted to mean that if transfer of a capital asset situate in India happens ‘in consequence of’ something which has taken place overseas (including transfer of a capital asset)

 

26. Sec 9A : Modification in conditions of special taxation regime for off shore funds u/s 9A

Amendment : In order to rationalize the regime and to address the concerns of the stakeholders, it is proposed to provide that in the previous year in which the fund is being wound up, the condition that the monthly average of the corpus of the fund shall not be less than Rs. 1000 crore, shall not apply. Amendment will take effect retrospectively from April 1, 2016.

 

27. Sec 10AA : Sec 10AA deduction to be allowed from total income of the assessee

Amendment :It is proposed to insert a clarification in Sec 10AA to provide that the deduction is to be allowed from Total Income of the assessee. This brings to rest contrary view taken by some courts that that the deduction is to be allowed from the total income of the assessee’s undertaking and not from the total income of the assessee.This amendment will take effect from 1st April,2018 

 

 

Relevant Ruling(s) :
[TS-6053-ITAT-2016(CHENNAI)-O]	Providing services from SEZ within India doesn’t amount to export of services to foreign country so as to qualify for deduction u/s 10AA
[TS-6657-ITAT-2016(MUMBAI)-O] -	As per the provisions of section 10AA of the Income Tax Act 1961, the assessee is entitled to deduction on the manufacturing activity only and not to services.

 

 

36. Sec. 11(1)(a)/(b): Charitable trusts: Corpus donations not be treated as ‘application of income’

Amendment : It is proposed to insert a new Explanation to section 11 of the Act to provide that any amount credited or paid out of contributions [which is considered as Trust’s income u/s Sec 11(1)(a)/(b)], being with specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income. It is also proposed to insert a proviso in Sec 10(23C) so as to provide similar restriction as above on the entities exempt under subclauses (iv), (v), (vi) or (via) of said clause in respect of any amount credited or paid out of their income. These amendments will take effect from 1st April, 2018 

 

 

Relevant Ruling(s) :
1. Vels Institute of Science Technology and Advanced Studies (Vistas) vs Addl. CIT [TS-6809-ITAT-2016(CHENNAI)-O]	Corpus donation received by assessee for specific purpose cannot be treated as revenue receipt and same should be considered as capital receipt and not liable to be taxed.
2. Thermax Social Initiative Foundation vs ITO [TS-7018-ITAT-2016(PUNE)-O]	Voluntary contribution of Thermax Ltd towards corpus of the trust cannot be included in the income of the assessee in clear terms of section 11(1)(d).

 

37. Sec. 11 or 12A: Clarity of procedure in respect of change or modifications of object in case of entities exempt under sections 11 and 12

Amendment : It has been proposed to amend section 12A such that the registration of trust will have to be done afresh if the objects of the trust are modified by the assessee and where the objects which do not conform to the conditions of registration. The application for fresh registration needs to be made within a period of thirty days from the date of such adoption or modifications of the objects. The proposal has been made in light of lack of clarity in respect of fresh registration where existing.

 

Relevant Ruling(s) :
1. Board of Control for Cricket in India vs ITO [TS-251-ITAT-2012(MUM)-O]	Mumbai ITAT rules that when a registration is validly held by a trust or institution, if there are changes to the by-laws or objects of the trust, assessee should approach the registering authority again; It was also holds that benefits flowing therefrom, cannot be extended to the amended objects of the society unless the DIT examines the same and comes to a conclusion that the registration under section 12A, can be extended to the revised objects, memorandum and bylaws.
2. CIT vs IILM Foundation Academy [TS-5827-HC-2016(PUNJAB & HARYANA)-O]	HC upholds ITAT rulings wherein ITAT had set aside CIT order; CIT had declined registration merely by reading its ancillary objects as its main objects.

 

 

Capital Gains

 

38. Sec. 43, 35AD : Disallowance of depreciation u/s 32 and capital expenditure u/s 35AD on cash payment

Amendment : Disallowance of depreciation u/s. 32 and capital expenditure u/s. 35AD on cash payment -

1. It is proposed to amend the provisions of Sec. 43 to provide in the definition of 'actual cost' that where an assessee incurs any expenditure for acquisition of any asset in respect which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque/ bank draft or use of electronic clearing system through a bank account, exceeds Rs. 10,000, such expenditure shall be ignored for the purposes of determination of actual cost of such asset.
2. It is further proposed to amend Sec. 35AD to provide that any expenditure in respect of which payment or aggregate of payments made in cash in excess of Rs. 10,000, no deduction shall be allowed in respect of such expenditure. Amendment will take effect from April 1, 2018.

 

 

Relevant Ruling(s) :
1. ACIT vs Ambika Sugars Ltd [TS-6828-ITAT-2016(CHENNAI)-O]	‘Actual Cost’ of power plants acquired through amalgamation of power generating subsidiary shall be the same as it would have been if the amalgamating company had continued to hold the capital asset for its own business after claiming depreciation under straight line method.
2. Electrosteel Castings Ltd vs DCIT [TS-6888-ITAT-2016(KOLKATA)-O]	Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, is not a payment to meet any portion of the actual cost and hence, cannot be deducted from the actual cost u/s. 43(1) for the purpose allowing depreciation.

 

39. Sec. 47 : Providing tax neutrality for conversion of preference shares to equity shares

Amendment : In order to provide tax neutrality to the conversion of preference share of a company into equity share of that company, it is proposed to amend Sec. 47 to provide that the conversion of preference share of a company into its equity share shall not be regarded as transfer. Consequential amendments are also proposed in Sec. 49 and Sec. 2(42A) in respect of cost of acquisition and period of holding. Amendment will take effect from April 1, 2018 

 

 

Relevant Ruling(s) :
1. Addl. CIT vs Trustees of H.E.H. The Nizam’s Second Supplementary Trust [TS-5367-HC-1974(ANDHRA PRADESH)-O]	Conversion of preference shares into ordinary shares is a transfer by way of "exchange" within the meaning of s. 45 of the IT Act, 1961

 

 

40. Sec. 49 : Cost of acquisition in Tax neutral demerger of a foreign company, Cost of Acquisition for units in Consolidating scheme of mutual fund

Amendment : It is proposed to amend Sec.49 so as to provide that cost of acquisition of the shares of Indian company referred to in Sec. 47(vic) in the hands of the resulting foreign company shall be the same as it was in the hands of demerged foreign company. Amendment will take effect from April 1, 2018; Sec 2(42A) and Sec 49 is proposed to be amended to provide that cost of acquisition of the units in the consolidated plan of mutual fund scheme shall be the cost of units in consolidating plan of mutual fund scheme and period of holding of the units of consolidated plan of mutual fund scheme shall include the period for which the units in consolidating plan of mutual fund scheme were held by the assessee. These amendments will take effect accordingly, from 1st April, 2017. 

 

 

41. Sec. 2(42A), 49: Cost of Acquisition for units in Consolidating scheme of mutual fund

Amendment : Sec 2(42A) and Sec 49 is proposed to be amended to provide that cost of acquisition of the units in the consolidated plan of mutual fund scheme shall be the cost of units in consolidating plan of mutual fund scheme and period of holding of the units of consolidated plan of mutual fund scheme shall include the period for which the units in consolidating plan of mutual fund scheme were held by the assessee. These amendments will take effect accordingly, from 1st April, 2017. 

 

 

42. Sec. 48 :Extension of capital gain exemption to Rupee Denominated Bonds

Amendment : In order further provide relief in respect of gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company to secondary holders as well, it is proposed to amend Sec. 48 providing that the said appreciation of rupee shall be ignored for the purposes of computation of full value of consideration. 2. Further, with a view to facilitate transfer of Rupee Denominated Bonds from nonresident to non-resident, it is proposed to amend Sec. 47 so as to provide that any transfer of capital asset, being rupee denominated bond of Indian company issued outside India, by a non- resident to another non- resident shall not be regarded as transfer. Amendment will take effect from April 1, 2018.

 

 

43. Sec. 50CA : Substitution of prescribed FMV on share transfer, to be full value of consideration

Amendment : It is proposed to insert a new Sec 50CA to provide that where consideration for transfer of share of a company (other than quoted share) is less than the Fair Market Value (FMV) of such share determined in accordance with the prescribed manner, the FMV shall be deemed to be the full value of consideration for the purposes of computing income under the head "Capital gains". This amendment will take effect from 1st April, 2018.

 

Relevant Ruling(s) :
1. DCIT vs Rajan Pai [TS-5468-ITAT-2016(BANGALORE)-O]	Fair Market Value of Bonus shares cannot be taxed u/s 56(2)(vii)(c) by considering them as shares received without payment of consideration
2. Redington (India) Ltd vs JCIT [TS-419-ITAT-2014(CHNY)-O]	Transfer of shares in subsidiary, by way of 'gift', to an overseas step down subsidiary (in Cayman Island), not taxable as capital gains u/s 45.

 

 

Rationalisation Measures

 

44. Sec. 115JB: Rationalisation of provisions of section 115JB in line with Indian Accounting Standard (Ind-AS)

Amendment : It is proposed to amend Sec 115JB so as to provide the framework for computation of book profit for Ind AS compliant companies in the year of adoption and thereafter. The main features of this proposed framework are divided under 3 broad categories as under:

1. MAT on Ind AS compliant financial statement
2. MAT on first time adoption a. Property, Plant or Equipment (PPE) and intangible assets at fair value as deemed cost b. Investments in subsidiaries, joint ventures and associates at fair value as deemed cost c. Cumulative translation differences
3. Reference year for first time adoption adjustments. These amendments will take effect from 1st April, 2017.

 

Relevant Ruling(s) :
1. CIT vs Binani Cement Ltd [TS-5133-HC-2016(CALCUTTA)-O]	Profit & loss cannot be tinkered with except for the ajustments mentioned in Sec. 115JB, as the P&L account is prepared without auditor's qualification in accordance with Schedule VI of Companies Act, 1956.
2. Universal Industrial Fund Ltd vs DCIT [TS-5912-ITAT-2016(KOLKATA)-O]	Interest u/s 234B and 234C cannot be levied on the addition made u/s 115JB due to retrospective amendments.

 

45. Sec. 87A : Sec 87A Rebate amended; Quantum and Threshold revised

Amendment : It is proposed to amend Sec 87A to reduce the rebate from Rs. 5000/- to Rs. 2500/-.The rebate shall apply to resident individuals whose total Income does not exceed Rs.3,50,000/-. Earlier the limit was Rs.5 lakhs. This amendment will take effect from 1st April, 2018 

 

 

46. Sec. 90/90A: Clarification with regard to interpretation of DTAA 'terms'

Amendment : With a view to reduce litigation and provide clarity, it is proposed to amend sec 90 and 90A of the Act, to provide that where any 'term' used in a DTAA, is defined under the DTAA, the said term shall be assigned the meaning as provided in the said DTAA. In an instance where the term is not defined in the DTAA, but is defined in the Act, it shall be assigned the meaning as per the definition in the Act or any explanation issued by the Central Government. Amendment will take effect from 1st April, 2018.

 

 

Relevant Ruling(s) :
1. United Home Entertainment Pvt Ltd vs Addl. CIT [TS-6867-ITAT-2016(MUMBAI)-O]	DTAA gives exhaustive definition of the term ‘royalty' and therefore, the definition of 'royalty' is to be seen from the Article alone and no definition or its amendment whether retrospective or prospective under the domestic Act can control the meaning of the word which has been expressly defined in a Treaty negotiated between executives of two foreign nations.

 

 

47. Sec. 71 : Restriction on set-off of loss from House property

Amendment : It is proposed to restrict Inter-head Set-off of Loss from house property (Set-off of loss from HP against other heads of income) to Rs. 200,000/-. Carry forward of unabsorbed loss to continue. This amendment will take effect from 1st April, 2018

 

 

Relevant Ruling(s) :
1. Ankit Mittal vs ITO [TS-6421-ITAT-2016(DELHI)-O]	Loss from house property cannot be restricted to 50%, since assessee made the entire payments for purchasing the house property and the name of his wife was entered only for the security purposes.

 

48. Sec. 132A: Reason to believe to conduct a search, etc. not to be disclosed

Amendment : It is proposed to provide clarity that “reason to believe”, which is the basis of initiation of search and seizure operations or proceedings u/s 132A, shall not be disclosed to any person or to any taxing authority. The amendment is to take effect retrospectively from the date of enactment of Section132/132A i.e. April 1 1962 or October 1, 1975 as the case may be.

 

Relevant Ruling(s) :
1. Spacewood Furnishers (P) Ltd & Ors vs DGIT (Investigation) & Ors. [TS-5780-HC-2011(BOMBAY)-O]	SC reverses HC's interdiction of block-assessment proceedings by interfering with warrant of search authorisation, HC had held that search authorisation was vitiated since Sec 132 requirements were not complied with.
2. Parma Ram Bhakar vs DCIT [TS-515-ITAT-2013(JODH)-O]	ITAT holds that competent authority u/s 132(1) should have "reason to believe" to authorise conduct of search u/s132(1). Further holds that search conducted under authorization issued in absence of reasons, was invalid. Also, ITAT opines that authorization to conduct search based on reason u/s 132(1) did not exist, so search was held to be invalid. Consequently, assessment order based on invalid search was quashed.

 

49. Sec. 153A: Rationalization of provisions of the Income Declaration Scheme, 2016 and consequential amendment to section 153A and 153C

Amendment : The existing provisions of clause (c) of the section 197 of the Finance Act, 2016 provide that where any income has accrued, arisen or been received or any asset has been acquired out of such income prior to commencement of the Income Declaration Scheme, 2016 (the Scheme), and deemed to have accrued, arisen or received, as the case may be, in the year in which a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or section 148 or section 153A or section 153C of the Income-tax Act is issued by the Assessing Officer. IT is proposed to delete Sec 197 (c) to avoid hardship to assessee. This amendment will take effect retrospectively from June 1, 2016

However, where tangible evidence(s) are found during a search or seizure operation (including 132A cases) and the same is represented in the form of undisclosed investment in any asset, it is proposed that section 153A relating to search assessments be amended to provide hat notice under the said section can be issued for AYs beyond the sixth AY already provided up to the tenth assessment year if—

1. The AO has in his possession books of accounts or other documents or evidence which reveal that the income which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in one year or in aggregate in the relevant four assessment years(falling beyond the sixth year);

2. Such income escaping assessment is represented in the form of asset;

3. The income escaping assessment or part thereof relates to such year or years.

It is however proposed that the amended provisions of section 153A shall apply where search under section 132 is initiated or requisition under section 132A is made on or after the 1st day of April, 2017.

It is also proposed to consequentially amend section 153C to provide a reference to the relevant assessment year or years as referred to in section 153A.

These amendments will take effect from 1st April, 2017.

 

 

Anti - Abuse Measures

 

50. Sec. 234F/271F: Rs 5000 /- Rs 10,000 Fee for delayed filing of return

Amendment : In order to ensure that return is filed within due date, it is proposed to insert a new section 234F levying mandatory fee for delay in furnishing of return beyond prescribed due-date u/s 139(1). The proposed fee structure is as follows:— Rs. 5000 where return is furnished after due date but on or before the 31st day of December of the assessment year; 2. Rs. 10,000 in any other case. Consequentially, it is also proposed that the provisions of section 271F in respect of penalty for failure to furnish return of income shall not apply in respect of assessment year 2018-19 and onwards. These amendments will take effect from 1st April, 2018

 

 

Relevant Ruling(s) :
1. S Jayanthi vs ACIT [TS-5916-HC-2016(MADRAS)-O]	Assessee could not file returns on account of the fact that all records were taken away during the search - held 'reasonable cause' u/s. 271F.

 

51. Sec. 271J: Penalty of Rs 10,000 on professionals for furnishing incorrect information in statutory report or certificate

Amendment : It is proposed to insert a new Sec 271J so as to provide that if an accountant or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder, the AO or the CIT (Appeals) may direct him to pay a sum of Rs. 10,000 for each such report or certificate by way of penalty. However, immunity from penalty shall be available u/s 273B, if the person proves that there was reasonable cause for the failure. These amendments will take effect from 1st April, 2017.

 

Relevant Ruling(s) :
1. CIT vs Indian National Congress (I) / All India Congress Committee [TS-5167-HC-2016(DELHI)-O]	Lambasts auditor for shoddy job, questions the format in which auditor submitted the report and expresses surprise on the audit report not being 'qualified' despite glaring irregularities in financial statements.

 

52. Sec.94B : BEPS Action Plan 4

Amendment : Finance Bill proposes to insert Sec. 94B in line with recommendation of BEPS Action Plan 4 restricting deduction towards interest paid to non-resident AE to 30% of EBITDA (earnings before interest, taxes, depreciation and amortization). Provisions would trigger only when interest expenditure exceeds Rs. 1 Cr and excludes banks and insurance companies from its ambit and would apply to Indian company and Indian PE of foreign entity. Debt shall be deemed to be treated as issued by AE if it provides an implicit or explicit guarantee to the lender or the AE deposits a corresponding and matching amount of funds with the lender.

 

53. Sec. 92CE : Secondary adjustments in certain cases

Amendment : Budget 2017 has proposed to insert a new section 92CE to provide for secondary adjustments in certain cases, in order to align TP provisions to OECD TP Guidelines and international best practices. Under new provisions, "secondary adjustment" is defined as an adjustment in the books of accounts of the assessee and its associated enterprise (AE) to reflect that the actual allocation of profits between the assessee and its AE are consistent with transfer price determined as a result of primary adjustment, thereby removing the imbalance between cash account and actual profit of the assessee.