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kabhi khushi kabhi ghum………The Union Budget 2009 presented by Hon’ble Finance Minister Shri PranabMukherjee this time had a tough task of managing the moods of the ‘AamAdmi’ and ‘India Inc’ at a time when the world is still struggling with anunprecedented financial crisis and an economic slowdown that has alsoaffected India. Very speculative views are moving around as to the phase ofrecession where some may see a turnaround in the financial crisis whereassome are still worried of the larger impact of recession yet to roll up.The Budget proposals did not boost the spirits of the financial market which isevident from the fact that the Stock market which was about 100 points up inthe morning on the day when the Bill was presented by Hon’ble FM, has fallenby as low as 650 points on conclusion of the Budget speech, and by 900 pointsat the end of the day, perhaps, one of the largest hit by the Budgets so far. Thisis so because this market had far more expectations from the Government. TheHon’ble FM has rightly said (with this kind of budget)…. “With strong hearts,enlightened minds and willing hands, we will have to overcome all odds andremove all obstacles to create a brave new India of our dreams.”Yet, there are some reasons to rejoice as well. The tax limits under Income-taxand Wealth Tax are enhanced for the Aam Admi. Sticking to the theme of“inclusive growth” espoused by the UPA Government, the FM also unveiledbreaks for exporters hard-hit by the global downturn and direct subsidies forfarmers. The Commodity Transaction Tax as well the Fringe Benefit Taxes arealso abolished.All in all, the Budget may be called as neutral budget. We have tried to analyzethe Budget proposals as enunciated in the Finance (No. 2) Bill, 2009.A copy is also available on our website http://www.amcount.com.This material is prepared by Smart Consultants Pvt. Ltd.While due care has been taken to ensure the accuracy of theinformation contained herein, no warranty, express or implied, is being made, by Smart Consultants Pvt. Ltd. asregards the accuracy and adequacy of the information contained herein. The information in this material is notintended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. Theinformation is not intended to be relied upon as the sole basis for any decision which may affect you or your business.Before making any decision or taking any action that might affect your personal finances or business, you shouldconsult a qualified professional adviser. This material is intended only for the use of the entity / person to whom it isaddressed and the others authorized to receive it on their behalf. The recipient is strictly prohibited from furthercirculation of this material. Smart Consultants Pvt. Ltd. Page 1 of 29
FINANCE (No. 2) BILL, 2009 HIGHLIGHTS & COMMENTSJust as one plucks fruits from a garden as they ripen, so shall a King haverevenue collected as it becomes due. Just as one does not collect unripefruits, he shall avoid taking wealth that is not due because that will make thepeople angry and spoil the very sources of revenue. - KautilyaDemocracy is the art and science of mobilizing the entire physical, economicand spiritual resources of various sections of the people in the service of thecommon good of all. - Mahatma Gandhi Smart Consultants Pvt. Ltd. Page 3 of 29
THE FISCAL DEFICITSmart Consultants Pvt. Ltd. Page 5 of 29
index …… Section A- Direct Taxes A1 Alternate Dispute Resolution A16 Charitable Trusts- Donations A2 Advance Tax A17 Commodity Transaction Tax (CTT) A3 Business expense – Weighted A18 Exemptions-VRS deduction A4 Business expense – Capital Exp. To A19 FBT – Abolished specified activity A5 Business Expense - Partner’s A20 Income-Gift Remuneration A6 Business expenses- Cash payments A21 Limited Liability Partnership A7 Capital Gains – Stamp Duty A22 MAT-Book profit valuation A8 Chapter VIA deduction – Tax A23 Presumptive Taxation holiday A9 Chapter VIA Deduction – New A24 Transfer Pricing- Range Businesses A10 Chapter VIA deduction - A25 Transfer Pricing – Safe Harbou maintenance of disabled Rules dependent A11 Chapter VIA deduction Interest of A26 TDS – TDS on contractors education loan A12 Chapter VIA/III deduction - A27 TDS – TDS on rent Definition of ‘Manufacture’ A13 Chapter VIA deduction – Tax A28 TDS – Surcharge and Cess holiday A14 Chapter VIA/III deduction – SEZA29 TDS – assessee in default A15 Charitable Purpose A30 Wealth Tax – Threshold Limit Section B – rates of tax on income Section C – snapshot of the judicial decisions considered Section D – service Tax D1 Notifications D4 Existing Services- Scope Modified D2 Rules D5 Exemptions Introduced D3 New Services Covered D6 Refund scheme for exportersSmart Consultants Pvt. Ltd. Page 6 of 29
direct taxes…… Sr. No. Subject forwarded the draft order A1 Alternate Dispute the tax payer, the tax to Resolution payer has to file within 30 Introduced days from receipt of such Sec. +/- order (i) acceptance of the 144C + 01.10.2009 with the AO; or (ii) order objections if any to order with the DRP and the AO. ItHighlights appears that the tax payer may chose not to respond1. It is proposed to at all in which case theintroduce an Alternate Assessing Officer may passDispute Resolution Scheme the order based on thefor certain classes of evidences which areEligible Assessees. available on record.2. ‘Eligible Assessees’ 3. The Assessing Officermeans: has to finalize the I assessment order within 1 n whose case a TP month from the end of the adjustment has month in which such been made; and acceptance is received or A the expiry of the period by ny Foreign which the objection is to be Company filed.3. The ADR mechanism 4. The DRP will provideinvolves setting up a guidance to the AO toDispute Resolution Panel, complete the assessmentwhich would be set-up by based on review ofCBDT in due course. objections and evidence/4. The order of the AO information. It can eitherfinalized based in reduce, accept or enhancepursuance to an order of the variation proposed inthe DRP can be appealed the order by the Assessingto the ITAT. Officer. 5. However, the DRP shallComments not have any power to set aside or issue any1. The amendment is directions to the Assessingproposed to curtail and Officer. This means thatstreamline the dispute the DRP will have to decideprocess for the foreign based on the evidencescompanies. It will provide gathered by the Assessingan alternative forum to Officer and is required tosettle complicated tax examine only thedisputes outside the correctness of the viewnormal appellate taken by the Assessingproceedings. Officer based on the2. As per the said new existing records.process, once the AO has
6. The direction of theDRP is binding on the Sr. No. SubjectAssessing Officer. The A3 Business expense –direction shall be given Weighted deductionwithin a period of 9 months Introducedfrom the end of the month Sec. +/- w.e.f.in which the draft order is 35(2AB) + A.Y. 2010-11forwarded to the EligibleAssessee. Highlights7. The DRP shall not passany directions which are Weighted deduction of 150prejudicial to the interest of % allowed for in-house Rthe Assessee, without and D activity carried outhearing the assessee. by the companies will be8. The provisions relating extended to those engagedto DRP is a welcome in business of manufactureprovision since it seeks to or production of an articlebring some accountability or things except thosewith the officers as the specified in the Eleventhorders of the Assessing Schedule of the IT Act.Officer now will be underreview by the officers of Commentsthe rank of commissionersconstituting DRP. 1. Weighted deduction is9. In case where the order present allowed tois passed by the Assessing companies engaged in theOfficer under the directions business of biotechnology,of DRP, the appeal could be drugs, pharmaceuticals,filed only with the Tribunal electronic equipments,and not with CIT(A). computers, telecommunication Sr. No. Subject equipments, chemical or any other article or things A2 Advance Tax notified by Board. This Amended deduction will now be Sec. +/- extended to all the 208 + A.Y. 2010-11 companies engaged in the business of manufacture orHighlights production of article or things except thoseThe limit for attracting specified in the Eleventhliability to pay advance tax Schedule.has been enhanced from 2. This will largely benefitRs. 5,000/- to Rs. 10,000/-. the companies who are required to incur expenseComments on in-house R & D facilities.With the proposed Sr. No. Subjectamendment, the interest u/ A4 Business expense –s. 234B and 234C will not Capital Exp. in specifiedbe attracted if the advance activitytax liability of the assessee Introductionis less than Rs. 10,000/- as Sec. +/- w.e.f.against the present limit of 35AD/73A + A.Y. 2010-11Rs. 5,000/-.
set off against the profitsHighlights or gains from another specified business. If loss1. It is proposed to cannot be set off the sameprovide benefit of the can be carried forward forcapital expenditure wholly subsequent assessmentand exclusively for the year(s) against specifiedfollowing specified business. Since there is nobusiness – limit specified for carry a) Setting up and forward of such loss, the operating of cold same can be carried chain facilities for forward infinitely. specified products; 7. Income received or b) Setting up and receivable on any capital operating of assets for which deduction warehousing has been claimed under facilities for storage section 35AD, being of agricultural demolished, destroyed, products; discarded or transferred c) Laying and will also be considered as operating of cross- income of the assessee and country natural gas shall be taxable. or crude or 8. For the purpose of petroleum oil computation of capital pipeline network for gains the cost of distribution, acquisition of the capital including storage assets will be considered to facilities being an be NIL if deduction has integral part of such been claimed under section network 35AD.2. Expenditure shall notinclude any expenditure Commentsincurred on acquisition ofland or goodwill or financial 1. The Hon’ble FM hasinstruments. stated in the Budget3. The benefit is also speech that he proposes toavailable if the same is introduce the investmentspent for laying of cross- based deductions ascountry pipeline, the against the profit basedbenefit being available in deductions.case if the business 2. In line with the saidcommences on or after 1 objective and with a viewApril 2007. to create rural4. For other specified infrastructure andbusiness, the benefit will environment friendlybe available if such alternate means ofbusiness commences its transportation for bulkoperations on or after 1 goods, it is proposed toApril 2009. provide investment linked5. However, no deduction tax incentives by insertingwill be allowed under a new Section 35AD.Chapter VI A for the 3. This provisions arespecified business. applicable to the specified6. Loss arrived on any of business in respect ofspecified business can be capital expenditure
incurred by them other firm and professional firmsthan expenses incurred for were different. These limitsacquisition of land or are now brought at par.goodwill or financialinstruments. Quantum of profits Amount4. However, what allowed asconstitutes financial remunerationinstruments has not been For the first Rs. Rs. 1,50,000 ordefined. The deduction will 3,00,000/- of the at the rate ofbe allowed for the book-profit or in case 90% of book-expenses capitalized in the of a loss profit, whicheverearlier year and also for the is more.expenses incurred during For the balance of At the rate ofthe previous year of its the book-profit 60%.applicability.5. However, no deduction Commentsunder Chapter VIA for thesame will be allowed. This was a much needed6. Further deduction change since the limitsunder section 80 IA to the under the Act are yearsbusiness of laying and old.operating a cross countrynatural gas distribution Sr. No. Subjectnetwork will be A6 Business expenses- Cashdiscontinued. However, paymentsthey would be allowed toclaim deduction under Amendedsection 35AD. Sec. +/- w.e.f.7. Of course, no deduction 40A(3) + 01.10.2009will be allowed unless theaccounts are audited or Highlightsdue to close relationship 1. Cash payments arethe profits earned from the disallowed if the same arespecified business are in excess of limit of Rs.more than the ordinary 20,000/- in a day.profit earned in such 2. No disallowance isbusiness. proposed now for aggregate payment in cash Sr. No. Subject upto Rs.35,000 for A5 Business Expense - payment made for plying, Partner’s Remuneration or leasing goods hiring Amended carriages Sec. +/- 40(b) + A.Y. 2010-11 CommentsHighlights 1. It appears that the Govt. has accepted that1. The limits for allowing the transport sector is stillthe deduction on account an unorganized sector andof partners’ remuneration hence the payment tois enhanced. them by cheque was2. Further, the said limits causing a great hardshipof remuneration to the for small transporters.partners of the business
2. In an attempt to reduce the value of the propertysuch hardship, the limit of shall be the value whichpayments made in cash is the stamp duty valuationenhanced from Rs. 20,000/- officer would haveto Rs. 35,000/- in respect of determined had thepayments made for plying, transfer of property beenhiring or leasing of goods registered with suchcarriages. officer. Sr. No. Subject Sr. No. Subject A7 Capital Gains – Stamp DutyA8 Chapter VIA deduction – valuation Tax holiday Amended Clarified Sec. +/- Sec. +/- w.e.f. 50C - 01.10.2009 80A - A.Y. 2003-04 HighlightsHighlights 1. No deduction under1. Section 50C provides Chapter VI A will bethat stamp value of the allowed if the taxproperty shall be deduction for the profitsconsidered full value and gains has already beenconsideration if the stamp allowed u/s. 10A or s. 10AAvalue exceeds the actual or s. 10B or under anytransaction value provision of Chapter VIA.2. The scope of aforesaid 2. Further, the aggregatesection has been expanded of deductions allowedto include transactions under any of the saidwhich are not registered sections shall not exceedwith the stamp duty the profits and gains of thevaluation officer. undertaking. 3. It is also proposed thatComments transfer price of goods and services between the1. Recently in Navneet undertaking/unit, etc. shallKumar Thakkar v. ITO [298 be determined at theITR 42] (Jodhpur), it was market value as on date ofheld that s. 50C is transfer. The same will beapplicable only in case effective from 1 April 2009where the agreement is and will apply to anyregistered with the stamp proceedings which areduty authorities. Hence, if pending before anythe document is not authority on or after suchregistered with the stamp date.duty authorities, s. 50C 4. However, it iscannot be invoked and the specifically proposed thatassessee cannot be held no deduction will beliable on enhanced capital allowed under the variousgain tax. provisions mentioned2. The amendment seeks above if the same is notto overrule the said view claimed in the return ofand provides for the income.valuation mechanism insuch a case stating that Comments
1. There was a CBDT No. 14(X1-35) ofcontroversy as to the 1955, dated 11.04.1955 asamount of profits which are approved in the cases likeeligible for deduction u/s. Chokshi Metal Refinery v.10A/80IA, etc. in case CIT [107 ITR 63 (Guj)], CITwhere the assessee is also v. Ahmedabad Keiser-E-eligible for deduction under Hind Mills Ltd. [128 ITRany other section under 486 (Guj)] and many more.Chapter VI-A or u/s.10A/10B, etc. Sr. No. Subject2. The issue had arose in A8 Chapter VIA Deduction –the case of ACIT vs. Rogini New BusinessesGarments & Others [108 ExtendedITD 49] which was upheld Sec. +/- w.e.f.by 5 member bench in the 80-IA + A.Y. 2010-11case of ACIT vs. HindustanMint & Agro Products Pvt. HighlightsLtd.[119 ITD 107 (SB)(Del).] wherein it was held 1. Tax holiday is proposedthat in case of an eligible to be extended for anindustrial undertaking (IU), undertaking whichthe deduction of export commences followingprofit u./s. 80HHC is business on or beforerequired to be computed 31.03.2011:after reducing the profits a) generation orwhich are allowed as generation anddeduction under Section distribution of80IA or 80IB. The power;amendment has thus b) transmission orapproved the decision of distribution bythe 5 member bench. laying a network of3. It is also proposed that new transmission orthe deduction shall not be distribution lines;allowed in excess of the c) substantialtotal profits of the eligible renovation andundertaking. This modernization ofamendment also seeks to existing network ofresolve the controversy transmission orraised by several decisions distribution lineswherein it has been held 2. Further, tax holidaythat the deduction u/s. benefit will also extended10A/10B had no co-relation to an undertaking ownedwith the gross total by an Indian Company setincome. up for reconstruction or4. This amendment also revival of poweraims at restricting the generation, if suchbenefit if the same is not undertaking commencesclaimed in the return of the activity of generation,income and formalize the transmission or distributionlaw laid down by Apex of power on or beforeCourt in case of Goetze 31.03.2011.(India) Ltd. v. CIT [284 ITR323]. This, of course, goes Commentsagainst the time testedbenevolent Circular of the
The deadline to start theeligible businesses for Commentsclaiming the benefit u/s. 1. The proposed80-IA is extended from amendment has sought to31.03.2010 to 31.03.2011. include the loans taken for studies to pursue coursesSr. No. Subject after SSC or its equivalent A10 examination Chapter VIA deduction - (including vocational courses) as also maintenance of disabled dependent eligible for deduction u/s. Amended 80E. Sec. +/- 2. The step seems to be in 80DD + A.Y. 2010-11 with government’s line endeavor to develop largerHighlights and deeper human resource base in India.1. The deduction ispresently allowed for Sr. No. Subjectexpenditure incurred by an A12 Chapter VIA/III deductionindividual or an HUF on - Definition ofmedical treatment, training ‘Manufacture’and rehabilitation of a Clarifieddependent possessing Sec. +/- w.e.f.disability. Chp. III/VI—A - A.Y. 2010-112. The limit of theexpenditure incurred bythe assessee increased Highlightsfrom Rs. 75,000 to Rs.1,00,000. 1. A new sub-section hasComments been introduced in the IT Act to define the termThe enhancement of the ‘manufacture’.limit for deduction to 2. The term has beenmedically handicapped defined to mean a changedependants is a welcome in a non-living physicalmove for the specified object or article or thingclass of people. resulting into an object or article or thing having a Sr. No. Subject different name, character A11 Chapter VIA deduction use and or chemical Interest on education loan composition or integral Amended structure. Sec. +/- 80E + Comments A.Y. 2010-11Highlights 1. The term ‘manufacture’ has been subject matter of1. At present, s. 80E substantial controversyallows deduction for the over the years since nointerest paid on loan such definition is providedavailed higher education. under the Act. This is the2. The scope of the term welcome move as it may‘higher education’ is give a defined directionexpanded by including while examining the factsadditional field of studies. relating to ‘manufacture’
2. However, the said The last year for claimingdefinition is differently the benefit u/s. 10A/10B isworded as compared to the extended from A.Y. 2010-definition given under the 11 to A.Y. 2011-12.SEZ Act, 2005 which ispresently adopted in many Sr. No. Subjectprovisions of the Act. A14 Chapter VIA/III deduction3. Since no specific date – SEZof implementation is Amendedspecified and that the term Sec. +/- w.e.f.has been defined to resolve 10AA + A.Y. 2010-11the long drawncontroversy, it may be Highlightslooked upon as aclarificatory amendment 1. S. 10AA provided theaffecting the past years. computation of deduction4. Further, the term also being such amount as thecovers only ‘object, article export turnover of theor thing’ unlike the other undertaking bears to thesections where the total turnover of thecomputer software has also business. Since thebeen covered. This would deduction was granted as amean that the definition of proportion of the export‘manufacture’ would only turnover of undertaking tobe applicable to object, the turnover of business,article or thing and not to there was anomaly in suchcomputer software. The comparison as the base formeaning of the determining the turnovermanufacture for ‘computer was different.software’ may have to be 2. The agitation beforeimported from common the Legislature was thatsense or the definition as the computation ofgiven under SEZ Act, 2005. deduction can be made only on identical base and hence the export turnover Sr. No. Subject of the undertaking can be A13 Chapter VIA deduction – compared only with the Tax holidaytotal turnover of the Amended undertaking and not the Sec. +/- entire business. 10A/10B + 3. The proposed amendment thereforeHighlights seeks to remove the said disparity by comparing andS. 10A and 10B provided determining the proportiontax holiday to specified of the export turnover ofundertakings till A.Y. 2010- the undertaking to the total11. The said time limit is turnover of thenow extended till A.Y. undertaking.2011-12. CommentsComments Since the deduction was granted considering the
export turnover of the 1. At present allundertaking and the total anonymous donations areturnover of the entire taxable in the hands of thebusiness, there was charitable trusts.diaparity is calculating the 2. It is now proposed toquantum of deduction due amend the said provisionsto different base and by permitting theconsequently, the anonymous donations uptodeduction granted to the Rs. 1,00,000/- or 5% of theassessee was much less total income, whichever isthan intended by the higher and hence anyproposed section. The said amount in excess of suchdisparity is now removed limit would be taxable.by the proposedamendment. Comments Though the limits are low, Sr. No. Subject this is a welcome provision A15 Charitable Purpose the trusts genuinely for Amended receiving the anonymous Sec. +/- donations. 2(15) + A.Y. 2010-11 Sr. No. SubjectHighlights A17 Commodity Transaction Tax (CTT)The definition of Abolished“charitable purpose” is Sec. +/- w.e.f.proposed to be extended to 36(1)(xvi) + 01.04.2009include activities ofpreservation of Highlightsenvironment (includingwatersheds forests and The Hon’ble FM hadwildlife) and preservation introduced CTT in hisof monuments or places or earlier budget on theobjects of artistic or transactions of purchasehistoric interest. and sale of commodities. The said tax is nowComments abolished with retrospective effect fromThis is a welcome move to 01.04.2009.achieve the “Green India”and also to save the places Commentsand items of historicalinterest. 1. The CTT, though not yet operationalised, was Sr. No. Subject introduced to levy tax on A16 trading of commodities in Charitable Trusts- Donations the MCX exchange. Re-Introduced Since the said tax had 2. Sec. +/- created additional burden 11 + A.Y. 2010-11 the for upcoming commodities market, theHighlights same appears to have been abolished now.
Sr. No. Subject 3. It seems that the A18 Exemptions-VRS amendment negates the Amended ratio of judgments in Sec. +/- following cases: 10(10C) - A.Y. 2010-11 CIT v. Koodathil a) Kallytan Ambujakshan [219Highlights CTR 80 (Bom)].1. Section 10(10C) b) CIT vs. Nageshprovides for exemption Devidas Kulkarniwith regard to amount [291 ITR 407 (Bom)]received by an assessee onvoluntary retirement Sr. No. Subjectprovided certain conditionsin this regard are satisfied. A19 FBT – Abolished2. A proviso has been Amendedadded to the aforesaid Sec. +/- w.e.f.Section, to restrict 115WB + A.Y. 2010-11availability of deductionunder Section 10(10C) for Highlightsamount received onvoluntary retirement in 1. Fringe Benefit Taxcase the assessee has introduced by Finance Act,claimed relief u/s. 89. 2005 has now been abolished with effect fromComments 1 April 2010, i.e. AY 2010- 11.1. Under the currentscheme of things, an 2. However, the taxationindividual assessee was in of the fringe benefits asa position to claim perquisites in the hands ofexemption under Section employee will be10(10C) as well as relief reintroduced (Section 17under Section 89 of the Act (2)(vi), (vii) and (viii))(relief for tax ratedifferential), if the payment Commentswas made in a staggeredmanner. Since the cost of2. The proposed compliance and theamendment seeks to procedure involved in FBTrestrict the assessee from was substantially high, itclaiming exemption who was a right move to abolishhas claimed relief u/s. 89, the said Law.from claiming deductionunder the aforesaid section Sr. No. Subjectwith respect to the same A20 Income-Giftamount. The corresponding Amendedamendment is also Sec. +/- w.e.f.proposed to s. 89. The 56 - 01.10.2009proviso has beenintroduced to clarify that in Highlightscase deduction underaforesaid section has been 1. Few years back, giftsclaimed, no relief will be were regarded as incomeallowed under Section 89. in the hands of the recipients. The amendment
was brought in the past Commentstaxing gifts received by 1. The proposedway of cash in the hands of amendment seeks to taxrecipients in certain LLPs as partnership firm. Itsituations. is also provided that every2. The scope is now partner of a LLP shall beenhanced to cover the gifts jointly and severally liableby way of tangible or for the taxes to be paid byintangible property the LLP for the periodexceeding Rs. 50,000/-. during which he was a partner, unless the non-Comments recovery of taxes cannot be attributed to gross1. As per the reading of neglect, misfeasance orthe provisions on the breach of duty on his part.statute, the gifts in kind 2. It is not understood aswere outside the purview to what would be theof the tax net u/s. 56. as purpose of existence of LLPincome is the same were to be2. The Finance Bill has treated akin to partnershipnow sought to expand the firms. One of the primarysaid scope to include gifts benefit of the LLP was theby way of tangible and limited liability of theintangible property partners. However, the Lawexceeding Rs. 50,000. has been provided to hold the partner jointly and Sr. No. Subject severally nullifying the very A21 Limited Liability purpose for which the said Partnership entity is formed. Amended 3. LLPs are also excluded Sec. +/- from the provisions of -- + A.Y. 2010-11 presumptive taxation contained in section 44ADHighlights of the Act.1. The new provisions Sr. No. Subjectintroduced in relation to A22 MAT-Book profitthe taxation of LLP do not Amendedtreat the LLP as a Sec. +/- w.e.f.transparent entity but treat 115JB - A.Y. 2010-11the same at par with thegeneral partnerships underthe Indian Partnership Act, Highlights1932.2. Accordingly, all the 1. The MAT rate is nowprovisions relating to the increased from 10% to 15%firm will apply to LLP. The of the book profit.income of the LLP shall be 2. Further, it is proposedtaxed as the income of the that amounts set aside as afirm and accordingly, the ‘provision for diminution inshare of the partners from the value of any asset’LLP shall be exempt in the would need to be addedhands of the partner. back in computing the ‘Book profits’ u/s. 1115JB.
3. It is also proposed that business higher than theMAT tax credit will be aforesaid sum claimed toallowed to be carried be earned by the assessee.forward for a period of 10 3. The scheme will applyyears [as against the to such individual, Hinduperiod of 7 years at undivided family andpresent] partnership firm but not LLPs whose total turnoverComments does not exceed 40 Lakhs. 4. It is also proposed that1. Recently, the Apex such an assessee will notCourt had taken a view in be eligible to claim athe case of HCL Comnet deduction under any of theSystems & Services Limited sections 10A, 10AA, 10B,[305 ITR 408] that the 10BA or deduction underprovision for diminution in any provision of Chapterthe value of assets should VIA.not be added back for the 5. It is proposed that thepurpose of computing book provisions relating to theprofits. The said ruling is payment of advance taxnow reversed by the shall not apply to theproposed amendment. assessee, who opts for the2. Further, while on one said scheme in respect ofhand the MAT rate is such business.increased substantially, the 6. However, it providedassessees are allowed MAT that those assessee havingcredit for a period of 10 turnover less than 40 lakhsyears instead of 7 years at and showing profits lowerpresent. than 8% will have to maintain the boos of Sr. No. Subject accounts and also get his A23 Presumptive Taxation accounts audited u/s. Introduced44AB. Sec. +/- 44AD + Comments A.Y. 2010-11Highlights 1. This provision certainly benefits the assessee who1. At present the intends to avoid anypresumptive taxation complications of maintainscheme is applicable only the books of accounts andto the specified businesses. also avoid scrutiny by the2. The proposed section tax department.seeks to provide for 2. However, thoseestimating income of showing profits lesser thanassessee who is engaged 8% will have to maintainin any business except the the books of accounts andbusiness of plying, hiring or also get their accountsleasing goods carriages audited.referred to in section 44AE.The income is presumed to Sr. No. Subjectbe earned at a sum equal A24 Transfer Pricing- Rangeto 8% of the total turnover Amendedor gross receipts of such Sec. +/- w.e.f.
92C 01.10.2009 to entire difference extend including 5%.Highlights 3. Till date in various judgments the Tribunal hadIt is proposed that where held that the 5% rangemore than one price is should be allowed to thedetermined by the most taxpayer even in casesappropriate method, the where the price of thearm’s length price shall be transaction was outside thetaken to be the 5% range. Rulings wherearithmetical mean of such this principle has beenprices and further the affirmed are as follows:variation between the a) Developmentarm’s length price so Consultants Pvt.determined and price at Ltd. Vs DCIT [115which the international TTJ 577 (Kol)]transaction has actually b) Mentor Graphicsbeen undertaken does not (Noida) Pvt. Ltd. Vsexceed five per cent of the DCIT [18 SOT 76latter, the price at which (Del)]the international c) Sony India (P)transaction has actually Limited Vs DCITbeen undertaken shall be [2008-TIOL 439deemed to be the arm’s (Del)]length price. 4. The above rulings have now been formalized underComments the Statute.1. The proposed Sr. No. Subjectamendment provides that A25 Transfer Pricing – Safewhere the variation Harbour Rulesbetween the arm’s length Amendedprice determined and the Sec. +/- w.e.f.price at which the 92C + A.Y. 2010-11international transactionhas actually been Highlightsundertaken does notexceed 5% of the 1. It is proposed toInternational Transaction, provide that thethen such price of the determination of arm’sInternational Transaction length price u/s. 92C orshall be considered as 92CA shall be subject toArm’s length Price. At safe harbour rules topresent, the proviso framed by CBDT.requires for computation of 2. It is also proposed to5% variation on the define ‘safe harbour’ toarithmetic mean) means circumstances in2. However, it is not clear which the income taxas to when the variation authorities shall accept theexceeds 5%, what would transfer price declared bybe the adjustment to the the assessee, to be atincome of the taxpayer. Arm’s Length.Would the adjustment berestricted to variation inexcess of 5% or it would
Comments persons within the provisions of TDS.The proposed amendment 5. It is further proposed toseeks to provide some amend the provisions toleverage to small tax clarify that no TDS is to bepayers by allowing the made on the amount ofexchequer to accept the raw material whereprice under specified invoices distinctivelycircumstances. In other specify the value of rawwords, the rigidity of the material. If composite bill issaid provisions of Transfer raised, then TDS is to bepricing is diluted. made on the whole amount. Sr. No. Subject A26 Comments TDS – TDS on contractors Clarified Sec. +/- 1. The provisions relating 194C + 01.10.2009 on contractors are to TDS substantially amended to exclude the separateHighlights category of sub-contractors1. The definition of sub- and consider them as partcontractors has been done of the contractors.away with and the sub- 2. Similarly, the TDS ratescontractors are considered are now rationalized basedat par with the contractors. on the type of payee as2. As per the proposed compared to based on theamendment there will be type of work involvedonly two categories of earlier.deductees and accordingly 3. A dispute was raised inthe rates as tabulated the case of Whirl Pool Indiaherein below are Ltd. [16 SOT 435 (Del)]prescribed: wherein it was held that where vendor purchases Category of Rates raw material on his own payee % and goods are (deductee) manufactured based onIndividuals and 1 specifications given by theHUF’s assessee, it is a case ofOthers 2 sale of goods and not job work.3. Further, it is proposed 4. The controversy whichthat no TDS to be made by had reached the Hon’blethe person in the course of Bombay High Court in thebusiness of plying, hiring or case of BDA Ltd. v. ITOleasing goods carriages (TDS) [281 ITR 99 (Bom)]subject to the contractor was now settled by holdingproviding PAN that if the contractors does4. It is also proposed not any work based on theto cover the contract of specification provided bymanufacturing goods as the customer with the helpper the specifications of of goods purchased fromcustomer by using material any person other thanpurchased from other customer, it would not be liable to TDS.
5. It is also additionallyprovided that in case of Sr. No. Subjectsuch transaction involving A28 TDS – Surcharge andTDS liability, no TDS would Cessbe levied if the value of Amendedraw material is distinctly Sec. +/- w.e.f.specified in the invoice. 191 + A.Y. 2010-11 Sr. No. Subject Highlights A27 TDS – TDS on rent Amended 1. It is proposed to Sec. +/- withdraw surcharge on TDS 194I + 01.10.2009 the payments except on all payments made to foreignHighlights companies. 2. Further, it is also1. The TDS rates on the proposed to levy cess onlyrental payments have also on TDS on salarybeen rationalized by payments. Now no cess toreducing the tax rates. The be levied on any other TDSrates at present are as payments.follows: Comments Rent Individu payment al or This is a welcome HUF suggestion reducing the P & M or 10 tax burden on the equipment assessee. Land, 15 building or Sr. No. Subject furniture A29 TDS – assessee in default Amended2. The proposed tax rates Sec. +/- w.e.f.are as follows: 201 + A.Y. 2010-11 Rent Individu Highlights payment al or HUF 1. It is proposed that an order u/s. 201(1) for failure P & M or 2 to deduct tax will be equipment passed within 2 years from Land, 10 the end of the financial building or year in which the furniture statement of tax deduction at source is filed by theComments deductor. 2. Where no suchThis amendment will statement is filed, suchreduce the burden of TDS order can be passed up tillliability on the assessee 4 years from the end of thesubstantially and will also financial year in which thebenefit the recipients as payment is made or creditthe margins in the rental is given.activity have fallen down.
Comments Sr. No. Subject1. The said time limits A30 Wealth Tax – Thresholdwere required to be set Limitlong ago and hence the Amendedsame would create a bar Sec. +/- w.e.f.on the departmental offices WT + A.Y. 2010-11as they used to pass theorders after a considerable Highlightslag of time. The threshold limit of2. This amendment is also exemption from Wealthin line with the view of Tax is proposed to beRaymond Woolen Mills Ltd. raised from Rs. 15,00,000/-v. ITO (57 ITD 536) (Mum). to Rs. 30,00,000/-.In fact, even the Specialbench in the case of CommentsMahindra & Mahindra Ltd.[unreported] has held that This is a welcome proposalthe order passed after the in light of the increasedperiod of 6 years is invalid. standard of living and better saving habits.
rates of tax on income ……The comparative chart showing the tax rates for various levelsof income during A.Y. 2009-10 and A.Y. 2010-11 is givenbelow:For Male (below 65 years of age) Slab Rates A.Y. 2009-10 A.Y. 2010-11 Tax SC EC Total Tax SC EC TotaUpto 1,50,000 0 0 0 0 0 0 01,50,001 to 1,60,000 10.00 0.00 0.30 10.30 0 0 01,60,001 to 2,50,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.32,50,001 to 3,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.33,00,001 to 5,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.65,00,001 to 10,00,000 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.910,00,001 and above 30.00 3.00 0.90 33.90 30.00 0.00 0.90 30.9For Female (below 65 years of age) Slab Rates A.Y. 2009-10 A.Y. 2010-11 Tax SC EC Total Tax SC EC TotaUpto 1,80,000 0 0 0 0 0 0 0 01,80,001 to 1,90,000 10.00 0.00 0.30 10.30 0 0 0 01,90,001 to 2,50,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.302,50,001 to 3,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.303,00,001 to 5,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.605,00,001 to 10,00,000 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.9010,00,001 and above 30.00 3.00 0.90 33.90 30.00 0.00 0.90 33.90For Senior Citizens Slab Rates A.Y. 2009-10 A.Y. 2010-11 Tax SC EC Total Tax SC EC TotaUpto 2,25,000 0 0 0 0 0 0 02,25,001 to 2,40,000 10.00 0.00 0.30 10.30 0 0 02,40,001 to 2,50,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.32,50,001 to 3,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.33,00,001 to 5,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.65,00,001 to 10,00,000 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.910,00,001 and above 30.00 3.00 0.90 33.90 30.00 0.00 0.90 30.9
snapshot of the judicial decisions considered Amendment Sectio Decision Decisions on the issue n approved /overturned by amendmentNo deduction to be allowed if the 80A Approved • ACIT vs. Rogini Garments &profits are already allowed u/s. 10A/ Others [108 ITD 49]10B/80IA. • Hindustan Mint & Agro Products Pvt. Ltd.[ITA No. 1537/Del/07 dated 23.06.2009]No deduction if the same is not 80A Approved • Goetze (India) Ltd. v. CIT [284 ITRclaimed in the return of income 323]. • CBDT circular No. 14(X1-35) of 1955, dated 11.04.1955 • Chokshi Metal Refinery v. CIT [107 ITR 63 (Guj)], CIT v. • Ahmedabad Keiser-E-Hind Mills Ltd. [128 ITR 486 (Guj)]Provision for doubtful debts should 115JB Overturned • HCL Comnet Systems & Servicesbe added back for the purpose of Limited [305 ITR 408]computing book profitsIf the contractors does any work 194C Overturned • BDA Ltd. v. ITO (TDS) [281 ITR 99based on the specification provided (Bom)]by the customer with the help of • Whirl Pool India Ltd. [16 SOTgoods purchased from any person 435 (Del)]other than customer, it would notbe liable to TDS.Stamp Duty valuation to be adopted 50C Overturned • Navneet Kumar Thakkar v.even in case where the document is ITO[298 ITR 42] (Jodhpur)not registered.Person entitled to deduction u/s. 10(10C Overturned • CIT v. Koodathil Kallytan10(10C) cannot claim further relief )/89 Ambujakshan [219 CTR 80u/s. 89 and vice versa. (Bom)]. • CIT vs. Nagesh Devidas Kulkarni [291 ITR 407 (Bom)]If the variation between the arm’s 92C Approved • Development Consultants Pvt.length price determined and the Ltd. Vs DCIT [115 TTJ 577 (Kol)]price at which the international • Mentor Graphics (Noida) Pvt. Ltd.transaction has actually been Vs DCIT [18 SOT 76 (Del)]undertaken does not exceed 5% , • Sony India (P) Limited Vs DCITthen such price of the International [2008-TIOL 439 (Del)]Transaction be accepted as ALPAn order u/s. 201(1) for failure to 201 Approved • Raymond Woolen Mills Ltd. v. ITOdeduct tax to be passed within 2 (57 ITD 536) (Mum)years from the end of the F.Y. in • Mahindra & Mahindra Ltd.which TDS statement filed. In any [unreported]other case, the period is 4 yearsfrom the date of credit of amount.
service tax…… Central Excise are aligned. There was an exception inSr. No. Subject the treatment to an order- D1 Notifications in-original passed by an Amended officer subordinate to Sec. +/- Commissioner. If the same As Under +/- is not acceptable to the Commissioner on account Enactment of its lack of legality or appropriateness; S. 84Highlights provides revision of such1. S. 84 and 86 are being orders, which amounts toamended to bring the recalling the order and re-provision relating revision / adjudicating it.modification of orderpassed by an officersubordinate to thecommissioner, at par with 2. At present the serviceprovisions under S. 34E of tax rules suffer from theCentral Excise Act. Now the deficiency of not havingrevision or modification of provisions relating to (1)such order shall take place relevant date forby a departmental appeal determination of rate ofbefore Commissioner service tax and (2) place of(Appeals). provision of taxable2. S. 94 is being amended services. This has beento empower Central plugged out by authorizingGovernment to prescribe Central Government torules in respect of (a) prescribe rules in thisrelevant date for regard.determination of rate of 3. While these individualservice tax and (b) place of services availed by GTA areprovision of taxable taxable at the hands theservices. service providers, the GTA3. At present Notification cannot take credit of taxNo. 1/2009–ST is granting paid on such services, asexemption for several the abatement allowed toservices received by Goods them is subject to conditionTransport Agents (GTA) that no credit should beduring the movement of availed. This matter wasgoods effective from 5th agitated by the GTA, andJanuary, 2009. Now it has the Government agreed tobeen proposed to give exempt such services. Noweffect retrospectively from this exemption is extended1st January, 2005. from retrospective date to close the pendingComments litigations for the past periods.1. Generally, proceduresunder Service Tax and Sr. No. Subject
D2 Rules apply said provisions to Amended service provider also. Sec. +/- b) At present u/r 6(3),As Under +/- provider of taxable as well 07-07-2009 non-taxable service using common inputs or inputHighlights services and not maintaining separate1. The Works Contract accounts has an option to(Composition Scheme pay an amount at 8% onfor Payment of Service non-taxable services toTax) Rules 2007 avail full CENVAT Credit ona. Explanation appearing common inputs and inputin sub-rule (3) is being services. The said rate ofamended to provide that 8% has been reduced tothe composition scheme 6%.would be available only tosuch works contracts Commentswhere the gross value ofworks contract includes the 1. Now, the benefit ofvalue of all goods used in composition scheme underor in relation to the Works Contract Services toexecution of works contract pay service tax at 4% onwhether received free of gross contract value will becost or for consideration availed only if the grossunder any other contract. contract value includesb. This condition would value of the all the inputsnot apply to those works used in relation to thecontracts, where either the subject work contractexecution of works contract whether supplied underhas already started or any separate contract by thepayment (whether in part contractor or provided freeor in full) has been made by the principal. This willon or before the date of the result in increase in serviceamendment. tax liability of contractors. 2. (a) Effectively, CENVAT2. CENVAT Credit Rules Credit has been denied in2004 respect of capital goodsa. The proposed and inputs which areamendment is to bring written off in books beforeparity between it has been put to use. (b)manufacturer and service Under an option the rate atprovider. In case of which tax is to be paid onmanufacturer, if any input exempted services isor capital goods, on which reduced to correspond toCENVAT Credit is taken, the reduction in rate ofhas been written off fully in service tax from 12% tothe books of accounts 10% announced duringbefore it has been put to Feb.2009.use, the manufacturer isrequired to pay an amount Sr. No. Subjectequivalent to the CENVAT D3 New Services Coveredcredit taken. The Rule 3 Introduced(5B) is being amended to Sec. +/- w.e.f. 65 - Date to be
surgery Notified undertaken to preserve or enhanceHighlights physical appearance orFollowing are the new beauty. However, anyservices added to service reconstructive surgerytax net. These services undertaken to restoreshall be liable to tax from one’s appearance,the date to be notified after anatomy or bodilythe enactment of the functions affected due toFinance Bill 2009. congenital defects, developmental abnormalities,1. Transport of goods degenerative diseases,through Rail: As on date injury or trauma would betransportation of goods by outside the scope of thisnon-government railway in service.containers is liable toservice tax. Now it is Commentsproposed thetransportation of goodseither in container or 1. In case of transport ofotherwise and whether by goods through rail,non- government or transport of coastal goodsgovernment rail – all shall and goods transportedbe liable to service tax. through inland water, it is proposed that suitable2. Transport of coastal abatement and /orgoods and goods exemption to specifiedtransported through goods shall be provided atinland water: Under this appropriate time i.e. at thecategory costal goods and time of notifying thesetransport of goods through services.national waterways and 2. Services by legal firmsinland water in respect of appearance3. Legal Consultancy and representation beforeServices: This category any court or statutoryshall cover consultancy, authority shall remain outadvice and technical side the scope of thisassistance in any discipline service.of law. However, this shall 3. The introduction ofhave limited in case of service category Cosmeticservice provided by a and Plastic surgery servicebusiness entity to another will nullify the impact ofbusiness entity and shall decision by Ahmedabadnot cover the services Tribunal in case of Newprovided by an individual Look Cosmetic Laserto any other individual or Centre.business entity andservices provided by a Sr. No. Subjectbusiness entity to an D4 Existing Services - Scopeindividual. Modified Modified4. Cosmetic and Plastic Sec. +/- w.e.f.Surgery Services: This 65 -/+ Date to becategory shall cover Notifiedcosmetic and plastic
first brought to service taxHighlights net. Comments1. Business Auxiliary 1. The changes proposedService: At present under are to cover up thethis category the omission or error inproduction and processing existing provisions.which amounts tomanufacture was not Sr. No. Subjectcovered. The scope of D5 Exemptions Introducedexclusion has been Introducednarrowed and accordinglythe production and Sec. +/- w.e.f.processing which result in Several Sec. + 07.07.2009manufacture of excisablegoods shall not be covered. HighlightsIn other words, services inrelation to production and 1. Notification No.processing amounting to 20/2009 dated 7th July,manufacture of non 2009 provides exemptionexcisable goods shall get from the payment ofcovered here. service tax to services in relation to point to point2. Stock Broker transportation ofServices: The sub-brokers passengers by private busare excluded from the operators, who operatesscope of Stock Brokers and buses having ‘contracthence sub-brokers who are carriage permit’ on specificreceiving commission / inter state or intra statebrokerage from the main- routes.brokers are not liable to The exemption shall not beservice tax under this available to transportationcategory. Further, it has in relation to tourism orbeen clarified that such conducted tours, or chartersub-broker shall not be or hire.liable even under Business 2. Notification No.Auxiliary Services. 19/2009 dated 7th July, 2009 provides exemption3. Information from the payment ofTechnology Software service tax on the servicesServices: Definition of in relation to inter banktaxable services has been sale / purchase of Foreigncorrected by replacing the Exchange and Moneyword ‘acquiring’ by the Changing undertaken byword ‘providing’, Scheduled banks.considering the fact that it 3. Notification No.is the providing of ‘right to 16/2009 dated 7th July,use’ and not the acquiring 2009 provides exemptionof ‘right to use’ which is from the payment ofliable to tax. This service tax on the feescorrection is effective from collected by Federation of16th May 2008 the date Indian Export Promotionfrom which the service was Organization and specified export promotion councils
from their members. This (a) Exemption: GTAexemption has been services in relation toprovided for limited period certain transportation andup to 31st March, 2010. foreign commission agent service in relation to exportComments of goods are exempted to avoid first payment of tax1. Exemption provided to by the exporter, as theseprivate bus operators will are liable under reversebring the parity between charge method in hands ofthem and buses run by the recipient of services, andState Undertakings. then claiming refund by the2. Exemption to schedule same exporter.banks in relation to inter (b) Refund: In case of otherbank transaction shall not services, the exporter canmake any difference as avail refund. The newotherwise tax paid would scheme notified to takehave been allowed as care of grievances by theCENVAT credit. exporters and field staff.3. The limited exemption 3. The important salientthat too for period of less features of the scheme arethan a year shall serve as follow:hardly any purpose. a) List of eligible services enlarged by including Sr. No. Subject terminal handling D6 Refund Scheme forcharges. Exporters b) The time period for Amended claiming refund Sec. +/- increased to 1 year Several Sec. + To be notified the date of export. from c) Condition to file one claim during oneHighlights quarter is removed.1. Notification No. 17 and d) Form for refund claim is18/ 2009 dated 7th July, being simplified.2007 has notifiedrevamped scheme of Self certified documents ifrefund of service tax paid the refund claim is upon taxable services, 0.25% of FOB value ofreceived and used in goods exported andconnection with export of documents certified by CAgoods by merchant/ if the claim exceeds 0.25%manufacturer exporter. of FOB value of goods2. The scheme consists of exported.2 parts.