1. kabhi khushi kabhi ghum………
The Union Budget 2009 presented by Hon’ble Finance Minister Shri Pranab
Mukherjee this time had a tough task of managing the moods of the ‘Aam
Admi’ and ‘India Inc’ at a time when the world is still struggling with an
unprecedented financial crisis and an economic slowdown that has also
affected India. Very speculative views are moving around as to the phase of
recession where some may see a turnaround in the financial crisis whereas
some 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 is
evident from the fact that the Stock market which was about 100 points up in
the morning on the day when the Bill was presented by Hon’ble FM, has fallen
by as low as 650 points on conclusion of the Budget speech, and by 900 points
at the end of the day, perhaps, one of the largest hit by the Budgets so far. This
is so because this market had far more expectations from the Government. The
Hon’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 and
remove 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-tax
and Wealth Tax are enhanced for the Aam Admi. Sticking to the theme of
“inclusive growth” espoused by the UPA Government, the FM also unveiled
breaks for exporters hard-hit by the global downturn and direct subsidies for
farmers. The Commodity Transaction Tax as well the Fringe Benefit Taxes are
also abolished.
All in all, the Budget may be called as neutral budget. We have tried to analyze
the 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 the
information contained herein, no warranty, express or implied, is being made, by Smart Consultants Pvt. Ltd. as
regards the accuracy and adequacy of the information contained herein. The information in this material is not
intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The
information 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 should
consult a qualified professional adviser. This material is intended only for the use of the entity / person to whom it is
addressed and the others authorized to receive it on their behalf. The recipient is strictly prohibited from further
circulation of this material.
Smart Consultants Pvt. Ltd. Page 1 of 29
3. FINANCE (No. 2) BILL,
2009
HIGHLIGHTS & COMMENTS
Just as one plucks fruits from a garden as they ripen, so shall a King have
revenue collected as it becomes due. Just as one does not collect unripe
fruits, he shall avoid taking wealth that is not due because that will make the
people angry and spoil the very sources of revenue.
- Kautilya
Democracy is the art and science of mobilizing the entire physical, economic
and spiritual resources of various sections of the people in the service of the
common good of all.
- Mahatma Gandhi
Smart Consultants Pvt. Ltd. Page 3 of 29
6. 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 exporters
Smart Consultants Pvt. Ltd. Page 6 of 29
7. 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. It
Highlights
appears that the tax payer
may chose not to respond
1. It is proposed to
at all in which case the
introduce an Alternate
Assessing Officer may pass
Dispute Resolution Scheme
the order based on the
for certain classes of
evidences which are
Eligible Assessees.
available on record.
2. ‘Eligible Assessees’ 3. The Assessing Officer
means: 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 provide
involves setting up a guidance to the AO to
Dispute Resolution Panel, complete the assessment
which would be set-up by based on review of
CBDT in due course. objections and evidence/
4. The order of the AO information. It can either
finalized based in reduce, accept or enhance
pursuance to an order of the variation proposed in
the DRP can be appealed the order by the Assessing
to the ITAT. Officer.
5. However, the DRP shall
Comments
not have any power to set
aside or issue any
1. The amendment is directions to the Assessing
proposed to curtail and Officer. This means that
streamline the dispute the DRP will have to decide
process for the foreign based on the evidences
companies. It will provide gathered by the Assessing
an alternative forum to Officer and is required to
settle complicated tax examine only the
disputes outside the correctness of the view
normal appellate taken by the Assessing
proceedings. Officer based on the
2. As per the said new existing records.
process, once the AO has
8. 6. The direction of the
DRP is binding on the Sr. No. Subject
Assessing Officer. The A3 Business expense –
direction shall be given Weighted deduction
within a period of 9 months Introduced
from the end of the month Sec. +/- w.e.f.
in which the draft order is 35(2AB) + A.Y. 2010-11
forwarded to the Eligible
Assessee.
Highlights
7. The DRP shall not pass
any directions which are Weighted deduction of 150
prejudicial to the interest of % allowed for in-house R
the Assessee, without and D activity carried out
hearing the assessee. by the companies will be
8. The provisions relating extended to those engaged
to DRP is a welcome in business of manufacture
provision since it seeks to or production of an article
bring some accountability or things except those
with the officers as the specified in the Eleventh
orders of the Assessing Schedule of the IT Act.
Officer now will be under
review by the officers of Comments
the rank of commissioners
constituting DRP. 1. Weighted deduction is
9. In case where the order present allowed to
is passed by the Assessing companies engaged in the
Officer 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 or
Highlights production of article or
things except those
The limit for attracting specified in the Eleventh
liability to pay advance tax Schedule.
has been enhanced from 2. This will largely benefit
Rs. 5,000/- to Rs. 10,000/-. the companies who are
required to incur expense
Comments on in-house R & D facilities.
With the proposed Sr. No. Subject
amendment, the interest u/ A4 Business expense –
s. 234B and 234C will not Capital Exp. in specified
be attracted if the advance activity
tax liability of the assessee Introduction
is less than Rs. 10,000/- as Sec. +/- w.e.f.
against the present limit of 35AD/73A + A.Y. 2010-11
Rs. 5,000/-.
9. set off against the profits
Highlights or gains from another
specified business. If loss
1. It is proposed to cannot be set off the same
provide benefit of the can be carried forward for
capital expenditure wholly subsequent assessment
and exclusively for the year(s) against specified
following specified business. Since there is no
business – 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 not
include any expenditure Comments
incurred on acquisition of
land or goodwill or financial 1. The Hon’ble FM has
instruments. stated in the Budget
3. The benefit is also speech that he proposes to
available if the same is introduce the investment
spent for laying of cross- based deductions as
country pipeline, the against the profit based
benefit being available in deductions.
case if the business 2. In line with the said
commences on or after 1 objective and with a view
April 2007. to create rural
4. For other specified infrastructure and
business, the benefit will environment friendly
be available if such alternate means of
business commences its transportation for bulk
operations on or after 1 goods, it is proposed to
April 2009. provide investment linked
5. However, no deduction tax incentives by inserting
will be allowed under a new Section 35AD.
Chapter VI A for the 3. This provisions are
specified business. applicable to the specified
6. Loss arrived on any of business in respect of
specified business can be capital expenditure
10. incurred by them other firm and professional firms
than expenses incurred for were different. These limits
acquisition of land or are now brought at par.
goodwill or financial
instruments. Quantum of profits Amount
4. However, what allowed as
constitutes financial remuneration
instruments has not been For the first Rs. Rs. 1,50,000 or
defined. The deduction will 3,00,000/- of the at the rate of
be allowed for the book-profit or in case 90% of book-
expenses capitalized in the of a loss profit, whichever
earlier year and also for the is more.
expenses incurred during For the balance of At the rate of
the previous year of its the book-profit 60%.
applicability.
5. However, no deduction Comments
under Chapter VIA for the
same will be allowed. This was a much needed
6. Further deduction change since the limits
under section 80 IA to the under the Act are years
business of laying and old.
operating a cross country
natural gas distribution
Sr. No. Subject
network will be
A6 Business expenses- Cash
discontinued. However,
payments
they would be allowed to
claim deduction under Amended
section 35AD. Sec. +/- w.e.f.
7. Of course, no deduction 40A(3) + 01.10.2009
will be allowed unless the
accounts are audited or Highlights
due to close relationship
1. Cash payments are
the profits earned from the
disallowed if the same are
specified business are
in excess of limit of Rs.
more than the ordinary
20,000/- in a day.
profit earned in such
2. No disallowance is
business.
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
Comments
Highlights 1. It appears that the
Govt. has accepted that
1. The limits for allowing the transport sector is still
the deduction on account an unorganized sector and
of partners’ remuneration hence the payment to
is enhanced. them by cheque was
2. Further, the said limits causing a great hardship
of remuneration to the for small transporters.
partners of the business
11. 2. In an attempt to reduce the value of the property
such hardship, the limit of shall be the value which
payments made in cash is the stamp duty valuation
enhanced from Rs. 20,000/- officer would have
to Rs. 35,000/- in respect of determined had the
payments made for plying, transfer of property been
hiring or leasing of goods registered with such
carriages. 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
Highlights
Highlights
1. No deduction under
1. Section 50C provides Chapter VI A will be
that stamp value of the allowed if the tax
property shall be deduction for the profits
considered full value and gains has already been
consideration if the stamp allowed u/s. 10A or s. 10AA
value exceeds the actual or s. 10B or under any
transaction value provision of Chapter VIA.
2. The scope of aforesaid 2. Further, the aggregate
section has been expanded of deductions allowed
to include transactions under any of the said
which are not registered sections shall not exceed
with the stamp duty the profits and gains of the
valuation officer. undertaking.
3. It is also proposed that
Comments transfer price of goods and
services between the
1. Recently in Navneet undertaking/unit, etc. shall
Kumar Thakkar v. ITO [298 be determined at the
ITR 42] (Jodhpur), it was market value as on date of
held that s. 50C is transfer. The same will be
applicable only in case effective from 1 April 2009
where the agreement is and will apply to any
registered with the stamp proceedings which are
duty authorities. Hence, if pending before any
the document is not authority on or after such
registered with the stamp date.
duty authorities, s. 50C 4. However, it is
cannot be invoked and the specifically proposed that
assessee cannot be held no deduction will be
liable on enhanced capital allowed under the various
gain tax. provisions mentioned
2. The amendment seeks above if the same is not
to overrule the said view claimed in the return of
and provides for the income.
valuation mechanism in
such a case stating that Comments
12. 1. There was a CBDT No. 14(X1-35) of
controversy as to the 1955, dated 11.04.1955 as
amount of profits which are approved in the cases like
eligible for deduction u/s. Chokshi Metal Refinery v.
10A/80IA, etc. in case CIT [107 ITR 63 (Guj)], CIT
where the assessee is also v. Ahmedabad Keiser-E-
eligible for deduction under Hind Mills Ltd. [128 ITR
any other section under 486 (Guj)] and many more.
Chapter VI-A or u/s.
10A/10B, etc. Sr. No. Subject
2. The issue had arose in A8 Chapter VIA Deduction –
the case of ACIT vs. Rogini New Businesses
Garments & Others [108 Extended
ITD 49] which was upheld Sec. +/- w.e.f.
by 5 member bench in the 80-IA + A.Y. 2010-11
case of ACIT vs. Hindustan
Mint & Agro Products Pvt.
Highlights
Ltd.[119 ITD 107 (SB)
(Del).] wherein it was held
1. Tax holiday is proposed
that in case of an eligible
to be extended for an
industrial undertaking (IU),
undertaking which
the deduction of export
commences following
profit u./s. 80HHC is
business on or before
required to be computed
31.03.2011:
after reducing the profits
a) generation or
which are allowed as
generation and
deduction under Section
distribution of
80IA or 80IB. The
power;
amendment has thus
b) transmission or
approved the decision of
distribution by
the 5 member bench.
laying a network of
3. It is also proposed that
new transmission or
the deduction shall not be
distribution lines;
allowed in excess of the
c) substantial
total profits of the eligible
renovation and
undertaking. This
modernization of
amendment also seeks to
existing network of
resolve the controversy
transmission or
raised by several decisions
distribution lines
wherein it has been held
2. Further, tax holiday
that the deduction u/s.
benefit will also extended
10A/10B had no co-relation
to an undertaking owned
with the gross total
by an Indian Company set
income.
up for reconstruction or
4. This amendment also
revival of power
aims at restricting the
generation, if such
benefit if the same is not
undertaking commences
claimed in the return of
the activity of generation,
income and formalize the
transmission or distribution
law laid down by Apex
of power on or before
Court in case of Goetze
31.03.2011.
(India) Ltd. v. CIT [284 ITR
323]. This, of course, goes
Comments
against the time tested
benevolent Circular of the
13. The deadline to start the
eligible businesses for Comments
claiming the benefit u/s. 1. The proposed
80-IA is extended from amendment has sought to
31.03.2010 to 31.03.2011. include the loans taken for
studies to pursue courses
Sr. 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 larger
Highlights and deeper human
resource base in India.
1. The deduction is
presently allowed for Sr. No. Subject
expenditure incurred by an A12 Chapter VIA/III deduction
individual or an HUF on - Definition of
medical treatment, training ‘Manufacture’
and rehabilitation of a Clarified
dependent possessing Sec. +/- w.e.f.
disability. Chp. III/VI—A - A.Y. 2010-11
2. The limit of the
expenditure incurred by
the assessee increased Highlights
from Rs. 75,000 to Rs.
1,00,000. 1. A new sub-section has
Comments been introduced in the IT
Act to define the term
The enhancement of the ‘manufacture’.
limit for deduction to 2. The term has been
medically handicapped defined to mean a change
dependants is a welcome in a non-living physical
move for the specified object or article or thing
class 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. 2010-11
Highlights 1. The term ‘manufacture’
has been subject matter of
1. At present, s. 80E substantial controversy
allows deduction for the over the years since no
interest paid on loan such definition is provided
availed higher education. under the Act. This is the
2. The scope of the term welcome move as it may
‘higher education’ is give a defined direction
expanded by including while examining the facts
additional field of studies. relating to ‘manufacture’
14. 2. However, the said The last year for claiming
definition is differently the benefit u/s. 10A/10B is
worded as compared to the extended from A.Y. 2010-
definition given under the 11 to A.Y. 2011-12.
SEZ Act, 2005 which is
presently adopted in many Sr. No. Subject
provisions of the Act. A14 Chapter VIA/III deduction
3. Since no specific date – SEZ
of implementation is Amended
specified and that the term Sec. +/- w.e.f.
has been defined to resolve 10AA + A.Y. 2010-11
the long drawn
controversy, it may be
Highlights
looked upon as a
clarificatory amendment 1. S. 10AA provided the
affecting the past years.
computation of deduction
4. Further, the term also
being such amount as the
covers only ‘object, article
export turnover of the
or thing’ unlike the other
undertaking bears to the
sections where the
total turnover of the
computer software has also
business. Since the
been covered. This would
deduction was granted as a
mean that the definition of
proportion of the export
‘manufacture’ would only
turnover of undertaking to
be applicable to object,
the turnover of business,
article or thing and not to
there was anomaly in such
computer software. The
comparison as the base for
meaning of the
determining the turnover
manufacture for ‘computer
was different.
software’ may have to be
2. The agitation before
imported from common
the Legislature was that
sense or the definition as
the computation of
given 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 therefore
Highlights seeks to remove the said
disparity by comparing and
S. 10A and 10B provided determining the proportion
tax holiday to specified of the export turnover of
undertakings till A.Y. 2010- the undertaking to the total
11. The said time limit is turnover of the
now extended till A.Y. undertaking.
2011-12.
Comments
Comments
Since the deduction was
granted considering the
15. export turnover of the 1. At present all
undertaking and the total anonymous donations are
turnover of the entire taxable in the hands of the
business, there was charitable trusts.
diaparity is calculating the 2. It is now proposed to
quantum of deduction due amend the said provisions
to different base and by permitting the
consequently, the anonymous donations upto
deduction granted to the Rs. 1,00,000/- or 5% of the
assessee was much less total income, whichever is
than intended by the higher and hence any
proposed section. The said amount in excess of such
disparity is now removed limit would be taxable.
by the proposed
amendment. 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. Subject
Highlights A17 Commodity Transaction
Tax (CTT)
The definition of Abolished
“charitable purpose” is Sec. +/- w.e.f.
proposed to be extended to 36(1)(xvi) + 01.04.2009
include activities of
preservation of
Highlights
environment (including
watersheds forests and The Hon’ble FM had
wildlife) and preservation introduced CTT in his
of monuments or places or earlier budget on the
objects of artistic or transactions of purchase
historic interest. and sale of commodities.
The said tax is now
Comments abolished with
retrospective effect from
This is a welcome move to 01.04.2009.
achieve the “Green India”
and also to save the places Comments
and items of historical
interest. 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, the
Highlights same appears to have
been abolished now.
16. 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 [219
Highlights
CTR 80 (Bom)].
1. Section 10(10C)
b) CIT vs. Nagesh
provides for exemption
Devidas Kulkarni
with regard to amount
[291 ITR 407 (Bom)]
received by an assessee on
voluntary retirement
Sr. No. Subject
provided certain conditions
in this regard are satisfied. A19 FBT – Abolished
2. A proviso has been Amended
added to the aforesaid Sec. +/- w.e.f.
Section, to restrict 115WB + A.Y. 2010-11
availability of deduction
under Section 10(10C) for Highlights
amount received on
voluntary retirement in 1. Fringe Benefit Tax
case the assessee has introduced by Finance Act,
claimed relief u/s. 89. 2005 has now been
abolished with effect from
Comments 1 April 2010, i.e. AY 2010-
11.
1. Under the current
scheme of things, an 2. However, the taxation
individual assessee was in of the fringe benefits as
a position to claim perquisites in the hands of
exemption under Section employee will be
10(10C) as well as relief reintroduced (Section 17
under Section 89 of the Act (2)(vi), (vii) and (viii))
(relief for tax rate
differential), if the payment Comments
was made in a staggered
manner. Since the cost of
2. The proposed compliance and the
amendment seeks to procedure involved in FBT
restrict the assessee from was substantially high, it
claiming exemption who was a right move to abolish
has claimed relief u/s. 89, the said Law.
from claiming deduction
under the aforesaid section Sr. No. Subject
with respect to the same A20 Income-Gift
amount. The corresponding Amended
amendment is also Sec. +/- w.e.f.
proposed to s. 89. The 56 - 01.10.2009
proviso has been
introduced to clarify that in Highlights
case deduction under
aforesaid section has been 1. Few years back, gifts
claimed, no relief will be were regarded as income
allowed under Section 89. in the hands of the
recipients. The amendment
17. was brought in the past Comments
taxing gifts received by
1. The proposed
way of cash in the hands of
amendment seeks to tax
recipients in certain
LLPs as partnership firm. It
situations.
is also provided that every
2. The scope is now
partner of a LLP shall be
enhanced to cover the gifts
jointly and severally liable
by way of tangible or
for the taxes to be paid by
intangible property
the LLP for the period
exceeding Rs. 50,000/-.
during which he was a
partner, unless the non-
Comments
recovery of taxes cannot
be attributed to gross
1. As per the reading of
neglect, misfeasance or
the provisions on the
breach of duty on his part.
statute, the gifts in kind
2. It is not understood as
were outside the purview
to what would be the
of the tax net u/s. 56. as
purpose of existence of LLP
income
is the same were to be
2. The Finance Bill has
treated akin to partnership
now sought to expand the
firms. One of the primary
said scope to include gifts
benefit of the LLP was the
by way of tangible and
limited liability of the
intangible property
partners. However, the Law
exceeding 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 44AD
Highlights of the Act.
1. The new provisions Sr. No. Subject
introduced in relation to A22 MAT-Book profit
the taxation of LLP do not Amended
treat the LLP as a
Sec. +/- w.e.f.
transparent entity but treat
115JB - A.Y. 2010-11
the same at par with the
general partnerships under
the Indian Partnership Act, Highlights
1932.
2. Accordingly, all the 1. The MAT rate is now
provisions 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 proposed
taxed as the income of the that amounts set aside as a
firm and accordingly, the ‘provision for diminution in
share of the partners from the value of any asset’
LLP shall be exempt in the would need to be added
hands of the partner. back in computing the
‘Book profits’ u/s. 1115JB.
18. 3. It is also proposed that business higher than the
MAT tax credit will be aforesaid sum claimed to
allowed to be carried be earned by the assessee.
forward for a period of 10 3. The scheme will apply
years [as against the to such individual, Hindu
period of 7 years at undivided family and
present] partnership firm but not
LLPs whose total turnover
Comments does not exceed 40 Lakhs.
4. It is also proposed that
1. Recently, the Apex such an assessee will not
Court had taken a view in be eligible to claim a
the case of HCL Comnet deduction under any of the
Systems & Services Limited sections 10A, 10AA, 10B,
[305 ITR 408] that the 10BA or deduction under
provision for diminution in any provision of Chapter
the value of assets should VIA.
not be added back for the 5. It is proposed that the
purpose of computing book provisions relating to the
profits. The said ruling is payment of advance tax
now reversed by the shall not apply to the
proposed amendment. assessee, who opts for the
2. Further, while on one said scheme in respect of
hand the MAT rate is such business.
increased substantially, the 6. However, it provided
assessees are allowed MAT that those assessee having
credit for a period of 10 turnover less than 40 lakhs
years instead of 7 years at and showing profits lower
present. 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. 2010-11
Highlights 1. This provision certainly
benefits the assessee who
1. At present the intends to avoid any
presumptive taxation complications of maintain
scheme is applicable only the books of accounts and
to the specified businesses. also avoid scrutiny by the
2. The proposed section tax department.
seeks to provide for 2. However, those
estimating income of showing profits lesser than
assessee who is engaged 8% will have to maintain
in any business except the the books of accounts and
business of plying, hiring or also get their accounts
leasing goods carriages audited.
referred to in section 44AE.
The income is presumed to Sr. No. Subject
be earned at a sum equal A24 Transfer Pricing- Range
to 8% of the total turnover Amended
or gross receipts of such Sec. +/- w.e.f.
19. 92C 01.10.2009 to entire difference
extend
including 5%.
Highlights 3. Till date in various
judgments the Tribunal had
It is proposed that where held that the 5% range
more than one price is should be allowed to the
determined by the most taxpayer even in cases
appropriate method, the where the price of the
arm’s length price shall be transaction was outside the
taken to be the 5% range. Rulings where
arithmetical mean of such this principle has been
prices and further the affirmed are as follows:
variation between the a) Development
arm’s length price so Consultants Pvt.
determined and price at Ltd. Vs DCIT [115
which the international TTJ 577 (Kol)]
transaction has actually b) Mentor Graphics
been undertaken does not (Noida) Pvt. Ltd. Vs
exceed five per cent of the DCIT [18 SOT 76
latter, the price at which (Del)]
the international c) Sony India (P)
transaction has actually Limited Vs DCIT
been undertaken shall be [2008-TIOL 439
deemed to be the arm’s (Del)]
length price. 4. The above rulings have
now been formalized under
Comments the Statute.
1. The proposed Sr. No. Subject
amendment provides that A25 Transfer Pricing – Safe
where the variation Harbour Rules
between the arm’s length Amended
price determined and the Sec. +/- w.e.f.
price at which the 92C + A.Y. 2010-11
international transaction
has actually been Highlights
undertaken does not
exceed 5% of the 1. It is proposed to
International Transaction, provide that the
then such price of the determination of arm’s
International Transaction length price u/s. 92C or
shall be considered as 92CA shall be subject to
Arm’s length Price. At safe harbour rules to
present, the proviso framed by CBDT.
requires for computation of 2. It is also proposed to
5% variation on the define ‘safe harbour’ to
arithmetic mean) means circumstances in
2. However, it is not clear which the income tax
as to when the variation authorities shall accept the
exceeds 5%, what would transfer price declared by
be the adjustment to the the assessee, to be at
income of the taxpayer. Arm’s Length.
Would the adjustment be
restricted to variation in
excess of 5% or it would
20. Comments persons within the
provisions of TDS.
The proposed amendment 5. It is further proposed to
seeks to provide some amend the provisions to
leverage to small tax clarify that no TDS is to be
payers by allowing the made on the amount of
exchequer to accept the raw material where
price under specified invoices distinctively
circumstances. In other specify the value of raw
words, the rigidity of the material. If composite bill is
said provisions of Transfer raised, then TDS is to be
pricing 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 separate
Highlights
category of sub-contractors
1. The definition of sub- and consider them as part
contractors has been done of the contractors.
away with and the sub- 2. Similarly, the TDS rates
contractors are considered are now rationalized based
at par with the contractors. on the type of payee as
2. As per the proposed compared to based on the
amendment there will be type of work involved
only two categories of earlier.
deductees and accordingly 3. A dispute was raised in
the rates as tabulated the case of Whirl Pool India
herein 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 on
Individuals and 1 specifications given by the
HUF’s assessee, it is a case of
Others 2 sale of goods and not job
work.
3. Further, it is proposed 4. The controversy which
that no TDS to be made by had reached the Hon’ble
the person in the course of Bombay High Court in the
business of plying, hiring or case of BDA Ltd. v. ITO
leasing goods carriages (TDS) [281 ITR 99 (Bom)]
subject to the contractor was now settled by holding
providing PAN that if the contractors does
4. It is also proposed not any work based on the
to cover the contract of specification provided by
manufacturing goods as the customer with the help
per the specifications of of goods purchased from
customer by using material any person other than
purchased from other customer, it would not be
liable to TDS.
21. 5. It is also additionally
provided that in case of Sr. No. Subject
such transaction involving A28 TDS – Surcharge and
TDS liability, no TDS would Cess
be levied if the value of Amended
raw 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 foreign
Highlights companies.
2. Further, it is also
1. The TDS rates on the proposed to levy cess only
rental payments have also on TDS on salary
been rationalized by payments. Now no cess to
reducing the tax rates. The be levied on any other TDS
rates 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
Amended
2. 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 the
Comments deductor.
2. Where no such
This amendment will statement is filed, such
reduce the burden of TDS order can be passed up till
liability on the assessee 4 years from the end of the
substantially and will also financial year in which the
benefit the recipients as payment is made or credit
the margins in the rental is given.
activity have fallen down.
22. Comments Sr. No. Subject
1. The said time limits A30 Wealth Tax – Threshold
were required to be set Limit
long ago and hence the Amended
same would create a bar Sec. +/- w.e.f.
on the departmental offices WT + A.Y. 2010-11
as they used to pass the
orders after a considerable Highlights
lag of time.
The threshold limit of
2. This amendment is also
exemption from Wealth
in line with the view of
Tax is proposed to be
Raymond Woolen Mills Ltd.
raised from Rs. 15,00,000/-
v. ITO (57 ITD 536) (Mum).
to Rs. 30,00,000/-.
In fact, even the Special
bench in the case of
Comments
Mahindra & Mahindra Ltd.
[unreported] has held that This is a welcome proposal
the order passed after the in light of the increased
period of 6 years is invalid. standard of living and
better saving habits.
23. rates of tax on income
……
The comparative chart showing the tax rates for various levels
of income during A.Y. 2009-10 and A.Y. 2010-11 is given
below:
For Male (below 65 years of age)
Slab Rates A.Y. 2009-10 A.Y. 2010-11
Tax SC EC Total Tax SC EC Tota
Upto 1,50,000 0 0 0 0 0 0 0
1,50,001 to 1,60,000 10.00 0.00 0.30 10.30 0 0 0
1,60,001 to 2,50,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.3
2,50,001 to 3,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.3
3,00,001 to 5,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.6
5,00,001 to 10,00,000 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.9
10,00,001 and above 30.00 3.00 0.90 33.90 30.00 0.00 0.90 30.9
For Female (below 65 years of age)
Slab Rates A.Y. 2009-10 A.Y. 2010-11
Tax SC EC Total Tax SC EC Tota
Upto 1,80,000 0 0 0 0 0 0 0 0
1,80,001 to 1,90,000 10.00 0.00 0.30 10.30 0 0 0 0
1,90,001 to 2,50,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.30
2,50,001 to 3,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.30
3,00,001 to 5,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.60
5,00,001 to 10,00,000 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.90
10,00,001 and above 30.00 3.00 0.90 33.90 30.00 0.00 0.90 33.90
For Senior Citizens
Slab Rates A.Y. 2009-10 A.Y. 2010-11
Tax SC EC Total Tax SC EC Tota
Upto 2,25,000 0 0 0 0 0 0 0
2,25,001 to 2,40,000 10.00 0.00 0.30 10.30 0 0 0
2,40,001 to 2,50,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.3
2,50,001 to 3,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.3
3,00,001 to 5,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.6
5,00,001 to 10,00,000 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.9
10,00,001 and above 30.00 3.00 0.90 33.90 30.00 0.00 0.90 30.9
24. snapshot of the
judicial decisions
considered
Amendment Sectio Decision Decisions on the issue
n approved
/overturned
by
amendment
No 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 ITR
claimed 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 & Services
be added back for the purpose of Limited [305 ITR 408]
computing book profits
If the contractors does any work 194C Overturned • BDA Ltd. v. ITO (TDS) [281 ITR 99
based on the specification provided (Bom)]
by the customer with the help of • Whirl Pool India Ltd. [16 SOT
goods purchased from any person 435 (Del)]
other than customer, it would not
be 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 Kallytan
10(10C) cannot claim further relief )/89 Ambujakshan [219 CTR 80
u/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 DCIT
then such price of the International [2008-TIOL 439 (Del)]
Transaction be accepted as ALP
An order u/s. 201(1) for failure to 201 Approved • Raymond Woolen Mills Ltd. v. ITO
deduct 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 years
from the date of credit of amount.
25. service tax……
Central Excise are aligned.
There was an exception in
Sr. 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. 84
Highlights
provides revision of such
1. S. 84 and 86 are being
orders, which amounts to
amended to bring the
recalling the order and re-
provision relating revision /
adjudicating it.
modification of order
passed by an officer
subordinate to the
commissioner, at par with
2. At present the service
provisions under S. 34E of
tax rules suffer from the
Central Excise Act. Now the
deficiency of not having
revision or modification of
provisions relating to (1)
such order shall take place
relevant date for
by a departmental appeal
determination of rate of
before Commissioner
service tax and (2) place of
(Appeals).
provision of taxable
2. S. 94 is being amended services. This has been
to empower Central plugged out by authorizing
Government to prescribe Central Government to
rules in respect of (a) prescribe rules in this
relevant date for regard.
determination of rate of 3. While these individual
service tax and (b) place of services availed by GTA are
provision of taxable taxable at the hands the
services. service providers, the GTA
3. At present Notification cannot take credit of tax
No. 1/2009–ST is granting paid on such services, as
exemption for several the abatement allowed to
services received by Goods them is subject to condition
Transport Agents (GTA) that no credit should be
during the movement of availed. This matter was
goods effective from 5th agitated by the GTA, and
January, 2009. Now it has the Government agreed to
been proposed to give exempt such services. Now
effect retrospectively from this exemption is extended
1st January, 2005. from retrospective date to
close the pending
Comments litigations for the past
periods.
1. Generally, procedures
under Service Tax and Sr. No. Subject
26. 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 input
Highlights
services and not
maintaining separate
1. The Works Contract accounts has an option to
(Composition Scheme pay an amount at 8% on
for Payment of Service non-taxable services to
Tax) Rules 2007 avail full CENVAT Credit on
a. Explanation appearing common inputs and input
in sub-rule (3) is being services. The said rate of
amended to provide that 8% has been reduced to
the composition scheme 6%.
would be available only to
such works contracts Comments
where the gross value of
works contract includes the 1. Now, the benefit of
value of all goods used in composition scheme under
or in relation to the Works Contract Services to
execution of works contract pay service tax at 4% on
whether received free of gross contract value will be
cost or for consideration availed only if the gross
under any other contract. contract value includes
b. This condition would value of the all the inputs
not apply to those works used in relation to the
contracts, where either the subject work contract
execution of works contract whether supplied under
has already started or any separate contract by the
payment (whether in part contractor or provided free
or in full) has been made by the principal. This will
on or before the date of the result in increase in service
amendment. tax liability of contractors.
2. (a) Effectively, CENVAT
2. CENVAT Credit Rules Credit has been denied in
2004 respect of capital goods
a. The proposed and inputs which are
amendment is to bring written off in books before
parity between it has been put to use. (b)
manufacturer and service Under an option the rate at
provider. In case of which tax is to be paid on
manufacturer, if any input exempted services is
or capital goods, on which reduced to correspond to
CENVAT Credit is taken, the reduction in rate of
has been written off fully in service tax from 12% to
the books of accounts 10% announced during
before it has been put to Feb.2009.
use, the manufacturer is
required to pay an amount Sr. No. Subject
equivalent to the CENVAT D3 New Services Covered
credit taken. The Rule 3 Introduced
(5B) is being amended to Sec. +/- w.e.f.
65 - Date to be
27. surgery
Notified undertaken to
preserve or enhance
Highlights physical appearance or
Following are the new beauty. However, any
services added to service reconstructive surgery
tax net. These services undertaken to restore
shall be liable to tax from one’s appearance,
the date to be notified after anatomy or bodily
the enactment of the functions affected due to
Finance Bill 2009. congenital defects,
developmental
abnormalities,
1. Transport of goods degenerative diseases,
through Rail: As on date
injury or trauma would be
transportation of goods by
outside the scope of this
non-government railway in
service.
containers is liable to
service tax. Now it is
Comments
proposed the
transportation of goods
either in container or 1. In case of transport of
otherwise and whether by goods through rail,
non- government or transport of coastal goods
government rail – all shall and goods transported
be liable to service tax. through inland water, it is
proposed that suitable
2. Transport of coastal abatement and /or
goods and goods
exemption to specified
transported through
goods shall be provided at
inland water: Under this
appropriate time i.e. at the
category costal goods and
time of notifying these
transport of goods through
services.
national waterways and
2. Services by legal firms
inland water
in respect of appearance
3. Legal Consultancy and representation before
Services: This category any court or statutory
shall cover consultancy, authority shall remain out
advice and technical side the scope of this
assistance in any discipline service.
of law. However, this shall 3. The introduction of
have limited in case of service category Cosmetic
service provided by a and Plastic surgery service
business entity to another will nullify the impact of
business entity and shall decision by Ahmedabad
not cover the services Tribunal in case of New
provided by an individual Look Cosmetic Laser
to any other individual or Centre.
business entity and
services provided by a Sr. No. Subject
business entity to an D4 Existing Services - Scope
individual. Modified
Modified
4. Cosmetic and Plastic Sec. +/- w.e.f.
Surgery Services: This 65 -/+ Date to be
category shall cover Notified
cosmetic and plastic
28. first brought to service tax
Highlights net.
Comments
1. Business Auxiliary
1. The changes proposed
Service: At present under are to cover up the
this category the omission or error in
production and processing existing provisions.
which amounts to
manufacture was not
Sr. No. Subject
covered. The scope of
D5 Exemptions Introduced
exclusion has been
Introduced
narrowed and accordingly
the production and Sec. +/- w.e.f.
processing which result in Several Sec. + 07.07.2009
manufacture of excisable
goods shall not be covered. Highlights
In other words, services in
relation to production and 1. Notification No.
processing amounting to 20/2009 dated 7th July,
manufacture of non 2009 provides exemption
excisable goods shall get from the payment of
covered here. service tax to services in
relation to point to point
2. Stock Broker transportation of
Services: The sub-brokers passengers by private bus
are excluded from the operators, who operates
scope of Stock Brokers and buses having ‘contract
hence sub-brokers who are carriage permit’ on specific
receiving commission / inter state or intra state
brokerage from the main- routes.
brokers are not liable to The exemption shall not be
service tax under this available to transportation
category. Further, it has in relation to tourism or
been clarified that such conducted tours, or charter
sub-broker shall not be or hire.
liable even under Business 2. Notification No.
Auxiliary Services. 19/2009 dated 7th July,
2009 provides exemption
3. Information from the payment of
Technology Software service tax on the services
Services: Definition of in relation to inter bank
taxable services has been sale / purchase of Foreign
corrected by replacing the Exchange and Money
word ‘acquiring’ by the Changing undertaken by
word ‘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 exemption
of ‘right to use’ which is from the payment of
liable to tax. This service tax on the fees
correction is effective from collected by Federation of
16th May 2008 the date Indian Export Promotion
from which the service was Organization and specified
export promotion councils
29. from their members. This (a) Exemption: GTA
exemption has been services in relation to
provided for limited period certain transportation and
up to 31st March, 2010. foreign commission agent
service in relation to export
Comments of goods are exempted to
avoid first payment of tax
1. Exemption provided to by the exporter, as these
private bus operators will are liable under reverse
bring the parity between charge method in hands of
them and buses run by the recipient of services, and
State Undertakings. then claiming refund by the
2. Exemption to schedule same exporter.
banks in relation to inter (b) Refund: In case of other
bank transaction shall not services, the exporter can
make any difference as avail refund. The new
otherwise tax paid would scheme notified to take
have been allowed as care of grievances by the
CENVAT credit. exporters and field staff.
3. The limited exemption 3. The important salient
that too for period of less features of the scheme are
than 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 one
Highlights
quarter is removed.
1. Notification No. 17 and d) Form for refund claim is
18/ 2009 dated 7th July, being simplified.
2007 has notified
revamped scheme of Self certified documents if
refund of service tax paid the refund claim is up
on taxable services, 0.25% of FOB value of
received and used in goods exported and
connection with export of documents certified by CA
goods by merchant/ if the claim exceeds 0.25%
manufacturer exporter. of FOB value of goods
2. The scheme consists of exported.
2 parts.
