Union Budget Analysis Part IPart I of this article covers the following topics. Tax Rate Agricultural Income Section 2(1A) Charitable Purpose - General Public Utility Reverse Mortgage for Senior Citizens Income of Sikkimese Individual
Topics Covered in this Page
An incentive to encourage outsourcing the scientific research, weighted deduction of 125% of the of the amount paid to a company, registered in India, with scientific research and development as it's main object, which is for the time being approved for this purpose by the prescribed authority and fulfils such other conditions as may be prescribed, is being allowed as deduction. The company receiving such donations, would not be eligible for weighted deduction of 150% under section 35(2AB). However, as clarified in memorandum deduction to the extent of 100% of the sum spent as revenue expenditure on scientific research which is available under section 35(1)(i) will be allowed. The clarification in the memorandum does not specify the claim available in relation to capital expenditure incurred under section 35(1)(iv) of the Act. Is it not available? In my opinion, there is no such restriction. Anyway, this is a measure of compassion to the Nation to encourage scientific research and further compassion to Indian Companies with such scientific research as its main object. Go to Top
Section 40A(3) Where cash payments exceeding Rs.20,000 are made in relation to any expenditure incurred by the assessee disallowance is required under section 40A(3). However, whether the limit of Rs.20,000 needs to be applied for each transaction or for all the transactions carried out on a single day has been a matter of litigation. While the Orissa High Court in the case of CIT vs. Aloo Supply Company - 161 ITR 680, had categorically held that: - The word 'sum' has no statutory definition and must have the common parlance meaning. While legislating, Parliament tries to convey its intention through express words. It is one of the well-settled rules of interpretation that where a word used in a statute carries more than one meaning, that meaning which makes the provision workable and is nearest to the legislative intention, has to be adopted. The word 'sum' in s. 40A(3), second proviso, of the I.T. Act, 1961, is used only to indicate an amount of money and does not refer to the totality of the expenditure. Therefore, if an assessee makes payments at different times during the day and he has no idea that he has to pay to the same person on more than one occasion, he cannot be subjected to the statutory provision contained in s. 40A(3) of the Act, unless any one payment is above Rs.2,500. The statutory limit of Rs.2,500 under s. 40A(3) of the Act applies to payment made to a party at a time and not to the aggregate of the payments made to a party in the course of the day as record in the cash book. Other Courts are in the process of rendering decisions. The amendment in this Budget, seeks to place the dispute in rest to safeguard the intention of legislature. As per the amended provision, the payments on a single day should be summed up in order to arrive at the statutory limit. The new provision operates from 01.04.2008 (AY 2009-10). A bit righteous? Go to Top
Section 43(6) Another interesting issue has been resolved. The memorandum accompanying the Finance Bill 2008, clearly explains the intention of the legislature: - Some persons were exempt from tax and, therefore, not required to compute their income under the head 'profits and gains of business or profession'. Upon withdrawal of exemption, such persons became liable to income-tax and hence, required to compute their income for income-tax purposes. In this context, dispute has arisen on the basis for allowing depreciation under the Income-tax Act in respect of assets acquired during the years when it enjoyed exemption. The Income-tax Appellate Tribunal has held that since there was no liability to tax, there was no occasion to compute the income of such person under the provisions of the Income-tax Act. Therefore, the depreciation provided in the books in the years when the income was exempt can not be treated as the depreciation "actually allowed". Accordingly, it was held that the actual cost of the asset was the written down value for the purposes of claiming depreciation under the Income-tax Act in the previous year in which such person first ceases to enjoy the income-tax exemption. This interpretation is not in conformity with the intent and purpose of the provisions of depreciation. The Tribunal Decision referred to in the Memorandum is Kandla Port Trust vs. ACIT - 296 ITR (AT) 88 - Rajkot. In this case it was held that the word 'actually allowed' appearing in section 43(6) would mean the amount actually allowed as deduction. In its own words: - ……… there is a clear distinction between depreciation actually allowed and depreciation which would have been allowed if the profits and gains of the business had to be computed for the assessment of income-tax, and under section 43(6) the written down value is calculated after deduction from the original cost, only that depreciation that has actually been allowed in the computation of the profits and gains of the business during the proceedings for assessment of income-tax in earlier years. The word "actually" used in section 43(6) was not redundant and must be given its full effect. Depreciation deemed to have been allowed or which might have been allowed if the profits and gains of business had been assessed to income-tax in the previous year is certainly not depreciation "actually allowed" and cannot be deducted from the original cost. The written down value during the previous year in question would be the original cost less nil, i.e., the original cost. The only depreciation allowed under the Income-tax Act is the depreciation allowed by any Income-tax Officer when computing its profits and gains of business for the assessment purposes. "Actually allowed" means allowed by an income-tax authority; depreciation claimed by the assessee itself in its own account is not depreciation allowed to it. The language used in section 43(6) is very clear. As per our considered view, so long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent becomes impermissible. The port trust was exempt under section 10(20) upto Assessment Year 2002-03. From Assessment Year 2003-04, the section 10(20) was amended to define 'local authority' in which the port trust was entitled for exemption. Hence, the question arose as to 'What is the written down value for the purpose of claim of depreciation under section 32?' Needless to say, it is not only the cases where there were exemptions the assessee had not claimed depreciation. Even in cases, where the income was not exempt, the assessee had an option of not claiming depreciation upto Assessment Year 2001-2002 - CIT vs. Mahendra Mills - 243 ITR 56 (SC). However, the amendment does not target these cases. As per the amendment, written down value, as per the books of accounts, adjusted for revaluation of the fixed assets in the books, shall be the written down value for the purposes of the Act. Go to Top
Section 115JB: - It was held that, interest on income-tax was not mentioned in the Explanation under section 115J(1A) [Not even in the Explanation to section 115JB(2)], and therefore the Assessing Officer could not add interest on income-tax for determining the "book profit" - CIT vs. Fertilisers and Chemicals Travancore Ltd. (Ker) - 261 ITR 484. Also refer, Salgaocar Mining Ind. P. Ltd. vs. JCIT - 287 ITR (A.T.) 197 (Panaji). These decisions have now been reversed by the budget proposal. In ACIT vs. Balarampur Chini Mills Ltd. - 297 ITR (AT) 15, it was held that the Dividend Distribution tax should be treated at par with Fringe Benefit Tax. If, Fringe Benefit Tax is to be excluded as per CBDT Circular, the same should be the guiding principle for Dividend. However, in DCIT vs. Dhanalakshmi Paper Mills Ltd. - 290 ITR (AT) 27 (Chennai), it has been held that the tax on distributed dividend under section 115-O is also income-tax (specifically stated under the Act as additional income-tax), so that it cannot be allowed as a deduction from book profits. It has, therefore, to be treated as part of taxable book profits. The contradictory decisions have been set to rest by amending section 115JB retrospectively to the effect that Dividend Distribution Tax is to be added back in determining book profit. Further, it was held in this case of ACIT vs. Balarampur Chini Mills Ltd. - 297 ITR (AT) 15, that the Deferred Taxation, since not specifically mentioned in Section 115JB need not be added back. The Budget proposal nullifies this decision too. In short, as per the amendment proposed, Provision for Deferred taxation, Dividend Distribution tax, Interest charged under the Income-tax Act, Surcharge and Education Cess are all liable to added back. Go to Top
Go to Indian Union Budget 2008 Part III
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