M.K. GUPTA TAX CLASSES9811429230/9212011367

AMENDMENTS ASSESSMENT YEAR -2011-12 PCC/IPCC MAY-2011/NOV-2011(IN BRIEF)

1. SLAB RATE Individual, Hindu Undivided Family, Association of Persons, Body of Individual If total Income upto Rs.1,60,000 NIL On next 3,40,000 10% On next 3,00,000 20% On Balance amount 30% Resident woman below the age of 65 yearsIf total income is upto Rs.1,90,000 NILOn next Rs.3,10,000 10%On next Rs.3,00,000 20%On Balance amount 30%Resident individual of the age of 65 years or moreIf total income is upto Rs.2,40,000 NILOn next Rs.2,60,000 10%On next Rs.3,00,000 20%On Balance amount 30%No surcharge is applicable for individual, HUF, AOP, BOI and partnership firm. Domestic Company has to pay surcharge @ 7.5% if total income is exceeding `100 lakhs and foreign company has to pay surcharge @ 2.5% if total income is exceeding `100 lakhs2. Gratuity exemption limit has been increased from 3.5 lakh to 10 lakh. wef 24-05-2010(Section 10(10))3. In case of RPF, interest upto 9.5% p.a. is exempt but wef 01-09-2010, interest upto 8.5% p.a. is exempt.4. In case of donation for scientific research, deduction shall be allowed for 1.75 times of donation given and in case of approved research by a company, deduction allowed shall be 2 times instead of 1.5 times. (Section 35).5. In case of payments within India to the residents, TDS amount can be given to the Govt. upto the last date of filing of return of income (Section 40(a)). 6. Under section 44AB limit for audit has been enhanced to `60 lakhs in business and `15 lakhs in profession.7. Section 44AF has been merged in 44AD and presumptive income in case of business also shall be 8% and further section 44AD shall not be applicable in case of company and limited liability partnership firm. And also the assessee should not claim deduction under any of the sections 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C. - Deductions in respect of certain incomes” in the relevant assessment year i.e. the following deductions should not be taken.-

Section 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID, 80-IE, 80JJA, 80JJAA, 80QQB, 80RRB.

8. Under section 44AE presumptive income for heavy goods vehicle shall be `5,000 p.m. or part of a month and in case of light or medium goods vehicle shall be `4,500 p.m. or part of a month.9. New deduction 80CCF has been introduced and deduction is allowed to the extent of investment in long term infrastructure bonds but maximum deduction is `20,000. 10. Limit under section 194B is increased from `5,000 to `10,000 and under 194BB `2,500 to `5,000 and under 194C `20,000 is increased to `30,000 and `50,000 is increased `75,000.11. Limit under section 194D is increased from `5,000 to `20,000 and under section 194H from `2,500 to `5,000 and under 194-I `1,20,000 has been increased to `1,80,000 and under 194J `20,000 to `30,000.12.Under section 201, if any person has deducted tax at source but it has not been paid to the Govt., interest rate shall be 1.5% instead of 1%.13. Penalty for violation of audit provisions of section 44AB shall be 0.5% of turnover but maximum `1,50,000.

2 14. In case of outstation allowance exemption shall be 70% of allowance or `10,000 p.m. instead of `6,000 p.m. (amended through notification no. 85/2010 dated 22-11-2010 hence it should be applicable from Nov-2011 examination and not from May-2011) 15. Cost Inflation Index for Financial Year 2010-11 is 711.16. No capital gains in case of conversion of private limited company or non-listed public company into a limited liability partnership firm. Similarly depreciation shall be apportioned between predecessor and successor in the similar manner as in case of amalgamation etc. Similarly unadjusted business losses and depreciation shall be considered to be losses of depreciation of successor as if incurred in the year of succession, in the similar manner as in case of conversion of proprietor concern or partnership firm into company. 17. Amendment in Section 200 Rule 30 Time allowed shall be 7 days from the end of the month in which the tax was deducted, but if the tax has been deducted in the month of March, tax should be deposited on or before 30th April.

Accordingly section 40(a)(i) shall also stand amended as given below:

Tax deduction at source for payment of interest, royalty etc. outside India Section 40(a)(i)If any person has paid any interest, royalty or technical fee or other sum chargeable to income tax and the amount is being paid outside India or it has been paid in India to a non-resident or to any foreign company and such amount was subject to TDS but the person has not deducted tax at source during the relevant previous year or after deducting the tax he has not paid it to the government during the previous year or in the subsequent year within the time allowed under section 200(1), such payments shall not be allowed to be debited to the profit and loss account. If the tax has been deducted in the subsequent year or it was deducted in the previous year but was paid in the subsequent year after the expiry of the time allowed under section 200(1), it will be allowed to be debited in the year in which such tax has been paid.

Time allowed under section 200(1)Time allowed shall be 7 days from the end of the month in which the tax was deducted, but if the tax has been deducted in the month of March, tax should be deposited on or before 30th April. ExampleABC Ltd. has paid a sum of `35 lakhs outside India on 10.02.2011 being the fee for using technology without deducting tax at source, in this case, expenditure is disallowed, but if the tax has been deducted at source in the relevant previous year and has been paid by the company upto 07.04.2011, expenditure shall be allowed in the previous year 2010-11 otherwise expenditure is allowed in the year in which the tax has been paid to the Government.

Example Determine the year in which deduction shall be allowed in the following cases if the assessee is a company S. No. Nature of Expenditure Date of

paymentActual date of deposit

Previous year in which deduction will be allowed

1. Fees for Technical Services 22-01-2011 Not Deposited Not Allowed2. Interest on loan 31-01-2011 29-03-2011 2010-113. Rent 31-03-2011 01-05-2011 2011-124. Interest 31-03-2011 15-04-2011 2010-115. Legal Fee 10-03-2011 10-04-2011 2010-116. Audit Fee 18-11-2010 07-03-2011 2010-117. Royalty 30-03-2011 30-04-2011 2010-11

3 18. Section 2(15), “Charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:

Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.

19. Optional Composition Scheme for payment of service tax in case of distributor or selling agents of lotteriesA special mode of payment of service tax has been provided to a distributor or selling agent of lotteries by inserting sub-rule (7C) in rule 6 of the Service Tax Rules, 1994.The distributor or selling agents rendering the taxable service of promotion, marketing or organising/assisting in organising lottery can discharge their service tax liability in the following rates instead of paying service tax @10%:-S. No. If the lottery / lottery scheme is one where Rate of service tax1. Guaranteed prize payout > 80% `6000/- on every ` 10 Lakh (or part of `

10 Lakh) of aggregate face value of lotterytickets printed by the organising State for adraw

2. Guaranteed prize payout < 80% `9000/- on every `10 Lakh (or part of `10 Lakh) of aggregate face value of lotterytickets printed by the organising State for adraw

20. Individual services for May/Nov-2011 shall 1. Legal consultancy services 2. Commercial training or coaching services 3. Information technology software services 4. Cargo handling services 5. Customs house agent’s services 6. Practising Chartered Accountant’s services 7. Consulting engineer’s services 8. Manpower recruitment or supply agency’s services

1. CUSTOM HOUSE AGENT SECTION 65(105)(h) (w.e.f. 15 th June 1997, Notification No. 17/1997-ST dated 6 th June 1997)

Custom House Agent means any person licensed by Custom Department to work as custom house agent and such person renders services in connection with clearance of imported goods or clearance of export goods and also renders services in connection with Entry or Departure of conveyances.

A custom house agent shall submit Bill of Entry on behalf of the importer and also Shipping Bill / Bill of Export on behalf of the exporter.

Bill of entry is an important document which is submitted by the importer for release of imported goods.

Shipping Bill or Bill of Export is an important document submitted by the exporter for export of goods.

Entire amount charged by the CHA shall be subject to service tax, however, payments made by CHA on behalf of the client, such as statutory levies (cess, customs duties, port dues, etc.) and various other reimbursable expenses incurred are not to be included for computing the service tax.

Sometimes, CHAs sub-contract their work to CHAs located in other stations. In such cases, it is possible that the sub-contracting CHA raises the bill on the main CHA who in turn raises the bill to the client, in such cases, the sub-contracting CHA will not be required to pay service tax on the bills raised by him on the main

4 CHA. The service tax will be payable by the CHA who provides the actual service to the client and raises the bill to the client.

A CHA may have various branch offices located at different stations but all these branch office do not raise the bills and only the main or central office will be raising the bills. In such cases, only the central office should be registered with the department. (Conveyance means – Vehicle)

2. CONSULTING ENGINEER’S SERVICES SECTION 65(105)(g) (w.e.f. 7 th July 1997, Notification No. 23/1997-ST dated 2 nd July 1997)

“Consulting engineer” means any professionally qualified engineer or any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in any disciplines of engineering.

Services rendered by a consulting engineer in connection with computer hardware engineering as well as software engineering or only in connection with hardware engineering, shall be taxable as consulting engineers services.

If services are rendered only for computer software engineering, it will be taxable as information technology service.

The scope of the services of a consultant may include:

(i) Feasibility report;

(ii) Basic design engineering;

(iii) Detailed design engineering;

(iv) Construction supervision and project management;

(v) Supervision of commissioning and initial operation;

(vi) Post-operation and management;

(vii) Trouble shooting and technical services, including establishing systems and procedures for an existing plant.

The services should be rendered to a person directly, and not in the capacity of a sub-consultant/associate consultant to another consulting engineer, who is the prime consultant. In case services are rendered to the prime consultant, the levy of the service tax does not fall on the sub-consultant but it falls on the prime or main consulting engineer who raises a bill on his client (which includes the charge for services rendered by the sub-consultant).

‘Consulting Engineer’ will not include those qualified engineers who act as ‘insurance surveyors and loss assessor’ for insurance companies and therefore service tax levy on the consulting engineer in any discipline of engineering will not cover the insurance surveying and loss assessment services rendered by a qualified engineer.

As per Notification No. 23/2008-ST, Dated 10-5-2008

Central Government, hereby exempts the taxable services provided by a consulting engineer to any person on transfer of technology from so much of the service tax leviable thereon under section 66 of the said Act, as is equivalent to the amount of cess paid on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.

(Section 3 of The Research and Development Cess Act, 1986(1) There shall be levied and collected, for the purposes of this Act, a cess at such rate not exceeding five per cent. on all payments made towards the import of technology, as the Central Government may, from time to time, specify, by notification, in the Official Gazette.(2) The cess shall payable to the Central Government by an industrial concern which imports technology on or before making any payments towards such import and shall be paid by the industrial concern to any specified agency.)

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Illustration: Mr. Ramesh, a consulting engineer provides the following particulars in respect of various services rendered by him during the quarter ending December 2010:S. No. Particulars `(i) Professional advice to one of his friend 5,000(ii) Consultancy services in computer hardware engineering 15,000(iii) Technical assistance in computer software engineering 25,000(iv) Advice in relation to metallurgical engineering 10,000(v) Professional advice to his friend free of charge

` 5,000 has been paid by him as cess payable under section 3 of the Research and Development Cess Act, 1986 in respect of the above-mentioned services. Compute the service tax payable by Mr. Ramesh for the quarter ending December, 2010. Service tax has been charged separately by Mr. Ramesh and is not included in any of the receipts mentioned above. Mr. Ramesh is not entitled to the benefit of small service provider available under Notification No. 6/2005 ST dated 01.03.2005.Presume all the payments have been received upto 31st Dec, 2010.Will your answer be different if the above services are rendered by AB Ltd., a consulting engineering company?

Solution:Computation of service tax payable:-Particulars `Professional advice to one of his friend 5,000Consultancy services in computer hardware engineering 15,000Technical assistance in computer software engineering 25,000Advice in relation to metallurgical engineering 10,000

Total 55,000Less: Cess payable under section 3 of the Research and Development Cess Act, 1986 5,000Value of taxable services 50,000Service tax @10% 5,000Add: Education cess @ 2% 100Add: Secondary and higher education cess @ 1% 50Service tax payable 5,150

Notes:1 Advice to friend is taxable as service rendered to any person is taxable.2. Consultancy and technical assistance in relation to both computer hardware and software engineering are taxable3. Advice in relation to any branch of engineering is taxable4. Services rendered free of charge are not liable to service tax5. Cess payable under section 3 of the Research and Development Cess Act, 1986 is exempt under Notification No.18/2002 ST dated 16.12.2002.Answer will not be different as consulting engineer inter alia means any body corporate as well.

Illustration: Mr. X is a Consulting Engineer’s who is liable to pay service tax has submitted information as given below:

(i) Received advance `2,00,000 inclusive of service tax from ABC Ltd. on 10th April 2010 and services were rendered in September 2010 and bill was issued in October 2010.

(ii) Rendered services to Mr. A in October 2010 and a bill of `5,00,000 was issued inclusive of service tax and payment of `3,00,000 was received in February 2011 and balance is yet to be received.

6 (iii) Rendered services to United Nations in December 2010 and payment of `7,00,000 was received in December 2010. No service tax has been collected.

(iv) Rendered services to a unit in SEZ and `3,00,000 was received in March 2011 without service tax.

(v) Rendered services to the Reserve Bank of India in April 2010 and payment of `9,00,000 was received in August 2010. No service tax has been collected.

(vi) Rendered services to foreign diplomatic mission and `5,50,000 was received in January 2011 without service tax.

(vii) Rendered services to family members of diplomatic agents and `1,50,000 was received in October 2010 without service tax.

Solution:(i) April to June 2010Taxable value of services = 2,00,000Service tax payable = 2,00,000 / 110.3 x 10.3 = 18,676.34Rounded off under section 37D = 18,676Last date for making payment shall be 5th July 2010 and if payment is through internet banking, last date shall be 6th July 2010.

(ii) January to March 2011Total bills raised = 5,00,000Less: Amount received = 3,00,000Amount not received = 2,00,000

Since amount charged is inclusive of service tax hence amount of service tax shall be= 3,00,000 / 110.3 x 10.3 = 28,014.51Rounded off under section 37D = 28,015Last date for making payment shall be 31st March 2011.

(iii) Services provided to United Nations or an international organization is exempt from service tax.

(iv) Services provided to a developer of SEZ or a unit of SEZ is exempt from service tax.

(v) Services provided to the Reserve Bank of India are exempt from service tax.(vi) Services provided to foreign diplomatic mission are exempt from service tax.

(vii) Services provided to family members of diplomatic agents are exempt from service tax.

3. MAN POWER RECRUITMENT OR SUPPLY AGENCY SECTION 65(105)(k) (w.e.f. 7th July 1997, Notification No. 23/1997-ST dated 2nd July 1997)“Manpower recruitment or supply agency” means any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person.

Services provided to any person, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner. Recruitment or supply of manpower includes services in relation to pre-recruitment screening, verification of the credentials and antecedents of the candidate and authenticity of documents submitted by the candidate.

7 Educational institutes such as IITs, IIMs charge a fee from prospective employers like corporate houses/MNCs, who come to the institutes for recruiting candidates through campus interviews, in such cases service tax shall be payable.

Business or industrial organisations engage services of manpower recruitment or supply agencies for temporary supply of manpower which is engaged for a specified period or for completion of particular projects or tasks, in such cases also service tax is payable.

Notification No. 1/2009 ST dated 05.01.2009 has exempted the services provided by a manpower recruitment or supply agency to a goods transport agency for transportation of goods by road, subject to the condition that the invoice issued by such service provider, providing services should mention the name and address of the goods transport agency and also the name and date of the consignment note, by whatever name called, issued in his behalf. (Credentials means – Qualifications/Testimonial; Antecedents means – Experience/Background)

Illustration: Parsvnath Consultants is engaged in providing manpower recruitment and supply agency’s services. For the financial year 2010-11, following information is available:-

Particulars Amount (`)Amount received for pre-recruitment screening of the prospective candidates 8,00,000Amount received for verification of the credentials of the candidates 5,00,000Amount received for supply of contractual employees to big business houses 9,00,000Amount received for manpower recruitment services provided to Bindu Transporters-a goods transport agency

1,00,000

On the basis of the above information, compute the service tax payable by Parsvnath Consultants under the category of ‘manpower recruitment and supply agency’s services’ for the financial year 2010-11.

Note: Parsvnath Consultants enjoys a good reputation among its clients. Resultantly, its aggregate value of taxable services amounted to ` 23 lakh in the financial year 2009-10. Further, the amount of service tax has been charged separately.

Solution:Computation of service tax payable by Parsvnath Consultants under the category of ‘manpower recruitment and supply agency’s services for the financial year 2010-11:-

Particulars Amount (`)Pre-recruitment screening of the prospective candidates 8,00,000Verification of the credentials of the candidates 5,00,000Supply of contractual employees to big business houses 9,00,000Value of taxable services 22,00,000Service tax @ 10% = ` 22,00,000 × 10% 2,20,000Add: Education cess payable @ 2% = ` 2,20,000 × 2% 4,400Add: Secondary and education cess payable @ 1% = ` 2,20,000 × 1% 2,200Amount of service tax payable 2,26,600Note:1. Notification No. 1/2009 ST dated 05.01.2009 has exempted the services provided by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise provided to a goods transport agency for transportation of goods by road in the said goods carriage from the whole of the service tax. Therefore, ` 1,00,000 would not be included in the value of the taxable services.2. Exemption from service tax under Notification No. 6/2005-ST dated 01.03.2005 is not available to Parsvnath Consultants for the financial year 2010-11 because the aggregate value of taxable services exceeds ` 10 lakh in the preceding financial year 2009-10.

4. PRACTISING CHARTERED ACCOUNTANT SECTION 65(105)(s)

8 (w.e.f. 16 th October 1998, Notification No. 53/1998-ST dated 7 th Oct 1998)

“Practising Chartered Accountant” means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provisions of the Chartered Accountants Act, 1949 and includes any concern engaged in rendering services in the field of chartered accountancy.

Services rendered to any person, by a practising chartered accountant in his professional capacity, in any manner shall be chargeable to service tax.

Services rendered by Chartered Accountants by way of representing any person before any statutory authority in the course of proceedings initiated under any law, shall be exempt from service tax.

Illustration: Mr. X a Chartered Accountant, who is liable to pay service tax has submitted particulars as given below:

(i) Rendered services in May 2010 and issued bill for `1,20,000 inclusive of service tax. (Out of which `75,000 was received by a cheque on 10th August 2010 and balance on 3rd March 2011.)

(ii) Rendered services in the month of June 2010 in connection with scrutiny assessment and a bill of `75,000 was issued.

(iii) Rendered free services in July 2010 (market value `20,000).

(iv) Represented one client in the court of Commissioner (Appeals) in September 2010 and a bill of `1,00,000 was issued and payment was received on 3rd October 2010.

(v) Rendered services to different clients in the month of January 2011 and bills of `7,00,000 was issued inclusive of service tax but only `5,00,000 was received in the same month in full and final settlement.

(vi) Received `70,000 in advance inclusive of service tax in March 2011 for services to be rendered in April 2011.

Compute amount of service tax payable for each quarter and also the last date upto which tax should be paid for the financial year 2010-11.

Solution:April to June 2010Nil

July to September 2010Since amount charged is inclusive of service tax hence amount of service tax shall be= 75,000 / 110.3 x 10.3 = 7,003.63Rounded off under section 37D = 7,004Last date for making payment shall be 5th October 2010 and if payment is through internet banking, last date shall be 6th October 2010

October to December 2010Nil

January to March 2011Since amount charged is inclusive of service tax hence amount of service tax shall be= 5,00,000 / 110.3 x 10.3 = 46,690.84Rounded off under section 37D = 46,691

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Since amount charged is inclusive of service tax hence amount of service tax shall be= 45,000 / 110.3 x 10.3 = 4,202.18Rounded off under section 37D = 4,202

Amount received in the month of March 2011 = 70,000Service tax payable = 70,000 x / 110.3 x 10.3% = 6,536.71Rounded off under section 37D = 6,537

Last date for making payment shall be 31st March 2011.

(b) If in the above case there is a delay of 10 days in payment of tax. Compute interest payable under section 75 and penalty payable under section 76.

Solution:April to June 2010Nil

July to September 2010Interest Payable under section 75 7,004 x 13% x 10/365 = 24.95Penalty payment under section 762% of the amount of default for 10 days = 2% x 7,004 x 10/31 = 45.19Penalty calculated @ `200 per day for 10 days = `2,000Penalty liable to be paid is `2,000

October to December 2010Nil

January to March 2011Interest Payable under section 75 57,430 x 13% x 10/365 = 204.54Penalty payment under section 762% of the amount of default for 10 days = 2% x 57,430 x 10/30 = 382.87Penalty calculated @ `200 per day for 10 days = `2,000Penalty liable to be paid is `2,000

(c) If the return for the half year ending September 2010 was filed on 18th October 2010 return for half year ending March 2011 was filed on 27th April 2011, compute penalty payable for each of the return and also determine the last date upto which revised return can be filed.

Solution:If the return for the half year ending September 2010 was filed on 18th October’ 2010, there is no penalty because return is filed within prescribed time period.

Revised return can be submitted within a period of 90 days from the date of submission of the original return.

If return for the half year ending March 2011 was filed on 27th April’2011, the penalty shall be `500.

Revised return can be submitted within a period of 90 days from the date of submission of the original return.

10 Illustration: Rajul is a qualified Chartered Accountant. He acquired the certificate of practice from the ICAI in November, 2010. For the quarter ended on March, 2011, his receipts are as follows:-Particulars Amount

(`)Certification of documents under Export and Import Policy of Government of India 2,00,000Preparation of the financial statement of ABC Ltd. 5,00,000Representation of the client before ITAT 50,000Receipts for tax consultancy provided in the month of December, 2010 10,000Using the above information, calculate the value of taxable services for the quarter ended on March, 2011.

Solution:Calculation of the value of taxable services for the quarter ended on March, 2011:-Particulars Amount (`) Amount (`)Certification of documents under Export and Import Policy of Government of India

2,00,000 x 100 / 110.30 1,81,324

Preparation of the financial statement of ABC Ltd. 5,00,000 x 100 / 110.30 4,53,309Representation of the client before ITAT (Note-1) NilReceipts for tax consultancy provided in the month of December, 2010

10,000 x 100 / 110.30 9,066

Value of taxable services 6,43,699

Note:1. As per Notification No. 25/2006 ST dated 13.07.2006, the taxable services provided by a practising Chartered Accountant in his professional capacity, to a client, relating to representing the client before any statutory authority in the course of proceedings initiated under any law for the time being in force, by way of issue of notice, is exempt from the whole of service tax leviable thereon.2. Since the receipts are not exclusive of service tax value of taxable service will be calculated by making back calculations.

5. CARGO HANDLING SERVICES SECTION 65 (105)(zr) (w.e.f. 16 th August 2002, Notification No. 8/2002-ST dated 1 st Aug 2002)

Cargo handling services provided to any person, by a cargo handling agency in relation to cargo handling services shall be chargeable to service tax.

“Cargo handling service” means loading, unloading, packing or unpacking of cargo and includes,—

(a) cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and

(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking.

It is exempt in the following cases:

(i) handling of export cargo

(ii) passenger baggage including unaccompanied baggage

(iii) mere transportation of goods.

(iv) services in relation to agricultural produce

(v) for goods meant to be stored in cold storage

Sometimes, such agency undertake storing/washing/repairing and handling of empty containers for the shipping lines for which they charge the shipping lines. Empty containers cannot be treated as cargo. Therefore, the activities mentioned above do not come within the purview of cargo handling services.

11 If any person hires labour/labourer for loading or unloading of goods in their individual capacity, it will not come under the purview of service tax as a cargo handling agency.

Sometimes the cargo is abandoned in that case it will be auctioned by Container Freight Stations, the sale proceeds shall not be subjected to service tax. In the case of auctioned goods, the proceeds of the auction goes first to the cost of auction, then towards customs duties and then to the custodian of the goods. It is clarified that no cargo handling service can be said to have been rendered in such cases, therefore service tax is not leviable.

Notification No. 1/2009 ST dated 05.01.2009 has exempted the services provided by a Cargo Handling Agency to a goods transport agency for transportation of goods by road, subject to the condition that the invoice issued by such service provider, providing services should mention the name and address of the goods transport agency and also the name and date of the consignment note, by whatever name called, issued in his behalf. 

Illustration: Shankar Cargo Ltd. is engaged in providing ‘cargo handling services’. In June, 2011, it received an amount of `1,00,00,000 for the services rendered. Calculate the value of taxable service under ‘cargo handling services’ providing brief reasons where required with suitable assumptions based on the following break-up of the total receipts for the month of June, 2011:Receipts ` (in lakh)Services in relation to export cargo and handling of passenger baggage 50Storage and cleaning of empty containers of shipping lines 10Packing and transport of cargo 5Handling of agricultural produce 5Mere transportation of cargo 5Other receipts for providing cargo handling services 25

Note: The above receipts are exclusive of service tax

Solution:Calculation of the value of taxable service under ‘cargo handling services’ of Shankar Cargo Ltd. for June, 2011:-Particulars `Total receipts for services rendered 1,00,00,000Less : Exemptions:-1. Receipts in relation to export cargo & handling baggage of passenger (Note-1) 50,00,0002. Charges received for storage, washing etc. of empty containers of shipping lines (Note-4)

10,00,000

3. Charges received in relation to handling of agricultural produce (Note-3) 5,00,0004. Charges received for mere transportation of cargo (Note-5) 5,00,000Value of taxable services under cargo handling services 30,00,000

Notes:1. The definition of ‘cargo handling service’ under section 65(23) specifically excludes handling of export cargo or passenger baggage. Hence, they do not form part of taxable services.2. Charges received for packing together with transportation of cargo, `5,00,000 are taxable as per section 65(23).3. Notification No. 10/2002 ST dated 01.08.2002 exempts the taxable service provided to any person by a cargo handling agency in relation to agricultural produce or goods intended to be stored in a cold storage from payment of service tax.4. Circular No. B.11/1/2002-TRU dated 1/8/2002 clarifies that activity of storing/washing/repairing and handling empty containers for the shipping lines does not come within the purview of “cargo handling services”.5. The definition of ‘cargo handling service’ under section 65(23) specifically excludes mere transportation of goods. Hence, they do not form part of taxable services.

CLARIFICATIONS REGARDING SERVICE TAX ON CARGO HANDLING SERVICES

12 CIRCULAR F. NO. B.11/1/2002-TRU, DATED 1-8-2002 [ANNEXURE II]

1. The section referred to hereinafter are the sections or clauses of the Finance Act, 1994 as amended by the Finance Act, 2002. Reference to sub-clause or clause means clause or sub-clause of section 65 of the Finance Act, 1994 as amended by the Finance Act, 2002.

2. As per clause (21), the term “cargo handling service” means loading, unloading, packing or unpacking of cargo and includes cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and any other service incidental to freight, but does not include handling of export cargo or passenger baggage or mere transportation of cargo. The taxable service, as per sub-clause (zr) of clause (90), is any service provided, to any person, by a cargo handling agency in relation to cargo handling services.

3. The services which are liable to tax under this category are the services provided by cargo handling agencies who undertake the activity of packing, unpacking, loading and unloading of goods meant to be transported by any means of transportation namely truck, rail, ship or aircraft. Well known examples of cargo handling service are services provided in relation to cargo handling by the Container Corporation of India, Airport Authority of India, Inland Container Depot, Container Freight Stations. This is only an illustrative list. There are several other firms that are engaged in the business of cargo handling services.

1 The services provided in relation to export cargo and passenger baggage are excluded from tax net.

2 Mere transportation of goods is not covered in the category of cargo handling and is therefore not liable to service tax.

3 Cargo handling service provided in relation to storage of agricultural produce (scope of the term “agricultural produce” is given under the storage and warehousing service) or for goods meant to be stored in cold storage have been exempted from the levy of service tax. (See Notification No. 10/2002-ST).

4. A point has been raised as to what would be the value of service tax in a case where transport and cargo handling service is provided in a composite manner. The measure of tax is the gross amount charged by the cargo handling agency from the customer. Therefore, if lump sum amount is charged for both transportation and cargo handling, the tax will be payable on the entire amount. On the other hand, if the bill indicates the amount charged for cargo handling and transportation separately on actuals basis (verifiable by documentary evidence), then the tax would be leviable only on the cargo handling charges.

5. Cargo handling services are provided in the port also. Whether such service will be covered in the category of port services or cargo handling service. In this context it may be mentioned that port services cover any service provided in relation to goods or vessels by a port or a person authorized by the port. This includes the cargo handling service provided within the port premises. Therefore to this extent there may be an overlap in cargo handling service and the port service. However since port services covers all the services in relation to goods and vessels and therefore more specific to port, the service provided in a port in relation to handling of goods would be appropriately covered under port service and no separate levy will be attracted under the category of cargo handling agency service. Similar would be the case in respect of service provided for storage of goods in the port premises.

6. All goods meant for export are excluded from the scope of this levy. There may be cases where goods may be transhipped at a place other than the place of packing before reaching a place from where it is exported. For example, goods are packed say at Agra for transportation to Bhopal where it is transhipped and ultimately reaches Mumbai, from where it is exported. A doubt has been raised as to whether service tax would be leviable on cargo handling service at Agra. It is clarified that service provided in relation to any cargo which is meant for export, would not be taxable irrespective of the fact that it reaches the place of export after transhipment. However, the relevant documents should show that the goods are for export.

7. Passenger baggage has been excluded from the levy of service tax. In this regard a point has been raised as to whether unaccompanied baggage of a passenger attracts service tax under the category of passenger baggage. It is clarified that unaccompanied baggage of a passenger will not be leviable to service tax.

8. A point has been raised by Airports Authority of India (AAI) as to whether service tax will be leviable in respect of handling of transhipment of export cargo from one international carrier to another international

13 carrier or from a domestic carrier to an international carrier. It is clarified that so long as the cargo is for export, no service tax on handling of such cargo is leviable. For domestic cargo service tax will be applicable.

9. Another point raised by them is that they undertake transhipment of import cargo from international to domestic carrier which will be ultimately cleared at the final domestic destination. It is stated that the service rendered by them should be held as exempted and it merely relates to transportation of goods. This is not factually correct. Under the Notification No. Cargo/13519/Pt. I, dated the 4th June, 1993, issued under the International Airports Authority Act, 1973, the AAI can levy charges towards demurrage, handling charges, special charges for live animals, hazardous cargo, radioactive cargo and cargo requiring strong room facilities, storage and processing charges, terminal charges. They are not supposed to levy any transportation charges. Therefore whatever charges they levy in this regard would be only towards handling charges and accordingly, service tax would be leviable.

10. It has been pointed out that Container Freight Stations that they do not have any direct contact with the importer and they only provide facility to the Customs House Agents (CHA) to handle the container and import cargo for which they have a contract on a mutually agreed rate. It is the CHA who claims all the charges from the importer including the charges made by the CFS on CHA and remit to the CFS. Since services of a CHA is already covered under the tax net, the CFS service providers should be exempt from tax when the billing is done on CHAs; otherwise there will be double taxation. The above contention is not correct. In the case of CHAs, the service tax is levied only on the agency or agency and attendance charges and not on the reimbursible expenses (on actuals basis) such as port fees, statutory levies, landing and container charges, dock fees, examination charges, terminal handling charges, etc. The CHA does not pay service tax on the handling charges charged by the CFS. Thus there is no double taxation. Further, as per the law, whatever charges, the cargo handling agency charges from any person (including the CHA) is liable to service tax.

11. Another point raised relates to cases where the CFS offers a total package rate, which includes transportation and handling in respect of imported laden containers from Port to CFS. The question is if the cost of transportation is shown separately in the bill raised, will it be excluded from the levy of service tax. If the cost of transportation is claimed on actuals basis, then it will not be includible in the taxable value of cargo handling services.

12. A clarification has been sought as to whether service tax is payable on abandoned cargo which are auctioned by the CFS as no service is rendered to any person. In the case of auctioned goods, the proceeds of the auction goes first to the cost of auction, then towards customs duties and then to the custodian of the goods. It is clarified that no cargo handling service can be said to have been rendered in such cases, therefore service tax is not leviable.

13. Some of the cargo handling agencies may also act as marketing agents for individual airlines for which they get a commission, which seems to range from 5% to 15% of the freight. The question is whether service tax is payable on this. Marketing or canvassing for cargo for airlines does not come within the ambit of cargo handling services. Hence no service tax is payable under the category of cargo handling service.

14. CFSs also sometimes undertake storing/washing/repairing and handling of empty containers for the shipping lines for which they charge the shipping lines. Empty containers cannot be treated as cargo. Therefore, the activities mentioned above do not come within the purview of cargo handling services.

15. Another doubt raised in relation to cargo handling services is that whether individuals undertaking the activity of loading or unloading of cargo would be leviable to service tax. For example, if someone hires labour/labourer for loading or unloading of goods in their individual capacity, whether he would be liable to service tax as a cargo handling agency. It is clarified that such activities will not come under the purview of service tax as a cargo handling agency.

6. COMMERCIAL TRAINING OR COACHING SECTION 65(105)(zzc) (w.e.f. 1 st July 2003, Notification No. 7/2003-ST dated 20 th June 2003)

Section 65(26) – “Commercial training or coaching” means any training or coaching provided by a commercial training or coaching centre.

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Section 65(27) – “Commercial training or coaching centre” means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognised by law for the time being in force.

Services not liable to be taxed 1. Commercial Training which forms an essential part of course leading to issue of a

certificate/diploma/degree recognized by law for the time being in force in our country.

2. Services rendered by Vocational training institute.

“Vocational training institute” means an Industrial Training Institute or an Industrial Training Centre affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961. Some such trades are as given below:

1. Welder (Gas and Electric) 2. Electrician 3. Wireman 4. Auto Electrician 5. Carpenter 6. Plumber 7. Mason (Building Constructor) 8. Furniture and Cabinet Maker 9. Beautician 10. Hair Dresser 11. Health and slimming Assistant 12. Data Preparation & Computer Software 13. Desk Top Publishing Operator 14. Programming and systems Administration Assistant

3. Services rendered by Recreational Training Institute.

“Recreational training institute” means a commercial training or coaching centre which provides training or coaching relating to recreational activities such as dance, singing, martial arts or hobbies.

4. Training or Coaching in respect of Sports.

5. Pre-school Training or Coaching.

6. Individual imparting home coaching in their independent capacity i.e. not on behalf of a Commercial Training or Coaching Centre.

7. In-house training provided to the employees by their employer in his independent capacity. However, if the employer avails the services of a Commercial Training or Coaching Centre for the purpose of imparting training to his employees, then employer (in his capacity as Service Recipient) will be liable to pay Service Tax to the concerned Commercial Training or Coaching Centre.

7. INFORMATION TECHNOLOGY SOFTWARE SERVICE SECTION 65(105)(zzzze) (w.e.f. 16th May 2008, Notification No. 18/2008-ST dated 10th May 2008)

Information Technology software service includes, -

(i) development of information technology software,

(ii) study, analysis, design and programming of information technology software,(iii) adaptation, upgradation, enhancement, implementation and other similar services related to

information technology software,(iv) providing advice, consultancy and assistance on matters related to information technology

software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the startup phase of a new system, specifications to secure a database, advice on proprietary information technology software,

15 (v) providing the right to use information technology software for commercial exploitation including

right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products,

(vi) providing the right to use information technology software supplied electronically.

Section 65(53) – "information" has the meaning assigned to it in clause (v) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000).

Section 65(53a) - "information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment.

Section 2(1)(v) of the Information Technology Act, 2000 - “information” includes data, text, images, sound, voice, codes, computer programmes, software and databases or micro film or computer generated micro fiche.

Illustration: Cladion Software Systems (CSS) is an information technology software company. The receipts during financial year 2010-11 are as under:-Particulars Amount (`)Receipts for development of information technology software 1,20,000Receipts for providing the right to use information technology software supplied electronically

6,00,000

Receipts for programming of information technology software 3,50,000Receipts for providing right to use the packaged software on which the amount of excise duty has been paid and benefit under Notification No. 17/2010 CE dated 27.02.2010 has not been availed

6,00,000

Determine the value of taxable services and amount of service tax payable by CSS for the financial year 2010-11.

CSS has a good track record. In financial year 2009-10, it has provided the taxable services of value of `15 lakh. The amount of service tax has been charged separately.

Solution:Computation of the value of taxable services and amount of service tax payable by CSS for the financial year 2010-11:-Particulars Amount (`)Receipts for development of information technology software 1,20,000Receipts for providing the right to use information technology software supplied electronically

6,00,000

Receipts for programming of information technology software 3,50,000Total value of taxable services 10,70,000Service tax @ 10% (`10,700,000 × 10%) 1,07,000Add: Education cess @ 2% (`1,07,000 × 2%) 2,140Add: Secondary and higher education cess @ 1% (`1,07,000 × 1%) 1,070Service tax payable 1,10,210Note:1. Receipts for providing the right to use the packaged software on which the excise duty has been paid and benefit under Notification No. 17/2010 CE dated 27.02.2010 has not been availed are exempt from service tax vide Notification No. 02/2010 dated 27.02.2010. Therefore, receipts of `6,00,000 are not liable to service tax.

16 Notification                                                                                             New Delhi, the 27th February, 2010No. 17/2010-Service Tax

 

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service providing packaged or canned software, intended for single use and packed accordingly, for the purpose specified in item (v) of clause (zzzze) of sub-section 105 of section 65 of the said Finance Act, from the whole of service tax, subject to the following conditions, namely:-

 (i)   document providing the right to use such software, by whatever name called, if any, is packed along with the software;

(ii) the importer has paid the appropriate duties of customs on the entire amount paid by the buyer; and

(iii) the benefit under notification No. 31/2010– Customs dated the 27 th of February, 2010 is not availed of by the importer.

[F. No. 334/1/2010-TRU]                                                                                                                                          

(Prashant Kumar)                                           Under Secretary to the Government of India

8. LEGAL CONSULTANCY SERVICES SECTION 65(105)(zzzzm) (w.e.f 1 st Sept 2009, Notification No. 26/2009-ST dated 19 th Aug, 2009)

1. Services provided to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner:

2. “Business entity” includes an association of persons, body of individuals, company or firm, but does not include an individual;

3. The services provided by way of appearance before any Court, Tribunal or Authority shall not amount to taxable service.

4. Services shall be taxable in the manner given below:

Status of Service Provider Status of Service Recipient Taxability Individual Individual Non-TaxableIndividual Business Entity Non-TaxableBusiness Entity Individual Non-TaxableBusiness Entity Business Entity Taxable

5. Any advice, consultancy or assistance in all branches of law without any exception will attract service

tax for example all Civil laws, all Criminal laws, all Taxation laws etc.

6. Some Examples of Services which are taxable Services of Drafting of reply to Show Cause Notice Services of Giving Legal Opinion in respect of queries raised in any branch of law such as

Income Tax, VAT, Service Tax, Customs, Excise, Company Law etc. Any advice in respect of Tax Planning Any advice, consultancy or assistance in respect of compliance matters of any branch of law.

17 Illustration: Virat Kohli & Co., a partnership firm, is providing taxable legal consultancy services and is liable to pay service tax. The firm furnishes the following information relating to the services rendered, bills raised, amounts received relating to this service, for the year ended 31.03.2011:

`(i) Free services rendered to poor people (Value of the service computed on comparative basis) 40,000

(ii) Advances received from clients for which no taxable services has been rendered so far 5,00,000

(iii) Services billed to clients 12,00,000

(iv) The firm has received the following amounts during the year:

Relating to taxable services rendered in March, 2010 (excluding service tax at applicable rates and TDS under section 194-J of the IT Act, 1961 to the tune of `45,320) 5,44,680 Relating to taxable services rendered in current year 2010 (excluding Service tax at applicable rates and TDS under section 194-J of the IT Act, 1961 to the tune of `1,20,000) 9,80,000*

(*includes `50,000 for appearances fee before Labour Court received from another firm)

Service tax has been charged separately in all the bills; the firm follows mercantile system of accounting.

You are required to compute the value of taxable services for the year ended 31.03.2011 and the service tax payable, briefly explaining the treatment of each item above.

Solution:

Computation of value of taxable services and service tax payable thereon:

Particulars `

Free services rendered to poor people (Note (i)) -

Taxable advances received from clients 5,00,000

Consideration received for services rendered in earlier year [`5,44,680 + `45,320] 5,90,000

Consideration received for taxable services rendered in current year[(`9,80,000 + `1,20,000) – `50,000] (Note (ii))

10,50,000

Fee for appearing before Labour Courts (Note (iii)) -

Total value of taxable services 21,40,000

Service tax payable [`21,40,000 x 10.3%] 2,20,420

Notes:- (i) Service tax is chargeable on the value of service. Thus, service tax is not payable in case of free services as there is no consideration in such case.

18 (ii) Service tax is payable on the value of taxable services charged by the assessee. Any income tax deducted at source is included in the charged amount. Thus, service tax is to be paid on TDS also. It is presumed here that amount of `1,20,000 represents only TDS.

(iii) The definition of taxable legal consultancy service specifically excludes the services provided for appearance before any Court, Tribunal or authority.

Illustration: Luthra Consultants Ltd. started providing the legal consultancy services in Rajasthan on 01.10.2010. For the financial year 2010-11, the details of the transactions are as follows:-Particulars Amount

(`)Amount received for appearance before any court, tribunal or authority 5,50,000Amount received for services provided to sole proprietorship concerns 1,00,000Amount received for tax consultancy to private companies 11,50,000

Luthra Consultants Ltd. has not collected any service tax from its clients because it is of the view that legal consultancy services are not subject to service tax. Luthra Consultants Ltd. has approached you for advice. Examine whether Luthra Consultants Ltd. is liable to pay service tax and if so, what shall be the amount of service tax payable by it?Note: Assume that exemption available to small service providers is not available to Luthra Consultants Ltd.Solution: Service provided to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner has been brought into the service tax net with effect from 1 st

September, 2009. Therefore, services provided by Luthra Consultants Ltd. are subject to service tax. Further, the statutory liability does not get extinguished if the service provider fails to realize or charge the service tax from the service receiver. In these cases, the amount recovered from the client, in lieu of having rendered the service, will be taken to be inclusive of service tax and accordingly tax payable will be calculated by making back calculations.Hence, the amount of service tax payable by Luthra Consultants Ltd. for the financial year 2010-11 would be computed as follows:-

Particulars Amount (`)Gross amount received for tax consultancy to private companies= 11,50,000 × 100 / 110.30

10,42,611.06

Value of taxable service 10,42,611.06Service tax @ 10% (` 10,42,611.06 × 10%) 1,04,261.11Add: Education cess @ 2% (` 1,04,261.11 × 2%) 2,085.22Add: Secondary and higher education cess @ 1% (` 1,04,261.11 × 1%) 1,042.61Service tax payable (rounded off) 1,07,389.00

Note:1. Legal consultancy services provided by way of appearance before any court, tribunal or authority are not taxable. Hence, the amount of ` 5,50,000 is not liable to service tax.2. Legal consultancy services provided to a service recipient who is an individual (including sole proprietorship) are not taxable. Hence, the amount of ` 1,00,000 is not liable to service tax.

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AMENDMENTS FINANCE ACT 2010

ASSESSMENT YEAR -2011-12(IN DETAIL)

APPLICABLE FOR PCC/IPCC MAY-2011/NOV-2011

1. SLAB RATE

Individual, Hindu Undivided Family, Association of Persons, Body of Individual Income shall be taxable at the slab rates given below:

If total Income upto Rs.1,60,000 NILOn next 3,40,000 10%On next 3,00,000 20%On Balance amount 30%

Resident woman below the age of 65 years

If total income is upto Rs.1,90,000 NILOn next Rs.3,10,000 10%On next Rs.3,00,000 20%On Balance amount 30%

Resident individual of the age of 65 years or more

If total income is upto Rs.2,40,000 NILOn next Rs.2,60,000 10%On next Rs.3,00,000 20%On Balance amount 30%

No surcharge is applicable for individual, HUF, AOP, BOI and partnership firm. Domestic Company has to pay surcharge @ 7.5% if total income is exceeding `100 lakhs and foreign company has to pay surcharge @ 2.5% if total income is exceeding `100 lakhs

2. Section 2(15) charitable purpose, new proviso have been inserted.Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.

3. As per explanation of section 9, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not,—

(i) the non-resident has a residence or place of business or business connection in India; or(ii) the non-resident has rendered services in India.

4. Outstation allowance exemption limit raised from Rs.6,000 p.m. to Rs.10,000 p.m. (amended

through notification no. 85/2010 dated 22-11-2010 hence it should be applicable from Nov-2011 examination and not from May-2011)

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5. SBI lending rates as on 01.04.2010 are as follows: (1) Housing Loan : -

Upto Rs.5 LacsFirst 60 months 8.00% p.a.61 month onwards 10.50% p.a.

Upto Rs.50 LacsUpto 1st year 8.00% p.a.Next 2 years 8.50% p.a. After 3 years 10.50% p.a.

Above Rs.50 LacsUpto 1 year 8.00% p.a.Next 2 years 9.00% p.a.After 3 years 11.00% p.a.

(2) Car Loan : -

New VehiclesSBI EZEE Car Loan Scheme Period Term loan Overdraft First year 8.00% p.a. 8.50% p.a.For 2nd & 3rd year 10.00% p.a. 10.50% p.a.For 4th & 5th year 11.25% p.a. 11.75% p.a.For 6th & 7th year 11.50% p.a. 12.00% p.a.SBI Advantage Car Loan SchemePeriod Term loan OverdraftFirst year 8.00% p.a. 8.50% p.a.For 2nd & 3rd year 10.00% p.a. 10.50% p.a.For 4th & 5th year 11.00% p.a. 11.50% p.a.For 6th & 7th year 11.25% p.a. 11.75% p.a.

(3)

Education Loan : -

Loan upto Rs.4 lacs 11.25% p.a.Above Rs.4 lacs and upto Rs.7.50 lacs

12.75% p.a.

Above Rs.7.50 lacs 11.75% p.a.An interest rate concession of 0.50% to girl student availing student loan

(4)Personal Loan: -

Upto 3 years 12.00% p.a.More than 3 years and upto 6 years 12.00% p.a.

6. Gratuity amount payable under Payment of Gratuity Act enhanced from Rs.3.5 lakhs to Rs. 10 lakhs.

7. In case of RPF, interest upto 9.5% p.a. is exempt but wef 01-09-2010, interest upto 8.5% p.a. is exempt.

8. As per section 35, donation or contribution to research association, an amount equal to 1.75 times of any sum paid to an approved research association or to an approved university, college, other Institution or Indian company shall be allowed.

Weighted deduction shall be allowed 200 per cent instead of 150 per cent.

9. As per section 35(2AA), weighted deduction of 1.75 times shall be allowed where the assessee pays any sum to a National Laboratory or a University or an Indian Institute of Technology or a specified person.

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10. As per section 35(2AB), weighted deduction of 2 times shall be allowed only in case of assessees engaged in business of bio-technology or manufacturing of any product except articles mentioned in eleventh schedule.

11. As per section 35AD, specified business shall also be included the following business:(i) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government;(ii) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients;

(iii) developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed.

In respect of these three business, the deduction under this section would apply if the operations are commenced on or after 1st April, 2010.If a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” in relation to such specified business for the same or any other assessment year.

12. As per section 40(a)(ia), no disallowance will be made if after deduction of tax during the previous

year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

If in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

13. As per section 44AB, every person carrying on business/profession, if his total sales, turnover or gross receipts in business exceeds Rs.60 lakhs and in profession exceeds Rs.15 lakhs during the previous year, in such cases the person have to get their accounts audited.

14. As per section 44AD, profit and gains of civil construction contracts, the gain will be estimated equal to 8% if the gross receipts in the construction business do not exceed Rs.60 lakhs.

15. Section 44AF shall be omitted and all the business shall know be covered under section 44AD.

16. Under section 44AE, Rs.3,500 shall be taken as Rs.5,000 and Rs.3,150 shall be taken as Rs.4,500.

17. Cost Inflation Index for Financial Year 2010-11 is 711.

18. As per section 47(xiiib), any transfer of a capital asset or intangible asset by a private company or unlisted public company to a limited liability partnership as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008:Provided that—(a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;(b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;

22 (c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent at any time during the period of five years from the date of conversion;(e) the total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

19. As per section 47A(4), where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership for the previous year in which the requirements of the said proviso are not complied with.

20. As per section 56(2)(viia), where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1 st

day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,—(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.

21. Rate of corporate dividend tax – 15% + surcharge @ 7.5% + education cess @ 2% + SHEC @ 1%.

22. As per section 72A(6A), where there has been reorganisation of business whereby a private company or unlisted public company is succeeded by a limited liability partnership fulfilling the conditions laid down in the proviso to clause (xiiib) of section 47, then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor company, shall be deemed to be the loss or allowance for depreciation of the successor limited liability partnership for the purpose of the previous year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly:Provided that if any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the successor limited liability partnership, shall be deemed to be the income of the limited liability partnership chargeable to tax in the year in which such conditions are not complied with.

23. Insert new section 80CCF, deduction in respect of subscription to long term infrastructure bonds, In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, the whole of the amount, to the extent such amount does not exceed Rs.20,000, paid or deposited, during the previous year relevant to the assessment year, as subscription to long-term infrastructure bonds as may, for the purposes of this section, be notified by the Central Government.

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24. As per section 80D, deduction can also be available if any contribution made to the Central Government Health Scheme.

25. As per section 80IB(10), the period allowed for completion of a housing project in order to qualify for availing the tax benefit under the section, from the existing 4 years to 5 years from the end of the financial year in which the housing project is approved by the local authority. This extension will be available for housing projects approved on or after 01.04. 2005. The built-up area of the shops and other commercial establishments included in the housing project is proposed to be three per cent of the aggregate built-up area of the housing project or 5000 sq. ft., whichever is higher. This benefit will be available to projects approved on or after the 01.04.2005, which are pending for completion, in respect of their income relating to assessment year 2010-11 and subsequent years.

26. As per section 80-ID, the terminal date for functioning of hotels and construction of convention centre has been extended from 31.03.2010 to 31.07.2010 in order to give more time for the facilities to be set up in the light of the Commonwealth Games in October, 2010

27. As per section 194B, the person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding Rs.10,000 shall, at the time of payment thereof, deduct income-tax thereon @ 30%.

28. As per section 194BB, every person responsible for making payment of causal income shall deduct tax at source @ 30% but if the amount paid or payable to a particular person during a particular year is exceeding Rs.5,000, no tax shall be deducted at source.

29. As per section 194C, any person responsible for making payment to a resident contractor for carrying out any work including supply of labour for carrying out any work shall deduct tax at source @ 2% and in case of payment to individual or Hindu Undivided Family, the rate of TDS shall be 1% provided the amount being paid is exceeding Rs.30,000 or the amount paid or payable during the financial year exceeds Rs.75,000.

30. As per section 194D, every person responsible for payment of commission in connection with insurance business shall deduct tax at source @ 10% provided the amount paid or payable during a particular year to a particular person is exceeding Rs.20,000.

31. As per section 194H, every person responsible for making payment of commission shall deduct tax at source @ 10% provided the amount paid or payable during a particular year to a particular person is exceeding Rs.5,000.

32. As per section 194I, every person responsible for making payment of rent for plant & machinery shall deduct tax at source @ 2% and rent for land & building shall deduct tax at source @ 10% provided the amount paid or payable during a particular year to a particular person is exceeding Rs.1,80,000.

33. As per section 194J, every person responsible for making payment for professional or technical services shall deduct tax at source @ 10% provided the amount paid or payable during a particular year to a particular person is not exceeding Rs.30,000.

34. As per section 201(1A), if any person, principal officer or company does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—(i) at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at 1.5% for every month or part of a month on the amount of such tax from the date on which

24 such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of section 200(3).

35. Section 203, TDS certificate shall be continued.

36. As per section 271B, if any person fails to get his accounts audited as per the provisions of this section, penalties may be imposed equal to ½% of total turnover or gross receipt subject to a maximum of Rs.1,50,000.

37. Amendment in Section 200 Rule 30 Time allowed shall be 7 days from the end of the month in which the tax was deducted, but if the tax has been deducted in the month of March, tax should be deposited on or before 30th April.

38. Optional Composition Scheme for payment of service tax in case of distributor or selling agents of lotteriesA special mode of payment of service tax has been provided to a distributor or selling agent of lotteries by inserting sub-rule (7C) in rule 6 of the Service Tax Rules, 1994.The distributor or selling agents rendering the taxable service of promotion, marketing or organising/assisting in organising lottery can discharge their service tax liability in the following rates instead of paying service tax @10%:-

S. No. If the lottery / lottery scheme is one where Rate of service tax1. Guaranteed prize payout > 80% `6000/- on every ` 10 Lakh (or part of `

10 Lakh) of aggregate face value of lotterytickets printed by the organising State for adraw

2. Guaranteed prize payout < 80% `9000/- on every `10 Lakh (or part of `10 Lakh) of aggregate face value of lotterytickets printed by the organising State for adraw

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SERVICE TAX

Applicability of services for May 2011 and November 2011 examinations:-

Professional Competence ExaminationIt is clarified that in Part –II : Service tax and VAT of Paper 5 : Taxation, students will not be tested on specific questions covering individual taxable services

Integrated Professional Competence ExaminationIt is clarified that in Part –II : Service tax and VAT of Paper 4 : Taxation, students will be examined only in respect of the following taxable services:

1. Legal consultancy services2. Commercial training or coaching services3. Information technology software services4. Cargo handling services5. Customs house agent’s services6. Practising Chartered Accountant’s services7. Consulting engineer’s services8. Manpower recruitment or supply agency’s services

26

ORIGINAL TEXT

1. Section 2(15) Charitable Purpose In clause (15), after the proviso, the following proviso shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2009, namely:— Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.

2. Section 9In section 9 of the Income-tax Act, for the Explanation occurring after sub-section (2), the following Explanation shall be substituted and shall be deemed to have been substituted with effect from the 1st

day of June, 1976, namely:—“Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,—(i) the non-resident has a residence or place of business or business connection in India; or(ii) the non-resident has rendered services in India.”.

3. Section 10(14)Rule 2BBIncome-tax (Eighth Amendment) Rules, 2010 - Amendment in Rule 2BB

NOTIFICATION NO. 85/2010 [F. NO. 149/45/2010-SO (TPL)], DATED 22-11-2010

In exercise of the powers conferred by section 295 read with clause (14) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rule further to amend Income-tax Rules, 1962, namely :—

1. (1) These Rule may be called the Income-tax (Eighth Amendment) Rules, 2010.

(2) They shall be deemed to have come into force retrospectively with effect from 1st day of September, 2008.

2. In the Income-tax Rules, 1962, in rule 2BB, in sub-rule (2), in the Table, against serial number 4, in column 4, for letters, figures and words “Rs. 6,000 per month” the letters, figures and words, “Rs. 10,000 per month” shall be substituted.

4. Section 10(10) – Gratuity Date of enforcement of Payment of Gratuity (Amendment) Act, 2010

Notification No. S.O. 1217(E), dated 24-5-2010In exercise of the powers conferred by sub-section (2) of Section 1 of The Payment of Gratuity (Amendment) Act, 2010 (15 of 2010), the Central Government hereby appoints the 24th day of May, 2010, as the date on which the said Act shall come into force.

5. Recognised Provident Fund

Recognised Provident Fund : 8.5% rate notified under rule 6(b) of Part A of IVth Schedule to the Income-tax Act, 1961 -Supersession of Notification No. S.O. 484(E), dated 30-5-2001

Notification No. 69/2010, [F.No. 142/14/2010-SO (TPL)], dated 26-8-2010In exercise of the powers conferred by clause (b) of rule 6 of Part A of the Fourth Schedule to the Income-tax Act, 1961 (43 of 1961), and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) number S.O. 484(E), dated the 30th May, 2001, the Central Government hereby fixes, with effect from the 1st day of September, 2010, 8.5 per cent., as the rate referred to in the said clause.

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6. Section 35In section 35 of the Income-tax Act, with effect from the 1st day of April, 2011,—(i) in sub-section (1),—(a) for the words “scientific research association”, wherever they occur, the words “research association” shall be substituted;(b) in clause (ii), for the words “one and one-fourth”, the words “one and three-fourth” shall be substituted;(c) in clause (iii),—

(A) for the words “any sum paid to a university”, the words “any sum paid to a research association which has as its object the undertaking of research in social science or statistical research or to a university” shall be substituted;(B) in the proviso, for the words “such university”, at both the places where they occur, the words “such association, university” shall be substituted;

7. Section 35(2AA)In sub-section (2AA), in clause (a), for the words “one and one-fourth”, the words “one and three-fourth” shall be substituted;

8. Section 35(2AB)In sub-section (2AB), in clause (1), for the words “one and one-half”, the word “two” shall be substituted.

9. Section 35ADIn section 35AD of the Income-tax Act,—

(a) in sub-section (2), in clause (iii), in sub-clause (c), for the words “one-third of its total pipeline capacity”, the words, brackets and figures “such proportion of its total pipeline capacity as specified by regulations made by the Petroleum and Natural Gas Regulatory Board established under sub-section (1) of section 3 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006)” shall be substituted;

(b) for sub-section (3), the following sub-section shall be substituted with effect from the 1st day of April, 2011, namely:—

‘(3) Where a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes” in relation to such specified business for the same or any other assessment year.’;

(c) in sub-section (5), with effect from the 1st day of April, 2011,—

(i) in clause (a), the word “and”, occurring at the end, shall be omitted;

(ii) after clause (a), the following clauses shall be inserted, namely :—

“(aa) on or after the 1st day of April, 2010, where the specified business is in the nature of building and operating a new hotel of two-star or above category as classified by the Central Government;

(ab) on or after the 1st day of April, 2010, where the specified business is in the nature of building and operating a new hospital with at least one hundred beds for patients;

(ac) on or after the 1st day of April, 2010, where the specified business is in the nature of developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and which is notified by the Board in this behalf in accordance with guidelines as may be prescribed; and”;

28 (iii) in clause (b), for the word, brackets and letter “clause (a)”, the words, brackets and letters “clause (a), clause (aa), clause (ab) and clause (ac)” shall be substituted;

(d) in sub-section (8), in clause (c), after sub-clause (iii), the following sub-clauses shall be inserted with effect from the 1st day of April, 2011, namely :—

“(iv) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government;

(v) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients;

(vi) developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed;”.

10. Section 40(a)(ia)In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia),— (a) for the portion beginning with the words “has not been paid,—” and ending with the words “the last day of the previous year”, the words, brackets and figures “has not been paid on or before the due date specified in sub-section (1) of section 139” shall be substituted;

(b) for the proviso, the following proviso shall be substituted, namely:—”Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in subsection (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.”.

11. Section 44ABIn section 44AB of the Income-tax Act, with effect from the 1st day of April, 2011,—(a) in clause (a), for the words “forty lakh rupees”, the words “sixty lakh rupees” shall be substituted;

(b) in clause (b), for the words “ten lakh rupees”, the words “fifteen lakh rupees” shall be substituted.

12. Section 44ADSpecial provision for computing profits and gains of business on presumptive basis.

(1) Notwithstanding anything to the contrary contained in section 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.

(2) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed :

Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40..

(3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

(4) The provisions of Chapter XVII-C shall not apply to an eligible assessee in so far as they relate to the eligible business.

29 (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in sub-section (1) and whose total income exceeds the maximum amount which is not chargeable to income-tax, shall be required to keep and maintain such books of account and other documents as required under sub-section (2) of section 44AA and get them audited and furnish a report of such audit as required under section 44AB.

Explanation.—For the purposes of this section,—

(a) “eligible assessee” means,—

(i) an individual, Hindu undivided family or a partnership firm, who is a resident, but not a limited liability partnership firm as defined under clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009); and

(ii) who has not claimed deduction under any of the section 10A, 10AA, 10B, 10BA or deduction under any provisions of Chapter VIA under the heading “C. - Deductions in respect of certain incomes” in the relevant assessment year;

(b)“eligible business” means,—

(i) any business except the business of plying, hiring or leasing goods carriages referred to in section 44AE; and

(ii) whose total turnover or gross receipts in the previous year does not exceed an amount of sixty lakh rupees.

13. Section 44AFIn section 44AF of the Income-tax Act, after sub-section (5), the following sub-section shall be inserted, namely:—"(6) Nothing contained in this section shall apply to any assessment year beginning on or after the 1st day of April, 2011.".

14. Section 44AEIn section 44AE of the Income-tax Act, for sub-section (2), the following sub-section shall be substituted with effect from the 1st day of April, 2011, namely:—"(2) For the purposes of sub-section (1), the profits and gains from each goods carriage,—(i) being a heavy goods vehicle, shall be an amount equal to five thousand rupees for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, whichever is higher; (ii) other than a heavy goods vehicle, shall be an amount equal to four thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, whichever is higher.".

15. Cost Inflation Index NOTIFICATION NO 59/2010,Dated: July 21, 2010In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes number S.O. 2292(E), dated the 9th September, 2009, namely:-In the said notification, in the Table, after serial number 29 and the entries relating thereto, the following serial number and entries shall be inserted, namely :-“30  -   2010-2011   -  711

16. Section 47(xiiib)In section 47 of the Income-tax Act, after clause (xiiia), the following shall be inserted with effect from the 1st day of April, 2011, namely:—

30 ‘(xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereafter in this clause referred to as the company) to a limited liability partnership as a result of conversion of the company into a limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008:Provided that—

(a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership;

(b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion;

(c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership;

(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent. at any time during the period of five years from the date of conversion;

(e) the total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.Explanation.—For the purposes of this clause, the expressions “private company” and “unlisted public company” shall have the meanings respectively assigned to them in the Limited Liability Partnership Act, 2008;’.

17. Section 47A(4)In section 47A of the Income-tax Act, after sub-section (3), the following sub-section shall be inserted with effect from the 1st day of April, 2011, namely:— “(4) Where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership for the previous year in which the requirements of the said proviso are not complied with.”

18. Section 56(2)(viia)(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,—(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:

31 Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.Explanation.—For the purposes of this clause, “fair market value” of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);’.

19. Section 72A(6A)In section 72A of the Income-tax Act, with effect from the 1st day of April, 2011,— (a) after sub-section (6), the following shall be inserted, namely:—“(6A) Where there has been reorganisation of business whereby a private company or unlisted public company is succeeded by a limited liability partnership fulfilling the conditions laid down in the proviso to clause (xiiib) of section 47, then, notwithstanding anything contained in any other provision of this Act, the accumulated loss and the unabsorbed depreciation of the predecessor company, shall be deemed to be the loss or allowance for depreciation of the successor limited liability partnership for the purpose of the previous year in which business reorganisation was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly:Provided that if any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the successor limited liability partnership, shall be deemed to be the income of the limited liability partnership chargeable to tax in the year in which such conditions are not complied with.”;

20. Section 80CCFAfter section 80CCE of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2011, namely:— “80CCF. In computing the total income of an assessee, being an individual or a Hindu undivided family, there shall be deducted, the whole of the amount, to the extent such amount does not exceed twenty thousand rupees, paid or deposited, during the previous year relevant to the assessment year beginning on the 1st day of April, 2011, as subscription to long-term infrastructure bonds as may, for the purposes of this section, be notified by the Central Government.”.

21. Section 80DIn section 80D of the Income-tax Act, in sub-section (2), in clause (a), after the words “his family”, the words “or any contribution made to the Central Government Health Scheme” shall be inserted with effect from the 1st day of April, 2011.

22. Section 80IB(10)In section 80-IB of the Income-tax Act, in sub-section (10),—(i) in clause (a),—(a) in sub-clause (ii), after the words, figures and letters “the 1st day of April, 2004”, the words, figures and letters “but not later than the 31st day of March, 2005” shall be inserted; (b) after sub-clause (ii), the following sub-clause shall be inserted, namely:—“(iii) in a case where a housing project has been approved by the local authority on or after the 1st day of April, 2005, within five years from the end of the financial year in which the housing project is approved by the local authority.”;(ii) in clause (d),—(a) for the words “five per cent.”, the words “three per cent.” shall be substituted;(b) for the words “two thousand square feet, whichever is less”, the words “five thousand square feet, whichever is higher” shall be substituted.

23. Section 80-IDIn section 80-ID of the Income-tax Act, in sub-section (2), with effect from the 1st day of April, 2011,—

32 (a) in clause (i), for the words, figures and letters “the 31st day of March, 2010”, the words,

figures and letters “the 31st day of July, 2010” shall be substituted;

(b) in clause (ii), for the words, figures and letters “the 31st day of March, 2010”, the words, figures and letters “the 31st day of July, 2010” shall be substituted.

24. Section 194BIn section 194B of the Income-tax Act, for the words “five thousand rupees”, the words “ten thousand rupees” shall be substituted with effect from the 1st day of July, 2010.

25. Section 194BBIn section 194BB of the Income-tax Act, for the words “two thousand five hundred rupees”, the words “five thousand rupees” shall be substituted with effect from the 1st day of July, 2010.

26. Section 194CIn section 194C of the Income-tax Act, in sub-section (5), with effect from the 1st day of July,2010,—(a) for the words “twenty thousand rupees”, the words “thirty thousand rupees” shall be substituted;(b) in the proviso, for the words “fifty thousand rupees”, the words “seventy-five thousand rupees” shall be substituted.

27. Section 194DIn section 194D of the Income-tax Act, in the second proviso, for the words “five thousand rupees”, the words “twenty thousand rupees” shall be substituted with effect from the 1st day of July, 2010.

28. Section 194HIn section 194H of the Income-tax Act, in the first proviso, for the words “two thousand five hundred rupees”, the words “five thousand rupees” shall be substituted with effect from the 1st day of July, 2010.

29. Section 194IIn section 194-I of the Income-tax Act, in the first proviso, for the words “one hundred and twenty thousand rupees”, the words “one hundred eighty thousand rupees” shall be substituted with effect from the 1st day of July, 2010.

30. Section 194JIn section 194J of the Income-tax Act, in the first proviso to sub-section (1), in clause (B), for the words “twenty thousand rupees”, wherever they occur, the words “thirty thousand rupees” shall be substituted with effect from the 1st day of July, 2010.

31. Section 201In section 201 of the Income-tax Act, for sub-section (1A), the following sub-section shall be substituted with effect from the 1st day of July, 2010, namely:—“(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—(i) at one per cent. for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one-half per cent. for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200.”.

32. Section 203In section 203 of the Income-tax Act, sub-section (3) shall be omitted.

33

33. Section 271BIn section 271B of the Income-tax Act, for the words “one hundred thousand rupees”, the words “one hundred fifty thousand rupees” shall be substituted with effect from the 1st day of April, 2011.

34. Rule 30(1) All sums deducted in accordance with the provisions of Chapter XVII‐B by an office of the Government shall be paid to the credit of the Central Government ‐

(a) on the same day where the tax is paid without production of an income‐tax challan; and(b) on or before seven days from the end of the month in which the deduction is made or income‐tax is due under sub‐section (1A) of section 192, where tax is paid accompanied by an income‐tax challan.

(2) All sums deducted in accordance with the provisions of Chapter XVII‐B by deductors other than an office of the Government shall be paid to the credit of the Central Government ‐

(a) on or before 30th day of April where the income or amount is credited or paid in the month of March; and(b) in any other case, on or before seven days from the end of the month in which‐

(i) the deduction is made; or(ii) income‐tax is due under sub‐section (1A) of section 192.

(3) Notwithstanding anything contained in sub‐rule (2), in special cases, the Assessing Officer may, with the prior approval of the Joint Commissioner, permit quarterly payment of the tax deducted under section 192 or section 194A or section 194D or section 194H for the quarters of the financial year specified to in column (2) of the Table below by the date referred to in column (3) of the said Table:‐

TableSl. No. Quarter of the Financial Year ended on Date for quarterly payment

(1) (2) (3)1. 30th June 7th July2. 30th September 7th October3. 31st December 7th January4. 31st March 30th April.

B. Mode of payment

(4) In the case of an office of the Government, where tax has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person by whatever name called to whom the deductor reports the tax so deducted and who is responsible for crediting such sum to the credit of the Central Government, shall‐

(a) submit a statement in Form No. 24G within ten days from the end of the month to the agency authorised by the Director General of Income‐tax (Systems) in respect of tax deducted by the deductors and reported to him for that month; and(b) intimate the number (hereinafter referred to as the Book Identification Number) generated by the agency to each of the deductors in respect of whom the sum deducted has been credited.

(5) For the purpose of sub‐rule (4), the Director General of Income‐tax (Systems) shall specify the procedures, formats and standards for ensuring secure capture and transmission of data, and shall also be responsible for the day‐to‐day administration in relation to furnishing the information in the manner so specified.(6) (i) Where tax has been deposited accompanied by an income‐tax challan, the amount of tax so deducted

or collected shall be deposited to the credit of the Central Government by remitting it within the time specified in clause (b) of sub‐rule (1) or in sub‐rule (2) or in sub‐rule (3) into any branch of the Reserve Bank of India or of the State Bank of India or of any authorised bank;

34 (ii) Where tax is to be deposited in accordance with clause (i), by persons referred to in sub ‐rule (1) of rule 125, the amount deducted shall be electronically remitted into the Reserve Bank of India or the State Bank of India or any authorised bank accompanied by an electronic income‐tax challan.

(7) For the purpose of this rule, the amount shall be construed as electronically remitted to the Reserve Bank of India or to the State Bank of India or to any authorised bank, if the amount is remitted by way of –

(a) internet banking facility of the Reserve Bank of India or of the State Bank of India or of any authorised bank; or(b) debit card.

(8) Where tax is deducted before the 1st day of April, 2010, the provisions of this rule shall apply as they stood immediately before their substitution by the Income‐tax (Amendment) Rules, 2010.

35. RULE 6(7C) PAYMENT OF SERVICE TAX BY PERSONS ENGAGED IN PROMOTION, MARKETING, ORGANISING OR IN ANY OTHER MANNER ASSISTING IN ORGANISING LOTTERY

The distributor or selling agent, liable to pay service tax for the taxable service of promotion, marketing, organising or in any other manner assisting in organising lottery, referred to in sub-clause (zzzzn) of clause (105) of section 65 of the said Act, shall have the option to pay an amount at the rate specified in column (2) of the Table given below, subject to the conditions specified in the corresponding entry in column (3) of the said Table, instead of paying service tax at the rate specified in section 66 of Chapter V of the said Act:

TableSl. No.

Rate Condition

(1) (2) (3)1. ` 6000/- on every ` 10 Lakh (or part of ` 10

Lakh) of aggregate face value of lottery tickets printed by the organising State for a draw

If the lottery or lottery scheme is one where the guaranteed prize payout is more than 80%

2. ` 9000/- on every ` 10 Lakh (or part of ` 10 Lakh) of aggregate face value of lottery tickets printed by the organising State for a draw

If the lottery or lottery scheme is one where the guaranteed prize payout is less than 80%

            Provided that in case of online lottery, the aggregate face value of lottery tickets for the purpose of this sub-rule shall be taken as the aggregate value of tickets sold, and service tax shall be calculated in the manner specified in the said Table.            Provided further that the distributor or selling agent shall exercise such option within a period of one month of the beginning of each financial year and such option shall not be withdrawn during the remaining part of the financial year. Provided also that the distributor or selling agent shall exercise such option for financial year 2010-11, within a period of one month of the publication of this sub-rule in the Official Gazette or, in the case of new service provider, within one month of providing of service under the said sub-clause and such option shall not be withdrawn during the remaining part of that financial year. Explanation.- For the purpose of this sub-rule- 

(i)  “distributor or selling agent” shall have the meaning assigned to them in clause (c) of the rule 2 of the Lottery (Regulation) Rules, 2010 notified by the Government of India in the Ministry of Home Affairs published in the Gazette of India, Part-II, Section 3, Sub-section (i) vide number G.S.R. 278(E) dated 1st April, 2010 and shall include distributor or selling agent authorised by the lottery organising State.

35 (ii) “draw” shall have the meaning assigned to it in clause (d) of the rule 2 of the Lottery

(Regulation) Rules, 2010 notified by the Government of India in the Ministry of Home Affairs published in the Gazette of India, Part-II, Section 3, Sub-section (i) vide number G.S.R. 278(E) dated 1st April, 2010.

(iii) “online lottery” shall have the meaning assigned to it in clause (e) of the rule 2 of the Lottery (Regulation) Rules, 2010 notified by the Government of India in the Ministry of Home Affairs published in the Gazette of India, Part-II, Section 3, Sub-section (i) vide number G.S.R. 278(E) dated 1st April, 2010.

(iv)  “organising state” shall have the meaning assigned to it in clause (f) of the rule 2 of the Lottery (Regulation) Rules, 2010 notified by the Government of India in the Ministry of Home Affairs published in the Gazette of India, Part-II, Section 3, Sub-section (i) vide number G.S.R. 278(E) dated 1st April, 2010.

NOTES ON CLAUSES

36 1. Section 2(15) Charitable Purpose

Sub-clause (a) proposes to amend the said clause (15) by inserting a second proviso therein to provide that the first proviso shall not apply if the aggregate value of receipts from the activities referred to in the first proviso is ten lakh rupees or less in the previous year.

This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-2010 and subsequent years.

2. Section 9It is proposed to substitute the said Explanation so as to provide that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of subsection (1) and shall be included in the total income of the nonresident, whether or not,–

(i) the non-resident has a residence or place of business or business connection in India; or

(ii) the non-resident has rendered services in India.

This amendment will take effect, retrospectively, from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-1978 and subsequent years.

3. Section 35Item (b) of sub-clause (i) proposes to amend the said clause (ii) so as to enhance the said weighted deduction from one hundred and twenty-five per cent. to one hundred and seventy-five per cent.

Item (c) of sub-clause (i) proposes to amend clause (iii) of the aforesaid sub-section to include research associations, which have as their object, undertaking of research in social science or statistical research provided such research associations are approved and notified. Accordingly, any sum paid to such research associations shall be eligible for weighted deduction.These amendments will take effect from 1st April, 2011, and will, accordingly, apply in relation to the assessment year 2011- 2012 and subsequent years.

4. Section 35(2AA)It is proposed to amend the said clause (a) so as to enhance the said weighted deduction from one hundred and twenty-five per cent. to one hundred and seventy-five per cent.These amendments will take effect from 1st April, 2011, and will, accordingly, apply in relation to the assessment year 2011- 2012 and subsequent years.

5. Section 35(2AB)It is proposed to amend the said clause (1) so as to enhance the said weighted deduction from one hundred and fifty per cent. to two hundred per cent.These amendments will take effect from 1st April, 2011, and will, accordingly, apply in relation to the assessment year 2011- 2012 and subsequent years.

6. Section 35ADSub-clause (b) proposes to substitute sub-section (3) of the aforesaid section so as to provide that where a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions of Chapter VI-A under the heading “C.- Deductions in respect of certain incomes” in relation to such specified business for the same or any other assessment year.

Sub-clause (c) proposes to amend sub-section (5) of the aforesaid section so as to insert a new clause (aa) to provide that the specified business in the nature of building and operating a new hotel of two-star or above category as classified by the Central Government should commence its operation on or after 1st April, 2010.

37

Sub-clause (d) proposes to amend clause (c) of sub-section (8) of the aforesaid section so as to bring the business relating to building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central Government within the purview of “specified business”.

These amendments will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

7. Section 40(a)(ia)It is proposed to amend sub-clause (ia) of clause (a) of the aforesaid section to provide that disallowance under the said sub clause will be attracted, if, after deduction of tax during the previous year, the same has not been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

This amendment will take effect retrospectively from 1st April, 2010, and will, accordingly, apply in relation to the assessment year 2010-2011 and subsequent years.

8. Section 44ABIt is proposed to enhance the said limit from forty lakh rupees to sixty lakh rupees.It is proposed to enhance the said limit from ten lakh rupees to fifteen lakh rupees. These amendments will take effect from 1st April, 2011, and will, accordingly, apply in relation to the assessment year 2011- 2012 and subsequent years.

9. Section 44ADIt is proposed to enhance the said limit from forty lakh rupees to sixty lakh rupees.

This amendment will take effect from 1st April, 2011, and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

10. Section 44AFIt is proposed to insert sub-section (6) to the said section which provides that the provisions of the said section shall not apply to any assessment year beginning on or after 1st April, 2011, in view of the substitution of section 44AD vide clause 20 of the Bill. This amendment will take effect retrospectively from 1st April, 2009.

11. Section 44AEIt is proposed to enhance aforesaid amounts of profits and gains from (a) three thousand five hundred rupees to five thousand rupees per month or part of a month or the amount claimed to be actually earned by the assessee, whichever is higher in the case of heavy goods vehicles and (b) from three thousand one hundredand fifty rupees to four thousand five hundred rupees per month or part of a month or the amount claimed to be actually earned by the assessee, whichever is higher in the case of vehicles other than heavy goods vehicles. This amendment will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

12. Section 47(xiiib)It is proposed to amend the aforesaid section so as to insert a new clause (xiiib) in section 47 which provides that any transfer of a capital asset or intangible asset by a company shall not be treated as transfer under section 45 where a private company or unlisted public company (hereinafter referred to as the company) is converted into a limited liability partnership in accordance with the provisions of section 56 or 57 of the Limited Liability Partnership Act, 2008.

38 It is also proposed to insert a proviso to the said clause which provides that (a) all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the limited liability partnership; (b) all the shareholders of the company immediately before the conversion become the partners of the limited liability partnership, and their capital contribution and profit sharing ratio in the limited liability partnership are in the same proportion as their shareholding in the company on the date of conversion; (c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership; (d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability partnership shall not be less than fifty per cent. at any time during the period of five years from the date of conversion; (e) the total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and (f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

This amendment will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

13. Section 47A(4)It is proposed to amend the aforesaid section so as to insert a new sub-section (4) which provides that where any of the conditions stipulated in the proviso to clause (xiiib) of section 47 are not complied with, the amount of profits or gains arising from the transfer of capital assets by the predecessor private company or unlisted public company to the successor limited liability partnership on succession shall be deemed to be the profits or gains chargeable to tax of the successor limited liability partnership for the previous year in which the conditions stipulated in the proviso to clause (xiiib) of section 47 are not complied with.

This amendment will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

14. Section 56(2)(viia)It is proposed to insert a new clause (viia) in sub-section (2) of the aforesaid section so as to include the transactions undertaken in shares of a company not being a company in which the public are substantially interested where the recipient is a firm or a company not being a company in which the public are substantially interested.

This amendment will take effect from 1st June, 2010, and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

15. Section 72A(6A)Sub-clause (a) proposes to insert a new sub-section (6A) which provides that in case of succession of business, whereby, a private company or unlisted public company is succeeded by a limited liability partnership fulfilling the conditions laid down in the proviso to clause (xiiib) of section 47, notwithstanding anything contained in any other provisions of the Act, the accumulated loss and the unabsorbed depreciation of the predecessor company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the successor limited liability partnership for the previous year in which business reorganisation was effected and the other provisions of the Act relating to set off and carry forward loss and allowance for depreciation shall apply accordingly. However, if the conditions stipulated in the proviso to clause (xiiib) of section 47 are not complied with, the set off of loss or allowance of depreciation which had been allowed shall be deemed to be the income chargeable to tax of the successor limited liability partnership for the previous year in which the conditions stipulated in the proviso to clause (xiiib) of section 47 are not complied with.

39 These amendments will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

16. Section 80CCFIt is proposed to insert a new section so as to provide that a sum of rupees twenty thousand in addition to the existing limit of rupees one lakh for tax savings under the Income-tax Act may be allowed as a specific deduction in computing the total income of an assessee being an individual or a Hindu undivided family if such sum is paid or deposited at any time during the previous year relevant to the assessment year beginning on 1st April, 2011 as subscription to long-term infrastructure bonds as may be notified by the Central Government.

This amendment will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-2012.

17. Section 80DIt is proposed to amend the said clause (a) so as to also allow the benefit of the deduction in respect of a contribution made by the assessee during the previous year to the Central Government Health Scheme within the said limit.

This amendment will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

18. Section 80IB(10)It is proposed to increase the period for completion of a housing project, approved on or after 1st April, 2005, from four years to five years.

Under the existing provisions contained in clause (d) of subsection (10) of the aforesaid section, the built-up area of the shops and other commercial establishments included in the housing project should not exceed five per cent. of the aggregate built-up area of the housing project or 2,000 square feet, whichever is less.

It is proposed to revise the existing limit to three per cent. of the aggregate built-up area of the housing project or 5,000 square feet, whichever is higher.

These amendments will take effect, retrospectively, from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-2011 and subsequent years.

19. Section 80-IDIt is proposed to extend the said period up to 31st July, 2010. The existing clause (ii) of sub-section (2) of the aforesaid section provides that the provisions of the said section apply to any undertaking engaged in the business of building, owning and operating a convention centre, located in the specified area, if such convention centre is constructed at any time during the period beginning on 1st April, 2007 and ending on 31st March, 2010.

It is proposed to extend the said period up to 31st July, 2010.

These amendments will take effect from 1st April, 2011, and will, accordingly, apply in relation to the assessment year 2011- 2012 and subsequent years.

20. Section 194BIt is proposed to enhance the said limit from five thousand rupees to ten thousand rupees.

This amendment will take effect from 1st July, 2010.

40 21. Section 194BB

It is proposed to enhance the said limit from two thousand five hundred rupees to five thousand rupees.

This amendment will take effect from 1st July, 2010.

22. Section 194CIt is proposed to enhance the said limit from twenty thousand rupees for a single transaction to thirty thousand rupees and from fifty thousand rupees for the aggregate transactions during the financial year to seventy five thousand rupees.

These amendments will take effect from 1st July, 2010.

23. Section 194DIt is proposed to enhance the said limit from five thousand rupees to twenty thousand rupees.

This amendment will take effect from 1st July, 2010.

24. Section 194HIt is proposed to enhance the said limit from two thousand five hundred rupees to five thousand rupees.

This amendment will take effect from 1st July, 2010.

25. Section 194IIt is proposed to enhance the said limit from one hundred and twenty thousand rupees to one hundred and eighty thousand rupees.

This amendment will take effect from 1st July, 2010.

26. Section 194JIt is proposed to enhance the said limit from twenty thousand rupees to thirty thousand rupees.

This amendment will take effect from 1st July, 2010.

27. Section 201It is proposed to amend sub-section (1A) of the aforesaid section so as to increase the interest chargeable under that sub-section from one per cent. to one and one-half per cent for every month or part of a month for tax deducted but not paid.

This amendment will take effect from 1st July, 2010.

28. Section 203It is proposed to omit the aforesaid sub-section (3) of section 203 of the Income-tax Act.

This amendment will take effect retrospectively from 1st April, 2010.

29. Section 271BIt is proposed to enhance the said limit from one lakh rupees to one lakh fifty thousand rupees.

This amendment will take effect from 1st April, 2011, and will, accordingly, apply in relation to the assessment year 2011-2012 and subsequent years.

41

MEMORANDUM

1. Section 2(15) Charitable Purpose For the purposes of the Income-tax Act, “charitable purpose” has been defined in section 2(15) which, among others, includes “the advancement of any other object of general public utility”. However, “the advancement of any other object of general public utility” is not a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.

The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. It is, therefore, proposed to amend section 2(15) to provide that “the advancement of any other object of general public utility” shall continue to be a “charitable purpose” if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business do not exceed Rs.10 lakhs in the previous year.

This amendment is proposed to take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent years.

2. Section 9Section 9 provides for situations where income is deemed to accrue or arise in India.

Vide Finance Act, 1976, a source rule was provided in section 9 through insertion of clauses (v), (vi) and (vii) in sub-section (1) for income by way of interest, royalty or fees for technical services respectively. It was provided, inter alia, that in case of payments as mentioned under these clauses, income would be deemed to accrue or arise in India to the non-resident under the circumstances specified therein.

The intention of introducing the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India as long as they are utilized in India. The source rule, therefore, means that the situs of the rendering of services is not relevant. It is the situs of the payer and the situs of the utilization of services which will determine the taxability of such services in India.

This was the settled position of law till 2007. However, the Hon’ble Supreme Court, in the case of Ishikawajima-Harima Heavy Industries Ltd., Vs DIT (2007)[288 ITR 408], held that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India.

This interpretation was not in accordance with the legislative intent that the situs of rendering service in India is not relevant as long as the services are utilized in India. Therefore, to remove doubts regarding the source rule, an Explanation was inserted below sub-section (2) of section 9 with retrospective effect from 1st June, 1976 vide Finance Act, 2007. The Explanation sought to clarify that where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub section (1) of section 9, such income shall be included in the total income of the non-resident, regardless of whether the non-resident has a residence or place of business or business connection in India.

However, the Karnataka High Court, in a recent judgement in the case of Jindal Thermal Power Company Ltd. vs DCIT (TDS), has held that the Explanation, in its present form, does not do away with the requirement of rendering of services in India for any

42

income to be deemed to accrue or arise to a non-resident under section 9. It has been held that on a plain reading of the Explanation, the criteria of rendering services in India and the utilization of the service in India laid down by the Supreme Court in its judgement in the case of Ishikawajima-Harima Heavy Industries Ltd.(supra) remains untouched and unaffected by the Explanation.

In order to remove any doubt about the legislative intent of the aforesaid source rule, it is proposed to substitute the existing Explanation with a new Explanation to specifically state that the income of a non-resident shall be deemed to accrue or arisein India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not,

(a) the non-resident has a residence or place of business or business connection in India; or(b) the non-resident has rendered services in India.

This amendment is proposed to take effect retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years.

3. Section 35Section 35 of the Income-tax Act provides for deduction in respect of expenditure on research and development. The existing provisions of section 35(1)(ii) provide for a weighted deduction from business income to the extent of 125 per cent of any sum paid to an approved and notified scientific research association or to a university, college or other institution to be utilized for scientific research. Section 35(1)(iii) provides similar deduction if the sum is paid to an approved and notified university, college or other institution to be used to carry on research in social science or statistical research. Section 80GGA allows deductions for donations made to such association, universities, etc.

Under section 10(21), exemption is granted in respect of the income of a scientific research association which is approved and notified under section 35(1)(ii). The university, college or other institutions which are approved either under section 35(1)(ii) or under section 35(1)(iii) also qualify for exemption of their income under section 10(23C) of the Act subject to specified conditions.

The associations which are engaged in undertaking research in social science or statistical research are not currently covered by the provisions of section 35(1)(iii). Such research associations are also not entitled to exemption in respect of their income.

It is now proposed to amend section 35(1)(iii) so as to include an approved research association which has as its object undertaking research in social science or statistical research. It is also proposed to amend section 10(21) so as to also provide exemption to such associations in respect of their income. This exemption will be subject to the same conditions under which an approved research association undertaking scientific research is entitled to exemption in respect of its income. An amendment to include allowability of deductions for donations made to such associations is also proposed.

These amendments are proposed to take effect from 1st April 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

4. Section 35(2AA) / Section 35(2AB)Weighted deduction for scientific research and development

Under the existing provisions of section 35(2AB) of the Income-tax Act, a company is allowed weighted deduction of 150 per cent of the expenditure (not being expenditure in the nature of cost of any land or building) incurred on scientific research on an approved in-house research and development facility.

43

In order to further incentivise the corporate sector to invest in in-house research, it is proposed to increase this weighted deduction from 150 per cent to 200 per cent.

The existing provisions of section 35(1)(ii) of the Income-tax Act provide for a weighted deduction from the business income to the extent of 125 per cent of any sum paid to an approved scientific research association that has the object of undertaking scientific research or to an approved university, college or other institution to be used for scientific research. Further, under section 35(2AA) of the Act, weighted deduction to the extent of 125 per cent is also allowed for any sum paid to a National Laboratory or a university or an Indian Institute of Technology (IIT) or a specified person for the purpose of an approved scientific research programme.

In order to encourage more contributions to such approved entities for the purposes of scientific research, it is proposed to increase this weighted deduction from 125 per cent to 175 per cent.

These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

5. Section 35ADInvestment linked deduction for specified business

Benefits of profit linked deduction under Chapter VI-A of the Income-tax Act are currently available to specified categories of hotels in Uttarakhand and Himachal Pradesh; National Capital Territory and adjacent districts; 22 districts having World Heritage Sites and North-Eastern States, which start functioning before specified dates mentioned in the Act.In view of the high employment potential of this sector, it is proposed to provide investment linked incentive to the hotel sector, irrespective of location, under section 35AD of the Income-tax Act. The investment-linked tax incentive allows 100 per cent deduction in respect of the whole of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the “specified business” during the previous year in which such expenditure is incurred.

Currently, such “specified business” means the business of setting up and operating cold chain facilities, warehousing facilities for storage of agricultural produce and laying and operating a cross-country natural gas or crude or petroleum oil pipeline network. It is now proposed to include the business of building and operating a new hotel of two-star or above category, anywhere in India, which starts functioning after 1.4.2010 within the purview of “specified business”.

It is also proposed to substitute sub-section (3) of section 35AD so as to provide that where a deduction under this section is claimed and allowed in respect of the specified business for any assessment year, no deduction shall be allowed under the provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain incomes” in relation to such specified business for the same or any other assessment year. A similar amendment is proposed in section 80A.

These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. One of the conditions for availing the benefit under section 35AD in the case of laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network, is that the specified business ‘has made not less than one-third of its total pipeline capacity available for use on common carrier basis by any person other than the assessee or an associated person’. The Petroleum & Natural Gas Regulatory Board has, by regulations, specified a common carrier capacity condition of ‘one-third’ for a natural

44 gas pipeline network and ‘one-fourth’ for petroleum product pipeline network. In order to rationalise the existing condition regarding common carrier capacity, it is proposed to amend sub-section (2) of section 35AD to provide that the proportion of the total pipeline capacity to be made available for use on common carrier basis should be as specified by the said regulations.

This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.

6. Section 40(a)(ia)The existing provisions of section 40(a)(ia) of Income-tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.

It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.

This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.

7. Section 44ABUnder the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed forty lakh rupees in the previous year. Similarly, a person carrying on a profession is required to get his accounts audited if the gross receipts in profession exceed ten lakh rupees in the previous year.

In order to reduce compliance burden of small businesses and professionals, it is proposed to increase the aforesaid threshold limit from forty lakh rupees to sixty lakh rupees in the case of persons carrying on business and from ten lakh rupees to fifteen lakh rupees in the case of persons carrying on profession.

These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

8. Section 44ADIt is also proposed that for the purpose of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from forty lakh rupees to sixty lakh rupees.

These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

9. Section 44AFThe existing section 44AF is proposed to be made inoperative for the assessment year beginning on or after 1st day of April, 2011.

The proposed amendment will take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

45 10. Section 44AE

Presumptive income for truck owners under section 44AEUnder the existing provisions of section 44AE, a presumptive scheme is available to assessees engaged in business of plying, hiring or leasing goods carriages. The scheme applies to an assessee, who owns not more than 10 goods carriages at any time during the previous year.

Under this scheme, which is optional to the assessee, a fixed amount of income per vehicle is taken at the rate of Rs.3,500/- per month per vehicle for owners of heavy goods vehicle, and Rs.3,150/- per month per vehicle for the owners of light goods vehicles. An assessee opting for this scheme is exempted from maintaining books of account to substantiate the income.

It is proposed to enhance the presumed income per vehicle for the owners of–(i) heavy goods vehicle to Rs.5,000/- per month; and(ii) other than heavy goods vehicles to Rs.4,500/- per month.

It is further proposed to provide an anti-avoidance clause stating that a prescribed fixed sum or a sum higher than the aforesaid sum claimed to have been earned by the assessee shall be deemed to be profits and gains of such business.

The proposed amendment will take effect from the 1st April, 2011 and will, accordingly, apply in relation to assessment year 2011-12 and subsequent years.

11. Section 47(xiiib) / Section 47A(4) / Section 72A(6A) Conversion of a private company or an unlisted public company into a limited liability partnership (LLP)

The Finance (No. 2) Act, 2009 provided for the taxation of LLPs in the Income-tax Act on the same lines as applicable to partnership firms. Section 56 and section 57 of the Limited Liability Partnership Act, 2008 allow conversion of a private company or an unlisted public company (hereafter referred as company) into an LLP. Under the existing provisions of Income-tax Act,bconversion of a company into an LLP has definite tax implications. Transfer of assets on conversion attracts levy of capital gains tax. Similarly, carry forward of losses and of unabsorbed depreciation is not available to the successor LLP.

It is proposed that the transfer of assets on conversion of a company into an LLP in accordance with section 56 and sectionb57 of the Limited Liability Partnership Act, 2008 shall not be regarded as a transfer for the purposes of capital gains tax underbsection 45, subject to certain conditions. These conditions are as follows:

(i) the total sales, turnover or gross receipts in business of the company do not exceed sixty lakh rupees in any of the threebpreceding previous years;(ii) the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company;(iii) no consideration other than share in profit and capital contribution in the LLP arises to partners;(iv) the erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;(v) all assets and liabilities of the company become the assets and liabilities of the LLP; and(vi) no amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion.

It is also proposed to allow carry forward and set-off of business loss and unabsorbed depreciation to the successor LLP which fulfills the above mentioned conditions.

46 It is also proposed that if the conditions stipulated above are not complied with, the benefit availed by the company shall be deemed to be the profits and gains of the successor LLP chargeable to tax for the previous year in which the requirements are not complied with.

It is also proposed that the aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, in any previous year, the depreciation calculated at the prescribed rates as if the conversion had not taken place.

It is further proposed that the actual cost of the block of assets in the case of the successor LLP shall be the written down value of the block of assets as in the case of the predecessor company on the date of conversion.

It is also provided that the cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it.

Credit in respect of tax paid by a company under section 115JB is allowed only to such company under section 115JAA. It is proposed to clarify that the tax credit under section 115JAA shall not be allowed to the successor LLP.

These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

12. Section 56(2)(viia)The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly after abolition of the Gift Tax Act. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. It is, therefore, proposed to amend the definition of property so as to provide that section 56(2)(vii) will have application to the ‘property’ which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient.

In several cases of immovable property transactions, there is a time gap between the booking of a property and the receipt of such property on registration, which results in a taxable differential. It is, therefore, proposed to amend clause (vii) of section 56(2) so as to provide that it would apply only if the immovable property is received without any consideration and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property. These amendments are proposed to take effect retrospectively from 1st October, 2009 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.

This amendment is proposed to take effect from 1st June, 2010 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

13. Section 80CCFDeduction in respect of long-term infrastructure bonds

In tune with the policy thrust of promoting investment in the infrastructure sector, it is proposed to insert a new section 80CCF in the Income-tax Act to provide that subscription during the financial year 2010-11 made to long-term infrastructure bonds (as may be notified by the Central Government), to the extent of Rs. 20,000, shall be allowed as deduction in computing the income of an individual or a Hindu undivided family. This deduction will be over and above the existing overall limit of tax deduction on savings of upto Rs.1 lakh under section 80C, 80CCC and 80CCD of the Act.

47 This amendment is proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12.

14. Section 80DDeduction in respect of contribution to the Central Government Health SchemeUnder the existing provisions of section 80D, deduction in respect of premium paid towards a health insurance policy upto a maximum of Rs. 15,000 is available for self, spouse and dependent children. A further deduction of Rs. 15,000 is also allowed for buying an insurance policy in respect of dependent parents. The deduction is enhanced to Rs. 20,000 in both cases if the person insured is of age of 65 years or above.

The Central Government Health Scheme (CGHS) is a medical facility available to serving and retired Government servants. This facility is similar to the facilities available through health insurance policies.

It is, therefore, proposed to also allow deduction in respect of any contribution made to CGHS by including such contribution under the provisions of section 80D. The deduction will be limited to the current aggregate as mentioned in the section.

This amendment is proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

15. Section 80IB(10)Deduction for developing and building housing projectsUnder the existing provisions of section 80-IB(10), 100 per cent deduction is available in respect of profits derived by an undertaking from developing and building housing projects approved by a local authority before 31.3.2008. This benefit is available subject to, inter alia, the following conditions:(a) the project has to be completed within 4 years from the end of the financial year in which the project is approved by the local authority.(b) the built-up area of the shops and other commercial establishments included in the housing project should not exceed 5 per cent of the total built-up area of the housing project or 2,000 sq.ft. whichever is less.

To allow for extraordinary conditions due to the global recession and the resultant slowdown in the housing sector, it is proposed to increase the period allowed for completion of a housing project in order to qualify for availing the tax benefit under the section, from the existing 4 years to 5 years from the end of the financial year in which the housing project is approved by the local authority. This extension will be available for housing projects approved on or after 1.4. 2005.

Further, it is also proposed to enhance the current norms for built-up area of shops and other commercial establishments in housing projects in order to enable basic facilities for the residents. The built-up area of the shops and other commercial establishments included in the housing project is proposed to be three per cent of the aggregate built-up area of the housing project or 5000 sq. ft., whichever is higher. This benefit will be available to projects approved on or after the 1.4.2005, which are pending for completion, in respect of their income relating to assessment year 2010-11 and subsequent years.

These amendments are proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.

48 16. Section 80-ID

Deduction of profits of a hotel or a convention centre in the National Capital TerritorySection 80-ID of the Income-tax Act provides for 100 per cent deduction for five years, of profits derived by an undertaking from the business of a two-star, three-star or four-star category hotel or from the business of building, owning and operating a convention centre located in the National Capital Territory of Delhi and the districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad, provided such hotel has started functioning or such convention centre is constructed during the period 1.4.2007 to 31.3.2010.

To provide some more time for these facilities to be set up in light of the Commonwealth Games in October, 2010, it is proposed to amend clauses (i) and (ii) of section 80-ID to extend the date by which the hotel has to start functioning or the convention centre has to be constructed, from the present 31st March, 2010 to 31st July, 2010.

This amendment is proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

17. Section 194B / Section 194BB / Section 194C / Section 194D / Section 194H / Section 194I / Section 194JRationalisation of provisions relating to Tax Deduction at Source (TDS)Under the scheme of deduction of tax at source as provided in the Income-tax Act, every person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within the specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limits.In order to adjust for inflation and also to reduce the compliance burden of deductors and taxpayers, it is proposed to raise the threshold limit for payments mentioned in sections 194B, 194BB, 194C, 194D, 194H, 194-I and 194J as under:

Section Nature of payment Existing threshold limit of payment (Rupees)

Proposed threshold limit of payment(Rupees)

1. 194B Winnings from lottery or crossword puzzle

5,000 10,000

2. 194BB Winnings from horse race

2,500 5,000

3. 194C Payment to contractors

20,000 (for a single transaction)

30,000 (for a singletransaction)

50,000(for aggregate of transactions during transactions duringfinancial year)

75,000 (for aggregate of transactions during transactions duringfinancial year)

4. 194D Insurance commission

5,000 20,000

5. 194H Commission or Brokerage

2,500 5,000

6. 194-I Rent 1,20,000 1,80,0007. 194J Fees for

professional or technical services

20,000 30,000

These amendments are proposed to take effect from 1st July, 2010.

49 18. Section 201

Under the existing provisions of section 201(1A) of the Act, a person is liable to pay simple interest at one per cent for every month or part of month in case of failure to deduct tax or payment of tax after deduction.

With a view to discourage the practice of delaying the deposit of tax after deduction, it is proposed to increase the rate of interest for non-payment of tax after deduction from the present one per cent to one and one-half per cent for every month or part of month. This amendment is proposed to take effect from 1st July, 2010.

19. Section 203Certificate of Tax Deduction at Source (TDS) and Tax Collection at Source(TCS)The existing provisions of section 203(3) of the Income-tax Act dispense with the requirement of furnishing of TDS certificates by the deductor to the deductee on or after 1st April, 2010. Similarly, under section 206C(5) of the Act, a collector of tax at source will also not be required to issue tax collection certificate to the person from whom tax has been collected on or after 1st April, 2010.

Considering the fact that the TDS/TCS certificate constitutes an important document for the deductee/collectee, it is proposed that the deductor/collector will continue to furnish TDS/TCS certificates to the deductee/collectee even after 1st April, 2010 .

These amendments are proposed to take effect retrospectively from 1st April, 2010.

20. Section 271BIn view of the amendment proposed above, it is also proposed to increase the maximum penalty, leviable under section 271B for failure to get accounts audited under section 44AB or to furnish a report of such audit, from one lakh rupees to one lakh fifty thousand rupees.

These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.