1. Significant Amendments by Finance Act (2)2009
CA. Divakar Vijayasarathy

2. Presentation Schema 40(b)(v) Partners Remuneration 40A (3A)
Explanation 6 to 43(6)
Sec 44AD
Sec 50C/56(2)(vii)/49
New Pension Scheme
Sec 56(2)(viii)145A
Sec 194 C
115JA/JAA/JB

3. Presentation Schema Misc: Case Laws: 80E 80G(5) 80U 194I 44AE
Wealth Tax Act
Case Laws:
Capital Gains – 49(1)
TDS 194 j(hospitals)

4. No Surcharge for all the above assesses irrespective of income levels
Rates of Taxation
Tax Rates
Assessee / Income Slabs (Rs in Lacs)
Resident Women below 65 yrs
Resident Senior citizen-
Any other individual, HUF, AOP& BOI
Artificial juridical person
Co operative society
Nil
Upto Rs 1.90
Upto Rs 2.40
Upto Rs 1.60
10%
Rs 1.90 to 3.0
Rs 2.40 to 3.0
Rs 1.6 to 3.0
Upto Rs 0.10
20%
Rs 3.0 to 5.0
Above Rs 0.10 to 0.20
30%
Above Rs 5.0
Above Rs 0.20
Surcharge
No Surcharge for all the above assesses irrespective of income levels
Note-
The above rates are for total income excluding:
Long term capital gains charged at 20%
Short term capital gains u/s 111A 15%
Income from lotteries, gambling, card games etc 30%

5. Rates of Taxation Particulars Firms Domestic Companies
Foreign Companies
Local Authority
Tax Rate
30%
40%
Surcharge
Nil
10% if net income exceeds Rs 1 crore
2.5% if net income exceeds Rs 1 crore

6. Sec 49(4) & Sec 56(2)(vii) Sec 56(2)(vii) inserted wef 01-10-2009:
Aggregate sum of money exceeding Rs 50,000 or
Any receipt of a movable or immovable property where the benefit exceeds Rs 50,000
Benefit could be without consideration or inadequate consideration
Cost of acquisition of the asset received shall be FMV for the purpose of 56(2)(vii) s

7. Case Study 1: Sec 49(4) & 56(2)(vii)
An assessee is purchasing a property for Rs 50 lacs. The guideline value of the property is Rs 60 lacs. What would be tax implications in the hands of the buyer and the seller?

8. Case Study 1: Sec 49(4) & 56(2)(vii)
In the hands of Seller:
Guideline value of the property shall be regarded as sale consideration for the purposes of capital gains
In the case of Buyer:
Rs 10 lacs (Rs 60lacs – Rs 50 lacs) shall be regarded as Income from Other Sources – Sec 56(2)(vii)
Cost of Acquisition of the property shall be Rs 60 lacs

9. Case Study 2: Sec 56(2)(vii)
An assessee received the following assets from his friends during the previous year. Discuss the tax implications:
Asset
Consideration
Remarks
Car
Rs 50,000
FMV: Rs 95,000
House
Rs 30,00,000
Guideline Value : Rs 40,00,000
Cash from A
Rs 40,000
As birthday gift (from Non relative)
Cash from B
Rs 30,000
As Wedding day gift (from Non relative)
Gold
Rs 15,000
Rs 45,000

10. Case Study 2: Sec 56(2)(vii)
Asset
Consideration
Remarks
Benefit
Taxable Amt
Car
Rs 50,000
FMV: Rs 95,000
Rs 45,000
Nil
Less than Rs 50,000
House
Rs 30,00,000
Guideline Value : Rs 40,00,000
Rs 10,00,000
Greater than Rs 50,000
Cash from A
Rs 40,000
Birthday gift
Aggregate exceeding Rs 50,000
Cash from B
Rs 30,000
Wedding day gift
Gold
Rs 15,000
Total
Rs 10,70,000

11. New Pension Scheme – Sec 80CCD
Available for all individuals including self employed
Maximum investment restricted to
10% of salary earned or
10% of gross total income
Contributions eligible for deduction (max Rs 1 lac)
EET concept of taxation
If maturity amount is reinvested for annuity purchase within the same previous year – no income shall accrue to the assessee.
However the annuity received subsequently shall be liable to taxation in the year of receipt.

12. Tax Concession for NPS Trust
Income of the trust shall be exempt u/s 10(44)
Any dividends paid to the trust shall not be subject to dividend distribution tax u/s 115O
No securities transaction tax shall be levied on transactions made by the NPS – Sec 113A of Finance Act (2) 2004
The trust shall receive all its income without deduction of TDS- Sec 197A

13. Explanation 6 to 43(6): WDV
An assessee is engaged in the business of growing and manufacturing Tea.
According to Rule 8- 40% of income from growing and manufacturing tea shall be regarded as business income.
The remaining 60% of income shall be regarded as agricultural income.

14. Explanation 6 to 43(6) : WDV
The Honorable Supreme Court has held in CIT vs Doom Doma India Ltd (2009) 310 ITR 392:
According to Explanation 6 to Sec 43(6)- depreciation actually allowed shall be reduced from the opening balance to arrive at WDV.
Where an assessee is engaged in composite business (agri and non agri)- depreciation to the extent of non agri business shall be deemed to be allowed.

15. Amendment : Explanation 7 to 43(6)
Where an assessee has both agri and non agri business
For computing the written down value of assets the total amount of depreciation shall be computed
As if the entire income is derived from the business (non agri)
The depreciation so computed shall be deemed to be the depreciation actually allowed under this Act.’.

16. Illustration : Pre and Post Amendment
Particulars
Pre Amendment
Post Amendment
Sale
500
Operating and Non Expenses
200
Profit Before Depreciation
300
Depreciation
100
Net Profit
Business Income (40%) 80
Agricultural Income (60%)
120
Depreciation Actually Allowed
Remarks
40% of total depreciation
100% of total depreciation

17. Illustration : Pre and Post Amendment
Computation of Writted Down Value
Particulars
Pre Amendment
Post Amendment
Opening Balance of Fixed Assets
700
Depreciation Actually Allowed 80
200
Closing WDV
620
500

18. Presumptive Taxation – Sec 44AD
Particulars
Pre Amendment
Post Amendment
Assessee
Any Person
Resident individual, HUF or a partnership firm (other than LLP) who has:
- Not claimed exemption u/s 10A, 10AA, 10B or 10BA
- Not claimed deduction under Chapter VI A
Business
Civil Construction or supply of labour
Any business other than plying, leasing and hiring of trucks.
Income Condition
Gross Receipts not to exceed Rs 40 lacs
Estimated Income
8% of Gross receipts.
Note: Assessee can declare income at a higher rate.
Note: The Amendment shall be effective from Sec 44AF shall cease to be operative effective

19. Presumptive Taxation – Sec 44AE
Particulars
Pre Amendment
Post Amendment
Assessee
Any Person
Business
Business of plying, leasing and hiring of trucks.
Condition
Assessee does not own more than 10 carriages at any time during the previous year
Estimated Income
Rs 3500 : Heavy Vehicles
Rs 3150: Other Vehicles
Rs 5000 : Heavy Vehicles
Rs 4500: Other Vehicles
Note: The Amendment shall be effective from

20. Partner’s Remuneration – Sec 40(b)(v)
Pre Amendment Situation :
Professional Firms
Non Professional Firms
Maximum Limit
First Rs.1,00,000 of book profit
First Rs.75,000 of book profit
Rs 50,000 or 90% of book profit whichever is high
Next Rs 1,00,000 of book profit
Next Rs 75,000 of book profit
60% of book profit
Balance of book profit
40% of book profit

21. Partner’s Remuneration – Sec 40(b)(v)
Post Amendment: No distinction between professional and non professional firms
Book Profit Slab
Limit
First Rs 3,00,000 or loss
Rs 1,50,000 or 90% of book profit whichever is higher
Balance of book profit
60% of book profit

22. Sec 115 JB –Dimunition in the Value of Assets
Net Profit as per Books : Rs 100 lacs
Adjustments:
Provision for bad and doubtful debts : Rs 10 lacs
Provision for reduction in investments : Rs 5 lacs
Provision for contingent liabilities : Rs 8 lacs
Provision for Income Tax : Rs 12 lacs
Compute book profit for the purpose of Sec 115JB

23. Sec 115JB – Provisions

24. Sec 115 JB –Dimunition in the Value of Assets
Particulars
Rs in Lacs
Net Profit as per Books
100
Add
Provision for Income Tax 12
Provision for Contingent Liabilities 8
Book Profit
120
Provision for bad and doubtful debts and reduction in value of investments are “Provisions for Diminution in Value of Assets” hence not covered by Sec 115JB –
The Honorable Supreme Court of India held in the case of CIT vs HCL Comnet Systems and Services Ltd (2008) 305 ITR 409 and Kolkatta Tribunal in Jt CIT vs Usha Martine Industries Ltd (2007) 104 ITD 249

25. Amendment – Finance Act (2)(2009)
Amended Section
Effective Date
Implication
Sec 115JA
Any provision for diminution in the value of any asset will also be included in the computation of Book Profit
Sec 115JB
Rate of MAT is increased to 15% from 10%
Amendment is with Retrospective Effect – hence could affect pending assessments

26. Summary MAT Rates Assessment year Rate of MAT 2001-02 to 2006-07 7.5%
10%
on wards
15%

27. Power of Attorney Transactions
Sec 50C provides for Stamp Value taxation (as sale consideration) where the sale consideration is lower than Stamp Value
Tax planning instances of transfer using:
Power of Attorney
Sale Agreement

28. Sec 50C : Amendment
The words “assessable” has been inserted in Sec 50C
“Assessable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty

29. Sec 53A of Transfer of Property Act 1882
Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,
and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,
and the transferee has performed or is willing to perform his part of the contract,

30. Sec 53A of Transfer of Property Act 1882
then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:

31. Implications of the Amendment
Power of attorney transactions would be regarded as transfer – Sec 2(47) read with Sec 53A of Transfer of Property Act 1882
Sale consideration or guideline value (whichever is higher) would be regarded as consideration – Sec 50C
Affect Segment:
Real Estate Brokers
Short term investors
Builders and Real Estate Promoters

32. TDS on Contract Payments – Sec 194C
Nature of Payment
Till
On or after
Advertising contracts 1%
1% if the payee is an individual or HUF
2% in any other case
Sub contract payments
Other contract payments 2%
Contractors engaged in plying, hiring and leasing of goods carriage
Nil- if PAN is provided to the payer.
- No distinction between contractors and subcontractors
- No special rate of taxation for advertising contracts
- Where a transporter fails to provide PAN- 20% shall apply with effect from
- The scope of the term “work” has been expanded to include certain job work where the materials are supplied by the customer.

33. TDS on Rental Payment – Sec 194 I
Nature of Payment
Till
From
Rent for use of plant and machinery or equipment
10% 2%
Rent for land and/or building, furniture and fittings where payee is an individual or HUF
15%
Rent for land and/or building, furniture and fittings where payee is any other person
20%
Where a payee fails to provide PAN- 20% shall apply – with effect from

34. Mandatory PAN – Sec 206AA
Any person entitled to receive any sum or income or amount, on which TDS is applicable shall furnish his PAN to the deductor.
Else TDS shall be deducted at the higher of the following rates:
at the rate specified in the relevant provision of this Act; or
at the rate or rates in force; or
at the rate of twenty per cent.
The Section is effective from

35. Interest on Enhanced Compensation
According to Sec 45(5) read with Sec 2(47):
Compulsory acquisition is regarded as transfer
Initial compensation is taxable in the year in which whole or part of the compensation is received
Enhanced compensation is taxable in the year of receipt

36. Interest on Enhanced Compensation
Interest on enhanced compensation is payable from the date of acquisition till the date of receipt
Such interest is received along with enhanced compensation or subsequently at a later stage
In which year is this interest taxable
Relevance of Sec 145 need to be examined

37. Court Ruling on Interest received
Interest on enhanced compensation for land acquired under Land Acquisition Act, accrues from year to year and cannot be assessed in one lump sum in year in which it is awarded by the Court.
Supreme Court in Rama Bai vs. CIT [1990] 181 ITR 400
K.S. Krishna Rao vs. CIT [1990] 181 ITR 408).
CIT vs. T.N.K. Govindarajulu Chetty [1987] 165 ITR 231

38. Amendment – Finance Act
Interest on enhanced compensation shall be taxable as Income from Other Sources – Sec 56(2)(viii)
Such interest shall be taxable only in the year of receipt – Sec 145 A
A flat deduction of 50% of such interest received shall be allowed as a deduction irrespective of the amount spent – Sec 57(iv)

39. Miscellaneous Amendments

40. Recent Relevant Case Laws and Circulars

41. Indexation on 49(1) transactions

42. Circular 7/2009

43. Circular 8/2009

44. COMMISSIONER OF INCOME TAX, MADURAIVs
M/s SRI MANGAYARKARASI MILLS (P) LTD
2009-TIOL-86-SC-IT

45. 40A(3) Payments – Salem Case
Assessee had made certain cash deposits in to the account of a District Cooperative Sugar Mill
The payments were made at the instance of the sugar mill
The value of the transactions exceeded Rs 20,000.
AO disallows the payment u/s 40A(3)
Assessee claims payments made for business expediency – Proviso to Sec 40A(3)

46. 40A(3) Payments – Salem Case
The CIT (A) and the Tribunal pass an order in favour of the assessee
Madras High Court held that:
The payment was made to a quasi Government organisation
Payment was made at the insistence of the recipient
Payment was made by cash owing to business expediency
Revenue’s appeal dismissed
CIT Salem vs BG Subramaniam dtd August 18th 2009

47. Sec 50C : Hard Realities
An assessee (96 years old) sold a property to Indian Oil Corporation for Rs 99 lacs
The guideline value of the property was Rs crores
The purchaser has not made a reference u/s 47A of the Indian Stamp Act for fair value determination
No appeal was made by the seller under the Stamp Act
The AO issues as order considering the sale consideration to be Rs 3.92 crores u/s 50C

48. Sec 50C : Hard Realities
The assessee filed a writ petition with Madras High Court
The AO’s argument:
No appeal for 47A valuation
Time limit for assessment u/s 143(3)
Sec 50C
Assessee’s argument:
Option u/s 50C(2) to refer to a Valuation Officer
Non appeal against 47A is not a ground for order

49. Sec 50C : Hard Realities Madras High Court held:
Writ petition is allowed
Order is set aside
Valuation report to be obtained u/s 50C(2)
Assessment to be done based on the valuation report.
N. Meenakshi vs ACIT Chennai – Madras High Court dated 11th September 2009

50. Assessment of Chief Minister’s Income
Mr Lalu Prasad Yadav – the ex Honorable Chief Minister of Bihar filed his income tax with the following details:
Income from other sources
Acc. Intt. on N.S.C
0.00
Intt. on F.D. matured
2,16,060.00
Intt. S/b A/c
2,439.00
Pay and allowance as Chief Minister
72,802.40
2,91,301.40
Short-term capital gain
Long-term capital gain
Gross total income

51. Assessment of Chief Minister’s Income
Details of Pay/allowances as Chief Minister
Pay
23,539.85
Allowance
35,209.70
Sumptuary allowance
TDS reimbursed for financial year
82, ,497.00
90,786.40
Less: Incidental expenses Depreciation on car (on opening WDV at 20%) Insurance/expenses on car (estimated)
12, ,000.00
17,984.00
Net income
72,802.40

52. Assessment of Chief Minister’s Income
Intimation u/s 143(1)(a) stating:
Chief Minister’s pay should be assessed as income from salaries. Hence only standard deduction should of Rs is allowed. The net addition to taxable income would be Rs 2,984.
Accrued interest of Rs 6,000 should be assessed as income of the previous year
Remember – interest on NSC is regarded as reinvestment and was eligible for rebate u/s 88
The overall tax effect on the transaction was Rs 4305

53. Assessment of Chief Minister’s Income
The assessee referred the case to CIT(A) – who upheld the reclassification of income to salaries. However the addition of NSC interest was rejected citing method of accounting
Both the assessee and the revenue filed an appeal against CIT(A)’s order with the Tribunal
The case was ultimately settled by the Patna High Court in 11th of November 2008 after more than 10 years of deliberations.

54. Thank You Divakar Vijayasarathy & Associates Chartered Accountants No 3 Vathiar Thottam 1st Street Rangarajapuram Kodambakam Chennai
Divakar Vijayasarathy & Associates