Key Direct Tax Amendments to the Finance Act, 2022

SECTION 2(12A): DEFINITION OF “BOOKS OR BOOKS OF ACCOUNT”

– As per clause 12(A), books or books of account includes ledgers, day books, cash books, account books and other books, whether kept in written form or as print outs of data stored in a floppy, disc, tape, or any other form of electro-magnetic storage device.

– The words in the electronic form or in the digital form are added after the terms in written form or as print outs of data in the definition of books or books of account under section 2(12A).

– This amendment has been brought about to include all records even in digital form such as those maintained using block chain technology, etc.

SECTION 10: INCOME EXEMPT FOR TRUSTS

Amendments as passed by The Finance Act, 2022

Income exempt for trusts

[Amendment to Section 10]

Amendment to fifteenth proviso

Amendment to nineteenth proviso

– This clause has been amended to also include the words provisionally approved. Thus, the scope of the said sub-section has been extended to funds/institutions which have also been granted provisional approval.

– Consequently, even provisional approval granted to an institution, fund, etc., can now be withdrawn.

– Further where any such fund or institution is notified under section 10(46), the approval or provisional approval granted to the fund or institution shall become inoperative from the date of the notification to the body under the said section.

Income exempt for trusts

[Amendment to Section 10]

– Amendment passed by the Finance Bill, 2022 also provides that where the income of any fund or institution referred to in clauses (iv) to (via) of section 10(23C) has been applied for the benefit of any specified persons defined under section 13(3), such income or property shall be deemed to be the income of such person of the previous year in which it is applied.

– Specified persons under section 13(3) include-

• the author of the trust or founder of the institution
• any person who has made a substantial contribution to the trust or institution in excess of INR 50,000
• any trustee of the trust or manager of the institution
• any relative of any such author, founder, person, member, trustee or manager
• any concern in which the above-mentioned persons have a substantial interest.

– For the words, ‘such person’, the words such fund or institution or trust or university or other educational institution or hospital or other medical institution is substituted.

– Thus, the application of the income by the fund, trust, etc., for the benefit of the persons specified in section 13(3), will be deemed to be the income of such fund, trust, etc., of previous year in which it is so applied.

SECTION 10: INCOMES NOT INCLUDED IN TOTAL INCOME PERTAINING TO INTERNATIONAL FINANCIAL SERVICE CENTER (IFSC)

– Such exemption is available in respect of income from transfer of a capital asset as referred to in section 47(viiab) on a recognised stock exchange in an IFSC, securities (other than shares of companies resident in India) and income from securities issued by a non-resident where such income is not deemed to accrue or arise in India and securitization trusts (chargeable under Profits under Business or Profession).

SECTION 56: INCOME FROM OTHER SOURCES

– Provided that the provisions of the above section shall not apply to sum of money or property received from a trust or institution, etc., registered under section 10(23C), 12A or section 12AA or section 12AB.

SECTION 115BBH: TAX ON INCOME FROM DIGITAL VIRTUAL ASSETS

– Where the total income of an assessee includes any income from the transfer of any virtual digital asset, the income-tax payable shall be the aggregate of:

(a) the amount of income-tax calculated on the income from transfer of such virtual digital asset at the rate of thirty per cent.; and

– Thus, income from transfer of virtual digital assets shall be computed and taxed as per section 115BBH, though such income may be taxable under other heads of in-come.

– Further, section 115BBH(2) has been amended to provide that in computing income under this section, the cost of acquisition if any is to be deducted. Thus, income from virtual digital assets shall be computed even if the cost of acquisition is Nil or cannot be computed

– It has been clarified that no set off of losses under any provision of the Act shall be allowed including computing income under the said section for different classes of virtual digital assets. The word other has been omitted.

– Further, a new sub section (3) has been inserted which states that the definition of transfer as stated in section 2(47) is to be applied for this section, whether the virtual digital assets are held as capital assets or not.

SECTION 139: FURNISHING OF RETURN OF INCOME

– The words two assessment years have been substituted and the words ‘any assessment year’ are inserted. Thus, in such cases the assessee cannot file updated return of income for any of the preceding assessment years.

SECTION 153(1): TIME LIMIT FOR COMPLETION OF ASSESSMENT, REASSESSMENT AND RE-COMPUTATION

– The second proviso to this section has been amended to provide that in case of an order of assessment relating to AY 2019-20, the time limit would be 12 months in-stead of 21 months and in case of that relating to AY 2020-21, the time limit would be 18 months instead of 21 months.

– Assessment in respect of AY 2020-21 which was getting time barred on 31 March 2022 has now been extended to 30 September 2022.

– The methodology adopted to give more time to the department when the limitation period is expiring, is completely different when it comes to giving time to the tax payer to comply with various deadlines, especially during the stressful COVID 19 times.

SECTION 153B(1): TIME LIMIT FOR COMPLETION OF ASSESSMENT UNDER SECTION 153A

– Section 153B(1) provides the time limit for completion of assessment or reassessment in search or requisition cases.

– A new sixth proviso to section 153B (1) has been inserted to provide that the assessment in the below cases for AY 2021-22 shall be made on or before 30 September 2022:

• in case where the last of the authorisations for search under section 132 or requisition under section 132A was executed during financial year (‘FY’) 2020-21, or
• in case of other person referred to in section 153C, the books of account or document or asset seized or requisitioned were handed over under section 153C to the Assessing Officer (‘AO’) having jurisdiction over such other person during FY 2020-21.

– The same shall be applicable from 1 April 2021.

– The time for completion of such assessments has been extended for the department.

SECTION 155: OTHER AMENDMENTS: DEDUCTION IN RESPECT OF SURCHARGE AND CESS

– Section 155 is amended to include sub-section (18) to provide that deduction in respect of surcharge or cess which is not allowable as deduction under section 40, claimed and been allowed to an assessee in any previous year (‘PY’) shall be deemed to be under-reported income of the assessee for such PY, for the purpose of sec-tion 270A(3).

– The provisions of section 270A(6) relating to exceptions for under-reported income would not be applicable to this sub-section.

– The AO shall re-compute total income of the assessee for such PY and make the necessary amendment.

– The claim shall not be deemed to be under-reported income for the purposes of section 270A(3), in case the following requirements are fulfilled:

• Assessee makes an application to the AO in prescribed form and within prescribed time,
• Assessee has requested for re-computation of the total income of the PY without allowing deduction of surcharge or cess, and
• Assessee pays amount due thereon within the specified time.

– The amendment presumes that the deduction claimed by an assessee for payments made for surcharge and cess would tantamount to under-reporting of income under section 270A.

– The deduction claimed was on the basis of the law prevalent at that date, however, this position has been nullified by a retrospective amendment to section 40(a)(ii) by the Finance Bill 2022. Thus, can a claim for expenditure on the basis of the interpretation of law by various High Courts be said to be under-reporting of income is the larger question of law.

SECTION 158AB: PROCEDURE WHERE AN IDENTICAL QUESTION OF LAW IS PENDING BEFORE THE HIGH COURTS OR SUPREME COURT

– A different time limit is prescribed for the Commissioner of Income-tax (Appeals) [‘CIT(A)’] order and Income-tax Appellate Tribunal (‘ITAT’) Order.

Further, in case no such acceptance is received, the CIT/PCIT shall proceed in accordance with the provisions contained in section 253(2) or section 260A(2)(c), notwithstanding any limitation mentioned in section 253(3) and section 260A(2)(a).

– It is also now proposed to include filing of an appeal to the ITAT / High Court where the order passed by the CIT(A) or the ITAT is not in conformity with the final deci-sion on the question of law in the other case.

– Further, it is proposed that a time limit of 60 days will be applicable for the appeals to be filed with the ITAT and a period of 120 days will be applicable for appeals to be filed with the HC from the date on which the relevant order is communicated to the PCIT or CIT having jurisdiction over the case.

SECTION 170: SUCCESSION TO BUSINESS OTHERWISE THAN ON DEATH

– A new sub-section 2A was introduced by the Finance Bill to provide that in case of a business reorganization, the assessment or reassessment or other proceedings, made on the predecessor during the course of pendency of such reorganisation, shall be deemed to have been made on the successor.

-where there is succession, the assessment or reassessment or any other proceedings, made or initiated on the predecessor during the course of pendency of such succession, shall be deemed to have been made or initiated on the successor.

– The explanation is also consequently amended to exclude the definition of business reorganization and the word pendency is defined to mean:

SECTION 170A: EFFECT OF ORDER OF TRIBUNAL OF COURT IN RESPECT OF BUSINESS REORGANIZATION

– In line with the amendment in section 170, section 170A is also amended to include an Explanation which defines the terms ‘business reorganisation’ and ‘successor’

(i) “business reorganisation” means the reorganisation of business involving the amalgamation or de-merger or merger of business of one or more persons;

(ii) “successor” means all resulting companies in a business reorganisation, whether or not the company was in existence prior to such business reorganisation.

SECTION 194R: DEDUCTION OF TAX ON BENEFIT OR PERQUISITE IN RESPECT OF BUSINESS OR PROFESSION

SECTION 194S: PAYMENT ON TRANSFER OF VIRTUAL DIGITAL ASSET

– As per the amendment brought about by the Finance Bill 2022, payments made in respect of consideration on transfer of virtual digital assets shall be liable to TDS un-der section 194S.

– Further, it is now clarified that the person responsible for deducting tax, should ensure that tax which is ‘required to be deducted’ shall be paid, before release of such consideration for transfer of a virtual digital asset.

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