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Comparison between Finance Bill 2012 and Finance Bill 2012 passed by Lok Sabha

Written By Admin on Thursday, 10 May 2012 | Thursday, May 10, 2012


Particulars
Finance Bill, 2012

Finance Bill, 2012 as passed by Lok Sabha

SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE TO BE TREATED AS INCOME [SEC. 2(24)(XVI)]

Finance Bill, 2012 proposed to insert a new clause (viib) in Section 56(2) wef assessment year 2013-14. The proposed clause is applicable, if:
(a)  Shares (equity shares or preference shares) are issued by a closely held company to a resident person; and
(b)  Shares are issued at a price which exceeds the fair market value of such shares. In other words, shares are issued at a premium.
If above conditions are satisfied, the aggregate consideration received from issue of such shares as exceeds its fair market value shall be chargeable to tax in the hands of issuer-company. However, no consequential amendment was made to Section 2(24) (meaning of "Income"), so as to include the excess of consideration received over the fair market value of shares within the scope of "Income".
In view of above, a new clause (xvi) shall be inserted in Section 2(24) wef April 1, 2013 to provide that any consideration received for issue of shares, as exceeds the fair-market value of the shares referred to in Section 56(2)(viib), shall be treated as 'Income'.

INCOME OF PRASAR BHARATI TO BE EXEMPT FROM TAX [SEC. 10(23BBH)]

No provision was proposed in Finance Bill, 2012 to exempt the income of Prasar Bharati

A new clause (23BBH) shall be inserted in Section 10 to exempt the income of Prasar Bharati (Broadcasting Corporation of India) wef assessment year 2013-14.
SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE NOT TO BE TREATED AS INCOME IF SHARES ARE ISSUED BY A COMPANY FROM NOTIFIED CLASSES OF PERSONS [SEC. 56(2)(viib)]

Finance Bill, 2012 proposed to insert a new clause (viib) in Section 56(2) wef assessment year 2013-14. The clause is applicable, if:
(a)  Shares (equity shares or preference shares) are issued by a closely held company to a resident person; and
(b)  Shares are issued at a price which exceeds the fair value of such shares. In other words, shares are issued at a premium.
If above conditions are satisfied, the aggregate consideration received from issue of such shares as exceeds its fair market value shall be chargeable to tax in the hands of issuer-company.
However, the said new clause provisions shall not apply where the consideration for issue of shares is received by a Venture Capital Undertaking from a Venture Capital Company or a Venture Capital Fund.
The company receiving the consideration for issue of shares shall be provided an opportunity to substantiate its claim regarding the fair market value of the shares.
The exemption from above provision is extended to those issuer-companies as well which belong to a class or classes of persons as may be notified by the Central Government in this behalf.

DEDUCTION FOR INVESTMENT MADE UNDER ANY EQUITY SAVING SCHEME [SEC. 80CCG]

No provision was proposed in Finance Bill, 2012 to provide for deduction in respect of investment made under any equity saving scheme.

Newly inserted Section 80CCG provides deduction wef assessment year 2013-14 in respect of investment made under notified equity saving scheme. The deduction under this section is available if following conditions are satisfied:
(a)  The assessee is a resident individual (may be ordinarily resident or not ordinarily resident)
(b)  His gross total income does not exceed Rs. 10 lakhs;
(c)  He has acquired listed shares in accordance with a notified scheme;
(d)  The assessee is a new retail investor as specified in the above notified scheme;
(e)  The investor is locked-in for a period of 3 years from the date of acquisition in accordance with the above scheme;
(f)  The assessee satisfies any other condition as may be prescribed.
Amount of deduction –The amount of deduction is at 50% of amount invested in equity shares. However, the amount of deduction under this provision cannot exceed Rs. 25,000. If any deduction is claimed by a taxpayer under this section in any year, he shall not be entitled to any deduction under this section for any subsequent year.
Withdrawal of deduction – If the assessee, after claiming the aforesaid deduction, fails to satisfy the above conditions, the deduction originally allowed shall be deemed to be the income of the assessee of the year in which default is committed.
APPLICABILITY OF GAAR PROVISIONS DEFERRED BY ONE YEAR [SEC. 95 TO SEC.102]

The Finance Bill, 2012 proposed insertion of New Chapter X-A consisting of new sections 95, 96, 97, 98, 99, 100, 101 and 102 relating to General Anti-Avoidance Rules. The Finance Bill proposed applicability of provisions of GAAR with effect from April 01, 2013.
The provisions of the new section 95 provide that an arrangement entered into by an assessee may be declared to be an impermissible avoidance arrangement and consequences in relation to tax of such a declaration can be determined.
Section 96 provides the definition and conditions under which an arrangement can be declared to be an impermissible avoidance agreement. The section also provides for circumstances under which an arrangement shall be presumed to be entered into or carried out for main purpose for obtaining tax benefit.
Section 97 provides for circumstances under which an arrangement shall be deemed to lack commercial substance.
Section 98 provides for method of determination of consequences in relation to tax of an arrangement after it is declared to be an impermissible avoidance arrangement. It provides for certain illustrative but not exhaustive methods for determination of tax consequences.
Section 99 provides that for determining tax benefits for the purpose of the newly inserted Chapter X-A parties who are connected may be treated as one and same person; accommodating party may be disregarded; any arrangement may be treated as one and the same person and an arrangement may be looked through.
Section 100 provides that provisions of newly inserted Chapter-XA can be applied in alternative to or in addition to any other basis of determination of tax liability.
Section 101 provides for power to prescribe guidelines for application of provisions of newly inserted Chapter-XA.
Section 102 provides definition of certain terms relevant for newly inserted Chapter X-A.
The Lok Sabha passed the aforesaid provisions in respect of GAAR (except clause 96), however, with effect from April 01, 2014

ONUS OF PROOF IN GAAR PROVISIONS ARE SHIFTED FROM ASSESSEE TO REVENUE [SEC. 96]
Finance Bill, 2012 proposed that "An arrangement which results in any tax benefit shall be presumed to have been entered into, or carried out, for the main purpose of obtaining a tax benefit unless the person obtaining the tax benefit proves that obtaining the tax benefit was not the main purpose of the arrangement." In other words, the proposed provisions of GAAR put the entire onus on assessee to prove that the main purpose of present arrangement of transaction is not to obtain the tax benefits.
The Lok Sabha omitted above clause from the provisions of GAAR. Now the onus to prove that the main purpose of present arrangement is to obtain the tax benefits would be on revenue.

CHANGE IN THE MEANING OF 'ARRANGEMENT DEEMED TO LACK COMMERCIAL SUBSTANCE" [SEC. 97]

The Finance Bill, 2012 proposed that "An arrangement shall be deemed to lack commercial substance if:
(a)  …
(b)  …
(c)  it involves the location of an asset or of a transaction or of the place of residence of any party which would not have been so located for any substantial commercial purpose other than obtaining a tax benefit (but for the provisions of this Chapter) for a party."


The Finance Bill, 2012 as passed by the Lok Sabha provides that "An arrangement shall be deemed to lack commercial substance if:
(a)  …
(b)  …
(c)  it involves the location of an asset or of a transaction or of the place of residence of any party which is without any substantial commercial purpose other than obtaining a tax benefit (but for the provisions of this Chapter) for a party."

TAXABILITY OF LTCG FROM UNLISTED SECURITIES IN THE HANDS OF NON-RESIDENT AND FOREIGN COMPANY AT 10% WITHOUT INDEXATION [SEC. 112]
No provision was proposed in Finance Bill, 2012 to provide for taxability of long-term capital gain ("LTCG") at concessional rate of 10% if such LTCG is arising to a non-resident assessee or a foreign company from transfer of unlisted securities.

The Lok Sabha introduced Sec. 112 wef from the assessment year 2013-14. After the amendment LTCG will be taxable at the rate of 10% if the following conditions are satisfied:
(a)  Taxpayer is a non-resident (not being a company) or a foreign company;
(b)  LTCG arises on transfer of unlisted securities (i.e. unlisted shares, unlisted debentures, etc.)
(c)  LTCG is calculated without giving effect to the first proviso to Sec. 48 (under this proviso capital gain is calculated in foreign currency if few conditions are satisfied)
(d)  Capital gain is calculated without applying indexation provisions.

OPTION TO INSURANCE, BANKING AND ELECTRICITY COMPANIES TO PREPARE FINANCIAL STATEMENTS AS PER REGULATORY ACT OR SCHEDULE VI FOR PURPOSE OF MAT [SEC. 115JB]

No provision was proposed in Finance Bill, 2012 to provide an option to the insurance, banking or electricity generation companies to prepare financial statements either in accordance with the provisions of Schedule VI to the Companies Act or in accordance with the provisions of Act governing such companies.

The Finance Bill, 2012 as passed by Lok Sabha inserted a new Explanation 3 to Sec. 115JB to provide an option to the insurance or banking company or any company engaged in the generation or supply of electricity (or any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company), to prepare profit and loss account either in accordance with the provisions of:
(a)  Schedule VI to the Companies Act; or
(b)  In accordance with the provisions of the Act governing such companies.

NON-APPLICABILITY OF MAT PROVISIONS TO A COMPANY ENGAGED IN THE BUSINESS OF LIFE INSURANCE [SEC. 115JB]


No exemption to companies engaged in life insurance business was proposed in Finance Bill, 2012.

A new sub-section (5A) is inserted in Section 115JB wef assessment year 2001-02 to provide that provisions of MAT will not be applicable to any income accruing or arising to a company from life insurance business as referred to in section 115B.

SPECIAL PROVISION FOR CONVERSION OF INDIAN BRANCH OF A FOREIGN BANK INTO A SUBSIDIARY COMPANY [SEC. 115JG]

No such provision was proposed in Finance Bill, 2012.

Newly inserted Section 115JG (wef the assessment year 2013-14) lays down special provisions relation to conversion of Indian branch of a foreign bank into a subsidiary Indian Company. Special provisions are provided under this section:
These provisions are given below:
(a)  The Reserve Bank of India will frame a scheme for the purpose of conversion of an Indian branch of a foreign bank into an Indian subsidiary company of the foreign company.
(b)  If the conversion takes place in accordance with the scheme framed by RBI and subject to the conditions notified by the Central Government, the capital gain arising on such conversion shall not be chargeable to tax.
(c)  In the above case, the provisions of the Act relating to treatment of unabsorbed depreciation, set off or carry forward of losses, tax credit in respect of tax paid on deemed income relating to certain companies and the computation of income in the case of the foreign company and the Indian subsidiary company, shall apply with such exceptions, modifications and adaptations as may be specified in that notification.
(d)  If there is a failure to comply with any condition specified in the RBI schemes or notification of the Government, normal provisions of the Act will apply without giving effect to the aforesaid exemption.
(e)  Where such default is committed after claiming capital gain exemption, the benefit of exemption will be taken back by re-computing the income of the assessee under section 154 of the previous year in which conversion took place. The time-limit of 4 year under section 154(7) shall be determined from the end of the year in which the default is committed.
EXEMPTION FROM APPLICABILITY OF TDS ON INCOME PAID TO VENTURE CAPITAL FUND, ETC., CONTINUED [SEC. 115U]

The provisions of section 115U currently allow an opportunity of indefinite deferral of taxation in the hands of investor. With a view to rationalize the above position and to align it with the true intent of a pass-through status, sections 10(23FB) and 115U have been proposed to amended from April 1, 2013 (i.e., assessment year 2013-14 onwards) to provide the following:
(a)  The Venture Capital Undertaking shall have same meaning as provided in relevant SEBI regulations and there would be no sectoral restriction;
(b)  Income accruing to Venture Capital Fund (VCF) or Venture Capital Company (VCC) shall be taxable in the hands of investor on accrual basis with no deferral;
(c)  The exemption from applicability of TDS provisions on income credited or paid by VCF/VCC to investors shall be withdrawn.
The Finance Bill, 2012 proposed to withdraw the exemption, from applicability of TDS provisions, in respect of income credited or paid to Venture Capital Fund or Venture Capital Company.
The Lok Sabha continued the exemption, of applicability of TDS provisions, in respect of income credited or paid to Venture Capital Fund or Venture Capital Company.

PROVISION FOR MANDATORY FILING OF RETURN OF INCOME, IF FINANCIAL INTEREST LOCATED OUTSIDE INDIA, EXTENDED TO ORDINARILY RESIDENT ONLY [SEC. 139]

The Finance Bill, 2012 proposed mandatory filing of return of income by every resident person, if he/it is having:
(a)  any asset (including financial interest in any entity) located outside India; or
(b)  signing authority in any account located outside India.

The Finance Bill, 2012 as passed by the Lok Sabha provides that the furnishing of return of income under section 139 would be mandatory if the following conditions are satisfied:
(a)  the person is resident in India (but other than not ordinarily resident), and
(b)  he or it has:
(i)  any asset (including financial interest in any entity) located outside India; or
(ii) signing authority in any account located outside India.
If the above two conditions are satisfied, furnishing of return by such person has become mandatory irrespective of the fact whether the person has taxable income or not. The above provisions are not applicable if the concerned person is non-resident or if he/it is resident but not ordinarily resident in India for the relevant assessment year.
PROVISIONS FOR MAKING REFERENCE TO CIT TO INVOKE GAAR DEFERRED BY ONE YEAR [SEC. 144BA]

Finance Bill, 2012 proposed to insert a new Section 144BA relating to reference to CIT to invoke provisions of GAAR with effect from April 01, 2013
The Lok Sabha passed the aforesaid provision, however, with effect from April 01, 2014

CONSTITUTION OF APPROVING PANEL [SEC. 144BA]

The Finance Bill, 2012 proposed that the Board shall, for the purposes of this section, constitute an Approving Panel consisting of not less than three members being the Income tax authorities of the rank of Commissioner and above.

The Finance Bill, 2012 as passed by the Lok Sabha provides that the Board shall, for the purposes of this section constitute an approving panel consisting of not less than three members, being:
(a)  income tax authorities not below the rank of Commissioner, and
(b)  an officer of the Indian Legal Service not below the rank of Joint Secretary to the Government of India.
WITHDRAWAL OF PROVISION FOR DEDUCTION OF TAX AT SOURCE FROM CONSIDERATION PAID FOR PURCHASE OF AN IMMOVABLE PROPERTY [SEC. 194LAA]
The Finance Bill proposed insertion of a new Section 194LAA for deduction of tax at source from payment of any consideration for purchase of an immovable property.
The Finance Bill, 2012 as passed by the Lok Sabha deleted the insertion of aforesaid section.
EXTENDING THE PROVISIONS OF TDS ON 'INTEREST ON BORROWING' TO BORROWING MADE BY ISSUE OF LONG-TERM INFRASTRUCTURE BONDS [SEC. 194LC]
The Finance Bill, 2012 proposed insertion of a new Section 194LC for deduction of tax at source from payment of any interest on money borrowed in foreign currency under a loan agreement.
The Finance Bill as passed by the Lok Sabha provides deduction of tax at source from payment of any interest on money borrowed in foreign currency under a loan agreement as well as by way of long-term infrastructure bonds.
EXTENDING THE PROVISIONS OF TDS ON INTEREST ON BORROWING TO EVERY INDIAN COMPANY [SEC. 194LC]

The Finance Bill, 2012 proposed a new section 194LC for deduction of tax at source by specified companies only from payment of any interest on money borrowed in foreign currency. "Specified company" means an Indian company engaged in the business of:
(a)  generation or distribution or transmission of power; or
(b)  operation of aircraft; or
(c)  manufacture or production of fertilizers; or
(d)  construction of road including toll road or bridge; or
(e)  construction of port including inland port; or
(f)  construction of ships in a shipyard; or
(g)  construction of dam; or
(h)  developing and building a housing project as referred to in sub-clause (vii) of clause (c) of sub-section (8) of section 35AD.
The Finance Bill as passed by the Lok Sabha provides that every Indian company is required to deduct tax at source from payment of any interest on money borrowed in foreign currency under a loan agreement as well as by way of long-term infrastructure bonds.

NO TDS FROM SPECIFIED PAYMENT TO NOTIFIED INSTITUTIONS / ASSOCIATIONS [SEC. 197A]

No such provision was proposed in Finance Bill, 2012.

The Finance Bill, 2012 as passed by the Lok Sabha inserts a new sub-section (1F) in Section 197A to provide that tax will not be deducted at source from a specified payment to a notified institution, association or body or class of institutions, associations or bodies.
NO COLLECTION OF TAX FROM BUYER IF GOODS ARE PURCHASED FOR GENERATION OF POWER [SEC. 206C]

No such provision was proposed in Finance Bill, 2012.

The Finance Bill, 2012 as passed by the Lok Sabha amends Section 206C(1A) with effect from July 1, 2012. After the amendment, no tax will be collected at source from a resident buyer who purchases goods for the purpose of generation of power. For this purpose, a declaration will be given in Form No. 27C to the seller.
QUALIFYING LIMIT TO TRIGGER COLLECTION OF TAX ON PURCHASE OF JEWELLERY INCREASED [SEC. 206C]

The Finance Bill, 2012 proposed collection of tax at source if sale consideration of bullion/jewellery exceeds Rs. 2,00,000 and out of total sale consideration any amount is received in cash.

As per the Finance Bill, 2012 as passed by the Lok Sabha, with effect from July 1, 2012, sale of bullion/jewellery will be subject to TCS provisions, if sale consideration of bullion (excluding any coin/article weighing 10 grams or less) exceeds Rs. 2,00,000 or sale consideration of jewellery exceeds Rs. 5,00,000 and out of sale consideration any amount is received in cash.
AMENDMENT TO SECTION 220 [SEC. 220]

No such provision was proposed in Finance Bill, 2012.

The Finance Bill, 2012 as passed by the Lok Sabha amends Section 220 (wef July 1, 2012) to provide that when interest is charged under section 201(1A) on the amount specified in the intimation issued under section 200A(1), then no interest will be charged for the same amount for the same period under section 220(2)
AMENDMENT TO THE SCHEME OF AUTHORITY FOR ADVANCE RULING IN CASE OF GAAR[SEC. 245N AND 245R]

No such provision was proposed in Finance Bill, 2012.

The Finance Bill, 2012 as passed by the Lok Sabha amends Sections 245N and 245R wef April 1, 2013. After the amendment any person (resident or non-resident) may make an application to AAR for determination by it whether an arrangement, which is proposed to be undertaken by him/it, is an impermissible avoidance agreement as referred to in Chapter X-A or not.
EXTENSION OF TIME LIMIT TO PROCESS APPLICATION FOR RECOGNITION OF EPF ORGANISATION [RULE 4, SCHEDULE IV]

No such provision was proposed in Finance Bill, 2012.

Rule 4 in Part A of the Fourth Schedule provides for conditions which are required to be satisfied by a Provident Fund for receiving or retaining the status of "recognized provident fund". One of the requirements of rule 4 [clause (ea)] is that the establishment shall obtain exemption under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF & MP Act).
The first proviso to rule 3(1), inter alia, specifies that in a case where recognition has been accorded to any provident fund on or before March 31, 2006, and such provident fund does not satisfy the conditions set out in clause (ea) of rule 4 on or before March 31, 2012 and any other conditions which the Board may specify by rules in this behalf, the recognition to such fund shall be withdrawn.

In order to provide further time to the Employees' Provident Fund Organization (EPFO) to process the applications made by establishments seeking exemption under section 17 of the EPF & MP Act, the time-limit has been extended from March 31, 2012 to March 31, 2013.
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