Four decades back, N. A. Palkhivala ruefully commented on the absolute instability and uncertainty of the tax laws. "Not a year passes sometimes not even half a year without some material changes in the Income-Tax Act. Nowadays that Act is like a railway ticket good only for one journey in time, from April 1 of one year till March 31 of the next, and sometimes not even for the whole of that journey. Both the substantive and procedural provisions seem to belong to a shadow land where they have a frail hold on existence."

We all thought that the law as on April 1 will prevail for making assessments for that year. Not so anymore. The Finance Bill, 2007 has 16 amendments to the Income-Tax law taking effect from June 1, 2007. Taxpayers can ignore these amendments only at their own peril.

Tightening of TDS Provisions

We are used to getting interest on 8 per cent tax-savings bonds without deductions of tax at source. This facility is no longer available. Section 193 of the I-T Act has been amended making it obligatory for the disbursing authority to deduct tax at source on such bonds.

A benevolent amendment to Section 194A helps depositors with banks and cooperative banks to get interest without TDS on amounts less than Rs 10,000. The present limit is Rs 5,000.

Section 194C does not provide for TDS on payments made by an individual or a Hindu Undivided Family to a contractor. The Section is now amended and hereafter such individuals or HUFs with gross receipts or turnover from the business or profession exceeding the limits specified under Section 44AB (a) and (b) during the financial year will have to compulsorily deduct tax at source on payments to contractors. This provision however will not apply to payments to contractors made exclusively for personal purposes.

The rate of TDS on payments by way of commission or brokerage has been enhanced from 5 per cent to 10 per cent. However, no TDS need be made on payment of commission or brokerage to the public call office franchisees of BSNL and MTNL. (Section 194H).

Section 194I defines the `Rent' to include that on machinery, plant and equipment. Now, TDS has to be made at rates varying from 15 per cent to 20 per cent on payment of rent to individuals and HUF having turnovers above the limits specified under Section 44AB. The present amendment lowers the rate to 10 per cent TDS for rent for use of machinery or plant or equipment.

Against the present rate of 5 per cent, fees for professional or technical services will hereafter be at 10 per cent (Section 194A).

Section 206 C gets a new Explanation 1 under which there will be no need for TDS in respect of mining and quarrying of mineral oil such as petroleum and natural gas.

Raw Deal for Charitable Trusts

Section 10 (23C) exempts income of any fund or institution established for charitable purposes, which may be notified by the Central Government in the Official Gazette. Hereafter, mere Notification will not do. There should be approval by the prescribed authority.

Charitable trusts can claim exemption under Sections 11 and 12 by registering themselves with the Commissioner of Income-Tax under Section 12A within one year from the date of establishment of the Trusts. Applications made belatedly can be condoned by the Commissioner of Income-Tax for sufficient cause. This benevolent provision is now altered with Section 12A amended and from June 1, 2007, the Commissioner will have no power to condone the delay in the filing of applications for registration. Applications made on or after June 1, 2007 will be governed by the provisions of Section 11 and 12 only in relation to that particular assessment year immediately following the financial year in which the application is made.

There are more than one lakh charitable Trusts in India and all these Trusts will face problems in getting exemption under Section 11 and 12 if they delay the filing of application for registration.

Other amendments

The Transfer Pricing Officer is now required to complete the assessment within 31 months from the end of the relevant assessment year by determining the arm's length price. The Assessing Officer must compute the income as per the decision about arm's length price arrived at by the TPO. Assessments pending as on June 1, 2007 will be governed by the new amendment to Section 92C(4). Such assessments will have to completed within 21 months from the end of the assessment year in which the income was first assessable.

Search assessments require approval of the Joint Commissioner hereafter. Orders for Special Audit require Show Cause Notice. Appeal provisions have been modified. ]

Radical changes have been effected with regard to the functioning of the Settlement Commission. That is a story by itself.

T. C. A.Ramanujam
(The author is a former Chief Commissioner of Income-Tax.)