Every year the Indian Budget witnesses several modifications in tax provisions with the insertions of new provisions, deletion/modifications of old provisions. However, when one reads the fine print, it appears that many amendments could sometimes have far-reaching consequences.
Amendments introduced with retrospective effect are becoming more frequent in the budget proposals every year. This is primarily done to neutralize the position settled by the courts and get over adverse decisions against the tax department.
A few such retrospective amendments proposed in the recent Finance Bill 2009 are discussed below.
Section 80A of the Income-tax Act (dealing with deductions on account of tax holidays)
The Finance Bill proposes to retroactively introduce in section 80A of the Act with effect from 1 April 2003, a stringent requirement whereby an assessee to avail certain tax holidays (such as under section 80IA, 80IB, 10A, 10B etc.) would be required to make a specific claim for the same in the return of income. A failure to do so in the return of income for the respective assessment year (AY) would disentitle such an assessee to a legitimate claim.
Also Read Ketan Dalal and Manish Desai’s earlier columns
By virtue of such an amendment and that too retroactively, it could possibly negatively impact many taxpayers for genuine tax benefits available to them.
This proposal if enacted, is very harsh on taxpayers who had legitimate claims for a tax holiday, but the same were erroneously or otherwise not made in the return of income.
Another proposal in the Finance Bill is to amend the provisions of section 147 of the Act (dealing with reassessment of income) with effect from 1 April 1989. Under the existing provisions of the Act, the tax authorities wanting to reassess the income of the assessees could do so within the prescribed time limit by recording the reasons/grounds on the basis of which the assessment is proposed to be reopened. Typically, the scope of reassessment could not extend beyond the reasons provided for undertaking the reassessment. This was supported by judicial decisions in Jay Bharat Maruti Ltd v. CIT and CIT v. Ram Singh.
However, the Bill proposes to retrospectively amend section 147 to provide that the tax authorities while making reassessment under section 147 can make any other addition which comes to their notice. By virtue of this proposal, the ratio laid down by the high court decisions would become nullified and the tax authorities would have a free hand to frame assessment. This seems to be a sweeping carte blanch and that too with retrospective effect.
Another important retrospective amendment proposed by the Finance Bill is to amend section 115JB of the Act (dealing with computation of books profits and payment of minimum alternate tax, or MAT).