Suggestions of ICAI considered in the Notice of amendments to Finance Bill, 2013

Suggestions of ICAI considered in the Notice of amendments to Finance Bill, 2013 as Introduced in Lok Sabha

Serial No. of Notice of amendments as introduced in Lok Sabha	Section of the Income tax Act, 1961	Existing/Propose provision of the Income-tax Act, 1961	Suggestion Given by ICAI	Suggestions considered
2.	10(4)(ii), 10(4B) etc.	Even after repeal of “Foreign Exchange Regulation Act, 1973”, the Income-tax Act, 1961 continues to make a reference to the said Act in many of its sections, for example, section 10(4)(ii), 10(4B), etc.	The ICAI, in its earlier Pre-Budget Memorandum, had suggested that the words “Foreign Exchange Management Act, 1999” should be substituted in place of “Foreign Exchange Regulation Act, 1973”.	This suggestion has been considered and a new clause (3A) has been inserted in the Finance Act, 2013 for substitution of the expression “Foreign Exchange Management Act, 1999” in place of “Foreign Exchange Regulation Act, 1973” at all places in the Income-tax Act, 1961
4.	43(5)	The CTT is proposed to be introduced in a limited way by insertion of Chapter VII in the Finance Bill, 2013. The Finance Minister, in his budget speech, had clarified that trading in commodity derivatives will not be considered as a speculative transaction. However, no amendment was proposed to this effect by the Finance Bill, 2013 in section 43(5) defining a speculative transaction. Consequently, in the absence of specific exclusion provision in section 43(5), characterisation of commodity derivative Transactions (including those which are subject to CTT) would be governed by the existing provisions and they run the risk of being treated as speculative transactions, unless established by the taxpayer to be for hedging purpose.	Appropriate amendments may be made in section 43(5) to exclude an eligible transaction in respect of commodity derivatives from the definition of “speculative transaction”.	This suggestion has been considered by inserting sub clause (e) in section 43(5) and Explanation 2 to exclude an eligible transaction in respect of commodity derivatives from the definition of “speculative transaction”.
5,6, 7 and 8	90 & 90A	Section 90A(4) provides that treaty benefit will not be available to any Non Resident unless he furnishes TRC from the Government of his country of residence containing such particulars as may be prescribed. The Finance Bill, 2013 proposed to insert sub-section (5) in sections 90 and 90A to provide that TRC shall be a necessary but not a sufficient condition for claiming any relief under a DTAA.	The provision that a TRC is “necessary but not sufficient” had led to uncertainty amongst investors. There were apprehensions of roving enquiries from Tax Authority which can hamper confidence of taxpayers and can mar investment climate of the country. The proposed amendment contradicts CBDT Circular no 789 dated 13 April 2000 which clarifies that “wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying the DTAC accordingly”. The existing provision of obtaining TRC is itself burdensome for a Non Resident taxpayer. Every Non Resident needs to undertake additional compliance as the present provision does not provide for any threshold limit beyond which TRC may be made compulsory. The hardship compounded further as the said TRC needs to be obtained in the form and manner prescribed by the Indian income-tax authorities. Such a request may or may not be entertained by the Foreign Government. Further, there was an apprehension that the Non Resident taxpayer would be compelled to obtain TRC before the stage of payment itself, but for which DTAA benefit may be denied. In this background, incorporating the condition of TRC being “necessary, but not sufficient” would make the payer more hesitant than ever. The Finance Minister had clarified by way of Press Release dated 1st March 2013 that the TRC issued by the Government of a Foreign State would be accepted as evidence of tax residency and the tax authorities cannot go behind the TRC to question the residential status. The ICAI had suggested that the clarification issued by way of Press release should, in fact, be part of the statute in order to overcome the difficulties mentioned above.	This suggestion has been considered and sub-sections (4) and (5) of sections 90 and 90A have been amended. Sub-section (4) of sections 90 and 90A has been amended to substitute the words “a certificate containing such particulars as may be prescribed of his being a resident” with the words “a certificate of his being a resident”. Therefore, a certificate issued by the Government of a Foreign State would constitute proof of tax residency, without any further conditions regarding furnishing of prescribed particulars therein. Sub-section (5) of sections 90 and 90A which provided that TRC shall be a necessary but not a sufficient condition for claiming any relief under a DTAA has been substituted to provide that the assessee referred to under section 90(4) shall also provide such other documents and information, as may be prescribed.
14.	194-IA	Tax is proposed to be deducted@1% on consideration for transfer of immovable property, other than agricultural land. However, no tax is to be deducted if the consideration for transfer of immovable property is less than Rs.50 lakhs.	Since this provision requires deduction of tax by the transferee, it presupposes that the transferee should have a TAN. This may cause genuine hardship to those transferees who do not possess a TAN. Further, it would be an additional burden to require such persons to apply for and obtain TAN for a single transaction. It was, therefore, suggested that a simple challan for one-time remittance of tax by the transferee/payee be prescribed and such remittance may be made within a prescribed time after payment of the last installment. Such a remittance may be made a pre-condition for registration of property in the name of the transferee. This would dispense with the need for obtaining TAN and at the same time, ensure garnering of revenue at an early point of time. The PAN of the transferor and transferee should be required to be quoted on the challan so that the transferor can take credit of tax deducted and remitted.	Sub-section (3) has been inserted in section 194-IA to provide that provisions of section 203A (i.e. obtaining TAN) shall not apply to a person required to deduct tax in accordance with the provisions of section 194-IA.
19.	206AA read with 194LC	Section 194LC, inserted by the Finance Act, 2012, provides for a concessional rate of withholding tax @ 5% on payments to non-residents in a case where an Indian Company borrows money in foreign currency from a source outside India either under a loan agreement or by way of issue of long-term infrastructure bonds.	Though the provision provides for concessional rate of tax @ 5%, in absence of PAN of the Non Resident lender, section 206AA mandates withholding at higher rate of 20%. This is perceived to be onerous considering that section 115A envisages exemption from filing return for the Non Resident where tax is deducted by the borrower and paid to the Government. Hence, obtaining PAN for the sole purpose of avoiding adverse impact of section 206AA results in an empty formality. Therefore, ICAI had suggested that payment of interest under section 194LC should be excluded from the scope of Section 206AA and Non Resident lenders should not be required to obtain PAN in India to avail lower rate of tax under section 194LC.	Sub-section (7) has been inserted in Section 206AA to provide that the provisions of section 206AA shall not apply in respect of payment of interest on long term infrastructure bonds, as referred to in section 194LC, to a non-resident, not being a company, or to a foreign company.

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Source: The Institute of Chartered Accountants of India.