Direct Tax Proposals 2012 : TDS / TCS / CAPITAL GAINS...

Capital Gains

    Cost of acquisition in case of certain transfer (Section 49 / 47)

Present Law

Proposed Changes

ü Where transfer of an asset from one person to another is not regarded as a transfer u/s 47, ü then, for computing capital gains (on subsequent sale), ü the cost of acquisition (COA) for successor u/s 49 ü is taken as that of the predecessor COA for company, is not specifically covered u/s 49, when converted from ü  Sole proprietorship – [u/s 47 (xiv) ] ü  Partnership Firm      - [u/s 47 (xiii) ]

ü COA of Proprietorship Firm or Firm shall be taken as cost in the hands of company. ü Retrospective Amendment w.e.f. 01-04-1999

Comment:

Cost of acquisition was not defined for cases when transfer from sole proprietorship or partnership firm. To bring clarity on intention of statute, the said clarificatory amendment is retrospectively introduced w.e.f 01-04-1999.

Extract of Memorandum

“Certain transactions like transfer of assets by a sole proprietorship or a firm to a company on conversion are not regarded as transfer under the provisions of section 47(xiv) and section 47(xiii). While computing capital gains on subsequent sale of such assets by the company, there is no reference in the provisions of section 49 with regard to the cost to be taken for such assets.”

    Reference to Valuation officer u/s 55A (COA as on 01-04-1981)

Present Law	Proposed Changes (w.e.f 01-07-2012)
ü U/s 55, where the capital asset ü became the property of the assessee ü before 1st April, 1981, ü Assessee can take FMV as on 01-04-1981 ü As COA. ü U/s 55A, where AO feels that ü value of asset as per assessee is less than FMV ü he may refer the valuation of a capital asset ü to a Valuation Officer	ü U/s 55A, where AO feels that ü value of asset as per assessee is MORE THAN FMV ü he may refer the valuation of a capital asset ü to a Valuation Officer

Comment:

Hon’ble Bombay High Court in case of CIT vs. Daulat Mohta HUF ITA no. 1031 of 2008 dtd. 22-09-2008 (BOM) had held that reference to DVO can be made u/s 55A only when the AO is of the opinion that the value of the capital asset claimed by the assessee is less than its fair market value and not when he was of the opinion that the fair market value of the property on 1^st April, 1981 as shown by the assessee was more than its actual fair market value.

To overcome similar kind of judgements, this amendment is proposed.

Extract of Memorandum:

“ In such a case the adoption of a higher value for the cost of the asset as the fair market value as on 1^st April, 1981, would lead to a lower amount of capital gains being offered for tax.”

    Amalgamation / Demerger

Present Law	Proposed Changes
Transfer will not regarded as a transfer if, ü In a scheme of amalgamation ü Shareholders transfer shares in a amalgamating company ü  in consideration of the allotment to him, of any shares in the amalgamated Indian company	ü Amalgamated company need not require to issue shares ü When the shareholders is  ü Amalgamated company itself.
Transfer will not regarded as a transfer if, ü In a scheme of demerger ü Shareholders transfer shares in a demerged company ü  in consideration of the allotment to him of any share or shares in the resulting Indian company	ü Resulting company need not require to issue shares ü When the shareholders is  ü Resulting company itself

Comment:

In case of Subsidiary company amalgamated with Holding company, it is practically not possible to fulfil the condition of section 47 i.e. to issue shares to the shareholders of subsidiary company because Holding company is itself a shareholder. Same situation in case of demerger, with the Resulting Company. Hence this amendment.

Extract of Memorandum:

“ In a case where a subsidiary company amalgamates into the holding company, it is not possible to satisfy one of the conditions at (a) above, i.e. that the amalgamated company (the holding company) issues shares to the shareholders of the amalgamating company (subsidiary company), since the holding company is itself the shareholder of the subsidiary company and cannot issue shares to itself. Therefore, it is proposed to amend the provisions of section 47(vii) so as to exclude the requirement of issue of shares to the shareholder where such shareholder itself is the amalgamated company. However, the amalgamated company will continue to be required to issue shares to the other shareholders of the amalgamating company.”

    FMV taken as consideration for certain transfer (New Section 50D)

Present Law	Proposed Changes.
ü As per Judicial Rulings ü When Sale consideration for ü Transfer of as Assets ü Is not determinable ü No Capital gains on Such Transfer.	ü FMV of the assets ü Will be Sale consideration ü If Actual consideration is ü Not attributable or determinable.

Comment:

As per memorandum explaining the finance bill  ‘ As the Machinary provisions fails, the gains arising from transfer of such assets is not taxable’. To tax such type of transaction, this amendment is proposed.

Mumbai ITAT in Bennett Coleman & Co. Ltd vs. ACIT 12 ITR 97 had held that when consideration for transfer is not determinable, there is no question of capital gains. Same view has been taken in case of Dana Corporation 321 ITR 178 (AAR)

To counter these decisions, the said amendment is proposed.

TDS & TCS

    TDS Rates

Sec.	Present Law	Proposed Changes (w.e.f. 01-07-2012)
193	ü A person responsible for paying interest to a resident individual ü on listed debentures of a company, ü In which the public are substantially interested, ü No TDS on interest payable ü if aggregate interest paid during a FY ü does not exceed INR 2,500 and ü the interest is paid by account payee cheque	ü A person responsible for paying interest to a resident individual or HUF ü on listed / Unlisted debentures of a company, ü In which the public are substantially interested, ü No TDS on interest payable ü if aggregate interest paid during a FY ü does not exceed INR 5,000 and ü the interest is paid by account payee cheque
194LA	ü Person responsible for paying any compensation or consideration ü For Compulsory acquisition of immovable property (other than agricultural land) ü is required to deduct tax at the rate of 10% ü in case the consideration exceeds INR 1,00,000	Threshold limit extended to INR 2,00,000
194J	ü TDS rate on remuneration paid to director ü which is not in the nature of Salary ü Is not specified in the ACT	TDS @ 10% on such payments.

    Procedural Aspects 

Sec	Present Law	Proposed Changes (w.e.f. 01-07-2012)
201	ü In respect of non-deduction/short deduction of tax, ü a person can be deemed to be ü an assessee in default, ü by an order, ü which can be passed ü within a period of ‘four years’ ü from end of FY  in a case ü where no statement as referred to in section 200 has been filed.	ü Four years extended to SIX years.
204	Person responsible for paying defined to ü to include employer, company or its principal officer or the payer. Lack of clarity when payment made by ü Central / State Govt. ü As to who is the person responsible for paying the sum to the payee.	When payment made by Central / State Govt. Person responsible for paying shall be ü  the Drawing and Disbursing Officer ü  or any other person (by whatever name called) ü  responsible for making payment
209	ü The amount of advance tax payable ü is computed by ü reducing the amount of income-tax ü which would be ü deductible or collectible ü during the financial year ü from income-tax on estimated income.	ü Where a person has ü Received any income ü without deduction or collection of tax, ü he shall be liable to ü pay advance tax ü in respect of such income... Applicable w.r.e.f AY 2012-13.

    Penalty for delay in furnishing of TDS/TCS statement  

Sec.	Present Law	Proposed Changes (w.e.f. 01-07-2012)
272A	ü A Penalty of INR 100 per day  ü for delay in furnishing of TDS statement.	ü Extended to INR 200 per Day. ü Additional Penalty of INR 10,000 - INR 1,00,000 for not filing TDS statement within time. ü Maximum Penalty upto TDS amount. ü No Penalty if TDS statement submitted within 1 years from due date along with interest & fees. ü No Penalty for Late filing of TDS on or after 01-07-2012.
271H	NEW SECTION	ü Additional Penalty of INR 10,000 - INR 1,00,000 for INCORRECT INFORMATION in TDS statement.
273B		No penalty If Reasonable Cause proved.