Income tax Act was enacted way back in 1961. However it has undergone numerous amendments through every year's Finance Act. Let us examine some of the amendments effected by the Finance Act, 2002.

Capital Gains, set off and carry forward of Capital Loss.

New special provision for determining full value of consideration in case of transfer of immovable property under section 50C has been introduced. Accordingly, in case of transfer of land or building or both, if the consideration received is less than the value adopted or assessed by any state government for the purpose of stamp duty, the value so adopted for levying stamp duty shall be deemed to be the full value of consideration received or accrued for computing capital gain under Section 48 of the Income Tax Act. Saving grace is that, an option has been given to the assessee that in case he claims that the value adopted for the purpose of stamp duty exceeds the fair market value as on the date of the transfer and the value adopted for the purpose of stamp duty has not been disputed before any other authorities, the A. O. may refer the valuation to the Valuation Officer. In case the value ascertained by the Valuation Officer is more than the value adopted for the purpose of stamp duty, the value adopted for the purpose of stamp duty shall be taken as the full consideration for the purpose of computation of capital gain under Section 48. Accordingly, the excess valuation done by the V. O. in such a case shall stand ignored.
Section 155(15) is also been inserted, to provide that where such stamp duty valuation is deemed to be the consideration for the transfer, and subsequently such stamp duty valuation is revised in any appeal or revision or reference, then the Assessing Officer within the period of 4 years of such order shall amend the order of assessment to recompute the capital gains by taking such revised stamp duty valuation as the consideration.

However, it is to be time tested whether such provision is constitutionally valid or not. It would create undue hardship for the bona fide asseessees. Incentive provisions contained in section 54 & 54F are also badly hit, since, the deemed consideration would be higher than the actual consideration and the assessee will be with lower investible amount. Certainly stamp duty valuations fixed are not always true & fair. These valuations are fixed usually in the beginning of the year and there may be changes in fair value during the year. Again these values are not based upon various ingredients like surrounding, location of premises, no. of floor, amenities provided etc.

Carry forward & Set-off of loss under the head Capital Gains

Till A.Y. 2002-03 intra head set off of loss under the head "capital gains" were allowed. However sections 70 & 74 as modified by Finance Act 2002 takes away flexibility of intra head set off of loss under the head capital gains.

Now as per the amended section 70 (dealing with intra head set off of loss) short term capital losses can be set off against capital gains whether short term or long term - with this amendment it restore the position back as applicable unto 31st March, 1991, 11 years earlier and long term capital loss can be set off only against long term gain - with this amendment it restore the position back as applicable unto 31st March, 1988 as earlier as 14 years back.

There have been similar amendments in section 74 dealing with set off & carry forward of capital loss. As per the amended section 74, now short-term capital losses can be carried forward for eight years. Further such loss could be set off against short term or long-term gains. Similar provision was prevailing between 1st April 1988 and 31st March, 1991, whereas long-term capital loss can be carried forward for eight years but to be set off only against long term capital gains, these provisions were prevailing unto 31st March, 1988 with only difference that carry forward was permissible upto 4 year.

Government under the name of rationalisation and simplification, justified the said amendment with following, "Since long-term capital gains are subject to lower incidence of tax, it is proposed to rectify the anomaly by amending the said sections..."

Readers may agree that the distinction between short-term and long-term capital gain has been reintroduced which is contrary to the Explanatory notes on Finance Act, 1987 (Circular 495 dt. 22-9-1987). Para 13.2 stated as under: "The distinction between short-term and long-term capital assets though confirming to the principle of equity of taxation has led to complication. To make provisions simpler, this distinction has done away with by insertion of sub-clauses (29A), (29B) and (42B) in section 2 of the income-tax Act, 1961, substitution of section 71 and 74 and amendment of section 70 and 72."

Issue here may now arise is that for last 7 years there were no difference between long term and short term capital loss. Assessee may not have kept track record which short term or long-term capital loss has been set off and which type of loss has remained unabsorbed. Under these circumstances would assessee have option to bifurcate brought forward loss in the way it suits most favourable to him?

Another issue also may arise while setting off what shall be in priority whether short-term capital gain or long-term capital gain or it is option with the assessee? However revenue will always try to first set off short-term loss with long-term gains and then with short-term capital gains.

Rebate u/s 88
One of the welcome amendment in the section 88 is that hence forth in order to claim deduction u/s 88 there is no need to have link between the amount deposited/invested in specified investment and total income. Other way round it is now not necessary for claiming rebate, amount should be paid or deposited by the assessee out of his income chargeable to tax. Only restriction imposed is that amount paid or deposited should not exceed total income of the assessee chargeable to tax. Thus with the omission of controversial word "out of the income chargeable to tax" assessee can invest any amount wholly or partly out of : -
(i) income of the any other previous year;
(ii) capital receipts;
(iii) maturity proceeds of investment made in earlier years;
(iv) borrowings.

However it is to be time tested that entire interest paid on borrowing is deductible or not. One may certainly argue that amounts have borrowed for investing or depositing in eligible investments and interest is chargeable to tax under other sources and hence interest paid on borrowing should also be deductible while computing taxable income. However in case deposit in PPF, interest on borrowings would not be allowed as deduction since interest from PPF account is exempt u/s 10(11).

Pinching part of amendment of section 88 is that amount of qualifying investment has been linked with gross total income. In case the gross total income of an assessee before deduction under Chapter VIA exceed Rs 1.50 lacs but does not exceed Rs 5 lacs, the rebate shall be restricted to 15 per cent (as against proposed 10 per cent) of the eligible investments. In the case of an assessee having gross total income before deduction under Chapter VIA more than Rs. 5 lacs, then no rebate u/s 88 will be available. Further total amount eligible for rebate u/s 88 has been raised to Rs. 1.00 lacs from the Rs.80 thousand with the internal Mix as under :

Particulars	New Limit	Earlier Limit
LIP, PPF, NSC, ULIP etc.	70,000	60,000
Infrastucture Bonds	30,000	20,000
Total Rs.	1,00,000	80,000

Reduction of rebate from 20 per cent to 15 per cent for assessee having gross total income between 1.50 lacs to 5 lacs and from 20 per cent to Nil for assessee having gross total income above Rs. 5.00 lacs was to reduce the cost of mobilizing small saving and also reducing government borrowing. However, with the increase in maximum eligible amount from Rs. 0.80 lacs to Rs. 1.00 lacs, has real objective been achieved?

Thus maximum tax rebate with investment of Rs. 1,00,000 shall be allowable as under:

Particulars	Eligible Rebate	Earlier Rebate
Income upto Rs. 1.50 Lacs	20,000*	16,000
Income between 1.51 & 5.00 Lacs	15,000	16,000
Income above 5.00 Lacs	NIL	16,000

*However, maximum tax on Rs. 1,50,000 is Rs.19,000 only hence rebate shall be restricted to Rs. 19,000 only. Rebate would be further reduced in case of senior citizen, by virtue of rebate u/s 88B of Rs.15,000 and in case of women, rebate u/s 88C of Rs. 5,000.

No marginal relief as in case of surcharge has been provided. As a result of which even though person has same taxable income but different gross total income i.e. from Rs. 1.50 lacs to 1.51 lacs and from 5.00 lacs to 5.01 lacs has huge impact on tax due. This can also be seen from table below.

Particulars	Mr. Blessed	Mr. Careless	Mr. Wise	Mr. Unlucky
Gross Total Income	1,50,000	1,51,000	5,00,000	5,01,000
Deduction u/s 80 L	0	1,000	0	1,000
Taxable Income	1,50,000	1,50,000	5,00,000	5,00,000
Tax	19,000	19,000	1,24,000	1,24,000
Investment in eligible investments	1,00,000	1,00,000	1,00,000	1,00,000
Rs.1,00,000/- and Rebate under section 88	19,000	15,000	15,000	NIL
Net Tax	NIL	4,000	1,09,000	1,24,000
Adding Surcharge 5%	NIL	200	5,450	6,200
Total tax liability including surcharge	NIL	4,200	1,14,450	1,30,200
Increase in tax liability	--	4,200	--	15,750

Tax Deduction at Source (TDS) :
Provisions of section 194A, 194C (only in respect of payment or credit to the account of sub-contractor), 194H, 194I and 194J has been amended so that now individuals and HUFs whose sales, turnover or gross receipts from the business or profession exceeds Rs.40 lacs or Rs.10 lacs as the case may be shall now be liable to deduct tax at source.

Needless to add liability to deduct tax at source would fluctuate from year to year depending upon turnover, sales or gross receipts exceeds specified limit of Rs.40 lacs or Rs.10 lacs in the preceding years, as the case may be. Certainly it is on the revenue's part to collect taxes, which is due from the assessee. At the conference of top officials last year CBDT in its background paper quoted: "There is no other area of work whether it be assessment or search and seizure etc. which can give us results as can be expected from TDS". However, revenue's inability to make proper assessment and collecting taxes should not be overcome by imposing extra charge on the specified individuals and HUF's. It is interesting to know that in some of the foreign countries, government reimburse administrative expenses incurred by the assessee for collection and payment of taxes to government treasury.

As per existing provisions of section 197A, no tax to be deducted at source, provided tax on total income of the payee is Nil & he simultaneously furnishes form 15H for not deducting tax at source to the deductor, who ultimately forward a copy to jurisdictional TDS Officer. Now, with the amendment in section 197A, payee can not give such declaration in form 15H, if any sum referred in the section 197A(I) viz. Dividends, NSS deposits, & 197(1A) viz. Interest on securities, interest other than interest on securities, income from units, individually or in aggregate of the amounts of such income during the relevant previous year exceeds maximum amount which is not chargeable to tax.

In the name of rationality Government carved away the beneficial operation of section where tax liability of the assessee considering deductions u/c VIA and rebate u/s 88, 88B, 88C, is NIL. Government failed to understand the basic fact that the TDS provisions are to collect taxes in advance from the assessee who is liable to pay tax on his income of the relevant previous year.

This would only lead to filing of return of income by the assessee who is liable to pay tax before rebate but ultimate liability of payment of tax is Nil considering rebates u/s 88, 88B, 88C and the government may have prestige of giving statistics about increase of tax assessees over the previous years. I am afraid whether such move will increase tax collection or not but this would certainly increase corruption and circulation of unaccounted money in the economy.

Further after inserting new section 10(10CC), amending section 192 and other relevant section, employer have been given an option to pay tax (without deduction of tax at source) from the employee's salary on the non-monetary perquisites granted to the employees. Again amount of tax so paid would not be added to the salary of employee. However, benefit so granted is half hearted, since, sub-clause (v) has been added to sec 40(a) to provide that amount of tax so paid shall not be allowable as deduction while computing employer's income. Further, rates of corporate taxes are more than applicable individuals rates. Measures like this are nothing but marketing stunts of the government for indirect augmenting higher tax collection.

Modification of filing of Returns under 1/6 criteria.

Subscribers of land line telephones and under wireless local loop (WLL) e.g. Garuda services by MTNL in Mumbai, have been excluded from 1/6 criteria of compulsory filing of Return of Income from A.Y. 2002-03. However, cellular subscribers are not excluded from the criteria. The reason for this can only be to give encouragement to the basic telecom industry. In past year large number of rural subscribes have returned telephone connections only to avoid filing of Return of Income.

Limited scrutiny

Provisions of prima facie adjustments u/s 143(1)(a) stood in the statue books untill 31-5-1999. Memorandum explaining the removal of such provision stated: "it is seen that the present system of prima facie adjustments has become some sort of assessment in itself, where every return is examined minutely and such adjustments are also open to appellant remedy. Most of the time of the Assessing Officer is utilised in processing the return in the above manner, leaving very little time for other important work. The ever increasing number of returns will make such processing of returns more time consuming."

Suddenly, after the short period of 3 years, similar provision has been reintroduced by revamping section 143(2). Thus under new section 143(2)(i) in order to issue notice the assessing officer must have reasons to believe that the claim of loss, exemption, deduction, allowances or relief made in the return is not admissible. However no notice can be issued after the period of 12 months from the end of month in which the return is filed.

Amendment being procedural in nature will be applicable to all the pending assessment before the relevant authorities. It is not free from doubt regarding appelability of order passed for limited scrutiny, in absence of any corresponding amendment u/s 246, though unintentional.

Penalty

Provisions of section 271(1)(c) are amended so as empower Commissioner of Income Tax to levy penalty. Further, section 271(1)(c) and its explanation have been suitably amended so as to levy penalty even if no tax is payable for the concealed income or furnishing inaccurate particulars. Said section is amended on the lines of erstwhile section applicable to prima facie adjustments and additional tax. Explanatory memorandum called these amendments as clarificatory and a measure for rationalisation & simplification.

In plethora of decisions of various High Courts and Supreme Court have consistently held that penalty u/s 271(1)(c) cannot be levied in absence of positive income. Apex Court in case of Prithipal Singh & Co. (2001) [166 CTR 187] has categorically held that evasion of tax is the sine qua non for the imposition of penalty. Penalty is a deterrent measure to prevent evasion of the tax and when there is no tax liability there could not be any such evasion so as provide a scope of levying any penalty. In other words, provisions of section 271(1)(c) are attracted only in the case of the assessee having positive income and not a loss, since, question of concealment of income to avoid payment of tax would arise only when there is positive income. Further word "income" occurring in section 271(1)(c) refers to positive income only.

Again whether such an amendment is constitutionally sustainable? Tax on 'income other than agricultural' income is collected by centre under Entry 82, List I of the schedule VII to the Constitution. On perusal of said entry, Constitution empowers the centre to tax income and not loss as said entry 82 does not provide that "income includes loss". Further charging section of the Act no where refers profit includes or charging of loss. Certainly Constitution doesn't provide for charging loss then how can penalty be levied on such loss? Said amendment has been badly hit by the Article 265 r.w. entry 82 List-I of the Constitution.

Even though amendment is effective from A.Y. 2003-04 onwards, however, it is not free from doubt for its application for earlier years too!

Deemed Concealment

Prior to amendment to Explanation 3 to section 271(1)(c) the same was applicable only to new assessee who has not filed return of income within the period specified in section 153(1) which prescribes the period for completion of assessment. However, explanation does not apply to the assessee who has been previously assessed under the Act and in a case where the Assessing Officer has issued a notice u/s 142(1) or 148.

Now with the omission of words "who has not previously been assessed under this Act" in the explanation, it would now also cover the case of an existing assessee who has not filed return within specified time. He shall be deemed to have concealed the income or has furnished inaccurate particulars of his income.

This amendment would convert a penalty for concealment into penalty for delay in filing the return of income. Readers may recall that until A.Y. 88-89 section 271(1)(a) provided for penalty for delay in filing the return of income. However, such provision was replaced by section 234A. Current amendment can be called as back door entry to the old section 271(1)(a) providing for penalty for delay in filing the return of income. This may result in duplication of penalty provision vis-à-vis section 271F. Isn't not present amendment contrary to the basic concept of concealment?