C.V.O. Chartered & Cost Accountants' Association

Legal Updates

Taxation Laws Update

Compiled by : Shri Haresh P. Kenia (C.A.)

1. 120 Taxman (ST.) 123

Clarification Regarding Income Tax Deduction From Salaries For The Financial Year 2001-2002 U/S 192 Of Income Tax Act 1961.

Circular no.1/2002 dated 04-02-2002 clarifies that no tax is required to be deducted u/s 192 of Income Tax Act 1961 for the financial year 2001-02 in respect of following:

1. Value of perquisites received in non-monetary form for assessee having income under the head salaries not exceeding Rs. 1,00,000/- (excluding such perquisites)

2. Value of perquisites received in the form of free or concessional ticket received by employees of airlines and railways.

The above clarifications are applicable only for financial year 2001-2002 and they are in suppression of earlier circular no. 15 dated

12-12-2001.

2. 120 Taxman (ST.) 124

Maintenance Of Books Of Account U/S 44AA - Amendment To Rule 6F Of Income Tax Rules

Notification no. 21-2002 dated 4/2/2002 amends rule 6F(5) of Income Tax Rules 1962. As per the amendment, the books of accounts and records specified in sub rule (2) & sub rule (3) which was hitherto was required to be maintained for 8 years now after the amendment are required to be maintained for 6 years.

The requirement of maintenance of cash books and ledger hitherto for the 16 years now been amended to be maintain for 6 years only.

3. 120 Taxman (ST.) 124

Amendment To Rule 3 Of Income Tax Rules 1962 Regarding Valuation Of Perquisities

Notification No. 22/2002 dated 04-02-2002 gives Income Tax (Second amendment) Rules 2002. It amends rule 3 of the Income Tax Rules by inserting proviso to sub rule 9. This amendment came into effect retrospectively from 1st April 2001.

The provision reads as under:

"Provided further that for an employee being an employee of airline or the railways, the provision of sub rule (6) shall come into force with effect from 1st day of April 2002"

4. 120 Taxman (ST.) 125

Notified Sports Association / Institution U/S 10(23) OF Income Tax Act, 1961.

The Central Government vide notification no. 10/2002 dated 30-01-2002 notifies M/s. Aero Club of India, New Delhi as notified sports association / institution for the purpose of section 10(23) of Income Tax Act for the period comprising from assessment year 2002-2003 to 2004-2005.

5. 120 Taxman (ST.) 126

Approved Scientific Research Association / Institution For The Purpose Of Section 35(1)(ii) Of Income Tax Act, 1961.

The Central Government vide notification no. 5/2002 dated 16-01-2002 notifies M/s. Inter University Center for Astronomy and Astrophysics, Pune for the period 01-04-2001 to 31-03-2004 as approved scientific research association for the purpose of section 35 (1)(ii) of Income Tax Act.

6. 120 Taxman (ST.) 127

Clarification Regarding Tax Treatment Of Deep Discount Bonds And Strips (Separate Trading Of Registered Interest And Principal Of Securities)

CBDT Circular no. 2 dated 15-2-2002 & press note dated 23rd March 2002.

Previously the board has issued letters to Reserve bank of India & others as regard tax treatment and income arising from Deep Discount Bond (DDB). The difference between subscription price and redemption price is treated as interest income. In case of the transfer before maturity, the difference is considered as income from capital gain or a business income as the case may be.

In order to formulate, the system of taxation of income from DDBs in line with the international practice & in order to remove the anomalies in the present system, the CBDT has suggested the tax treatment of Deep Discount Bonds & Strips, vide circular no. 2 dated 15-2-2002.

As per this circular, DDB holder is required to offer income on the basis of the market value of bond as on 31st March of each financial year. The circular gives the guidance for treatment of income of DDBs in case of transfer before maturity and on redemption by the original subscriber and intermediate purchaser.

In addition to the above, circular also gives guidance for tax treatment of different components of principal and interest created by stripping. Stripping is the process of detaching the interest coupon from the normal coupon bearing bond and treating the different coupons and the stripped bonds as separate instruments or securities (strips). Option is given to small non corporate investor being investor holding deep discount bonds upto an aggregate face value of Rs one lakh, who may continue to offer income for tax in accordance with the earlier clarification issued by the board.

The CBDT has further clarified vide press note dated 23rd March 2002 that the suggest tax treatment on DDB will apply to the bonds which are issued after the issue of the circular & will not apply to the existing bond holders.

7. 121 Taxman (ST.) 215

DTAA With Ireland

Notification no. 45/2002 dated 20-2-2002 gives the agreement for avoidance of double taxation and prevention of fiscal evasion between the Government of the Republic of India and the Government of Ireland.

8. 121 Taxman (ST.) 152

Clarification Regarding Interest On Relief Bonds

The press note dated 4-3-2002 clarifies that the interest rate under relief bond scheme will be continue to be at contracted rate upto the date of maturity. However, in case where the interest on relief bond is paid after the bond matured till the date of encashment, the interest will be paid as per the revised rate i.e. 8%.

9. 121 Taxman(ST.) 152

SchemeU/S 80IA Of Income Tax Act To Develop, Operate & Maintain Special Economic Zone

The notification no. 100(E) dated 24-1-2002 gives the scheme to develop, operate & maintain special economic zones for the period beginning on the 1st day of April 2001 for the zones developed on & before 31-3-2006. The above notification is issued in exercise of the power conferred u/s 80IA of the Income Tax Act read with sub rule (2) of rule 18C of Income Tax Rules 1962.

 

C.V.O. CA's News & Views

Vol.5 No. 4 mar. - Apr. 2002