Definition of advancement of any other object of general public utility is amended with retrospective effect from AY 2009-10 to mean that it amounts to charitable purpose where the total receipts from such activity, etc, in the previous year do not exceed Rs.10 lakhs.
Section 2(15) defines “charitable purpose” which among others includes “the advancement of any other object of general public utility”. However, the activity of “advancement of any other object of general public utility” is not treated as a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. This absolute restriction was imposed by an amendment made by the Finance Act, 2008 from the assessment year 2009-10. This absolute restriction is applicable on any receipt of commercial nature irrespective of its quantum.
The above provision of section 2(15) has been amended with retrospective effect from the assessment year 2009-10 to provide that “the advancement of any other object of general public utility” shall continue to be a “charitable purpose” if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering service in relation to any trade, commerce or business, do not exceed Rs. 10 lakh in the previous year.
Sec 9(1) is amended to provide that in the case of non-resident, the cases covered under clause (v), (vi) and (vii) of Sec 9(1) shall be always taxable whether or not-
And by this amendment the SC’s ruling in Ishikawajma-Harima Heavy industries Ltd v. DIT is completely superseded.
Amendment –The existing Explanation to section 9(2) has been substituted (with retrospective effect from the assessment year 1977-78) with a new Explanation to specifically state that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause(vi) or clause (vii) of section 9(1) and shall be included in this total income, whether or not-
a. The non-resident has a residence or place of business or business connection in India; or
b. The non-resident has rendered services in India.
[Sec 9(1)(v) covers interest, (vi) covers royalty and (vii) covers fees for technical services)]
Hitherto, Sec 10(21) covers only incomes of a scientific research associations notified U/S 35(1)(ii). Now, this section is extended in respect of research associations undertaking research in social science or statistical research which is notified U/S 35(1)(iii).
Under the existing provisions of section 10(21), any income of a scientific research association for the time being approved for the purpose of section 35(1) (ii) is exempt from tax if a few conditions are satisfied.
This provision has been amended with effect from the assessment year 2011-12 so as to make it also applicable to a research association which has as its object, undertaking research in social science or statistical research, provided such research association is approved and notified under section 35(1)(iii). Consequently, the income of such association shall not be included in its total income from the assessment year 2011-12.
Hitherto, the word assessee is substituted with the word “UNDERTAKING” only for the AY 2010-11. Now a proviso is added that the same shall be applicable w.r.e.f AY 2006-07.
Now the CIT can cancel the registration of a trust which is accorded to it U/S 12AA as well as U/S 12A. Till now, CIT has power to cancel if the registration is granted U/S 12AA. Now they can cancel even if the registration is obtained U/S 12A.
The concept of proportionate depreciation is now extended to the cases of succession of unlisted / private companies into LLPs. Such apportionment will be done based on the number of days for which the asset is used.
Fifth proviso to section 32(1) provides that the aggregate depreciation allowable to the predecessor and successor business entities in case of succession or amalgamation shall not exceed in any previous year the deduction allowable at prescribed rates as if the succession or amalgamation had not taken place and such deduction shall be apportioned between the two entities in the ratio of the number of days for which the assets were used by them.
The reference of conversion of private company/ unlisted public limited company into limited liability company [by satisfying the requirement of section 47(xiiib)] has been inserted in the fifth proviso to section 32(1) with effect from the assessment year 2011-12. Consequently, in case of succession of a private company or unlisted public company by limited liability partnership, the aggregate depreciation allowable to the predecessor company and the successor limited liability partnership shall not be exceed, in any previous year, the depreciation calculated at the prescribed rate as if no succession has taken place.
The following amendments have been made to section 35 with effect from the assessment year 2011-12-
Increase in weighted deduction – Under the existing provision of section 35, one can claim weighted deduction. The rate of weighted deduction has been increased as given below-
From the assessment
35(2AB) – Expenditure incurred by a company(not being cost of land or building)on approved in-house research and development facility
35(1)(ii) – Contribution to an approved scientific research association that has the object of undertaking scientific research or to an approved university, college or other institutions to be used for scientific research
35(2AA) – Any sum paid to an approved National Laboratory, or a university or an IIT or specified person for the purpose of approved scientific research program
Note – There is no increase in weighted deduction under section 35(1)(iia)/(iii).
Now Sec 35AD is extended to new hotels (Minimum two star), new hospitals with minimum 100 patient beds, notified housing projects established any where in India. Deduction is available in respect of businesses which commenced their operations on or after 1st April 2010. Deduction is available only with regard to capital expenditure other than goodwill, land and financial instruments.
Further, the common carrier is clarified to mean as one third in the case of gas and one fourth in the case of petroleum.
Deduction in respect of VRS is extended to business reorganization cases. In the case where unlisted company or private limited company is converted into LLP, the same shall be allowed in the hands of LLP from the year in which business re-organization takes place provided the conditions of Sec 47(xiiib) are satisfied.
Earlier in respect of certain payments to residents, expenditure is allowable if the necessary TDS is deposited before the due date of return where TDS is done in the last month (i.e March) and deposited by 31st March of the previous year in respect of all other payments.
Now relaxation is provided with regard to payments by providing that they can be remitted before the due date of filing the return of income. [i.e as per the new provisions, TDS is to be deducted by 31st March of the previous year where as the remittance is to be effected before the due date of the return to claim the related expenditure]. Also, note that Sec 40a(ia) is applicable for sums covered U/S 193, 194A, 194C, 194H, 194I, 194J
Hitherto, the COA of a 35AD asset to an amalgamated company etc, is taken as Nil if in respect of the same, the amalgamating company has claimed deduction. Now, similar rule is extended even with regard to conversion of unlisted public company or private company to an LLP.
The following amendments have been made to section 43 with effect from the assessment year 2011-12-
“Actual cost” in the hands of successors limited liability partnership when predecessor company has claimed deduction under section 35AD – The existing provisions contained in the Explanation 13 to section 43(1) provide that “actual cost” of an asset in respect of which the deduction is allowed or allowable to assessee under section 35AD will be treated as nil.
Amendment to section 44AB – Limit of turnover increased [New limits are Rs.60 lakhs for business and Rs.15 lakhs for profession]
Under the existing provision of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in business exceed Rs. 40lakh in the previous year. Likewise, a person carrying on profession is required to get his accounts audited if the gross receipts in profession exceed Rs.10lakh in the previous year. These monetary limits have been increased (with effect from the assessment year 2011-12) from Rs.40lakh to Rs. 60lakh and from Rs. 10lakh to Rs. 15 lakh.
Amendment to section 44AD – Threshold limit of turnover increased [From Rs. 40 lakhs to Rs.60 lakhs]
For the purpose of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts will be increased from Rs. 40lakh to Rs.60lakh with effect from the assessment year 2011-12
Income of a non-resident providing services or facilities in connection with prospecting for, or extraction or production of, mineral oil [Sec 44BB and 44DA]
There is a small overlap over Sec 44BB and Sec 44DA when a non-resident having PE provides services etc,. in relation to prospecting of mineral oil in India. Now, it is settled that first we need to check whether it is a case falling U/S 44DA. Once the NR is having PE in India, always income shall be computed as per the provisions of Sec 44DA. Else, it is covered as per the provisions Sec 44BB.
Capital gain exemption in the case of conversion of an unlisted company into a LLP [Sec 47(xiiib)] and amendment of Sec 47A
Clause 47(iiib) exempts conversion of an unlisted public company or a private company into LLP provided it satisfies the requirements of Sec 56 and 57 of the LLP Act and certain additional conditions under the IT Act. [All assets and lia of company shall become assets and lia of the LLP; Shareholders of old company shall not receive any other consideration other than the capital; the shareholders’ stake shall not be diluted for a period of 5 years from conversion and also they cannot withdraw the past profits for a period of 3 years from conversion, etc,.]; When these conditions are violated (i.e dilution in voting power at anytime in 5 years or withdrawal of profits in a period of 3 years), the shareholders as well as the company are liable for capital gains tax in the year in which violation takes place.
Also, certain other sections are amended viz, the unabsorbed depreciation and losses of the company shall be allowed in the hands of the LLP. The remaining depreciation loss only shall be allowed in the hands of the LLP. Further, the balance unabsorbed loss shall be carried forward for a fresh period of 8 years. Also,115JB credit shall be allowed only to the company and hence LLP is not allowed the same. The cost to the partners and the cost to the LLP of capital assets shall be the same which was in the hands of the old share holders and in the hands of the firm.
Cost of asset in the hands a LLP (new entity created now) = Cost in the hands of private company or unlisted company (old entities prior to conversion)
Similarly cost (i.e cost of rights in LLP) in the hands of share holder in the LLP = Cost of shares in private company or unlisted company
However, the period of holding in old entities shall not be considered to determine the nature of capital gains.
Where any gifted property U/S 56(2)(vii) is subsequently sold, capital gains will be taxed after taking into account the taxed amount U/S 56(2)(vii) as COA. This provision is now extended to Sec 56(2)(viia)
Immovable property received by an individual / HUF will be taxable U/S 56(2)(vii) only if it is received absolutely free of cost. [i.e received with nil consideration].
Receipt of bullion for nil consideration or for inadequate consideration shall be taxable w.e.f 1st June 2010.
Receipt of shares by a firm or by a closely held company w.e.f 1st June 2010 for nil consideration or for inadequate consideration considered separately. [i.e gift element of nil consideration and gift element in transactions of inadequate consideration are to be considered separately]
Where a private ltd company or unlisted public company is converted into LLP by satisfying the conditions laid down in Sec 47(xiiib), the losses shall be allowable for fresh 8 years, depreciation shall be allowable without any time limit and speculation losses shall not be eligible to be carried forwarded. And where the conditions of Sec 47(xiiib) are violated at a later year, then the previously allowed loss shall be treated as income of the LLP in the year in which conditions are violated.
Once an assessee claims deduction U/S 80HH to 80RRB in respect of a notified business notified U/S 35AD, he can never claim deduction U/S 35AD not only with regard to that year but also in respect of all future years. [W.E.F AY 2011-12]
A new section (7) has been inserted in section 80A with effect from the assessment year 2011-12.This sub-section provides that where a deduction under any provision of section 80HH to 80 RRB is claimed and allowed in respect of profits of any of the specified business referred to in section 35AD(8)(c) for any assessment year, no deduction shall be allowed under the provisions of section 35AD in relation to such specified business for the same or any other assessment year.
Special deduction U/S 80CCF to individuals, HUF in respect of subscription to long term infrastructure bonds of additional amount of Rs.20,000 in addition to the limit of Rs.1 lakh available U/S 80-C, CCC, CCD. [Available only for the AY 2011-12]
Section 80CCF has been introduced for the assessment year 2011-12.Under this section ,an individual or a Hindu undivided family can claim a deduction of the whole of the amount paid or deposited during the previous year 2010-11 as subscription to a notified long-term infrastructure bonds. Deduction under this section will be available only for the assessment year 2011-12 and the quantum of deduction cannot exceed Rs.20,000. This deduction will be over and above the existing overall limit of deduction on saving of upto Rs.1 lakh under section 80C, 80CCC and 80CCD.
Sec 80D deduction is extended in respect of an individual when he contributed to Central Government Health Scheme. However, he can contribute and claim this deduction only in respect of premium on his family (other than parents).
Now donors who donate sums to research associations recognized U/S 35(1)(iii) for carrying on research in social sciences and statistical research are also eligible for claiming deduction U/S 80GGA. Earlier this section is available to donors donating to recognized universities, colleges and institutions U/S 35(1)(iii)
Deduction U/S 80-IB(10) with respect to housing projects is amended to provide that the construction is to be completed within 5 years from the end of the year in which housing project is approved by the local authority if such approval is granted on or after 1st April 2005. Also, relaxation is given with regard to built up area for shops and commercial establishments by increasing the limit to 3% of total built up area of the housing project or 5000 sq ft whichever is higher. [Applicable w.e.f 1st April 2010]
Deduction U/S 80-ID is available in respect of hotels and convention centers in specified areas viz. [National Capital Territory of Delhi and districts of Faridabad, Gurgaon, Gautam Budh Nagar and Ghaziabad]. The time limit for completion of construction is extended from 31st March 2010 to 31st July 2010.
Section 80-ID provides for 100 per cent deduction for 5 years, of profits derived by an undertaking from the business of a two-star, three-star or four-star category hotel or from the business of building, owning and operating a convention centre located in NCR. Deduction is, however, available only if such hotel has started functioning or such convention centre is constructed during the period April 1, 2007 and March 31, 2010.
To provide some more time for these facilities to be set up, the above provision has been modified to extend the date by which the hotel has to start functioning or the convention center has to be constructed, from the present March 31, 2010 to July 31, 2010.
Return U/S 139(4C) is extended to research associations carrying on research in social science or statistical science also.
Under the existing provisions contained in section 139(4C), every scientific research association [referred to in section 10(21)], shall furnish a return of income of the previous year. This provision is, however, applicable only if the total income in respect of such scientific research association (without giving effect to provisions of section 10) exceeds the maximum amount which is not chargeable to income-tax.
Section 139(4C) has been amended from the assessment year 2011-12 in order to require a research association having as its object undertaking research in social science or statistical research to also furnish its return of income.
Provisions relating to reference to valuation officer U/S 142A for valuing the property referred in Sec 69, 69A, 69B is now extended to the gifts covered U/S 56(2).
The existing provisions contained in section 142A(1) provide that where an estimate of the value of any investment, bullion, jewellery, etc., referred to in sections 69, 69A,69B is required for the purpose making an assessment or re-assessment, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him.
The above provision has been amended with effect from July 1, 2010 so as to also enable the Assessing Officer to make reference to the Valuation Officer for making an estimate of fair market value of any property referred to in section 56(2).
Time limit for issuing notification to do centralized processing of returns is extended up to 31st March 2011 from the existing time limit of 31st March 2010. [Sec 143(1B)]
Under the existing provisions of section 143(1B), the Central Government may, for the purposes of giving effect to the scheme of centralized processing of returns U/S 143(1A) issue a notification relating to such processing of returns. However, such a notification can be issued up to March 31, 2010.
The above provisions has been amended to extend the time-limit for issue of such notification under section 143(1B) from March 31, 2010 to March 31, 2011. A similar amendment is made in section 115WE.
Threshold limits for payments mentioned in sections 194B,194BB,194C,194D,194H,194-I and 194J have been increased as given in the table below with effect from July 1, 2010 –
Nature of payment
Existing limit applicable up to June 30, 2010 Rs.
New limit applicable from July 1 , 2010 Rs.
Winning from lottery or crossword puzzle
Winning from horse race
Payment to contractors (consideration for single contract)
Payment to contractors (aggregate consideration for all contracts during the financial year)
Commission / Brokerage
Fees for professional services, or technical services
Changes in TDS rates – There is no change in TDS rates
SURCHARGE EDUCATION CESS, ETC, IN THE CASE OF TDS –For the financial year 2010-11, these are applicable as follows –
Education Cess on TDS is applicable in the case of residents only on salaries. However, the same is applicable on all type of payments to non-residents.
Surcharge is applicable on TDS rates only if it is a foreign company and when the payment or credit which is subject to TDS exceeds Rs.1 Crore.
Interest leviable for TDS defaults is amended. For the default in deduction of TDS, interest shall continue to be @ 1% p.m or part of the month. For the default in remittance of TDS, interest shall be charged @ 1.5% per month or part of the month.
Under the existing provisions of section 201(1a), if a persons fails to deduct tax at source or after deduction fails to deposit TDS, he is liable to pay simple interest at 1 per cent per month (or part thereof) on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. Such interest shall be paid before furnishing quarterly return.
The aforesaid provisions has been amended with effect from July 1, 2010 as follows –
Rate of interest (p.m or part of month)
Period for which interest is payable
From the date on which tax was deductible to the date on which tax is actually deducted
From the date on which tax was actually deducted to the date on which tax is actually paid
Now TDS / TCS certificates are once again need to be furnished by the deductor / collector to the deductee / collectee
The existing provisions of section 203(3) dispense with the requirement of furnishing of TDS certificates by the deductor to the deductee after March 31,2010.Similarly,under section 206C(5), a collector of tax at source will also not be required to issues TCS certificate to the person from whom tax has been collected after March 31,2010.
Considered the fact that the TDS/TCS certificate constitutes an important document for the deductee /collectee, the above provision have been deleted .Consequently, the deductor /collector will continue to furnish TDS/TCS certificates to the deductee/collectee even after March 31,2010.
The penalty for tax audit U/S 44AB is now 0.5% of turnover or Rs 1.5 lacs whichever is less W.E.F AY 2011-12
Section 271B provides that if any person fails to get his accounts audited or furnish a report of such audit as required under section 44AB, the Assessing Officer may impose a penalty equal to 0.5 percent of the total sales, turnover, etc., or Rs.1 lakh, whichever is less .This monetary limit of Rs.1 lakh has been increased to Rs.1.5 lakh with effect from the assessment year 2011-12.