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Amendments proposed in the Finance Bill, 2008

The change in the definition is to clarify that the income from nurseries would also be treated as agricultural income. Since there has been some controversy on the subject, amendment to Sec. 2(1A) now clarifies that saplings and seedlings sold in pots could be treated as agricultural produce, so as to constitute income therefrom to be treated as agricultural income as held in the recent decision in CIT v Green Gold Tree Farmers (P) Ltd. (2008) 167 Taxman 151 (Uttarakhand). Similar view was also taken in CIT v Soundarya Nurseries (2000) 241 ITR 530 (Mad).

The expected drop in surcharge and cesses has not materialised. So is the expectation that MAT may be discontinued.

There is some relief to a limited extent by restoring the earlier relief under Sec. 80M to spare tax liability on multiple dividends, by an amendment to Sec. 115-O, which would give credit for dividends paid by a subsidiary to a holding company with at least 50 per cent shareholding in such subsidiary, if the holding company is also a domestic company.

Conversion of Global Depository Receipts into shares or debentures will not be treated as transfer in the proposed clause (xa) in Sec. 47 of the Act. But revenue will catch up at the time of sale of such converted share/debenture by requiring the amount subscribed for Depository Receipts being taken as the cost of such share or debenture as provided under Sec. 49(2A) of the Act.

Increase in short-term capital gains from 10 per cent to 15 per cent in respect of gains on which securities transaction tax has been paid cannot be welcome.

Those frequently purchasing and selling shares would be deemed to be dealers, so that they would be liable even otherwise only at normal rate. The benefit of lower rate of 10 per cent now raised to 15 per cent for short-term capital gains and exemption for long-term capital gains in respect of transactions on which securities transactions tax is paid is available only to investors. The problem as to whether a person is an investor or dealer would continue to haunt the taxpayers. Securities transaction tax which was thus far allowed as a rebate under Sec. 88E in the case of dealers by way of set off against tax will now be allowed as a deduction only from income as provided under Sec. 36(xv) inserted with effect from April 1, 2009.

In respect of Minimum Alternate Tax, liability is bound to be increased in view of the requirement for treating deferred tax credit, which is a mere book entry, on a par with income-tax, so as to require adjustment. Dividend Distribution Tax, surcharge, cesses and interest are also to be treated on a par with income tax.

Fringe Benefits Tax (FBT) has become more unreasonable with the shifting of liability from the employees to the companies in respect of share allotment to employees under the ESOP scheme or as sweat equity, so that an identifiable burden on employees gets shifted effectively to the shareholders. FBT is subject to some cosmetic relief by excluding from the scope of welfare expenditure, creche facility for the children of the employees and expenses in sponsoring an employee sportsmen or organising sports events for employees. But Banking Cash Transactions Tax is dropped with effect from April 1, 2009 with Commodities Transaction Tax on options and derivatives becoming effective from the date the Finance Bill becomes law.

In the matter of investments, there is widespread disappointment that many of the incentives which have now a short future are not getting extended.

In fact, the activity of refining mineral oil, which was eligible for incentive deduction under Sec. 80IB(9) will no longer be eligible for those establishing such undertaking on or after April 1, 2009.

However, Sec. 80IB(11C) would give five year tax holiday for hundred bedded hospitals starting to function between April 1, 2008 and March 31, 2013, if the hospitals are located outside the urban agglomerations of Mumbai, Delhi, Kolkota, Chennai, Hyderabad, Bangalore and Ahmedabad apart from the city of Secunderabad and districts of Faridabad, Gurgaon, Gautam Budh Nagar, Ghaziabad and Gandhinagar.

Deduction under clause (iii) inserted in Sec. 80ID(2) now extends tax holiday for five years to hotels starting to function between April 1, 2008 and March 31, 2013 in the named districts having world heritage sites. Kancheepuram, Thanjavur and Nilgiris are the named districts in Tamil Nadu.

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