1. Financial Act, 2006 – Explanatory Notes – Direct Taxes

The circular explaining the substance of the Finance Act, 2006 relating to Direct Taxes is issued.

[Circular No. 14 of 2006 dated 28th December, 2006 (207 CTR (St.) 17), (288 ITR (St.) 9) (158 Taxman (St.) 1)]

2. Micro, Small and Medium Enterprises Development Act, 2006 – Non-deductible interest

Any interest payable or paid by any buyer to any micro or small enterprise under the Micro, Small and Medium Enterprises Development Act, 2006 shall not be allowed as deduction in the computation of income. This Act comes into force from 2nd October, 2006.

‘Micro enterprise’ means any enterprise, whether proprietorship, HUF, AOP,
Co-operative Society, Firm, Company or Undertaking engaged in manufacture or production of goods pertaining to any industry specified in First Schedule to the Industries (Development and Regulation) Act, 1951 and whose investment in plant & machinery is not more than Rs. 25 lakhs. In case of an enterprise engaged in providing services, the investment in equipment shall not exceed Rs. 10 lakhs.

The definition of ‘Small enterprise’ is similar to that of a ‘micro enterprise’ except that the amount of investments in case of a manufacturing enterprise is more than Rs. 20 lakhs but does not exceed Rs. 5 crores and in a case of service enterprise it is more than Rs. 10 lakhs but does not exceed Rs. 2 crores.

[Instruction No. 12 of 2006 dated 14th December, 2006 (207 CTR (St.) 1) (157 Taxman (St.) 165)]

3. Investment in Bonds – S. 54EC

The Central Government notifies the bonds of Rural Electrification Corporation Limited issued between 26th December, 2006 and 31st March, 2007 (both days inclusive), as ‘long-term specified asset’ subject to the following conditions:

1. A person who has invested aggregating more than Rs. 50 lakhs in the bonds notified as ‘long-term specified asset’ vide notification No. S.O. 963(E) dt. 29th June, 2006 or Notification No. S.O. 964(E) dt. 29th June, 2006 shall
   not be allotted any bonds notified herein;
    

2. A person who is not covered by above clause shall not be allotted the bonds notified as ‘long-term specified asset’ for any amount which exceeds Rs. 50 lakhs as reduced by the aggregate of the investment made in the bonds notified vide notification No. S.O. 963(E) or notification No. S.O. 964(E) referred above.

[Notification No. 380 of 2006 dated 22nd December, 2006 (207 CTR (St.) 8) (157 Taxman (St.) 174), (288 ITR (St.) 6)]

4. Condonation of Delay in filing Income-tax Return and grant of Refunds – S. 119(2)(b)

In modification to earlier instructions/circulars on the above subject, this instruction provides as under:

1. The Chief Commissioners of Income-tax (CCsIT) will have power for acceptance/rejection of applications/claims for condonation of delay in filing return involving refund claims above Rs. 10 lakhs and up to Rs. 50 lakhs. It also vests the Commissioners of Income-tax (CsIT) with similar powers involving refund claims up to Rs. 10 lakhs.
    

2. The applications/claims for condonation of delay involving refund claims exceeding Rs. 50 lakhs
   would continue to be processed by the CBDT.
    

3. No fresh application for claim of refund will be entertained beyond six years from the end of the assessment year for which the application/claim is made.
    

4. The powers of acceptance/rejection delegated to the CCsIT/CsIT would be subject to the following conditions:

1. The refund has arisen as a result of excess TDS/TCS/Advance Tax and the refund does not exceed Rs. 50 lakhs in respect of CCsIT and Rs. 10 lakhs in respect of CsIT for any one assessment year.
    
2. The income of the assessee is not assessable in the hands of any other person.
    
3. No interest will be admissible on the belated refund claims.

5. It should also be ensured that the income declared and refund claimed are correct and genuine and also that the case is of genuine hardship on merits.
    

6. This instruction will also cover pending applications/claims as on the date of issue of this instruction.
   
   [Instruction No. 13 of 2006 dated 22nd December, 2006 (207 CTR (St.) 3), (157 Taxman (St.) 175)]

5. Income-tax Ombudsman Guidelines, 2006

The Income-tax Ombudsman Guidelines, 2006 is published with the objective to improve the quality of tax administration and bring more transparency in the systems. This will come into force from 1st January, 2006.

The guideline provides for the appointment of Income-tax Ombudsman, its power and duties, procedure for redressal of grievances, procedure for filing the complaint and its settlement.

[(206 CTR (St.) 111)]

6. Deduction in respect of subscription to public deposit scheme – Section 80C(2)(xvi)

In exercise of the powers conferred by sub-clause (a) of clause (xvi) of sub-section (2) of section 80C of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies the Public Deposit Scheme of Housing and Urban Development Corporation Ltd. (HUDCO Bhavan, India Habitat Centre, Lodi Road, New Delhi) for an amount of rupees one thousand crore for the purpose of the said sub-clause.
[Notification No. 2/2007, dated 11-1-2007 (158 Taxman (St.) 51)]

7. Senior Citizen Savings Scheme – Clarification regarding NRIs and PIOs as nominees under Senior Citizens Savings Scheme, 2004.

Please refer to Circular RBI/2005-06/431, Ref. No. DGBA. CDD No. H-20692/15.15.001/2005-06, dated June 28,2006, forwarding, inter alia, certain clarifications on the issues related to eligibility of PIO card holders to invest/to become nominee in the Senior Citizens Savings Scheme, 2004.

Letter No. F.15/8/2005/NS-II/Vol. II, dated December 14, 2006 is received from Budget Division, Department of Economic Affairs, Government of India clarifying that Non-resident Indian and persons having dual citizenship (Indian and other) can be nominees under the scheme, but in case of death of the depositor, they can neither continue the account nor the proceeds of the account shall be available to them for repatriation.

[Circular No. DG-BA. CDD. No. H-10024/15.15.001/2006-07, dated 22-12-2006 (157 Taxman (St.) 177)]

8. Senior Citizen Savings Scheme – Clarification regarding Senior Citizens Savings Scheme, 20 – Payment of interest in case of pre-mature withdrawal

The Government of India, Ministry of Finance, has clarified queries regarding broken period interest payable to depositor in case of premature withdrawal under the Senior Citizen Savings Scheme vide letter No. F. 15/8/2005/NS-II, dated May 11, 2006 under rule 9(1)(a)(b) of the Scheme. The penalty amount has to be deducted from the amount of deposit at the time of premature withdrawal and, therefore, the penal amount has to be deducted from the principal amount. However, interest at the rate of 9 per cent will have to be calculated on the total amount of deposit till the date of premature closure, as the total deposit will be available in the account till that date.

[Circular No. DGBA. CDD. No.H-9741/15.15.001/2006-07, dated 18-12-2006 (157 Taxman (St.) 178)]