Page 27 - Plastics News February 2022

FEATURE

The Retrospective Changes To Income-Tax Law

he Union Budget 2022-23 brought of such court rulings and to consider providing various benefits in violation
Tin some amendments to the such rulings against the intention of of the provisions of Indian Medical
Income Tax Act that would be effective the law, a clarificatory amendment has Council (Professional Conduct, Etiquette
retrospectively.Making a retrospective been introduced in the income tax law, and Ethics) Regulations, 2002 shall be
amendment to the Income-tax Act from providing that any surcharge or education inadmissible under section sub-section
2005-06, the Budget has clarified that cess on income tax shall not be allowed (1) of section 37 of Act being an
cess and surcharge will not be allowed as business expenditure. expense prohibited by the law”. This
to be claimed as deductions in the form What are the other amendments has clarified that any expense incurred
of expenditure, a practice that some done retrospectively? in providing various benefits in violation
companies and businesses were resorting The Budget has allowed exemption of the provisions of Indian Medical
to in the absence of legal clarity. It has of the amount received for medical Council (Professional Conduct, Etiquette
also allowed exemption of the amount treatment and on account of death due and Ethics) Regulations, 2002 shall be
received for medical treatment and to Covid-19 retrospectively from April 1, inadmissible under law. This step is likely
on account of death due to Covid-19 2020.“Any sum of money received by an to discourage pharma companies from
retrospectively from April 1, 2020.The individual, from any person, in respect of giving freebies to medical professionals,
Budget has also made changes to the I-T any expenditure actually incurred by him and claim these expenses as deductions.
law, making space for questioning by the on his medical treatment or treatment of What are key legislative changes for
tax department to explain the source of any member of his family, in respect of questioning sources of funding for
funds at the hands of the creditor. companies?
any illness related to Covid-19 subject to In another legislative change, a provision
What is the retrospective change such conditions, as may be notified by the has been introduced stating that the source
about cess and surcharge? Central Government in this behalf, shall of funding for loan and borrowings for a
Citing some court rulings over the years not be the income of such a person,” recipient will be treated as explained only
that had given benefit to taxpayers it said.It has also allowed exemption if the source of funds is also explained
in claiming cess as expenditure and for amount received by a member of in the hands of the creditor. This could
not tax, the tax department said the the family of a deceased person, from have an impact on funding of businesses,
retrospective amendment is being done the employer of the deceased person especially startups, if the creditor is not
to correct the anomaly.“This amendment (without limit), or from any other a venture capital fund, a venture capital
will take effect retrospectively from 1st person or persons with such money not company registered with Sebi. Earlier, if
April, 2005 and will accordingly apply in exceeding Rs 10 lakh, where the cause of any company used to have bogus entries,
relation to the assessment year 2005-06 death of such person is illness relating to the taxpayer would just provide details
and subsequent assessment years,” the Covid-19, and the payment is received such as PAN and other financial details
Budget documents stated. The change within twelve months from the date of of the creditor and that was enough for
is being brought from AY 2005-06 as death of such person. These amendments the tax department. Now, it’s upon the
education cess was brought in for the first will be effective retrospectively from recipient to prove that it’s the right source
time by the Finance Act, 2004. The court April 1, 2020. Separately, gifts and of income and they had the right net
rulings differentiated between income freebies to doctors shall not be treated worth to provide this amount. So, earlier
tax and education cess on income tax, as business expenditure under section 37 that was the interpretation and what
and in absence of a specific disallowance of the Income-tax Act. several court rulings had held, now they
for ‘education cess’, courts had taken a Citing various court rulings, the Budget are saying the onus is on the taxpayer.
view beneficial for taxpayers in many said the legal position is clear that the Earlier, it was only for equity, now it’s
for debt also.
cases. In order to nullify the effect claim of “any expense incurred in

26 PLASTICS NEWS FEBRUARY 2022 27 PLASTICS NEWS FEBRUARY 2022