Draft Rule 17CB under Section 115TD of Income Tax Act - Analysis

Section 115TD -  Tax on Accreted Income of Charitable Trust & Institution.

CBDT has proposed Draft Rule (Rule 17CB) for computation of aggregate Fair Market Value of Net Assets for the purpose of quantification of Accreted Income under section 115TD.

Through below stated analysis, I am of the view that in legislation of propose draft rule 17CB under delegated legislation, the Executive Body is legislating excessively, than mandated by the objective and policy spelt out in express substantive provision of Section 115TD.

1.      Section 115TD provides for levy of Exit tax on charitable trust/institution registered u/s 12AA, when such trust/institution :-

a)      Is converted into any form which is not eligible for grant of registration u/s 12AA.

b)      Is merged with any other entity, other than trust/institution having objects similar to it and registered u/s 12AA.

c)      Upon dissolution, failed to transfer the assets to other prescribed Trust/Society within period 12 months from the end of the month in which dissolution take place.

2.      In simple terms for our analysis, section 115TD charges Exit Tax, when charitable trust/institution ceased to purse charitable activities.

3.      The base for Exit tax is accreted income on specified date and same is made taxable on maximum marginal rate.

4.      The accreted income is measured as excess of aggregate fair market value of assets over liabilities on specified date, to be computed in accordance with method of valuation as may be prescribed – Section 115TD(2)

5.      In exercise of power u/s 115TD (2), CBDT has notified the Draft Rules 17CB for computing the fair market value of assets.

6.      Among other things, the propose rule 17CB prescribed the Current market value of Assets i.e Current share price for listed securities, Current Market value for Immovable properties & so on.

7.      The question for deliberation is whether in prescribing Current market value of assets, legislation of propose Rule 17CB is within the framework of power vested under delegated legislation.

8.      Scope of Delegated legislation –Judicial Precedents

a)      Essential Legislative function consists of the determination of legislative policy and its formulation as binding force. The legislature must retain in its own hands the essential legislative function and what can be delegated is the task of sub-ordinate legislation necessary for implementing the purposes and objects of the Act – Municipal Corps. Of Delhi v Birla Cotton Spg. &  Wvg. Mills, AIR 1968 SC 1232, 1244

b)     A delegated legislation must also be read in a meaningful manner so as to give effect to the provision of statue. In selecting the true meaning of a word regard must be had to the consequences leading thereto. If two constructions are possible to adopt, a meaning which would make the provision workable and in consonance with the statutory scheme should be preferred. – Ramesh Mehta V. Sanwal Chand Sighvi (2004) 5 SCC 409, 426-427

9.      Section 115TD uses the words “Fair Market Value” In order to understand the true meaning of these words, it is necessary to evaluate the same in the context of objective of section interwoven with basic interpretation rules.

10.  Objective of Section

a)      Section 115TD intends to place in statue a mechanism to tax past income of charitable trust/institution, when it ceases to continue its charitable activities. The criterion used to measure the past income is taken as accreted income, which is defined as excess of asset over liabilities. The benchmark used is perfect as all past income gets accumulated in net worth, which is same as accreted income in accounting parlance.

b)      Memorandum Explaining Finance Bill 2016 provides that “there is a need to ensure that the benefit conferred over the years by way of exemption is not misused and to plug the gap in law that allows the charitable trusts having built up corpus/wealth through exemptions being converted into non-charitable organization with no tax consequences.”

11.  Interpretation Rules

a)      Section Placement – Section 115TD is put under chapter XII-EB. The entire series of sections under chapter XII to XIIH deals with either special rate of tax for specified income or special rate of tax for special income. Neither sections in these chapters deals with taxation of any event or transaction, which is considered as unlawful or penal in nature. Thus levy of exit tax u/s 115TD cannot be treated as any penal tax, but rather it provides a situation to impose tax on past income, when a charitable trust/institution voluntary decides to discontinue charitable activities.

b)      Real Income – Unless otherwise provided, person can be fastened with tax liability only on real income.

c)      Double taxation – Unless otherwise provided, section should be so interpreted that it does not lead to double taxation of same income in the hands of same person.

12.  Thus the words “Fair market value” should be so construed that objective of Section 115TD is achieved in collocation with accepted principles of interpretation of Real Income Theory and Prevention of Double taxation.

13.  The Propose Rule 17CB does not seems to be in consonance with above-mentioned objective & policy emanating from section 115TD, expounded as under:-

a)      Against Objective of section and Real Income Theory – The objective of section 115TD is to tax the past income of charitable trust/institution. By valuing the assets at current market price, the rules intend to tax the present unearned income i.e. rule is providing to tax imaginary unearned income, which is neither the mandate of section nor in conformity with principle of taxation of Real Income.

b)      Double taxation –

i)                    Suppose a charitable trust is having an immovable property of Rs. 1,00,000, the market value thereof is Rs. 10,00,000. If charitable trust stops charitable activities, then by virtue of section 115TD read with propose Rule 17CB, it will be made liable to pay tax of 10,00,000 @ 30%.

ii)                  Finance Act 2016, which put section 115TD on statue, nowhere provides for substitution of enhanced value in the hands of trust upon inviting section 115TD. When in future, the trust will actually sell the Immovable property, the cost will be taken as Rs. 1,00,000 as per section 48 and it will lead to double taxation of income of Rs. 10,00,000.

iii)                Thus in the absence of express provision for double taxation, operation of section 115TD along with propose rule 17CB culminate in double taxation under Income Tax Act.

14.  Propose Rule 17CB seems to be exercise of excessive delegation, as it is not supplementing, but rather supplanting section 115TD, on following counts:-

a)      The Propose Rule is in not in aligned with objective of section – to tax the past earned income. The propose rule leads to taxation of present unearned income which dehors the objective of section.

b)      The rules have taken the Words “fair market value” in literal sense by prescribing current market value of assets, leading to absurdity in working of section 115TD by introducing the double taxation.

c)      By taxing the imaginary income of charitable trust/institution, without having recourse in Income Tax Act to avoid double taxation, the propose valuation methodology place the provision of section 115TD at par with penal provision, which is also against vowed objection of section.

15.  Thus in present setting, rulemaking authority cannot advocate the current market value of assets for computing accreted income, the same needs to be confined to book value only or any suitable variant thereof.

Draft Buy-back Rules- section 115QA of Income Tax Act- Critical Analysis

Draft Buy-Back Rules under section 115QA

Critical Analysis

1.       Under Section 115QA ‘distributed Income” by company on buy- back of shares (not being listed shares) from shareholders is subject to tax 20% in the hands of Company

2.       “Distributed income” means consideration paid by company on buy-back of shares as reduced by the amount, which was received by the company for issue of shares, determined in the manner as may be prescribed.

3.       CBDT has come with draft rules to determine the amount received by company for issue of shares, in various scenarios, in the context of section 115QA, as under;-

a)      Subscription of Shares-  Paid up amount actually received including share premium shall be amount received by company for issue of shares.

b)      Past Capital Reduction – Where any sum has been returned by company in respect of shares on capital reduction, which is presently subject to buy-back, the amount so returned shall be reduced from amount received in respect of those shares and reduced amount shall be considered as amount received by company for issue of shares.

c)       Amalgamation – Upon shares being issued on amalgamation in lieu of shares in amalgamating company, the amount received by amalgamating company in respect of those shares, shall be amount received in respect of shares issued by amalgamated company.

d)      Demerger –

i)                    Resulting Company - For shares being issued by Resulting company, the amount received by resulting company on issue of shares shall be : Amount Received by Demerged company on issue of shares x Net book value of assets transferred to Resulting Company/Net worth of Demerged Company.

ii)                   Demerged Company – The amount received by demerged company in respect of original shares, shall be reduced by the amount determined at (i) above

e)      Bonus Shares – NIL Amount.

f)       Convertible Debenture/Bonds – The amount received in respect of Debenture/bonds so converted, shall be considered as amount received by company for issue of shares

g)      Residual Clause – In any other case, the face value of shares shall be considered as  amount received by company for issue of shares

Critical Analysis

1.       Consolidate Approach absent

a)      The draft rules prescribes piecemeal scenarios to determine the amount received in respect of shares issued by company,  but determination of amount received in respect of shares issued, where existing Share capital is comprise of Subscription shares, bonus shares and shares issued on amalgamation, is lacking.

b)      Consider the following case

i.                     Status of Share Capital of Company

S.No	Particulars	Nos	Rs
		Shares	Face Value	Share Premium	Amount Received as per Draft rules
1	Shares Subscribed by Shareholders	15,000	150,000	150,000	300,000
2	Bonus Shares	15,000	150,000	-	-
3	Shares Issued on Amalgamation	5,000	50,000	-	10,000
	TOTAL	35,000	350,000	150,000	310,000

ii.                   Suppose the company decides to buy-back 10% of its outstanding shares i.e 3500 shares.

iii.                  The point for consideration is how to determine the amount received in respect of 3500 shares issued. The draft rules are silent on this aspect.

iv.                 In this case, whether the residual clause will be applicable, whereby face value of 3500 shares i.e Rs. 35,000 be taken as amount received in respect of such shares?

v.                   Clarity on this aspect is required.

2.       Rule 2 – Consistency missing

a)      The Rule 2 read as under:-

“Where the company had at any time, prior to the buy-back of the share, returned any sum out of the amount received in respect of such share, determined in accordance with this rule, the amount as reduced by the sum so returned shall be the amount received by the company for issue of the share.”

b)      The strike out sentence is missing in the rule, which need to be there, explained as under:-

                                            I.            The Rule provides for deduction of amount repaid on capital reduction from amount received earlier in respect of shares. But the question is how to determine the amount received in respect of those shares originally i.e. will it be in accordance with normal parlance or will it be in accordance with methodology provided in the rules.

                                          II.            Consider the case, where company has earlier issued shares on amalgamation and carried out capital reduction:-

Particulars	Shares (Nos)	Face Value	Share Premium	TOTAL	Amount Received as per rule
Shares Issued on Amalgamation	10,000	100,000	200,000	300,000	60,000
Capital Reduction	1,000			30,000	30,000
Balance	9,000			270,000	30,000

                                        III.            The company has received assets worth Rs. 3,00,000 on amalgamation and issued shares of similar value. So company has received Rs. 3,00,000 in respect of 10,000 shares but the amount received by amalgamating company on shares, in lieu of which amalgamated company has issued 10,000 shares, was Rs. 60,000. (Assumed).

                                        IV.            To maintain consistency with Rule 3 & Rule 4, for the purpose of determining the amount received in respect of 9,000 shares, the value should be taken at Rs. 30,000 instead of 2,70,000

c)       The Rule 3, which provides for determination of amount received on shares issued by amalgamated company, explicitly states that amount received by amalgamating company in respect of shares should be determined in accordance with this rule, which is reproduced as under:-

“Where the share has been issued by a company being an amalgamated company, under a scheme of amalgamation, in lieu of the share or shares of an amalgamating company, then, the amount received by the amalgamating company in respect of such share or shares determined in accordance with this rule, shall be deemed to be the amount received by the amalgamated company in respect of the share so issued by it.”

d)      Thus to maintain parity and uniformity, it is suggested that strike out words be inserted in Rule 2

Equalization Levy

Equalization Levy

Important points relating to Equalization levy

·         Even though no TDS is required to  be deducted u/s 195 of Income Tax Act, 1961 on specified services which are subject to equalization levy, but information on said remittance to non-resident is to be furnished to Income Tax  Department in Part- D of FORM 15CA as mandated by Rule 37BB (2) of Income Tax Rules.

·         Consequences - When assessee does not deduct and deposit equalization levy on the honest belief that the services are not specified services.

Before I dealt with the issue, it is better to go through the itinerary of Chapter VIII of Finance Act, 2016 as under:-

S.No	Section	Matter covered
1.	163	Extent, Commencement & Application
2.	164	Definitions
3.	165	Charge of Equalization levy
4.	166	Collection & Recovery of Equalization Levy
5.	167	Furnishing of Annual Statement
6.	168	Processing of Annual Statement- Intimation
7.	169	Rectification of Mistake in Intimation
8.	170	Interest on delayed payment of Equalization levy
9.	171	Penalty for failure to deduct or pay equalization levy
10.	172	Penalty for failure to furnish Annual Statement
11.	173	Penalty not to be imposed in certain cases
12	174	Appeal to CIT(A)
13.	175	Appeal to ITAT
14.	176	Punishment for false statement
15.	177	Institution of Prosecution
16.	178	Application of certain provision of Income Tax Act.
17.	179	Power to make Rules
18.	180	Power to remove difficulties

ISSUES

a)      Under which section AO will pass order to conclude that services are specified services?

i)                    Under Income Tax Act 1961, if TDS is not deducted by payer on the good faith that requisite payment does not attract TDS liability, then AO has power u/s 201 to pass an order adjudging on requirement to deduct TDS on the part of assessee and treating him assessee in default for non-payment of necessary TDS amount.

ii)                   There is no pari-materia provision in Chapter VIII of Finance Act, 2016 similar to section 201.

iii)                 Section 178 of Finance Act, 2016 giving reference to various sections of Income Tax Act, 1961 to be applicable to Equalization levy, does not include section 201.

iv)                 Thus if an assessee does not deduct and deposit equalization levy on the belief that services are not specified services, Chapter VIII of Finance Act 216 does not provide specific section authorizing AO  to  pass an order adjudicating that services are specified services and  treating an assessee as assessee in default and proceed to recover the amount due.

b)      AO’s Order holding that services are specified services is NON-APPEALABLE

i)                    In case of equalization levy, consider the following situation:-

1)      Assessee makes foreign remittances to Non-resident for certain Services.

2)      No TDS was deducted u/s 195 of Income Tax Act, 1961, on the basis that said payment is not chargeable to tax in India under DTAA.

3)      Assessee is also under bona-fide belief that said services are not specified services attracting equalization levy.

ii)                   Though there is no explicit provision in Chapter VIII of Finance Act, 2016 empowering AO to order that services are specified services but assumes that AO draws power under section 166 of Finance Act, 2016 (Collection and Recovery of Equalization levy) and on the basis of information furnished in FORM 15CA conclude that services are specified services and treat assessee as assessee in default for non-payment of equalization levy.

iii)                 In above case, the order of AO holding that services are specified services requiring deduction & deposit of equalization levy is NOT APPEALABLE, as only penalty order u/s 171 of Finance Act, 2016 is appealable order u/s 174 of Finance Act, 2016.

iv)                 Thus in the first instance AO assumption of jurisdiction to pass afore-said order is itself litigative. Even if jurisdiction challenge fails, law does not provide an assessee adequate forum to address his grievances against AO’s order and only option left is take the route of writ petition. At this stage it is worth mentioning that order u/s 201 of Income Tax Act, 1961 is appealable.

v)                  As the scope of specified services, which is presently restricted to online advertisement, is bound to increase in future, clarity on ambiguities engulfing above issues are at most important.

Penalty Provision - Section 270A of Income Tax Act, 1961 - Analysis

Penalty Provision – Section 270A- Analysis

Section 270A under Income Tax Act, 1961, as inserted by Finance Act, 2016, seems to herald the non-adversarial regime by introducing objectivity in subjective penalty provision for reporting incorrect income. In this write up, attempt is made to touch upon the finer aspects in the implementation of section 270A. The analysis is done under following 3 categories:-

1.       Basis of Charge & Quantification of Penalty

2.       Addition to returned Income but not a under-reported income

3.       MAT vs Penalty

Ø  Basis of Charge & Quantification of Penalty.

Section 270A is complete code in itself providing for basis of charge and quantification of penalty as under:-

a)      Basis of Charge – Under-reported Income

b)      Quantification basis :-

a)      Under-reported income on account of under-reporting – 50% of tax payable on under-reported income.

b)      Under-reported income on account of misreporting – 200% of tax payable on under-reported income.

At this juncture, one may argue that Under-reported income on account of under-reporting or Under-reported income on account of misreporting is basis of charge in itself and  aspects of under-reporting & misreporting do not fall in domain of quantification criterion.

On this basis, can one take the position that if it is proved that there is no misreporting, then assessee will be exonerated from penalty proceedings? To me the answer is NO, as same is not correct interpretation emanating from section 270A, on account of following simple reasoning:-

i)                    Once it is established that there is under-reported income, then penalty is must. The next step is only quantification of penalty and for that purpose under-reported income has to firstly get it filter from misreporting parameters.

ii)                   If it fails, then penalty is @ 200% of tax payable on under-reported income

iii)                 If it sails through; the penalty is @ 50% of tax payable on under-reported income.

Thus under-reporting and misreporting falls in quantification jurisdiction only.

Now questions for consideration are as under:-

a)      Whether for initiating the penalty proceedings, Assessing Officer (AO) is required to state basis of charge only or basis of charge is to be accompanied by quantification basis, in assessment order?

b)      If assessment order contain the basis of charge and basis of quantification of penalty, can in actual penalty proceedings, AO change the quantification basis?

Reply to question (a)

1.       Though in principle, at the time of initiating penalty proceeding, the only requirement is to state the basis of charge. The quantification of penalty is to be concluded in penalty proceedings only, based on submission and explanation of assessee.

2.       But in view of provision of section 270AA, it seem imperative that quantification basis is mandatory in assessment order, explained as under:-

a)      Section 270AA empowers assessee to make an application to AO to grant immunity from penalty u/s 270A.

b)      AO will not grant immunity where initiation of penalty proceedings is on account of misreporting of income.

c)       Thus section 270AA mandates that at penalty initiation stage, stating of quantification basis is mandatory and where penalty is on account of misreporting of under-reported income, assessee will not be entitled to immunity u/s 270AA.

Reply to question (b)

1.       Assessment proceedings and penalty proceedings are two different actions, assessment proceedings leads to initiation of penalty and penalty proceedings leads to quantification & culmination of penalty.

2.       Thus where penalty proceedings are initiated on misreporting of under-reported income and assessee satisfied AO, that conditions of section 270A(9) for misreporting are  not applicable, he will be justified in levying penalty on the basis of under-reporting of under-reported income.

3.       In my opinion, theoretically reverse case is also possible i.e initiation is based on under-reporting but the same being concluded into misreporting but its practical happening seems remote.

4.       In the case referred to at s.no.2 assessee will lose the opportunity of availing the benefits of obtaining penalty immunity u/s 270AA. Thus it becomes imperative that assessee properly present his case in assessment proceedings, so that basis of initiation of penalty proceedings, if any, is on account of under-reporting of under-reported income.

Ø  Addition to returned Income – No Under-Reported Income

1.       Section 270A(6) prescribe situations, when addition to retuned income will not be considered as under-reported income. In this respect following two clauses merit attention, relevant words being emphasized.

Section 270A(6)  commences as under:-

“The under-reported income, for the purposes of this section, shall not include the following, namely :-“

a)      Section 270A(6)(a) - the amount of income in respect of which the assessee offers an explanation and the Assessing Officer or the Commissioner (Appeals) or the  Commissioner or the Principal Commissioner, as the case may be, is satisfied that the explanation is bona fide and the assessee has disclosed all the material facts to substantiate the explanation offered

b)      Section 270A(6)(c) - the amount of under-reported income determined on the basis of an estimate, if the assessee has, on his own, estimated a lower amount of addition or disallowance on the same issue, has included such amount in the computation of his income and has disclosed all the facts material to the addition or disallowance.

2.       Section 270A(6)(a) – Issue explain as under:-

a)      Suppose in assessment, there is an addition of Rs. 10,00,000 to returned income on following grounds:-

S.No	Grounds	Amount	Remarks – penalty Perspective	Under-Reported Income as per  270A(6)(a)
1.	Expenditure Disallowed	5,00,000	Offers bona fide explanation to the satisfaction of AO	YES
2.	Income Added	2,00,000	Offers bona fide explanation to the satisfaction of AO	NO
3.	Transfer Pricing- ALP adjustment	3,00,000	Condition of clause (d) of section 270A(6) met	NO

b)      Clause (a) uses the words “income” not “expenditure”. Thus even where disallowance of expenditure is satisfied to the satisfaction of AO on the basis of bona fide explanation, possibility of the same being excluded from purview of under-reported income seems litigative, in view of literal meaning of clause (a) of section 270A(6).

c)       In my opinion, had the word “ under-reported income” being used in place of “income” in clause (a),  as used in other clauses of section 270A(6), the purpose would have been achieved.

d)      Section 119(2) has been amended to empower CBDT to issue order for relaxation of provision of section 270A. I hope CBDT in exercise of power u/s 119(2) will issue appropriate order, in this context, for avoiding genuine hardship to assessee.

3.       Section 270(6)(c ) – Issue explain as under:-

a)      Clause (c) exclude levy of penalty in cases, where addition to returned income is on account of difference of estimate between Assessee and AO. Let’s us take following cases:-

S.No	Particulars	Assessee Estimate	AO Estimate	Under-Reported Income as per  270A(6)(c )
1.	Income attributable to Business Connection u/s 9(1)(i)	NIL	10,00,000	Yes
2.	Income attributable to Business Connection u/s 9(1)(i)	2,00,000	10,00,000	NO
3.	Disallowance of Personal expenditure u/s 37	NIL	50,000	Yes
4.	Disallowance of Personal expenditure u/s 37.	20,000	50,000	NO

b)      The clause (c) benefit will be available where assessee has estimate lower addition to income or lower disallowance of expenditure than estimated by AO on same issue rather NIL addition or disallowance.

c)       Thus in above example, protection under clause (c) will be denied in case mentioned at S.No.(1) & (3) as assessee himself  has estimated NIL income or NIL disallowance.

Ø  Penalty vs MAT

1.       Consider the following case:-

i)                    Income as per general Provision-                              Rs. 10,000

ii)                   Book Profit u/s 115JB                                                     Rs. 1,00,000

iii)                 Tax on Income as per general provision                 Rs. 3,000

iv)                 Tax on books profit u/s 115JB                                     Rs. 18,500

v)                  Deemed Total income                                                   Rs. 1,00,000

vi)                 Assessment u/s 143(3) on income under

General provision                                                            Rs. 25,000

vii)               Deemed Total Income u/s 143(3)                              Rs. 1,00,000

2.       Section 270A proceeds in sequential  manner as under:-

a)      Section 270A(2)-  Provide situations when person is considered to have Under-reported income.

b)      Section 270A(3) – Determination of amount of Under-reported income.

c)       Section 270A(10) – Determination of tax payable on under-reported income for quantification of penalty i.e 50%/200% of tax payable on under-reported income.

3.       On income being assessed u/s 115JB in above example, the critical issues involved in levy of penalty u/s 270A  falls under section 270A(2) & 270A(10) explained in ensuing paragraph

4.       Section 270A(2)

a)      Clause (a) read as under:-

“the income assessed is greater than the income determined in the return processed under clause (a) of sub-section (1) of section 143”

b)      The assessment and determination of income u/s 143(1)(a) is made on TOTAL INCOME, but legislature has intentionally used word “income” in  clause (a).

c)       Clause (d) provides that person shall be considered to have under-reported income, when amount of deemed total income assessed as per provision of section 115JB is greater than deemed total determined u/s 143(1)(a)

d)      In case of companies, firstly total income is computed as per normal provision of Act and if tax payable on total income so computed is less than 18.5% of book profit, then book profit is deemed as total income and tax @ 18.5% is payable thereon.

e)      In above example,

i)                    Deemed total income is same as per assessment and as determined u/s 143(1)(a) and thus there is no under-reported income based on total income, if one goes by clause (d).

ii)                   Is the intention of legislature in using the word ‘income” instead of “total income’ in clause (a) to mean income assessed or computed as per general provision (other than section 115JB) of Act, so as to rope in the case of above example within the ambit of Under-reported income.

iii)                 Had the words Total income being used in clause (a), it would have rendered clause (d) redundant, because when MAT is applicable, book profit is total income under Income tax Act, which clause (a) would have taken care of, if words ‘Total income” had been used instead of “income”.

iv)                 If comparison is confined on the basis of total income, there would never be the case of under-reported income in example cited above and thus penalty provision will fail on account of want of basis of charge of penalty i.e under-reported income. I don’t think legislature intend to exempt such cases from levy of penalty. Thus it seems that clause (a) will provide the benchmark to determine case of under-reported income in example coined.

v)                  I hope suitable amendment or judicial interpretation will only remove the ambiguity.

5.       Section 270A(3)

a)       The said section provides for determination of quantum of under-reported income. In case, where MAT is applicable, the amount of under reported income is determined as under:-

i)                    (A-B) + (C-D)

ii)                   A = Total income  assessed as per general provision of Act other than 115JB (25,000)

iii)                 B = Total income assessed as per general provision of Act other than 115JB less under reported income (10,000)

iv)                 C = Total income assessed as per provision of section 115JB (1,00,000)

v)                  D = Total income assessed as per provision of section 115JB less under-reported income (1,00,000)

b)      In example taken, the amount of under-reported income will be Rs. 15,000 (25,000-10,000)+(1,00,000-1,00,000)

6.       Section 270A(10)

a)      In case where return is filed with positive income, the tax payable on under-reported income will be as under:-

i)                    X-Y

ii)                   X = the amount of tax calculated on the under-reported income as increased by the total income determined under clause (a) of sub-section (1) of section 143

iii)                 Y = the amount of tax calculated on the total income determined under clause (a) of sub-section (1) of section 143.

b)      What command thoughtfulness at this stage is explained as under:-

i)                    Section 270A(6) used the concept of total income twice – total income as per general provision and total income as section 115JB

ii)                   Section 270A(10) simply used the words total income once i.e total income, as comprehend on the facts of the case.

iii)                 For determining the tax payable on under-reported in instance case, the total income will be book profit, as deemed by section 115JB and tax payable thereon accordingly will be @ 18.5%.

c)       The tax payable (ignoring surcharge & education cess for illustration purpose) on under-reported income in the instant case will be as under:-

i)                    X = 18.5% of  (1,00,000+15,000) = 21,275

ii)                   Y = 18.5% of 1,00,000 = 18,500

iii)                 Tax on under-reported income = 2,775

iv)                 Penalty @ 50% of tax payable on under-reported income will be 1388.