Sec.68 Presently the section provides that where the assessee does not provide/or provides unsatisfactory explanation to any sum credited in the books of the assessee for any previous year, then the sum so credited may be charged to income tax as income of the previous year. Now, the following two provisos are proposed to be inserted:

(i) Where the assessee is a Pvt. Ltd. Co. and the sum credited consists of share application money, share premium, share capital etc., any explanation provided by the assessee shall be deemed to be unsatisfactory unless

(a) The person in whose name the credit appears offers explanation of the nature and source of the sum,

(b) The AO finds such explanation satisfactory.

(ii) This shall not apply to Venture Capital Funds.

DOUBLE TAX AVOIDANCE AGREEMENTS (DTAA)

DTAA Overridden By GAAR: Sec. 90

Sec. 90(2A): Sec. 90(2) provides that where both, the provisions of Income-tax Act, 1961 and DTAA, are applicable to an assessee, the assessee may choose the provisions which are more beneficial to him. This clearly meant that if an assessee chose, the provisions of DTAA could prevail over the provisions of the tax act.

However, a new sub-Sec. (2A) is proposed to be inserted whereby GAAR provisions contained in chapter X-A of the Act will be applicable regardless of the fact that such provisions are not beneficial to the assessee. Therefore, the GAAR provisions would prevail over the provisions of the DTAA.

Such provisions would in a large way impact the non-residents enjoying the treaty benefits, specifically from countries such as Mauritius, Singapore, Cyprus etc and may subsequently affect FDI into India.

Certificate of residence to get benefit under the treaty

Sec. 90(4): The proposed new sub-Sec. (4), w.e.f. 1st April, 2013 provides that a non resident will be entitled to claim relief under the provisions of DTAA only if a certificate of residency is obtained by the assessee from the Government of the country of residence.

These provisions will complicate the procedure and are unnecessary as in any case a certificate of residency would not be taken to be the conclusive proof of residence to avoid GAAR provisions, in order to enjoy the benefit of the treaty.

Similar amendments as above are also to be made to Sec. 90(A)(2A)and Sec. 90A(4) which give power to specified association to enter into DTAAs.

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