Every year amendments proliferate, revamping or clarifying the already complicated law. A case in point is amendments to Section 68 proposed by Budget 2022. For starters, Section 68 taxes unexplained amounts credited in the books of account of any assessee as income if the explanation on its identity is not furnished or found inadequate to the satisfaction of the assessing officer (AO).
A proviso to the section, wef April 1, 2013, extended its reading to tax certain capital receipts from residents in the hands of closely-held company, by way of share capital, share premium, share application or any other amount by whatever name called, if the paying resident is also unable to explain the source and nature of such amounts to the satisfaction of the AO. So the proviso calls for twin explanations/verifications — one by the company, similarly corroborated/counter verified by the contributory as well.
Debates arose as to whether the section can cover loans or borrowings in its scope. And now comes a clarificatory amendment vide Finance Bill 2022, which says that loans/borrowings credited will be deemed as not properly explained to the AO if the assessee and the giver/lender are unable to corroborate the source/explain why the money was received/given by/to the assessee.
The amending clause uses the word “person”, hence it will extend to all types of assessees residents/non-residents and corporates/non-corporates. Post facto this amendment, all amounts from any type of person resident/non-resident/corporate/non-corporate will get covered under Section 68 if not properlyexplained to the AO.
Non-residents who were not in the ambit for contributions of share capital, etc., may unduly get covered in the proposed provision, under “any such amount”, in the hands of all assessees.
Whether an affidavit with the identity of the non-resident will satisfy the AO needs to be seen. It is likely certain contributing non-residents may not be assessed to tax in India nor may be having a PAN.
Care to review the existing sections, choice of wording, etc., will simplify our laws to a great extent.
The writer is a chartered accountant