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Amendment to Section 97A: Notification of Non-Chargeability

Updated: Nov 25, 2023

Section 97A of the Income Tax Act 1967 pertains to the notification of non-chargeability.

Here is a breakdown of its key provisions:

Notification by Director General:
  • If, during the computation of a person's chargeable income, the Director General finds that:

    • No assessment should be made due to the absence of adjusted income, statutory income, aggregate income, or total income from any income source, or

    • The person has been granted an exemption under the Income Tax Act or the Promotion of Investments Act 1986, or

    • Assessment has been made, but the person has no statutory income from a business source,

  • The Director General may notify the person in writing:

    • Regarding the non-assessment for that year, providing a computation, or

    • For cases related to business source, specifying any adjustment made and providing a computation.

Illustration Example:

Imagine a scenario where a taxpayer, John, has various sources of income but, upon assessment by the Director General, it is found that no adjusted income, statutory income, aggregate income, or total income is present from any of his sources.

In this case,

  • The Director General may notify John in writing that no assessment shall be made for the specific year of assessment.

  • The notification will include a computation detailing the absence of income from any of John's sources.

Deemed Notification:
  • If a person furnishes a return under subsection 77(1) or 77A(1) with no chargeable income and is aggrieved by a public ruling or prevailing practice, the return is deemed a notification. The person is deemed notified on the day of furnishing.

Illustration Example:

Consider a situation where Mary submits a return for a particular year of assessment, and after scrutiny, it is determined that there is no chargeable income for that year.

Mary, however, disagrees with a public ruling or prevailing practice:

Deemed Notification:

  • Mary's return is deemed to be a notification under Section 97A(1A).

  • She is treated as notified on the day of furnishing the return.

Appeal Process:
  • If dissatisfied with the notification, the person can appeal to the Special Commissioners within thirty days of being notified.

  • The appeal follows the provisions of the Act relating to appeals.

Finality of Notification:
  • If no notice of appeal is given within the specified time, the notification becomes final and conclusive under the Act.

Illustration Example: Appeal Process & Finality of Notification

Now, let's assume that Sarah receives a notification under Section 97A(1) or the return is deemed as a notification under Section 97A(1A), but she is dissatisfied with it:

  • Appealing the Notification:

    • Within thirty days from the date of notification, Sarah appeals to the Special Commissioners as if the notification were a notice of assessment.

    • The provisions of the Income Tax Act relating to appeals apply, with necessary modifications.

  • Finality of Notification:

    • If Sarah doesn't submit an appeal within the specified time, the notification becomes final and conclusive for the purposes of the Income Tax Act.

    • The Director General's decision, in the absence of an appeal, is binding.

Application for Amendment:
  • A person can apply in writing for an amendment within six months from furnishing the return or within specified periods for certain circumstances.

Director General's Authority:
  • The Director General may inquire into the matter and may make amendments deemed just and reasonable.

Limitations on Amendments:
  • No amendment is allowed for errors or mistakes based on public rulings or prevailing practices at the time of filing.

Application Form:
  • The application for amendment is required to be in a form similar to a notice of appeal under section 99.

Aggrieved Applicant's Option:
  • If aggrieved by the Director General's decision, the applicant can request forwarding the application to the Special Commissioners within six months.

These provisions aim to address situations where no assessment is warranted or adjustments are needed due to specific conditions, providing a structured process for notifications, appeals, and amendments.

Amendment of Section 97A – Finance (No. 2) Bill 2023

The proposed amendment to Section 97A of the Income Tax Act 1967, as outlined in the Finance (No. 2) Bill 2023, involves the substitution of the words “subsection 77(1) or 77A(1)” with “subsection 77(1) or subsection 77A(1) or (1B).”

The rationale behind this amendment is to empower the Director General to issue notifications of non-chargeability of tax when a person has furnished a return for a year of assessment under the proposed subsection 77A(1B) specifically related to the disposal of a capital asset.

This amendment is set to be effective from 1 January 2024. Therefore, any disposals of capital assets on or after this date may fall under the purview of the amended Section 97A.

Impact Analysis:

Inclusion of Subsection 77A(1B):

  • The amendment broadens the scope of Section 97A to encompass returns filed under the newly proposed subsection 77A(1B). This subsection, associated with the disposal of a capital asset, becomes a relevant factor in determining non-chargeability.

  • The amendment also provides clarity for taxpayers engaging in the disposal of capital assets regarding the circumstances under which they may receive notifications of non-chargeability. This transparency contributes to a better understanding of tax obligations related to capital transactions.

Enhanced Director General Authority:

  • The amendment enhances the Director General's authority to issue notifications of non-chargeability in cases where individuals or entities have engaged in the disposal of capital assets.

Stay Informed:

Taxpayers are advised to stay informed about the changes introduced by the Finance (No. 2) Bill 2023, particularly those related to the disposal of capital assets and notifications of non-chargeability.

Review Procedures:

Entities involved in the disposal of capital assets should review their procedures and reporting mechanisms to align with the amended Section 97A, ensuring compliance with the new notification requirements.

Seek Professional Advice: In conclusion, the amendment reflects the legislative response to the changing landscape of tax considerations, particularly in the context of capital asset disposals.

Taxpayers should proactively adapt to these changes and seek professional assistance to navigate the evolving regulatory environment effectively.


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