The Finance (No. 2) Act, 1977--Explanatory Notes on the provision relating to direct taxes - Income Tax - 229/1977

The Finance (No. 2) Act, 1977--Explanatory Notes on the provision relating to direct taxes Circular No. 229 Dated 9/8/1977 Finance (No.2) Act, 1977 - explanatory notes F. No. 131/9/77-TPL INTRODUCTION 1. The finance (No.2) Bill, 1977, as passed by Parliament received the asset of the President on 8th August, 1977, and has been enacted as Act No. 29 of 1977. this circular explains the substance of the provisions relation to income-tax and other direct taxes contained in the Finance (No. 2) Act, 1977 . PROVISIONS IN BRIEF 2. The provision in the finance (No. 2) Act, 1977 (herein after referred to as the Finance Act), in the sphere of direct taxes related to the following matters: (i) Prescribing the rates of income-tax (Including surcharge thereon)on incomes liable to tax for the assessment year 1977-78; the rates at which income-tax is to be deducted at source during the financial year 1977-78, from interest (including interest on securities),dividends, salaries, insurance commission, winnings from lotteries and crossword puzzles and other categories of income liable to such deduction under the Income-tax Act, 1961; and the rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases where accelerated assessments are required to be made during the financial year 1977-78. (ii) Amendment of the Income-tax Act, 1961, with a view to providing incentives for savings and investment; providing tax concessions for encouraging rural development programmes, setting up of small-scale industrial undertakings in rural areas and facilitating the merger of sick industrial units with sound ones; providing tax relief in certain cases; creating a new appellate authority and a few other matter. (iii) Amendment of the Wealth-tax Act, 1957, with a view to increasing the rates of wealth-tax and creating a new appellate authority. (iv) Amendment of the Gift-tax Act, 1958, the Companies (Profits)Surtax Act, 1964, and the Interest-tax Act, 1974, with a view to creating a new appellate authority. (v) Amendment of Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, with a view to extending the requirement of making compulsory deposits for another two years and exempting person over the age of 70 from he requirement of making such deposits. (vi) Amendment of the Voluntary Disclosure of Income and Wealth Act, 1976, so as to extent the time for payment of tax by person who had made declaration under section 14 or section 15 of the said Act and for making investment in notified Government securities by person who had made declaration under the said section 15. (vii) Amendment of the Khadi Village Industries Commission Act, 1956, so as to exempt the Khadi and Village Industrial Commission from income tax. (viii) Amendment of the Finance Act. 1973, so to extent the period of tax exemption in the case of the Credit Guarantee Corporation of India Ltd. (ix) Amendment of the Oil Industry (Development) Act 1974, for purpose of exempting the Oil Industry Development Board from income-tax. RATE STRUCTURE OF INCOME-TAX. (i) Rates of income-tax for the assessment year 1977-78. 3.1 The rates of income-tax for the assessment year 1977-78, in the case of all categories of taxpayer (corporate as well as non-corporate) are specified in Part I of the First Schedule to the Finance Act. These rates are the same as those specified in Part III of the First Schedule to the Finance Act, 1976, for the purpose of computation of "advance tax", deduction of tax at source from "Salaries" and retirement annuities payable to partners of registered firm engaged in specified profession and computation of the tax payable in certain cases where accelerated assessment were required to be made during the financial year 1976-77. These rates had earlier been prescribed for the assessment year 1977-78, under the Finance Act, 1977, which applied the relevant provisions of the Finance Act, 1976, to the financial year 1977-78. 3.2 As in the past, the Finance Act provides that in the case of individual, Hindi undivided families, unregistered firm or other associations of persons or bodies of individuals and artificial juridical persons, the net agricultural income will be taken into account for determining the rates of income-tax on incomes liable to tax for the assessment year 1977-78 [vide section 2(2) of the Finance Act.] The mode of computation of net agricultural income in such cases had been set out in Part IV of the First Schedule to the Finance Act. These provisions are the same as those contained in the Finance Act, 1976, except for slight modifications as explained in Paragraph 5.6 of this circular. 3.3 Sub-section (8) of section 2 of the Finance Act, 1976, had provided that a company may make a deposit at any time during the financial year 1976-77, with Industrial Development Bank of India under a Scheme to be notified by the Central Government in this behalf and, if it does so, the surcharge on income-tax payable by it for the assessment year 1977-78, shall be reduced by the amount of the deposit so made. The Central Government had notified the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, for the purpose. The proviso to sub-section (1) of section 2 of the Finance Act has accordingly provided that the surcharge on income-tax payable by a a company for the assessment year 1977-78 shall be reduced by the amount of deposit made by it during the financial year 1976-77 with the Industrial Development Bank of India under the aforesaid Scheme. (ii) Rates for deduction of tax at source during the financial year 1977-78, from incomes other than "Salaries" and retirement annuities. 4. The rates for deduction of tax at source during the financial year 1977-78 from income other than "Salaries" and retirement annuities payable to partners of registered firms engaged in specified professions, have been specified in Part II of the First Schedule to the Finance Act. These rates apply to income by way of interest on securities, other categories of interest, dividends, insurance commissions, winnings from lotteries and crossword puzzles and non-salary income of non-residents. These rates differ from the rates specified in Part II of the First Schedule to the Finance Act, 1976, for purposes of deduction of tax at source from such incomes during the financial year 1976-77 in the following respects:- (a) Payments of residents other than companies In the case of income by way of winnings from lotteries and crossword puzzles payable to resident taxpayers during the financial year 1977-78, tax will be deducted at the rate of 34.5 per cent. made up of basis income-tax of 30 per cent. and surcharge of 4.5 per cent. (being 15 per cent. of the income-tax). this is higher than the rate at which tax was deducted from such income during the financial year 1976-77 by 1.5 per cent. The increase has been made in the context of the increase i the rate of surcharge on income-tax in the case of non-corporate taxpayers as explained in Paragraph 5.3 of this circular. In the case of income by way of interest on securities (not being interest on a tax-free security ) or dividends payable to resident taxpayer during the financial year 1977-78, tax will be deducted at the rate of 23 per cent. i.e., the same rate at which tax was deducted at source from such incomes during the financial year 1976-77. However, the rate of 23 per cent. will be made up of basis income-tax of 20 per cent. and surcharge of 3 per cent. (being 15 percent of income-tax) as against the basis income-tax of 21 per cent. and surcharge of 2 per cent. in force during the financial year 1976-77. (b) Payment to non-resident other than companies In the case of income (other than interest on a tax-free security) payable to non-residents during the financial year 1977-78, tax will be deducted at minimum rate of 34.5 per cent. made up of income-tax of 30 percent. and surcharge of 4.5 per cent. (being 15 per cent. of the income-tax). If the rate of income-tax and surcharge appropriate to such income (at the rates prescribed under Sub-Paragraph 1 of Paragraph A of Part III of the First Schedule to the Finance Act) is higher than 34.5 per cent., tax will be deducted at such higher rate. In respect of interest on a tax free security payable to non-corporate non-residents, the rate for deduction will be 17.25 percent. made up of income of 15 per cent. and surcharge of 2.25 percent. (being 15 per cent of the income-tax). (c) Payment of copyright royalties to foreign companies in respect of books on certain subjects. As explained in Paragraph 23.1 of this circular section 115A of the Income-tax Act, 1961, has been amended by the finance Act to secure that royalty received by a foreign company from an Indian concern in consideration of the transfer of all or any rights (including the granting of any licence) in respect of copyright in any book will be chargeable to income-tax at the rate of 40 per cent. of the gross amount of such income, if the book is on a subject the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the financial year 1977-78, to be imported into India under an Open General Licence. A list of these subjects is given in Annex. I to this circular. In view of the amendment made in section 115A, the rate for deduction of tax at source from income by way of royalty in such cases has also been specified at 40 per cent. i.e., the rate at which such income will be chargeable to tax for the assessment year 1978-79. (iii) Rates for deduction of tax at source from "salaries", computation of "advance tax" and charging of income tax in special cases during the financial year 1977-1978. 5.1 The rates of deduction of income-tax at source from "Salaries" in the case of individuals during the financial year 1977-78, as also for computation of "advance tax" payable during that year in the case of all categories of taxpayers, have been specified in Part III of the First Schedule to the Finance Act. These rats are also applicable for deduction of income-tax at source during the financial year 1977-78 from retirement annuities payable to partners of a registered firm which renders professional services as chartered accountant, solicitor, lawyer, etc., and for charging income-tax during the financial year 1977-78 on current incomes in special cases where accelerated assessments have to be made. The special cases where accelerated assessments have to be made are cases of (i) calculation on income-tax on undisclosed income represented by seized assets[section 132(5)]; (ii) levy of tax on provisional basis on the income of non-resident from shipping of cargo or passengers from Indian ports [section 172(4)]; (iii) assessment of person leaving India[section 174(2)]; (iv) assessment of person likely to transfer property to avoid tax [section 175]; and (v) assessment of profits of a discontinued business [section 176(2)] These rates are the sane as the rates specified in Part I of the First Schedule to the Finance Act for the assessment on incomes liable to tax for the assessment year 1977-78, except for certain modifications. The modification in the rate schedule, read with section 2 of the Finance Act, relate to the following matters :- (a) raising of exemption limit from Rs. 8,000 to Rs. 10,000 in the case of individual, Hindu undivided families, unregistered firm, etc. (b) increase in the rate of surcharge in the case of all non-corporate taxpayers from 10 per cent. to 15 per cent. (c) modification of the provision for calculating income-tax incases where the taxpayer has any net agricultural income in addition to total income. (d) discontinuance of the option to companies to make deposits with the Industrial Development Bank of India in lieu of payment of surcharge. The modification in regard to above matters are explained in Paragraph 5.2 to 5.7 of this circular. Raising of exemption limit. 5.2 The exemption limit in the case of individuals, Hindu undivided families, unregistered firms association of person, bodies of individuals and artificial juridical persons has been raised from Rs.8,000 to Rs. 10,000. It is relevant to note that although the rate schedule (including the nil rate slab of income up to Rs. 8,000) has not been changed, a provision has been made (vide clause (i) of the proviso below Sub-Paragraph I or, as the case may be, Sub-paragraph II of Paragraph A of Part III of the First Schedule to the Finance Act] to the effect that no income-tax shall be payable in cases where the total income of the taxpayer does not exceed Rs. 10,000. In order to avoid hardship in cases where the total income of the tax payer exceeds Rs. 10,000 by a small margin, a provision has been made under clause (ii) of the same provisions for the grant of marginal relief in such cases. Under this provision, where the total income of the taxpayer exceeds Rs. 10,000 by a small margin, a provision has been made under clause (ii) of the said provisos for the grant of marginal relief in such cases. Under this provision, where the total income of the taxpayer exceeds Rs. 10,000 but does not exceed Rs. 10,540 (Rs.10,690 in the case of Hindu undivided families having at least one member whose total income for the previous year relevant to the assessment year 1978-79 exceeds Rs. 10,000), the income-tax payable thereon shall not exceed 70 per cent. of the amount by which the total income exceeds Rs. 10,000. The operation of this marginal provision in the case of an individual tax payer is illustrated in the following Table : Total income Income-tax calculated at the rate laid down under the rate schedule Income-tax at 70 per cent of the excess over Rs. 10,000 Rs. Rs. Rs. 10,100 315 70 10,200 330 140 10,300 345 210 10,400 360 280 10,500 375 350 10,540 381 378 10,550 383 385 It will be observed from the above Table that on a total income of Rs. 10,540, the amount calculated under the marginal provision (col.3) is lower than the amount arrived at by applying the rate laid down int he rate schedule (col.2). On the other hand, when the total income amount s to Rs. 10,550, the income-tax at the rate laid down in the rate schedule is lower than that calculated by applying the marginal provision. Hence, in the case of an individual, the marginal provision will cease to apply when the total income exceeds Rs.10,540. In the case of Hindu undivided families having at least one member with independent total income exceeding Rs. 10,000, the marginal provision will cease to apply when the total income of the Hindu undivided family exceeds Rs. 10,690. Increase in the rate of surcharge 5.3 The rate of surcharge on income-tax in the case of all categories of non-corporate taxpayers, including individuals, Hindu undivided families, unregistered firm, registered firm, co-operative societies, local authorities, etc., has been increased from 10 per cent. to 15 per cent. of the income-tax. Modification in the provisions for calculating income-tax in cases where the taxpayer has net agricultural income in addition to total income 5.4 Section 2(8) of the finance Act provides that in the case of individuals, Hindu undivided families, unregistered firm, etc., the net agricultural income will be taken into account for computation of advance tax and charging of income-tax on current incomes in cases where accelerated assessments are made during the financial year 1977-78. It is, however, to be noted that with the raising of the exemption limit from Rs. 8,000 to Rs. 10,000 the net agricultural income will be taken into account only if the total income of the taxpayer exceeds Rs. 10,000. 5.5. In consequence of the raising of the exemption limit to Rs.10,000, concurrently with maintaining the nil rate slab of income at the existing level of Rs. 8,000, the Finance Act had made certain modification in the provisions relating to calculation of income-tax in cases where the taxpayer has net agricultural income in addition to total income. The modified provisions are contained in section 2(6) of the Finance Act, 1977. Under the provisions as modified, income-tax be calculated in such cases in the following manner:- (i) The agricultural and non-agricultural components of the taxpayer's income will be aggregated and income-tax (excluding surcharge) determined on the aggregate income as if such income were the total income [It may be noted that under section 2(2) of the Finance Act 1977 (which lays down the method of calculating income-tax in such cases for the assessment year 1977-78), as also under the provisions contained in the Finance Acts of earlier years, income-tax on such aggregate income is determined after including surcharge.] In determining the income-tax on such aggregate income, the new marginal provision in clause (ii) of the proviso below Sub-Paragraph I or, as the case may be, Sub-Paragraph II of Paragraph A of Part III of the First Schedule to the Finance Act will into apply. In other words, income-tax on such aggregate income will be determined in accordance with the rates laid down in the rate schedule and the marginal provision that the income-tax payable by a person shall not exceed 70 per cent. of the amount by which is total income exceeds Rs. 10,000 will not be applied. (ii) The net agricultural income of the taxpayer will be increased by an amount of rs. 8,000 (i.e., the first slab of income on which taxis charged at nil rate) and income-tax (excluding surcharge) will be determined on the net agricultural income as so increased as if such increased net agricultural income were the total income. [Here again it may be noted that under section 2(2) of the Finance Act, 1977 also under the provisions contained in the Finance Acts of earlier years, income-tax on such increased net agricultural income was determined after including surcharge.] In determining the income-tax on such increased net agricultural income, both clauses (i) and (ii) of the proviso below Sub-Paragraph I or, as the case may be, Sub-Paragraph of the said Paragraph a will not apply. In other words, income-taxon such increased net agricultural income will be determined as if the exemption limit was Rs. 8,000 and not Rs. 10,000, and the marginal provision that the income-tax payable by a person will not exceed 70 per cent. of the amount by which his total income exceeds Rs. 10,000 will not be applied. [In cases where the net agricultural income of the taxpayer does not exceed Rs. 2,000 the net agricultural income as increased by Rs.8,000 will not exceed the exemption limit of Rs. 10,000 so that income-tax on such increased net agricultural income would be nil. If the exemption limit for this purpose was kept at Rs. 10,000 the taxpayer wold not have got any deduction in respect of the income-tax attributable to the net agricultural income, with the result that the agricultural component of the taxpayer's income would have been charged to income-tax. As this would have rendered to provision unconstitutional, it has been provided that, for the purposes of determining the income-tax on the net agricultural income as increased by Rs. 8,000, the exemption limit will be taken to be Rs.8,000 and not Rs. 10,000] (iii) The amount of income-tax determined under (i) shall be reduced by the amount determined under (ii). However, where the sum so arrived at exceeds 70 per cent. of the amount by which the total income exceeds Rs. 10,000 the excess shall be disregarded. (iv) The amount of income-tax as determined under (iii) will be increased by a surcharge at the rate of 15 per cent . of such income-tax and the amount so arrived at will be the income-tax payable by the taxpayer on his total income. Modification in the rules for computation of net agricultural income 5.6 The net agricultural income is to be computed in accordance with the rules contained in Part IV of the First Schedule to the Finance Act. The mode of computation of the net agricultural income under these provisions is the same as in the relevant provisions of the finance Act. 1976, except for the modification that the unabsorbed loss in agriculture incurred during the previous year relevant to the assessment year 1976-77, will also be set off against the agricultural income for the previous year relevant to the assessment year 1977-78. Further, any unabsorbed loss in respect of the previous year relevant to the assessment year 1977-78 will also be set off in determining the net agricultural income for the purpose of payment of " advance tax" during the financial year 1977-78. Discontinuance of the option to companies to make deposits in lieu of payment of surcharge 5.7 Under a provision made by the Finance Act, 1976, companies could, in lieu of payment of surcharge on income-tax, make, before the last installment of advance tax payable during the financial year 1976-77, a deposit with the Industrial Development Bank of India under the Companies Deposits (Surcharge on Income-tax ) Scheme, 1976. The option for making deposits in lieu of payment of surcharge is not being contained by the Finance Act. [Section 2 of the First Schedule to the Finance Act]. AMENDMENTS TO THE INCOME TAX ACT, 1961 6.1 Under section 2(42A) of the Income-tax Act, the term "short-term capital asset" has been defined as a capital asset held by a taxpayer for not more than sixty months immediately preceding the date of its transfer. The definition has been amended by the Finance Act to reduce the holding period from sixty months to thirty-six months. The effect of this amendment will be that while capital gains arising from the transfer of any capital asset held by a taxpayer for not more than thirty-six months immediately preceding the date of its transfer will be treated as capital gains relating to a "short-term capital asset" and charged to tax as ordinary income capital gains arising from the transfer of a capital asset held by a taxpayer for more than thirty-six months immediately preceding the date of its transfer will be treated as "long-term capital gains" and, therefore, charged to tax on a concessional basis. 6.2 This amendment will take effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent year. [Section 3 of the Finance Act]. Modification of the source rule for "fees for technical services" Section 9(1)(vii) 7.1 The Finance Act, 1976 inserted a new clause (vii) in section 9(1) of the Income-tax Act with effect from 1st June, 1976, specifying the circumstances in which income by way of fees for technical services will be deemed to accrue or arise in India and also defining the expression "fees for technical services". Under the aforesaid clause (vii) income by way of "fees for technical services" of the following types is deemed to accrue or arise in India:- (a) fees for technical services payable by the Central Government or any State Government; (b) fees for technical services payable by a resident, except where the payment is relatable to a business or profession carried on by him outside India or to any other source of his income outside India; (c) fees for technical services payable by a non-resident if the payment is relatable to a business or profession carried on by him in India or to any other source of high income in India. The Finance Act has added a proviso to clause (vii) in section 9(1) of the Income-tax Act to secure that the deeming provisions contained in the said clause do not apply in relation to any income by way offers for technical services payable in pursuance of an agreement made before 1st April, 1976, and approved by the Central Government . For this purpose, an agreement made on or after 1st April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance will proposals approved by the Central Government before the date [vide new Explanation 1 to section 9(1)(vii) of the Income-tax Act]. 7.2 The aforesaid amendments have come into force with effect from 1st April 1977, and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. [Section 4 of the Finance Act]. Exemption of certain passage moneys paid to foreign employees - Section 10(6)(i)(aa) 8.1 The Finance Act has inserted a new item (aa) in sub-clause (i) of clause (6) of section 10 of the Income-tax Act to provide exemption in respect of passage moneys or the value of any free or concessional passage received by or due to an individual who is not a citizen of India from his employer, for his children having full time education in any educational institution outside India, in connection with their proceeding to India during vacation. It is relevant to note that exemption under the new provision is available in respect of passage moneys or they vale of free or concessional passage received by or due to foreign employees in connection with their children proceeding to India during vacation. As the return journey of the children after the end of their vacation in India is necessarily connected with their visit to India, the passage moneys or the value of tree or concessional passage for such return journey will be in connection with the children proceedings to India during vacation. As such, exemption under the new provision will be available not only in respect of passage moneys or the value of free or concessional passage for the journey to India, but would also extend in respect of the passage moneys for the journey back to the foreign country in which the children of the individual are having full time education. 8.2 The amendment has been made with retrospective effect from 1st April 1972, and will accordingly apply in relation to the assessment year 1972-73 and subsequent years. [Section 5(a) of the Finance Act] Exemption from tax of certain incomes of residents of Ladakh - Section 10(26A) 9.1 Under section 10(26A) of the Income-tax Act, before its amendment by the Finance Act, income accruing or arising to any resident of Ladakh district from any source in that district or outside India was completely exempt from income-tax up to and including the assessment year 1974-75. The exemption was available only in the case of person who were resident in Ladakh district in the previous year relevant to the assessment year 1962-63. 9.2 Section 10(26A) has been amended by the Finance Act retrospectively from 1st April, 1975, to revive this exemption for a further period of five years, i.e., for the assessment year 1975-76 to 1979-80. [Section 5(b) of the Finance Act] Modification of the provisions relating to investment or deposit of moneys accumulated or set apart for application to charitable or religious purposes - Section 11(2)(b) 10.1 Under sub-section (2) of section 11 of the Income-tax Act, income accumulated or set apart for application to charitable or religious purposes in India is required to be invested or deposited in any one or more of the modes specified in clause (b) of the said sub-section. Sub-clause (ii) of the said clause (b) provides that moneys so accumulated or set apart may be deposited in any account with the Post Office Saving Bank [including deposits made under Post Office (Time Deposits) Rules, 1970] or a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in section 51 of that Act) or a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). The expression "banking company to which the Banking Regulation Act. 1949, applies" is wide enough to cover even on-scheduled banks. The Finance Act has substituted the said sub-clause (ii) by a new sub-clause with a view to secure that moneys so accumulated or set apart are deposited only with "scheduled banks". The term "scheduled bank" has been defined for this purpose to mean the State Bank of India a subsidiary bank of the State Bank of India, any nationalised bank or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934. 10.2 In order to give adequate time to charitable or religious trusts and institutions to bring their deposits in conformity with the new provision, it has been provided that the money so accumulated or set apart may be deposited, or continue to remain deposited, during any previous year commencing before 1st April 1981, with any other banking company to which the provision of the Banking Regulation Act, 1949, apply. If the date of maturity of a term deposit made by a charitable or religious trust or institution with any banking company (other than a scheduled bank) in any previous year commencing before 1st April, 1981, falls in any previous year commencing on or after that date, the provisions of section 11(2)(b)(ii) will be contravened if the deposit is allowed to continue with such banking company during any previous year commencing on or after that date. 10.3 Although this amendment will come into force with effect from 1st April, 1978, the modification made in sub-clause (ii) of clause(b) of section 11(2) will be applicable only in relation to previous year commencing on or after 1st April 1981. [Section 6 of the Finance Act] Modification of the provisions relating to forms and modes of investing or depositing funds of charitable or religious trusts and institutions - Section 13 11.1 Clause (d) inserted in sub-section (1) of section 13 of the Income-tax Act by the Taxation Laws (Amendment) Act, 1975, provides that if any funds of a charitable or religious trust or institution are invested or deposited or continue to remain invested or deposited otherwise than in any of the modes or forms specified in sub-section (5) of that section, at any time during any previous year commencing on or after 1st April, 1978, the section 11 or section 12 of the Income-tax act for the assessment year 1979-80 or any subsequent assessment year. In order to give more time to the trusts and institutions to bring their investments in line with the provisions of section 13(5) of the Income-tax Act, the date for change-over to the specified modes or forms has been extended by three years, i.e.,from 1st April, 1978, to 1st April, 1981. If any funds of such trusts and institutions are invested or deposited or continue to remain invested or deposited in any modes or from other than those specified in section 13(5) at any time during any previous year commencing on or after 1st April, 1981, the trust or institution will not be entitled to exemption under section 11 or section 12 of the Income-tax Act for the assessment year 1982-83 and subsequent years. 11.2 One of the modes of deposit specified in sub-clause (iii) of clause (a) of sub-section (5) of section 13 deposit in any account with the State Bank of India or a subsidiary bank of the State Bank of India or any nationalised bank. this sub-clause has been substituted by a new sub-clause to provide that deposits with any scheduled bank or a co-operative society engaged in carrying on the business of banking including a co-operative land mortgage bank or a co-operative land development bank will be regarded as a permissible mode of deposit of the funds of charitable or religious trusts and institutions. The term "scheduled bank" for this purpose will have the same meaning as in the Explanation at the end of Clause (b) of sub-section (2) of section 11 of the Income-tax Act, explained in paragraph 10.1 above. 11.3 These amendment will come into force will effect from 1st April 1978. However, as mentioned in Paragraph 11.1 above, the mandatory provision in section 13(1)(d) for the investment or deposit of funds of charitable or religious trusts and institutions in the modes or forms specified in sub-section (5) of that section will be apply only in respect of any previous year commencing on or after 1st April, 1981. [Section 7 of the Finance Act] Modification of the provision for grant of vacancy allowance in computing income from house property - Section 24(1)(ix) 12.1 Income chargeable under the head "Income from house property" is computed after allowing various deduction specified in sub-section(1) of section 24 of the Income-tax Act; clause (ix) of the said sub-section provides for deduction by way of vacancy allowance incases where a house property is let and was vacant during a part of the year. Under the clause as worded deduction by way of vacancy allowance is admissible only in cases where the vacancy occurs after the house has been let out by the assessee. The finance Act has inserted an Explanation to the aforesaid clause to provide that the deduction under the said clause shall be allowed irrespective of whether the period during which the property or, as the case maybe, part of the property was vacant precedes or follows the period during which it is let. 12.2 The amendment has come into force with effect from 1st April 1977, and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. [Section 8 of the Finance Act] Modification of the provisions relating to investment allowance - Section 32A 13.1 The Finance Act has made a number of important modifications in the scheme of investment allowance contained in section 32A of the Income-tax Act. At present investment allowance is granted in respect of the following assets:- (i) new ships or net aircraft acquired by an assessee engaged in the business of operation of ships or aircraft. (ii) New machinery or plant installed for the purposes of business of generation or distribution of electricity of any other form of power. (iii) New machinery or plant installed for the purpose of business of construction, manufacture or production of any one or more of the article of things specified in the list in the Ninth Schedule to the Income-tax Act. (iv) new machinery or plant installed in a small-scale industrial undertaking for the purpose of business of manufacture of production of any other articles or things. The Finance Act has substituted sub-clauses (ii) and (iii) of clause (b) of section 32A(2) referred to above by two new sub-clauses. Under the new provisions, investment allowance will be allowed in respect of new machinery or plant installed for the purposes of business of construction, manufacture or production of all article or things, except certain articles or things of low priority specified in the list in the new Eleventh Schedule inserted in the Income-tax Act by section 28 of the Finance Act. The list of articles or things contained in the new Eleventh Schedule is given in Annex II to this circular. The disqualification arising from the installation of machinery or plant for the purposes of business of manufacture or production of any article or thing specified in the list in the Eleventh Schedule will, however, not apply in respect of machinery or plant installed in small scale industrial undertakings, and such machinery or plant will be eligible for investment allowance even though it is used for purposes of business of manufacture or production of any article or thing specified in the said list. 13.2 Under new sub-section (8A) inserted in section 32A, the Central Government has been empowered to delete, by notification in the Official Gazette, and article or thing from the list of articles or things specified in the new Eleventh Schedule, if it considers necessary or expedient so to do. 13.3 Sometimes, a machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing not specified in the list in the new Eleventh Schedule may have been partly used for the purposes of business of manufacture or production of any article or thing specified in the said list. As investment allowance is not intended to be denied in such cases, a new sub-section (2A) has been inserted in section 32A to provide that investment allowance will not be denied by reasonably that machinery or plant installed and used mainly for the purposes of business of construction manufacture or production of any article or thing not specified in the list in the Eleventh Schedule is also used for the purposes of business of manufacture or production of any article or thing specified in the said list. 13.4 It is relevant to note that the benefit of the afore said relaxation will not be available unless the machinery or plant is both installed and used mainly for the purposes of business of construction manufacture or production of an article or thing not specified in the list in the Eleventh Schedule. The question whether any machinery or plant has been used mainly for the purposes of business of construction, manufacture or production of an article or thing not specified in the said list will depend upon the extent to which the machinery or plant has been used for the purpose of such business during the previous year. thus, the question will have to be decided with reference to the number of days or hours for which the machinery or plant has been actually used by the taxpayer for the purposes of such business. The number or quantity of articles or things manufactured or produced for the two business may be a fair, but not a conclusive, test of the text to which the machinery or plant has been used for the two businesses. The question will, therefore, have to be decided on the facts of each case. The burden of proving that the machinery or plant has been installed and used mainly for purposes of business of construction, manufacture or production of an article or thing not falling in the Eleventh Schedule will be on the person claiming the benefit of the provision and necessary evidence in support thereof will have to be adduced by him. 13.5 New sub-section (2B) inserted in section 32A provides for the grant of investment allowance at the higher rate of 35 per cent. in respect of machinery or plant installed after 30th June, 1977, but before 1st April, 1982, for the purposes of business of manufacture or production of any article or thing in cases where: (a) the article or thing is manufactured or produced by the assessee by using any technology (including any process) or other Know-how developed in a laboratory owned or financed by the Government, or a laboratory owned by a public sector company or a University or by an institution recognised in this behalf by the prescribed authority; or (b) the article or thing manufactured or produced by the assessee is an article or thing invented in a laboratory referred to in (a)above. It may be noted that the condition in (a) above will not be satisfied unless the technology, etc., is basis to the manufacture or production of the article or thing and not merely peripheral to it. 13.6 Investment allowance at the higher rate of 35 per cent. will be granted in such case only if the following conditions are fulfilled.: (i) The right to use such technology (including any process) or other know-how or to manufacture or produce such article or ting has been acquired to the taxpayer from the owner of the laboratory referred to in (a) above or any person deserving title from such owner. (ii) The taxpayer furnished, along with the return of income for the assessment year for which the deduction is claimed, a certificate from the prescribed authority to the effect that such article or thing is either manufacture or produced by the taxpayer by using such technology (including any process) or other know-how developed in such laboratory or is an article or thing invented in such laboratory. If the full amount of investment allowance due to the taxpayer is not allowed in the previous year in which the machinery or plant was installed and a part of the unabsorbed allowance is carried forward for being allowed in computing the total income of the following year or years, a certificate from the prescribed authority will have to be furnished by the taxpayer for each of the years for which the unabsorbed investment allowance is claimed as a deduction. (iii) The machinery or plant is not used for the purposes of manufacture or production of any article or thing specified in the list in the Eleventh schedule. It may be noted that this conditions in applicable in the case of both small-scale industrial undertakings and other undertakings. 13.7 The expression "laboratory Financed by the Government" has been defined as a laboratory owned by any body including a society registered under the Societies Registration Act, 1860, and financed wholly or mainly by the Government. The expression "public sector company" has been defined to mean any corporation established by or under any Central State or Provincial Act or a Government company saddened in section 617 of the Companies Act, 1956. The term "Government company" as defined in the said section 617 means any company in which not less then fifty-one per cent. of the paid-up share capital is held by the central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined. 13.8 The aforesaid amendments to section 32A will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. [Section 9, 28 and 29(2)(f) of the Finance Act] Rural development allowance - New section 35CC 14.1 The Finance Act has introduced a new section 35CC in the Income-tax Act under which companies and co-operative societies will be entitled to a deduction in the computation of their taxable profits of the expenditure incurred by them during the previous year on any programme of rural development. The deductions will be allowable only where the company or co-operative society has obtained the prior approval of the prescribed authority in respect of the programme of rural development before incurring such expenditure. The expression "programme of rural development" has been defined to include any programme for promoting the social and economic welfare of, or the uplift of, the public in any rural area. The term "rural area" would mean any area other than (a) an area which is comprised within the jurisdiction of a municipality or a cantonment board and which has a population of not less then ten thousand (according to the last preceding census of which relevant figures have been published before the first day of the previous year); or (b) an area within such distance (up to a maximum of fifteen kilometers) from the local limits of such municipality or cantonment board as the Central Government may specify in this behalf by notification in the Official Gazette. Such notification is to be issued by the Central Government only where it is satisfied that the stage of development of the area outside any such municipality or cantonment board (including the extent of, and scope for, urbanisation of such area), justifies its being regarded as an urban or non-rural area. For the purpose of this provision, the term "municipality" will include a municipal corporation, notified "Area committees" will include a municipal corporation, notified Areopagites, town area committee, town committee or other similar authority by whatever name called. 14.2 Where the expenditure incurred on the programme of rural development results in the acquisition or creation of an asset, being building machinery, plant or furniture, and the assessee does not divest itself of the ownership of such asset before the end of the previous year in which the expenditure is incurred. the assessee will not be allowed a deduction in respect of such expenditure under sub-section (1) of new provision. Instead, the assessee will be allowed depreciation in respect of the asset so acquired or created as if such asset was used by the assessee for the purposes of the business and the provisions of section 32 (depreciation); section 34 (conditions for depreciation allowance, etc.); section 41 (profits chargeable to tax); and section 43 (definitions of certain terms relevant to income from profits and gains of business or profession)will so far as may be, apply accordingly. 14.3 No deduction will be allowed under sub-section (1) of section 35CC in respect of expenditure incurred on any programme of rural development unless the assessee furnished, along with the return of income for the assessment year for which the deduction is claimed, a statement of such expenditure in the prescribed from rule signed and verified by a chartered accountant or other qualified accountant, and setting forth such particulars as may be prescribed. 14.4 where a deduction under sub-section (1) of section 35CC is claimed and allowed for the assessment year in respect of any expenditure on any programme of rural development, no deduction shall be allowed in respect of such expenditure under any other provision of the Income-tax Act for the same or any other assessment year. 14.5 The new section 35CC will come into force with effect from 1st September, 1977, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Higher deduction in respect of profits transferred to special reserve in the case of certain financial corporations - Section 36(1)(viii) 15.1 Under section 36(1)(viii) of the Income-tax Act, financial corporations engaged in providing long-term finance for industrial or agricultural development in India are entitled to a deduction, in the computation of their taxable profits, of the amount transferred by them out of such profits to a special reserve account, up to as specified percentage of their total income as computed before making any deduction under Chapter VI-A of that Act. This concession is available only where the financial corporation is approved by the Central Government for the purpose of this provision. 15.2 In the case of a Financial Corporation or a joint Financial Corporation established under the State Financial Corporations Act, 1951, (or an institution deemed under section 46 of that Act to be a Financial Corporation established by the State Government for the State within the meaning of that Act), an amount up to 40 per cent. of the total income as computed before making any deduction under Chapter VI-A, can be transferred to special reserve account. In the case of other financial corporations, the ceiling limit is 25 percent. of the total income as so computed in cases where the paid-up share capital of the financial corporation does not exceed Rs. 3 crores and 10 per cent. in cases where the paid-up share capital exceeds the amount. 15.3 The Finance Act has substituted sub-clause (b) of clause (viii) of sub-section (1) of section 36 by a new sub-clause with a view to increase the ceiling limit on the deductible amount in the case of financial corporation with paid-up share capital exceeding Rs. 3 crores, from 10 percent. to 25 per cent. of the total income as computed before making any deduction under Chapter VI-A of the Income-tax Act. In other words, the distinction between financial corporations having paid-up share capital exceeding Rs. 3 crores and those having paid-up share capital up to the said amount has been removed and such financial corporations will be entitled to a deduction in respect of amounts transferred to the special reserve account up to 25 per cent. of the total income as so computed. 15.4 The amendment will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Substitution of the fair market value of an asset as on 1st January, 1964, in place of its cost of acquisition for purposes of computing capital gains - Sections 50 and 55. 16.1 Capital gain arising from the transfer of a capital asset is computed by deducting, from the full value of the consideration received or accruing as a result of the transfer, the expenditure incurred wholly and exclusively in connection with the transfer and the "cost of acquisition" of the capital asset, as also the cost of any improvement thereto. Where the capital asset because the property of the assessee before 1st January, 1954, the assessee may, at his option, substitute that fair market value of the asset as on that date in place of its cost of acquisition [vide section 55(2)(i) of the Income-tax Act] Where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49 (e.g., under a gift or will or by succession, inheritance, etc.)and the capital asset became the property of the "previous owner" before 1st January, 1954, the assessee may, at his option, substitute the fair market value of the asset as on the date in place of its cost of acquisition to the "previous owners". [vide section 55(2)(ii)]. Section 50(2) of the Income-tax Act, containing a special provision for computing cost of acquisition in the case of depreciable assets, similarly provides that where under any provision of section 49, read with sub-section (2) of section 55, the fair market value of the asset on 1st January 1954 is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation if any, allowed to the assessee after the said date and as adjusted. 16.2 The Finance Act has amended section 50 and 55 of the Income-tax Act so as to advance the date 1st January 1954, by ten years, i.e.,substituting the date 1st January, 1954, by the date 1st January, 1964. The effect of these amendment will be that where a capital asset is acquired by the assessee or, as the case may be, the "previous owner" before 1st January, 1964, the assessee will have the option to substitute the fair market value of the asset as on that date in place of its actual cost of acquisition. 16.3 These amendment will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent year. Exemption of "long-term capital gains" in cases where sale proceeds received or accruing as a result of transfer are invested or deposited in specified financial assets - New section 54E 17.1 A new section 54E has been inserted in the Income-tax Act to provide exemption from income-tax in respect of capital gains arising from the transfer of any capital asset (not being a short-term capital asset) in cases where the fully value of the consideration received or accruing as a result of the transfer is invested or deposited by the assessee in specified asset within a period of six months after the date of transfer. Where only a part of the consideration is so invested or deposited, a proportionate part of the capital gains will be exempted from income-tax. The specified assets for the purposes of this provision are the following:- (i) securities of the Central Government or a State Government. (ii) savings certificates as defined in section 2(c) of the Government Saving Certificates Act, 1959. (iii) Units in the Unit Trust of India. (iv) debentures specified by the Central Government for the purposes of section 80L(1)(ii) of the Income-tax Act: (v) Shares in any Indian company which are issued to the public or are listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, and any rules made thereunder: (vi) deposits for a period of not less than three years with the State Bank of India or any subsidiary bank of the State of India or any nationalised bank or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). 17.2 Sub-section (2) of new section 54E provides for the forfeiture of this exemption in cases where the specified asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date of its acquisition. For this purpose, the amount of capital gain exempted from tax by reason of the amount invested or deposited by the assessee in the specified asset which is so transferred or converted will be deemed to be income by way of "long-term capital gains" of the previous year in which the new asset is so transferred or converted by the assessee, only a proportionate part of the capital gains exempted under sub-section (1) of new section 54E by reason of the amount invested or deposited therein will be charged to tax under this provision. As the amount of capital gains earlier exempted from tax is deemed to be the income of the previous year in which the specified asset is so transferred or converted by the assessee, it will be obligatory on him to declare such income in his return of income for the relevant year. 17.3 It may be noted that the provisions of sub-section (2) of section 54E for forfeiture of capital gains will not be attracted in cases where the specified asset is pledged as a security without effecting a "transfer" of the asset. Cases where a specified asset in the form of fixed deposit within any bank referred to in clause (vi) of Paragraph 17.1 is used as a security for obtaining a loan or overdraft from the bank, will also not fall within the expression "converted (otherwise than by transfer) into money". Thus expression would cover cases where a deposit for a period of not less than three years with any such bank is encashed by the assessee before maturity. 17.4 it is relevant to note that the provisions of section 54E and section 54 (exemption of capital gains on sale of property used for personal residence); or section 54B (exemption of capital gains on transfer of land used for agricultural purposes); or section 54D (exemption of capital gains on compulsory acquisition of lands and buildings forming part of an industrial undertaking) are not mutually exclusive. It is, therefore, permissible for a taxpayer to claim exemption in respect of capital gains arising from the transfer of a capital asset partly under section 54E, by investing or depositing apart of the consideration in any of the specified assets, and partly under any one of the other sections referred to above by utilising the capital gains for acquiring the new asset referred to therein. For instance, where a house property used for residential purposes by the tax-payer is sold for Rs. 2 lakhs resulting in a capital gains of Rs. 1 lakhs, the tax-payer may invest Rs. 1 lakhs in any one or more of the specified assets and utilise, say, Rs. 50,000, for purchasing a flat for residential purposes. In this illustration, one-half of the capital gains (i.e., Rs. 50,000) will be exempt under section 54E and the remaining one-half under section 54 of the Income-tax Act. 17.5 An assessee may sometimes not be in a position to invest or deposit the full value of the consideration received or accruing as a result of the transfer in specified assets before the completion of the assessment for the assessment year in which the capital gains arising from the transfer are chargeable to tax. In such cases, capital gains arising from the transfer of the asset will have to be included in assessment of the assessee for the relevant assessment year. However, if after completion of the assessment but within the specified period of six months, the assessee invests or deposits the full value of the consideration or part thereof in specified assets, it is but fair that the benefit of the tax concession should be allowed to him by amending the assessment order made earlier. Accordingly, section 155 of Income-tax Act has been amended to provide that, in such cases, the Income-tax Officer will amend the assessment order made by him so as to exclude the amount of capital gain not chargeable to tax in accordance with the provisions of new section 54E. The period of limitation of four year for amending an assessment order laid down in the Income-tax Act will, in such cases, run from the date of the assessment order for the year in which the capital gains arising from the transfer of the old asset are charged to tax. 17.6 These provisions will take effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Relaxation of the provisions relating to carry forward and set off of accumulated business loss and unabsorbed depreciation in certain cases of amalgamation-New section 72A 18.1 Under the existing provisions of the Income-tax Act, so much of the business loss of a year as cannot be set off against the other income of the assessee for that year can be carried forward and set off by him against the profits of the following year from any business carried on by him. If the loss cannot be wholly so set off, the amount not so set off can be carried forward to the next following year and so on, up to a maximum of eight assessment years immediately succeeding the assessment year for which the loss was first computed. The benefit of carry forward and set off of business loss is, however, not available unless the business in which the loss was originally sustained is continued to be carried on by the assessee. Further, only the assessee who incurred the loss has the right to carry forward the same, so that the successor in business cannot claim to carry forward the loss incurred by his predecessor. Similarly, if a business carried on by one assessee is taken over by another, the unabsorbed depreciation allowances due to the predecessor in business cannot be carried forward by the successor in business and set off against his profits in subsequent years. In view of these provisions, the accumulated business loss and unabsorbed depreciation allowance of a company which merges with another company under a scheme of amalgamation cannot be carried forward and set off by the latter company against its profits. 18.2 The Finance Act has inserted a new section 72A in the Income-tax Act relaxing the aforesaid provisions relating to carry forward and set off of accumulated business loss and unabsorbed depreciation allowance in certain cases of amalgamation. Sub-section (1) of new section 72A provides that where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government , on the recommendation of the specified authority, is satisfied that certain conditions specified in this behalf are fulfilled, the Central Government may make a declaration to that effect and thereupon, notwithstanding anything contained in any other provision of the Income-tax Act, the accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected and the other provisions of the Act relating to carry forward and set off of loss and allowance for depreciation shall apply accordingly. It is to be noted that as the unabsorbed loss of the amalgamating company is deemed to be the loss for the previous year in which the amalgamation was effected, the amalgamated company will have the right to carry forward the loss for a period of eight assessment years immediately succeeding the assessment year relevant to the previous year in which the amalgamation was effected. 18.3 The declaration referred to in the preceding paragraph will be made by the Central Government only if the following conditions are fulfilled:- (a) the amalgamating company was not, immediately before such amalgamation, financially viable by reason of its liability losses and other relevant factors; (b) the amalgamation was in the public interest; (c) such other conditions as the Central Government may, by notification in the Official Gazette, specify to ensure that the benefit under this section is restricted to amalgamations which would facilitate rehabilitation or revival of the business of the amalgamating company. Even after a declaration has been made by the Central Government under sub-section (1) of new section 72A, the accumulated loss shall not be set off and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the following further conditions are fulfilled :- (i) during the previous year relevant to the assessment year for which such set off or allowance is claimed the business of the amalgamating company is carried on by the amalgamated company without any modification or reorganisation or with such modification or re-organisation as may be approved by the Central Government to enable the amalgamated company to carry on such business more economically or more efficiently; (ii) the amalgamated company furnishes, along with its return of income for the assessment year for which such set-off or allowance is claimed, a certificate from the specified authority to the effect that adequate steps have been taken by that company for the rehabilitation or revival of the business of the amalgamating company. 18.4 For the purpose of the provision, the terms "amalgamation","amalgamating company" and "amalgamated company" will have the meanings assigned to them in clause (1A) of section 2 of the Income-tax Act. The term "accumulated loss" for the purposes of this provisions means so much of the loss of the amalgamating company under the head "Profits and gains of business or profession", not being loss sustained in a speculation business, which the amalgamating company would have been entitled to carry forward and set off under the provisions of section 72 if the amalgamating had not been affected. similarly "unabsorbed depreciation" means so much of the allowance for depreciation of the amalgamating company which remains to be allowed an which would have been allowed to the amalgamating company under the provisions of the Income-tax Act if the amalgamating had not been effected. The term "specified authority" means such authority as the Central Government may, by notification in the Official Gazette, specify for the purpose of this provision. 18.5 The new section 72A will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. 19.1 Under section 80G of the Income-tax Act, an assessee is entitled to a deduction in the computation of his taxable income of an amount equal to 50 per cent. of the donations made by him to certain funds and charitable institutions, or for the repair or renovation of any temple, mosque, gurdwara, church or any other place which is notified by the Central Government for the purposes of the is section to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States. Donations made to the Government or to any such local authority institution or association as is approved in this behalf by the Central Government to be utilised for the purposes of promoting family planning are eligible for 100 per cent. deduction. The amount of donation qualifying for deduction under section 80G is, however, limited to 10 per cent. of the gross total income of the donor, subject to a further monetary limit of Rs. 2 lakhs . Where the assessee has made any donation for the renovation or repair of any notified temple, mosque, gurdwara, church or other place of worship the monetary limit of Rs. 2 lakhs is increased up to Rs. 5 lakhs so as to cover such donation. The aforesaid ceiling limits, however, do not apply in relation to donation made to the National Defence Fund, the Jawaharlal Nehru Memorial Funds the Prime Minister's Drought Relief Fund, and the Prime Minister's National Relief Fund. 19.2 The Finance Act has amended section 80G to arise monetary ceiling of Rs. 2 lakhs to Rs. 5 lakhs. Consequently, the special provision whereunder the monetary limit of Rs. 2 lakhs is raised to Rs. 5 lakhs so as to cover only donation made to notified temple, mosque, gurdwaras, churches, etc., has been deleted. 19.3 These amendments will take effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Tax concession for small scale industrial undertaking set up in rural areas - New section 80HHA 20.1 The Finance Act has inserted a new section 80HHA in the Income-tax Act under which all categories of taxpayers will be entitled to a deduction equal to 20 per cent. of the profits derived by them from new small-scale industrial undertakings (other than those engaged in mining) set up in any rural area. The deduction will be allowed in respect of each of the ten assessment years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles. The expression "rural area" for the purposes of this provision will have the same meaning as explained in paragraph 14.1 of this circular. An industrial undertaking will be regarded as a "small-scale industrial undertaking", if the aggregate value of the machinery and plant(other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of the business of the undertaking does not exceed Rs.10 lakhs. For this purpose, the value of the machinery or plant owned by the taxpayer shall be the actual cost thereof to the taxpayer and the value of machinery or plant hired by the taxpayer shall be the actual cost to the owner thereof. 20.2 In order to qualify for the new tax concession, the industrial undertaking will have to fulfil, the following conditions: (i) The industrial undertakings should begin to manufacture or produce articles after 30th September, 1977, in any rural area. (ii) The industrial undertaking should not have been formed by the splitting up, or the reconstruction, of a business already inexistence, Where an industrial undertaking is formed as a result of re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B in the circumstances and within the period specified n that section, this condition will not apply and the same will qualify for the new tax concession. (iii) The industrial undertaking should not have been formed by the transfer to a new business of machinery or plant previously used for any purpose. In a case where any machinery or plant or any part thereof previously used for any purpose is transferred to a new industrial undertaking and the total value of the machinery of plant so transferred does not exceed 20 per cent. of the total value of the machinery or plant used in the business, this conditions shall be deemed to have been fulfilled. In this connection it may be noted that, unlike the provision in section 80J of the Income-tax Act, it is not necessary under the new section 80HHA that the industrial undertaking should have been set up in a new building. (iv) The industrial undertaking should employ ten or more workers in a manufacturing process carried on with the aid of power, or employ twenty or more workers in a manufacturing process carried on without the aid of power. 20.3 In the case of assessee, other than companies and co-operative societies which are statutorily required to get their accounts audited, the concession will not be available unless the accounts of the industrial undertaking are audited by a chartered accountant or other qualified accountant and the assessee furnishes, along with the return of income, the report of such audit in the prescribed from. 20.4 With a view to preventing abuse of the new tax concession by manipulation of profits between associated concerns or different units of the same concern, the provisions of sub-sections (6) and (7) of section 80HH of from newly established industrial undertakings in backward areas have been applied to the new section 80HH. These provisions would empower the Income-tax Officer to determine the reasonable profits that could be attributed to the qualifying industrial undertaking in cases where, owing to the close connection between the assessee and any other person or for any other reason, the course of the business is so arranged that the industrial undertaking set up in the rural area derives more than the ordinary profits which might be expected to arise in that business. Likewise, where the assessee has several units, some in the rural areas and some outside such areas the profits of the units in the rural area will be computed after taking the cost of the goods transferred to or from the units on the basis of the fair market value of such goods. 20.5 The Finance Act has made certain provisions as to the treatment to be accorded in cases where an assessee is entitled to a deduction under the new section 80HHA and any one or more of the provisions in section 80HH, 80J, and 80QQ of the Income-tax Act. These provisions are briefly as under: (i) Where an assessee is entitled to a deduction both under section 80HH and new section 80HHA, in relation to the profits and gains of the same industrial undertaking, the deduction in relation to the profits and gains of the same industrial undertaking, the deduction in relation to such profits and gains will be allowed only under either of these provisions. (ii) Where an assessee is entitled to a deduction both under the new section 80HHA and section 80J in relation to the profits and gains of the same industrial undertaking, the deduction under new section 80HHA will be allowed first and the provisions of section 80J will apply to the balance of income after allowing such deduction. (iii) Consequential changes have also been made in section 80J, 80P and 80QQ of the Income-tax Act in order to provide that the deduction under each of the aforesaid sections will be allowed with reference to the income of the industrial undertaking after allowing, inter alia, the deduction under section 80HHA. 20.6 The aforesaid amendment will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Tax relief in respect of remuneration received by Indian technicians, etc., for services rendered outside India - New section 80RRA 21.1 Under section 80RRA inserted in the Income-tax Act by the Finance Act, 1975, 50 per cent. of the remuneration received by the Indian technicians, etc., from a foreign employer for services rendered outside India is deducted in computing their taxable income. The Finance Act has substituted this section by a new section with the object of expenditure the scope of the concession to remuneration received by the Indian technician, etc., employed outside India by Indian concerns as well. 21.2 Sub-section (1) of section 80RRA provides that where the gross total income of an individual who is a citizen of India includes any remuneration received by him in foreign currency from any employer(i.e., a foreign employer or an Indian concern) for any services rendered by him outside India 50 per cent. of such remuneration will be deducted in computing the taxable income. Like the existing section 80RRA, the new section also provides that where the assessee renders continuous service abroad for more than thirty-six months, the remuneration received by him for any period of service after the expiry of the said thirty-six months will not qualify for any deduction. In the case of employees of Central Government or any State Government, or persons who were, immediately before taking up service outside India, in the employment of the Central Government or any State Government, the deduction will be allowed if the service of the employee is sponsored by the Central Government. In the case of other individuals, the deduction will be allowed only if the individual is a "technician" and the terms and conditions of his service outside India are approved for the purpose of this section by the Central Government or the prescribed authority. 21.3 It is relevant to note that the deduction under the new section is to be allowed with reference to the remuneration received by the individuals in "foreign currency". Thus, if a part of the remuneration is paid to the Indian technician, etc., in Indian currency, the amount paid in Indian currency will not be taken into account for the purpose of the deduction under new provision. The expression "foreign currency" will have the meaning assigned to it in the Foreign Exchange Regulation Act, 1973. Under section 2(g) of that Act, the term "foreign currency" means any currency other Indian currency. 21.4 The expression "foreign employer" under the new section 80RRA will have the same meaning as under the existing provision. The expression "technician" will mean a person having specialised knowledge and experience in the various fields specified in the new section (which are the same as those specified in the existing section ) or any other field which the Board may prescribe in this behalf and who is employed in a capacity in which such specialised knowledge and experience are actually utilised. 21.5 The new section will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Exemption of closely held industrial companies from compulsory distribution of dividends - Sections 104 and 109 22.1 Under section 104 of the Income-tax Act, closely-held companies are required (subject to certain exceptions) to distribute dividends up to the statutory percentage of their distributable income within a period of twelve months immediately following the expiry of the previous year. If the distribution of dividends falls short of the required amount or if no dividends are distributed within the specified period, the company is liable to pay additional income-tax at a specified percentage of its distributable income as reduced by the amount of the dividends if any, actually distributed before the expiry of twelve months from the end of the previous year. 22.2 The Finance Act has substituted sub-section (4) of section 104 by a new sub-section with the object of exempting Indian companies whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power from the requirement of compulsory distribution of dividends under the newly inserted explanation below sub-section (4) of section 104, the business of the company will be deemed to consist mainly in the manufacture or any other form of power, if the income attributable to any of the aforesaid activities included in its "gross total income" for the relevant previous year is not less than 51 per cent. of such total income. 22.3 As a logical corollary of the complete exemption of Indian companies mainly engaged in the aforesaid activities from the requirement of compulsory distribution of dividends, section 109 of the Income-tax Act has also been amended to secure that in the case of an Indian company a part of whose gross total income consists of profits and gains attributable to the aforesaid activities that is, the profits and gains attributable to such activities are less than 51 per cent. of its gross total income for the relevant previous year, the "statutory percentage" of distributable income in relation to the said part of the gross total income will be nil. 22.4 The aforesaid amendments will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Concessional taxation of royalties in respect of books on scientific, technical and educational subjects in the case of foreign companies - Section 115(1A) 23.1 Under section 115A(1) of the Income-tax Act, income by way of royalty (other than lump sum royalty for transfer outside India of, or the imparting of information outside India in respect of data, documentation, drawings, etc., relating to any patent, invention etc.,) received by a foreign company from an Indian concern in pursuance of an agreement made on or after 1st April, 1976, is charged to tax at the rate of 40 per cent on the gross amount of such income, if the agreement is approved by the Central Government. The Finance Act has inserted a new sub-section (1A) in section 115A to provide that the aforesaid condition, namely, that the agreement between the foreign company and the Indian concern should have been approved by the Central Government will not apply in cases where the royalty is paid in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book if the book is on a subject the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the financial year 1977-78, to be imported into India under an Open General Licence. The list of these subjects is given in Annex. I to this Circular. 23.2 This relaxation will not apply in cases where an agreement made on or after 1st April, 1976 is regarded as an agreement made before the said date by virtue of Explanation 1 to the proviso to section 9(1)(vi) of the Income-tax Act. 23.3 The aforesaid provision will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent year. [Sections 22 and 29(1)(b) of the Finance Act] Payment of dividends without deduction of tax at source in certain cases - Section 194 and new section 206B 24.1 Under section 194 of the Income-tax Act, the principle officer of an Indian company or a company which has made the prescribed arrangement for the declaration and payment of dividends within India, is requirement to deduct tax at source from any dividends paid or distributed by the company. Under the proviso to that section, shareholders (other than companies) having income not exceeding the exemption limit, can obtain an exemption certificate from the Income-tax Officer authorising them to receive the dividend income without deduction of tax at source. 24.2 The Finance Act has inserted another proviso to section 194 to secure that tax is not deducted at source from any dividends paid or distributed to any shareholder (other than a company) if- (a) the shareholder is resident in India; (b) the amount of such dividend does not exceed Rs. 250; and (c) the shareholders furnished to the person responsible for paying the dividend a statement in writing in the prescribed from and verified in the prescribed manner declaring that his estimated total income of the previous year in which such dividend is to be included in his total income under the provisions of section 8 of the Income-tax Act will be less than the minimum liable to income-tax . 24.3 The Finance Act has also inserted a new section 206B in the Income-tax Act, requiring the person paying any dividend without deduction of tax at source under the aforesaid provision to deliver to the Income-tax Officer concerned a return (in the prescribed form and verified in the prescribed manner) within thirty days from the end of each financial year showing (a) the name and address of every person who has furnished a statement under the aforesaid proviso the section 194; (b) the amount of the dividend paid or distributed during the financial year to each such person; and (c) such other particulars as may be prescribed. 24.4 The aforesaid provision will come into force with effect from 1st October 1977, and will accordingly apply in relation to dividends paid or distributed on or after that date. [Section 24 and 25 of the Finance Act] Exemption limit for payment of "advance tax" in the case of non residents (other than companies) - Section 208 25.1 Advance tax is payable only in cases where the income subject to advance tax exceeds the following limits:- Rs. a. in the case of a company or a local authority - 2,500 b. in the case of a registered firm - 30,000 c. in the case of a person other than a company, local authority or a registered firm— i. if the person is a non-resident - 5,000 ii. if the person is a resident - 10,000 With the raising of the exemption limit in the case of individual, etc., to Rs. 10,000 the Finance Act has substituted clause (c) of sub-section (2) of section 208 of the Income-tax Act by a new clause with a view to raise the aforesaid limit of Rs. 5,000 in the case of non-resident assessee to Rs. 10,000. The new clause (c) accordingly prescribes a uniform limit of Rs. 10,000 for purpose of payment of advance tax in the case of all assessees, other than companies, local authorities and registered firm. 25.2 The aforesaid amendment will take effect from 1st September, 1977, and will accordingly apply in relation in relation to advance tax payable on or after that date. Removal of lacuna in provision relating to imposition of penalty for making false estimate of advance tax under section 212(3A) - Section 273 26.1 Under section 212(3A) of the Income-tax Act, it is obligatory on a person to pay advance tax on his own estimate if the advance tax computed on his "current income" exceeds the amount of advance tax demanded from him under section 210 by more than 331/3 per cent. of the latter amount. Section 273 of the Income-tax Act provides for the imposition of penalty, inter alia, in cases where a person furnishes a false estimate of advance tax, including a false estimate under section 212(3A). The basis for calculating the penalty imposable in cases where the assessee has furnished under section 212 as estimate of advance tax payable by him which he knew or had reason to believe to be untrue is laid down in clause (i) of section 273. The penalty in such cases is calculated with reference to the amount by which the advance tax actually paid during the financial year falls short of 75 per cent. of the "assessed tax" or the advance tax demanded by the Income-tax Officer under section 210, which ever is less. the minimum penalty imposable is not less than 10 per cent. of the amount of such shortfall and the maximum penalty is 11/2 times of the said amount. 26.2 The aforesaid basis for calculating the penalty imposable on a person who has furnished a false estimate of advance tax is unworkable in case where a false estimate is made under section 212(3A) of the Income-tax Act. This is due to the fact that the penalty is required to be calculated with reference to the shortfall between the advance tax actually paid by the assessee and the lower of the following. (a) 75 per cent. of the assessed tax; or (b) the advance tax demanded by the Income-tax Officer. As an estimate of advance tax is required to be made under section 212(3) only in cases where the advance tax payable on the basis of the current income exceeds the advance tax demanded by the Income-tax Officer by the Income-tax Officer. In the circumstances, a penalty under section 273(1) cannot be levied for furnishing a false estimate of advance tax under section 212(3A). 26.3 In order to remove this lacuna, the Finance Act has inserted a separate clause (ia) is section 273 for the calculation of the penalty imposable for furnishing a false estimate of advance tax under section 212(3A). Under the new clause, penalty in such cases will be calculated with reference to the amount by which the advance tax actually paid during the financial year falls short of 75 percent. of the assessed tax. Under the proviso to sub-section (3A) of section 212, the Commissioner can extend the date for furnishing an estimate under the said sub-section in certain circumstances, and where the date is so extended, the assessee can pay advance tax up to the date so extended. The Finance Act has added an Explanation in section 273 to provide that the amount paid by the assessee after the end of the relevant financial year, but on or before the date extended by the Commissioner under the proviso to sub-section (3A) of section 212, will be regarded as tax actually paid by the assessee during the financial year for the purpose of calculating the penalty imposable under new clause (ia). 26.4 The aforesaid amendments will come into force with effect from 1st September, 1977. As the new clause (ia) inserted in section 273 provides the basis for the imposition of a penalty for furnishing a false estimate under section 212(3A) of the Income-tax Act, the provisions of the said clause will apply only in relation to estimates furnished under section 212(3A) on or after 1st September, 1977. Creation of a new appellate authority, namely Commissioner (Appeals) 27.1 Under existing provisions of the Income-tax Act, any assessee aggrieved by an other of the Income-tax Officer may appeal to the Appellate Assistant Commissioner even in cases where the order is made by the Income-tax Officer on the basis of directions issued by the Inspecting Assistant Commissioner under section 144B of the Income-tax Act. As Appellate Assistant Commissioner are usually junior to Inspecting Assistant Commissioner, it is anomalous that they should sit in judgment on order passed by Income-tax Officer in pursuance of statutory direction given by officers who are senior to them. It is also otherwise desirable that appeals involving important and complicated questions of fact and law and having substantial revenue implications are heard and disposed of by senior and more experienced officers. Where any order is made by the Inspecting Assistant Commissioner in exercise of the powers or functions conferred on or assigned to him under section 125 or section 125A of the Income-tax, This also results in an unsatisfactory situation because the Commissioner of Income-tax is mainly an administrative authority and not a regular appellate authority. 27.2 In view of these consideration the Finance Act has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals) for the purposes of the Income-tax Act, 1961, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, the Companies(Profits) Surtax Act, 1964, and the Interest-tax Act, 1974. These provisions will come into force on the "appointed day", i.e., such date as the Central Government may, be notification in the Official Gazette, appoint (vide section 39(3) of the Finance Act]. The provisions made by the Finance Act is regard to (i) categories of orders where appeal will lie on or after the appointed day to the Commissioners of Income-tax (Appeals); (ii) transfer of appeals which are pending immediately before the appointed day with Appellate Assistant Commissioner and Commissioners of Income-tax to the Commissioner (Appeals); and (iii) action required to be taken after the appointed day in relation to any appeal disposed of by Appellate Assistant Commissioner Paragraph 27.3 to 27.5 of this circular. Categories of orders where appeals will lie to Commissioners (Appeals) - Section 246(2) 27.3 New sub-section (2) inserted in section 246 of the Income-tax Act by the Finance Act provides that an appeal will lie to the Commissioner (Appeals) against any of the following orders :- (a) an order under section 104 relating to the payment of additional income-tax on undistributed profits by closely-held companies : [It is relevant to note that by virtue of the provisions contained in section 107A(9), as amended by the Finance Act, no appeal shall lie to the Commissioner (Appeals) against an order under section 104 in a case where a decision has been given by the Board on an application made by the company under that section. (b) an order specified in clause (c) to (o) (both inclusive) of, section 246(1), where such order is made by the Inspecting Assistant Commissioner in exercise of the powers of functions conferred or assigned to him under section 125 or section 125A. (c) an order made by the Inspecting Assistant Commissioner imposing a fine under section 131(2): (d) an order made in the case of a foreign company, where the company denies its liability to be assessed under the Income-tax Act or any order of assessment under section 143(3) or section 144 of that Act, and the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which it is assessed; (e) an order made in the case of a domestic company, where the domestic company denies its liability to be assessed under the Income-tax Act or any order of assessment under section 143(3) or section 144 of that Act, and the company objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which it is assessed, provided that the amount of income assessed or the amount of loss computed exceeds Rs. 5 lakhs; (f) an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under section 144B; (g) an order imposing a penalty under section 271(1)(c), where the penalty has been imposed with the previous approval of the Inspecting Assistant Commissioner under the proviso to clause (iii) of sub-section (1) of that section; (h) an order made by the Inspecting Assistant Commissioner imposing a penalty under section 272; [It may be noted that under the existing provisions of section 253(1)(b) an appeal against an order passed by an Inspecting Assistant Commissioner under section 272 lies to the Appellate Tribunal.] (i) an order made by an Income-tax Officer the previsions of the Income-tax Act in the case of such persons or clauses of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant consideration direct. An appeal against the order specified above will lie on or after the appointed day to the Commissioner (Appeals) even though the order may have been made before the appointed day. Appeals etc, pending immediately before the appointed day before the Appellate Assistant Commissioners to stand transferred to Commissioners (Appeals) - Section 246(3) 27.4 New sub-section (3) inserted in section 246 provides that every appeal against an order specified in sub-section (2) of that section which is pending immediately before the "appointed day" before an Appellate Assistant Commissioner or a Commissioner shall stand transferred on the appointed day to the Commissioner (Appeals). Any matter arising out of or connected with such appeal which is pending immediately before the appointed day before an Appellate Assistant Commissioner or a Commissioner shall also similarly stand transferred on that day to the Commissioner (Appeals). The expression "matter arising out of or connected with such appeals" would cover penalty proceedings initiated by the Appellate Assistant Commissioner or Commissioner in the course of an appeal before him. Where any appeal or matter stands transferred to the Commissioner which it was on the appointed day. The proviso to new sub-section (3) inserted in section 246, however, provides that the appellant may, in such cases, demanded that before proceeding further with the appeal or matter, the previous proceeding or any part thereof be reopened or that he be re-heard. The foregoing provisions regarding the transfer of pending appeals, etc., to the Commissioner (Appeals) do not apply in relation to any appeal against an order made by the Inspecting Assistant Commissioner under section 272A which immediately before the appointed day, is ending before the Appellate Tribunal and such appeals will continue to be heard and disposed of by the Appellate Tribunal. Action required to be taken by Appellate Assistant Commissioner or Commissioner on or after the appointed day in relation to any appeal disposed before that day 27.5 While all pending appeals and matters will stand transferred from Appellate Assistant Commissioner and Commissioners to Commissioner (Appeals), any action required to be taken after the appointed day in relation to any appeal disposed of by an Appellate Assistant Commissioner or a Commissioner before that day will be taken as if the amendments directed to be made by the Finance Act had not been made. In other words, action in relation to such appeals will be taken by the Appellate Assistant Commissioner or Commissioner concerned and not by the Commissioner (Appeals). A provision for the removal of doubts has been made in this behalf in sub-section (2) of section 29 of the Finance Act. Thus, the Appellate Assistant Commissioner or Commissioner may rectify any mistake in an order passed by him before the appointed day or pass such further order as may be required in any appeal disposed of by him in pursuance of any remand order or other direction given by the Tribunal. Other provisions 27.6 The Finance Act has amended a number of the provisions of, and made a few new provisions in, the Income-tax Act to provide for the appointment, jurisdiction, functions and powers of Commissioners of Income-tax (Appeals), the procedure to be followed in appeals, filed before them and other related matters. These provisions are briefly indicated below: Section 2(16A) - Definition of Commissioner (Appeals). Section 116(c) - Inclusion of Commissioner of Income-tax (Appeals) as an income-tax authority. Section 117(1) - Appointment of Commissioner (Appeals). Section 119 - Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate function. Section 121A - Jurisdiction of Commissioners (Appeals) Section 125 and 125A - Appellate jurisdiction of Commissioner of Income-tax excluded in cases where assessment function of the Income-tax Officer are assigned to the Inspecting Assistant Commissioner. Section 126 - Board may empower Commissioners (Appeals) to have the same powers as Appellate Assistant Commissioner in regard to discovery, production of evidence, etc., to call for information and to inspect registers of companies. Section 154 - rectification of mistakes by Commissioner (Appeals). Section 177(2), 189(2), 271, 271A and 271B - Commissioner (Appeals) to have the same powers as Appellate Assistant Commissioner in regard to imposition of penalty. Section 245 - Commissioners (Appeals) authorised to set off refund against tax remaining payable. Section 245A - Inclusion of Commissioner (Appeals) as an income-tax authority for purposes of Chapter XIXA relating to Settlement of Cases. Section 247 to 251 - Provisions relating to appeal by partner or person denying liability to deduct tax; form of appeal and limitation; procedure in appeal; and powers of Appellate Assistant Commissioners in disposing of appeals to apply in relation to appeals before Commissioners (Appeals). Section 253 - Appeals against orders passed Commissioners (Appeals)to lie to the Appellate Tribunal, and departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Income-tax. Section 264 - Commissioner of Income-tax not to revise any order under that section in cases where an appeal lies against the order to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired, or the assessee has not waived his right of appeal, or the order has been made the subject of an appeal to the Commissioner (Appeals). Section 267 - Amendment of assessment in pursuance of order passed in appeal by Commissioner (Appeals). Section 274 275 - Procedure for imposing penalty and bar of imitation for imposing penalties by Commissioner (Appeals). Section 287 - Publication of information respecting any penalty imposing on a person prohibited until time for presenting an appeal to Commissioner (Appeals) has expired without an appeal having been presented or the appeal, if presented, has been disposed off. Section 295 - Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which , the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or he was allowed to produce before the Income-tax Officer. [Section 39 of, and Part I of the Fifth Schedule to, the Finance Act] AMENDMENTS TO WEALTH TAX ACT Increase in the rates of Wealth tax 28.1 Under Part I of Schedule I to the Wealth-tax Act, 1957, as substituted by the Finance Act, 1976, with effect from 1st April, 1977, the rates of wealth-tax in the case of individuals and Hindu undivided families (other then Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh) ranged from 1/2 per cent. in the first slab of net wealth up to Rs. 5 lakhs to a maximum of 2 1/2 per cent. on the net wealth in the slab of over Rs. 15 lakhs. In the case of Hindu undivided families having one or more members wit independent net wealth exceeding Rs. 1 lakhs, the maximum rate of 2 1/2 per cent. we applicable on the slab of net wealth over Rs. 10 lakhs. The Finance Act has substituted Part I of the aforesaid Schedule retrospectively from 1st April, 1977, with a view to increasing the rates of wealth-tax on all levels of net wealth above Rs. 2,50,000. In the case of individuals and Hindu undivided families (other than those having one or more members with independent net wealth exceeding Rs. 1 lakhs) wealth-tax will be chargeable under the revised rate schedule on the new slab of net wealth up to Rs. 2,50,000 at the rate of 1/2 per cent. The rates of wealth-tax in the other slabs will be 1 per cent on the slab from Rs. 2,50,001 - 5,00,000 (as against 1/2 per cent. laid down by the Finance Act, 1976); 2 per cent. on the slab from Rs. 5,00,0001 -10,00,00 (as against 1 1/2 per cent. laid down by the Finance Act, 1976); 2 1/2 per cent. on the slab from Rs. 10,00,000 - 15,00,000 (as against 2 per cent. laid down by the Finance Act, 1976); and 3 1/2 per cent. on the slab of net wealth over Rs. 15,00,000 (as against 21/2 per cent. laid down by the Finance Act, 1976). 28.2 In the case a Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh, the net wealth in the new slab up to Rs. 2,50,000 will be charged to wealth-tax at the existing rate of 1 1/2 per cent. The new rates of wealth-tax on the other slabs will be 2 per cent. on the slab from Rs. 2,50,001 - 5,00,000 (as against 11/2 per cent. laid down by the finance Act, 1976); 2 1/2 per cent, on the slab from Rs. 5,00,001 -10,00,000 (as against 2 per cent, laid down by the Finance Act, 1976); and 3 1/2 per cent. on the slab of net wealth over Rs.10,00,000 (as against 2 1/2 per cent. laid down by the Finance Act, 1976). 28.3 As stated in paragraph 28.1 above, the new rate schedule has come into force with effect from 1st April, 1977, and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. Thus, the rate schedule introduced by the Finance Act, 1976, from 1st April, 1977, stands superseded. [Section 30 of the Finance Act] Creation of a new appellate authority, namely, Commissioner of Wealth-tax (Appeals) 29.1 As stated in paragraph 27.2 of this circular, the Finance Act has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals) for the purposes of the various direct taxes enactments, including the Wealth-tax Act. These provisions will come into force on the "appointed day", i.e., such date as the Central Government may, by notification in the Official Gazette, appoint. [Vide section 39(3) of the Finance Act]. The provisions made by the Finance Act regarding transfer of appeals, etc., under the Wealth-tax Act, which are pending immediately before the appointed day with Appellate Assistant Commissioners and Commissioners, to the Commissioners (Appeals), and action required to be taken on or after the appointed day in relation to such appeals disposed of by Appellate Assistant Commissioners and Commissioners before that day, are the same as those applicable in relation to appeals, etc. under the Income-tax Act. [Vide new sub-section (1B) Act]. The substance of these provisions has already been explained in paragraphs 27.4 and 27.5 of this circular. The provisions relating to the categories of orders where appeal will lie on or after the appointed day to the Commissioners of Wealth-tax (Appeals) are explained in the following paragraph. Categories of orders where appeals will lie to the Commissioners of Wealth tax (Appeals) 29.2 New sub-section (1B) inserted in section 23 of the Wealth-tax Act provides that any person may appeal to the Commissioner (Appeals)against an assessment or, as the case may be, order where he objects to- (a) the amount of net wealth determined under the Wealth-tax Act or the amount of wealth-tax determined as payable by him under that act, where the net wealth determined as payable by him under that Act, appeal to the Commissioner (Appeals) will also lie in cases where the net wealth determined on assessment exceeds Rs. 15 lakhs and the person denies his liability to be assessed under the Wealth-tax Act; (b) any penalty imposed under section 18(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 18(3); (c) any assessment or order referred to in clauses (a) to (h) (both inclusive) or clause (i) of sub-section (i) of section 23, where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the powers of function conferred on or assigned to him under section 8AA; (d)any penalty imposed by an Inspecting Assistant Commissioner under section 18A [It may be noted that under the existing provisions of section 24(1) of the Wealth-tax Act, an appeal against an order passed by an Inspecting Assistant Commissioner under section 18A lies to the Appellate Tribunal]; (e) any order made by a Wealth-tax Officer in the case of such person or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct. It may be noted that an appeal against an assessment or other specified above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day. OTHER PROVISIONS 29.3 The Finance Act has amended a number of other provisions of, and made a few new provisions in, the Wealth-tax Act to provide for the appointment, jurisdiction, function and powers of Commissioners of Wealth-tax (Appeals), the procedure to be following in appeals filed before them and other related matters. These provisions are briefly indicated below: Section 2(gg). - Definition of Commissioner (Appeals). Section 8AA - Appellate Jurisdiction of Commissioner of Wealth-tax excluded in cases where assessment function of the Wealth-tax Officer are assigned to the Inspecting Assistant Commissioner. Section 9A - Jurisdiction of Commissioner of Wealth-tax (Appeals). Section 10 - Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. Section 18 18A - Commissioners (Appeals) to have the same powers as Appellate Assistant Commissioners in regard to imposition of penalty under these sections. Section 22A - Inclusion of Commissioner (Appeals) as a wealth-tax authority for the purpose of Chapter VA relating to Settlement of Cases. Section 23(2), (2A), (3), (3A), (4), (5), (5A), (5B) (6).-Provisions relating to limitation for filing appeal; power of appellate authority in disposing of an appeal and related matters to apply to Commissioners (Appeals) as they apply to Appellate Assistant Commissioners. Section 24. - Appeals against orders passed by Commissioner (Appeals)to lie to Appellate Tribunal and departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Wealth-tax. Section 25. - Commissioner of Wealth-tax not to revise any order where an appeal against the order lies to the Commissioner (Appeals),and the time within which such appeal can be made has not expired or the assessee has not waived his right of appeals or the order is the subject of an appeal before the Commissioner (Appeals). Section 34A - Commissioners (Appeals)/authorised to set off refund against tax remaining payable. Section 35. - Rectification of mistakes by Commissioner (Appeals). Section 35K - Statement made or account or other document produced by a person before the Commissioner (Appeals) not to be inadmissible as evidence in prosecution proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty impossible on such person would be reduced or waived under section 18B of the Wealth-tax Act or that the offence in respect of which such proceeding was taken would be compounded. Section 37.- Commissioner (Appeals) not other document produced by a person before the Commissioner (Appeals) not to be inadmissible as evidence in prosecution proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty imposable on such person would be reduced or waived under section 18B of the Wealth-tax Act or that the offence in respect of which such proceeding was taken would be compounded. Section 37. - Commissioners (Appeals) to have the same power as Appellate Assistant Commissioners to take evidence on oath, etc. Section 42A - Publication of information relating to any penalty imposed on a person prohibited until time for presenting an appeal to the Commissioner (Appeals) has expired without an appeal having been presented or the appeal, if presented has been disposed of. Section 46. - Board empowered to frame rules specifying the circumstances in which , the conditions subject to which and the manner in which, the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Wealth-tax Officer. Amendments to the gift tax Act, 1958 Creation of a new appellate authority, namely, Commissioner of Gift-tax (Appeals) 30.1 As stated in paragraph 27.2 of this circular, the Finance Act has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals) for the purposes of the various direct taxes enactment, including the Gift-tax Act. These provisions will come into force on notification in the Official Gazette, appoint[vide section 39(3) of the finance etc., under the Gift-tax Act, which are pending immediately before the appointed day with Appellate Assistant Commissioners and Commissioners, to the Commissioners(Appeals), and action required to be taken on or after Assistant Commissioner and Commissioners before that day, are the same as those applicable in relation to appeals, etc., under the Income-tax Act[vide new sub-section (1B) inserted in section 22 of the Gift-tax Act and section 39(2) of the finance Act]. The substance of these provisions has already been explained in paragraph 27.4 and 27.5 of this circular. The after the appointed day to the Commissioners of Gift-tax (Appeals) are explained in the following paragraph. Categories of orders where appeals will lie to the Commissioners of Gift-tax (Appeals) 30.2 New sub-section (1B) inserted in section 22 of the Gift-tax Act provides that any person may appeal to the Commissioner (Appeals)against an assessment or, as the case may be, order where he objects to- (a) the value of taxable gifts determined under the Gift-tax Act or the amount of gift-tax determined a payable by him under that Act, where the value of taxable gift determined on assessment exceeds Rs.2 lakhs [An appeal to the Commissioner (Appeals) will also lie incases where the value of taxable gifts determined on assessment exceeds Rs. 2 lakhs and the person denies his liability to be assessed under the Gift-tax Act]; (b) any assessment or order referred to in clauses (a) to (h) (both inclusive) of sub-section (1) of section 22 where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the powers or functions conferred on or assigned to him under section 7AA of that Act; (c) any penalty imposed under section 17(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 17(3); (d) any penalty imposed by an Inspecting Assistant Commissioner under section 17A of the Act; [If may be noted that under the existing provisions of section 23(1)of the Gift-tax Act, an appeal against an order passed by an Inspecting Assistant Commissioner under section 17A lies to the Appellate Tribunal)]. (e) any order made by a Gift-tax Officer in the case of such person or classes of person as the Board may, having regard to the nature of the cases, the complexities involved and other relevant consideration, direct. It may be noted that an appeal against an assessment or order specified above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day. OTHER PROVISIONS 30.3 The Finance Act has amended a number of other provision of, and made a few new provisions in, the Gift-tax Act to provide for the appointment, jurisdiction, functions and powers of Commissioners of Gift tax (Appeals), the procedure to the followed in appeals filed before them and other related matters. These provisions are briefly indicated below. Section 2(via). - Definition of Commissioner (Appeals). Section 7AA. - Appellate jurisdiction of Commissioner of Gift-tax excluded in cases where assessment functions of the Gift-tax Officer are assigned to the Inspecting Assistant Commissioner. Section 8A. - Jurisdiction of Commissioner of Gift-tax (Appeals). Section 12. - Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. Section 17, 17A 21.- Commissioners (Appeals) to have the same powers as Appellate Assistant Commissioner in regard to imposition of penalty under these sections. Section 22(2), (3), (4), (5), (5A) and (6). - Provisions relating to limitation for filing appeal; procedure in appeal; powers of appellate authority in disposing of an appeal and related matter to apply to Commissioners (Appeals) as they apply to Appellate Assistant Commissioners. Section 23.- Appeals against orders passed by Commissioner (Appeals)to lie to Appellate Tribunal, and Departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Gift-tax. Section 24.- Commissioner not to revise any order where an appeal against the order lies to the Commissioner (Appeals) and the time within which such appeal can be made has not expired or the assessee has not waived his right of appeal or where the order has been made the subject of an appeal to the Commissioner (Appeals). Section 33A. - Commissioners (Appeals) authorised to set off refund against tax remaining payable. Section 34.- Rectification of mistakes by Commissioners (Appeals). Section 36.- Commissioners (Appeals) to have same powers as Appellate Assistant Commissioner is regard to discovery, production of evidence, etc. Section 41A.- Publication in information relating to any penalty imposed on a person prohibited until time for presenting an appeal to Commissioner (Appeals) has expired without an appeal having been presented or the appeal, if presented, has been disposed of. Section 46.- Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which, the Commissioner (Appeals) to permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Gift-tax Officer. [Section 39 of, and Part III of the Fifth Schedule to, the Finance Act, 1964] AMENDMENTS TO THE COMPANIES (PROFITS) SURTAX ACT, 1964 Creation of new appellate authority, namely, Commissioner (Appeals) 31.1 As stated in Paragraph 27.2 of this circular, the Finance Act has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals), for the purposes of the various direct taxes enactments, including the Companies (Profits) Surtax Act. These provisions will come into force on the "appointed day" i.e., such date as the Central Government may, by notification in the Official Gazette, appoint. [vide section 39(3) of the Finance Act] Appeals under the Companies (Profits) Surtax Act not to lie to Appellate Assistant Commissioners 31.2 The Appellate Assistant Commissioner will cease to be an appellate authority under the Companies (Profits) Surtax Act from the appointed day and an appeal against any assessment or order made by an Income-tax Officer under that Act will lie from the appointed day to the Commissioner (Appeals) [vide section 11 of the Companies(Profits) Surtax Act, as amended by the Finance Act.] Where the functions of an Income-tax Officer are assigned to an Inspecting Assistant Commissioner appeals against any assessment or order made by the Inspecting Assistant Commissioner, will lie from the appointed day to the Commissioner (Appeals), and not to the Commissioner of Income-tax . It may be noted that appeals against assessment or orders referred to above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day. 31.3 The provisions made by the Finance Act regarding transfer of appeals, etc. under the Companies (Profits) Surtax Act, which are pending immediately before the appointed day with Appellate Assistant Commissioners and Commissioners, to Commissioner (Appeals), and action required to be taken on or after the appointed day in relation to such appeals disposed of by Appellate Assistant Commissioners and Commissioners before that day, are the same as those applicable in relation to appeals, etc., under the Income-tax Act. [vide new section 11A inserted in the Companies (Profits) Surtax Act and Section 39(2) of the Finance Act.] The substance of these provisions has already been explained in Paragraph 27.4 and 27.5 of this circular. OTHER PROVISIONS 31.4 The Finance Act has amended a number of other provisions of and made a few new provisions in, the Companies (Profits) Surtax Act to provide for the appointment, jurisdiction, function and powers of the Commissioner (Appeals) procedure to be followed in appeals filed before them and other related matters. These provisions are briefly indicated below:- Section 3(1). - Inclusion of Commissioner of Income-tax (Appeals) as a tax authority. Section 3(2).- Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. Section 11. - Provisions related to limitation for filing appeals; procedure in appeal; powers of the appellate authority in disposing of appeals etc., contained in this section will apply to proceedings before Commissioners (Appeals). Section 12. Appeals against orders passed by Commissioners (Appeals) to lie to the Appellate Tribunal and Development appeals to the Tribunal against such orders to be authorised by the Commissioner of Income-tax. Section 13. Rectification of mistakes by Commissioner (Appeals). Section 17. - Commissioner of Income-tax not to revise any order under that section in cases where an appeal against the order lies to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired or the assessee has not waived his right of appeal or where the order has been made the subject of an appeal to the Commissioner (Appeals). Section 25. - Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which, the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Income-tax Officer. AMENDMENTS TO INTEREST TAX ACT, 1974 Creation of a new appellate authority, namely, Commissioner (Appeals) 32.1 As stated in Paragraph 27.2 of this circular, the Finance Act has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals) for the purpose of the various direct taxes enactments, including the Interest-tax Act. These provisions will come into force on the "appointed day", i.e., such date as the Central Government may, by notification in the Official Gazette, appoint. [vide section 39(3) of the Finance Act] Appeals under the Interest tax Act not to lie to Appellate Commissioners 32.2. The Appellate Assistant Commissioner will cease to be an appellate authority under the Interest-tax Act from the appointed day and an appeal against any assessment or order made by an Income-tax Officer under that Act will lie from the appointed day to the Commissioner (Appeals). Where the functions of an Income-tax Officer are assigned to an Inspecting Assistant Commissioner, appeals against any assessment or order made by the Inspecting Assistant Commissioner will lie from the appointed day to the Commissioner (Appeals), and not to the Commissioner of Income-tax. It may be noted that appeals against assessments or orders referred to above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day. 32.3 The provision made by the Finance Act regarding transfer of appeals, etc., under the Interest-tax Act, which are pending immediately before the appointed day with Appellate Assistant Commissioner and Commissioners, to Commissioner (Appeals), and action required to be taken on or after the appointed day in relation to such appeals disposed of by Appellate Assistant Commissioner and Commissioners before that day, are the same as those applicable in relation to appeals, etc., under the Income-tax Act. [vide new section 15A inserted in the Interest-tax Act and section 39(2) of the Finance Act.] The substance of these provisions has already been explained in Paragraph 27.4 and 27.5 of this circular. OTHER PROVISIONS 32.4 The Finance Act has amended a number of other provisions of, and made a few new provisions in, the Interest-tax Act to provide for the appointment, jurisdiction, functions and powers of Commissioner(Appeals), procedure to be followed in appeal filed before then and other related matters. These provision are briefly indicated below:- Section 3(1)- Inclusion of Commissioner of Income-tax (Appeals) as a tax authority. Section 3(2)- Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate function. Section 12 - Commissioner (Appeals) to have power to impose penalty for failure to furnish returns, comply with notices, concealment of interest etc. Section 15 - The provisions of this section relating to form of appeal and limitation; procedure in appeal; powers of the appellate authority in disposing of appeals, etc., will apply to proceedings before the Commissioner (Appeals). Section 16 - Appeals against orders passed by Commissioner (Appeals)to lie to the Appellate Tribunal and Departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Income-tax. Section 17- Rectification of mistakes by Commissioner (Appeals) Section 20 - Commissioners of Income-tax not to revise any orders under that section in cases where an appeal against the order lies to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired or the assessee has not waived his right of appeal or where the order has been made the subject of an appeal to the Commissioner (Appeals). [Section 39, of and Part V of the Fifth Schedule to, the Finance Act] AMENDMENTS TO THE COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Continuance of the scheme of compulsory deposit by income-tax payers for two years 33.1 Under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, individuals who are citizens of India, Hindu undivided families and trustees of discretionary trusts were required to make compulsory deposits for the assessment year 1975-76 to 1977-78 if their "current income" exceeded Rs. 15,000. The Finance Act has amended the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, with a view to continuing the compulsory deposit scheme in the case of Income-tax payers for a further period of two years, i.e., for the assessment years 1978-79 and 1979-80. Persons over 70 years or age exempted from requirement of making compulsory deposits 33.2 The Finance (No.2) Act, 1977 has inserted a new sub-section (3) in section 3 of the Compulsory Deposit Scheme (Income-tax Payers) Act exempting individuals who are over 70 years of age from the requirement of making any compulsory deposit. For the purposes of these provisions, the age of the person will be determined as on the first day of the financial year immediately preceding the assessment year for which the compulsory deposit is required to be made. Hence, persons who were more then 70 years of age as on 1st April, 1977, will not be required to make any compulsory deposit during the current financial year in relation to the assessment year 1978-79. This exemption will also apply in cases where any person is assessable under the Income-tax Act in respect of the total income of an individual and such individual is or was more than seventy years of age on the first day of the relevant financial year. 33.3 The amendment extending the operation of the scheme for compulsory deposits by two years have come into force with effect from 1st April, 1977. the amendment exempting individuals over the age of 70 from the requirement of making compulsory deposits will come into force with effect from 1st September, 1977, and will accordingly apply in relation to the assessment year 1978-79 and 1979-80 and to any earlier assessment year. AMENDMENT TO THE VOLUNTARY DISCLOSURE OF INCOME AND WEALTH ACT - 1976 Extension of time for payment of tax and making deposits in notified securities 34.1 Person making a disclosure of income under section 14 of the Voluntary disclosure of Income and Wealth Ordinance, 1975 (later replaced by the Voluntary Disclosure of Income and Wealth Act, 1976),in cases of search and seizure were required to pay at least one-half of the tax chargeable in respect of the income of the previous year or years for which the declaration was made by 31st March, 1976 and the remaining amount by 31st March, 1977. Person making a voluntary disclosure of wealth under section 15 of the said Act were similarly required to pay one-half of the wealth-tax chargeable in respect of the net wealth for the assessment year or years for which the declaration was made by 31st march, 1976, and the balance by 31st March, 1977. In addition they were required to invest an amount equal to 21/2 per cent. of the net wealth or, as the case may be, the value of assets declared by them in notified Government securities within thirty days from the date on which the declaration was made. A large number of persons who made declarations under these provisions were, however, not able to comply with the aforesaid time limits for payment of tax and for investment in notified Government securities, thereby forfeiting the benefit of immunity from penalty, prosecution, etc., provided under that Act. 34.2 In order to give a last chance to such person to pay their tax dues and to make investment in notified Government securities, the Finance Act has amended the relevant provisions of the Voluntary Disclosure of Income and Wealth Act, 1976, to provide that taxpayers who pay the unpaid amount before 1st January, 1978, and where required, also make investment in notified Government securities before that date, will be entitled to the immunities provided under the said Act. Such persons will be required to pay simple interest at the rate of 12 per cent. per annum on the amount of tax remaining unpaid on 31st March, 1976. The interest will be payable from 1st April, 1976, to the date of payment of such tax. It is relevant to note that the benefit of immunity under the said Act will be available only where both the unpaid tax and interest as so calculated are paid by the declarant before 1st January, 1978. 34.3 The aforesaid amendments have come into force retrospectively with effect from 1st April, 1976. AMENDMENT TO THE KHADI AND VILLAGE INDUSTRIES COMMISSION ACT, 1956. Exemption of Khadi and Village Industries Commission 35.1 The Khadi and Village Industries Commission was established under the Khadi and Village Industries Commission Act, 1956, to plan, organise and implement programmes for the development of khadi and village industries. The Commission functions under the control, supervision and direction of the Central Government. Having regard to the laudable objects of the Commission and the fact that the profits derived by it are utilised for the advancement of its objects, the Finance Act has inserted a new section 24A in the Khadi and Village Industries Commission Act, 1956, exempting the Commission from payment of income-tax on its income, profits or gains. 35.2 The new section 24A has come into force retrospectively with effect from 1st April, 1962 i.e., from the commencement of the Income-tax Act, 1961, and as such, the exemption provided by this section will apply in relation to the assessment year 1962-63 and subsequent years. AMENDMENT TO THE FINANCE ACT, 1973 Exemption of Credit Guarantee Corporation of India Limited. 36.1 The Credit Guarantee Corporation of India Ltd. is registered as a company under the Companies Act, 1956. About 60 per cent. of its paid-up capital is held by the Reserve Bank of India and the remaining by the State bank of India and its subsidiaries, nationalised banks and other banking and financial institutions. The Corporation guarantees loans advanced by banks and financial institutions to small borrowers in the priority and other sectors which have remained relatively neglected. the Corporation serves a desirable socio-economic purpose and with a view to enabling it to perform its functions effectively and to build up its reserves, the Corporation was exempted from income-tax and surtax by section 23 of the Finance Act, 1973, for a five-year period covering the assessment year 1972-73 to 1976-77 (both inclusive). The Credit Guarantee Corporation of India Ltd. is proposed to be shortly merged with the Deposit Insurance Corporation. The Finance (No.2) Act, 1977 has amended section 23 of the Finance Act 1973 in order to continue the exemption of the Credit Guarantee Corporation of India Ltd. from income-tax and surtax for a further period of two years, i.e., assessment years 1977-78 and 1978-79. 36.2 The aforesaid amendment has come into force with effect from 1st April, 1977. AMENDMENT TO THE OIL INDUSTRY (DEVELOPMENT) ACT, 1974 Exemption of Oil Industry Development Board 37.1 The Oil Industry Development Board has been established under section 3 of the Oil Industry (Development) Act, 1974. The main function of the Board is to render financial and other assistance for the promotion of all such measures as are conducive to the development of oil industry. The members of the Board are appointed by the Central Government from among officer of the ministries dealing with petroleum and chemicals; Ministry of Finance; corporations owned or controlled by the Central Government and engaged in oil industry; representatives of labour; and persons having special knowledge or experience of oil industry. The funds required for the purposes of the Board are raised by the Central Government by means of a cess on indigenous crude oil levied under section 15 of the Oil Industry (Development) Act, 1974. The Board derives income by way of interest from term deposits by investment of surplus funds. 37.2 Having regard to that act that the Board control the disbursement and administration of its funds in consultation with the Government; that its interest earnings are set off against Petroleum Ministry's total budgetary demands; and the fact that the Board is not an institution run with profit earning motive, the Finance Act has inserted a new section 22A in the Oil Industry (Development) Act, 1974, exempting the Board from payment of income-tax on its income, profits or gains. 37.3 This amendment has come into force retrospectively with effect from the commencement of the Oil Industry (Development) Act, 1974 [Section 37 of the Finance Act.] (Sd. O. P. Bhardwaj, Director, Central Board of Direct Taxes. F.No. 131/9/77-TPL