TMI BlogAmendments at a glance , Rate structure , Amendments to Income-tax Act , Amendments to Wealth-tax Act , Amendments to Unit Trust of India Act , Amendments to Companies (Profits) Surtax ActX X X X Extracts X X X X X X X X Extracts X X X X ..... e housing boards, development boards, etc. 41 10(22A) Exemption of income of hospitals and other medical institutions 42 11(1)(a), Exemption of income of public charitable and religious trusts 18-23 (Expln.)/(2)/ (3)/(4), 13, 139(4A), 80G, Expln. 2 16(iv) Standard deduction for expenditure on travelling in the case of salaried employees 43-44 35B(1)(b)(iii) Export markets development allowance 51 36(1)(viii) Deduction of profits transferred to special reserve account in case of certain financial corporations 52-53 37(2A), (2B) Entertainment expenditure in businesses and professions 33-34 37(4) Guest houses maintained in businesses and professions 35-37 80C(2)(g) Married couples governed by the concept of "community of property" in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu 45-47 80L Deduction of income from certain categories of investments 12-15 80MM(1) Income derived by companies from transfer or servicing of technical know-how 54-55 164 Char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 82 Rate structure Finance Act, 1970 Rates of income-tax for the assessment year 1970-71 2. The rates of income-tax for the assessment year 1970-71 in the case of all categories of taxpayers (corporate as well as non-corporate) are specified in Part I of the First Schedule to the Finance Act, 1970. These rates - summarised in Annexure I to this circular - are the same as those specified in Part III of the First Schedule to the Finance Act, 1969, for the purpose of deduction of tax at source during the financial year 1969-70 from "salaries" and for computation of advance tax payable during that financial year. Accordingly, where the total income of the taxpayer consists only of income under the head "Salaries" from which tax has been correctly deducted at source during the financial year 1969-70, it will not be necessary to raise any additional demand or grant any refund on completion of the assessment for the assessment year 1970-71. Finance Act, 1970 Rates for deduction of tax at source from "salaries" and for computation of "advance tax" during the financial year 1970-71 3. The Finance Act, 1970 follows the principle adopted in the Finance Acts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these categories of taxpayers rise progressively from 5 per cent, on income in the slab Re.1—Rs. 5,000 to 75 per cent on income in excess of Rs. 2,50,000. A Union surcharge at 10 per cent of the basic income-tax is also leviable in all cases. The progression in the rates of tax is brought about by subjecting income in the successive slabs to tax at steadily increasing rates. Thus, on income in the first six slabs of Rs. 5,000 each (covering a span of Rs. 30,000), the present rates are respectively, 5 per cent, 10 per cent, 17 per cent, 23 per cent, 30 per cent and 40 per cent; in the next two slabs of Rs. 20,000 each (covering the range of Rs. 30,001— Rs. 70,000), the rates are, respectively, 50 per cent and 60 per cent; in the next higher slab covering a span of Rs. 30,000 (Rs. 70,001—Rs. 1,00,000), the rate is 65 per cent; in the next higher slab covering a span of Rs. 1,50,000 (Rs. 1,00,001—Rs. 2,50,000), the rate is 70 per cent; and on income in the slab above Rs. 2,50,000, the rate is 75 per cent. Finance Act, 1970 5. From the tax as computed at these rates, certain deductions are made, at present, in the case of resident individuals and Hindu undivided families only, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t non-corporate taxpayer, where the total income does not exceed a specified "small income exemption limit". The "small income exemption limit" is Rs. 4,000 in the generality of cases, and Rs. 7,000 in the special case of a resident Hindu undivided family which satisfies certain conditions. [These conditions are that the family had, during the relevant year, at least two adult members entitled to claim partition or, alternatively, it had two members (whether adults or otherwise) entitled to claim partition who were not lineally descended one from the other and were not also lineally descended from any other living member of the family.] These "small income exemption limits" are not applicable in the case of non-resident taxpayers. Even in the case of resident taxpayers, the "small income exemption limit" of Rs. 4,000 is significant only in the case of unmarried individuals and also unregistered firms, associations of persons, etc. In the case of married individuals and also Hindu undivided families, the effect of the deduction on account of personal allowances, as stated in the preceding paragraph, is to exempt the first Rs. 4,000 or a higher amount (depending upon the number of ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith two or more minor coparceners - Rs. 11 in each case. [The dependent parent allowance of Rs. 20 has also been discontinued and, consequently, in the case of those who are presently entitled to this allowance, there will be a small increase in the tax payable, by Rs. 11.] b. Resident married individuals with one dependent child, and resident Hindu undivided families with one minor coparcener Rs. 33 in each case. c. Resident married individuals having no dependent child and resident Hindu undivided families having no minor coparcener Rs. 55 in each case. d. Resident unmarried individuals Rs. 137.50 in each case. Non-resident individuals and Hindu undivided families, as also unregistered firms, associations of persons, etc., whether resident or not, will also benefit in the tax payable by them. 4. The pre-existing "small income exemption limit" of Rs. 4,000, in the generality of cases of resident non-corporate taxpayers, has been dropped altogether. The prescription of a nil rate of tax on income in the initial slab of Rs. 5,000 as stated at (1) above, secures that no tax will be payable by a non-corporate taxpayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1969. Amendments to Income-tax Act Finance Act, 1970 Nature of amendments 11. The amendments made by the Finance Act, 1970 to the Income-tax Act, 1961, may be broadly classified under the following heads: 1. Measures for facilitating savings and investment. 2. Measures for plugging loopholes in the law leading to tax avoidance. 3. Measures for strengthening the administrative machinery of the Income-tax Department. 4. Measures for providing tax reliefs in certain directions and avoiding inconvenience to assessees in certain cases. 5. Other amendments. The substance of these provisions is explained in the following paragraphs. Measures for facilitating savings and investment Finance Act, 1970 Increase in the quantum of exemption from tax of income from certain categories of investments 12. Under the provisions of the Income-tax Act and Unit Trust of India Act, before their amendment by the Finance Act, 1970, income derived by a taxpayer from investments in certain categories of financial assets enjoyed exemption from tax. These exemptions were : a. income up to Rs. 1,000 received on units in the Unit Trust of India; b. income up to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tgage banks and land development banks. 7. Deposits with a financial corporation which is engaged in providing long-term finance for industrial development in India and which is approved by the Central Government for the purpose of section 36(1)(viii) of the Income-tax Act. It will be open to the taxpayer to make investments according to his choice in one or more of the above-mentioned categories of financial assets and qualify for the deduction up to Rs. 3,000 in the aggregate in respect of income derived from these investments in the computation of his taxable income. [The existing total exemptions in respect of income derived from investments in various small savings securities and deposits continue independently.] Finance Act, 1970 14. The provisions of section 80L as amended will be operative from 1-4-1971, and will, accordingly, apply to the assessment year 1971-72, i.e., in relation to income derived from the specified categories of investments during the financial year 1970-71 or any other previous year relevant to the assessment year 1971-72. Finance Act, 1970 15. Under a consequential amendment to section 80M, it has been provided that in the case of a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of small savings schemes having features which will be attractive to investors in different income groups. Simultaneously, some of the existing small savings schemes are also being modified to make these more attractive to investors. Some of the new small savings schemes carry the advantage of exemption from income-tax on the interest as in the past, while others provide for a higher rate of interest which will be subject to tax but will qualify for the deduction up to Rs. 3,000 under section 80L together with income from other specified categories of financial assets as explained in paragraph 13 above. With a view to encouraging large investments in these schemes, particularly by persons in the rural areas, the Finance Act, 1970 has amended the relevant provisions of the Income-tax Act so as to secure payment of the interest on investments of the taxable category without deduction of tax at source. This facility has been provided in respect of interest on the following new schemes : 1. 7-Year National Savings Certificates (IV Issue); 2. Debentures issued by any co-operative society (including a co-operative land mortgage bank or a co-operative land development bank) or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long as such accumulation does not exceed 25 per cent of the income of the trust or Rs. 10,000, whichever is higher. Any accumulation of income in excess of this limit is, all along, subject to tax. A similar exemption is available also in cases where property is held under trust in part only for charitable or religious purposes provided the trust was created before 1-4-1962. In both these types of trusts, accumulation of income beyond the limit of 25 per cent of the income of the trust or Rs. 10,000, whichever is higher, is allowed to be made without attracting tax liability on the excess, if the trust complies with certain procedural formalities (of giving notice to the Income-tax Officer specifying the purpose for which the income is desired to be accumulated, and the period for which the accumulation is proposed to be made) and subject to the requirement that the income so accumulated is invested in Government securities or any other approved securities. The maximum period for which such accumulation may be made under this provision is 10 years, and if the accumulated income is not applied to the purposes for which it was accumulated within one year of the expiry of the 10-yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y following previous year. Any income which is not applied to the purposes of the trust in India during the previous year to which the income relates, or which is not deemed to have been applied to such purposes during such previous year under the option referred to above, will be subjected to tax as if such income were the total income of an association of persons. 2. The existing provisions in section 11(2) which allows accumulation of the income of the trust for specified purposes for a maximum period of 10 years will continue to be operative subject to the existing condition that the person in receipt of the income informs the Income-tax Officer in writing of the purpose for which the income is being accumulated and also subject to the requirement that the moneys so accumulated are invested in the specified manner. Besides investment in Government securities or any other approved securities as under the existing law, sub-section (2), as amended, allows the deposit of the accumulated moneys in any account with the Post Office Savings Bank [including deposits under the Post Office (Time Deposits) Rules, 1970] or in any banking company, co-operative bank, land mortgage bank or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or established after 31-3-1962, the exemption from tax will be forfeited if under the terms of the trust or the rules governing the institution, any part of the trust income enures for the direct or indirect benefit of the persons specified in new sub-section (3) of section 13. Such persons are : (a) the author of the trust or founder of the institution, (b) any person who has made a substantial contribution to the trust or institution, (c) where the author, founder or substantial contributor is a Hindu undivided family, a member of the family, (d) any relative of such author, founder, substantial contributor or member of the family, and (e) any concern in which any such author, founder, substantial contributor, member of the family or relative has a substantial interest. For the purposes of these provisions, the term "relative" will have the enlarged connotation as under the existing law. According to the definition of "relative" in section 2(41) an individual's relatives will comprise the individual's husband, wife, brother, sister and lineal ascendants and descendants of the individual. For the purposes of the provision in section 13, "relative" includes also a lineal descen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperties for the trust or institution from any of the specified persons for more than adequate consideration; f. sale of shares, securities or other property of the trust or institution to any of the specified persons for less than adequate consideration; g. diversion of a substantial portion of the income or property of the trust or institution in favour of any of the specified persons ; h. investment of the trust funds in any concern in which any of the specified persons has a substantial interest. The transactions at (a), (b) and (h) above will result in forfeiture of the exemption not only where these are entered into for the first time during the previous year, but also where these had been entered into in any earlier previous year and the arrangements continue to be in force for any period during the relevant previous year. However, it has been specifically provided that in respect of transactions at (a) to (g) above, these would not result in the forfeiture of exemption from tax in the case of a religious trust or religious institution, whenever created or established, or a charitable trust or institution, created or established before 1-4-1962, insofar as these tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st only in relation to the income from such investment and not in relation to the remainder of its income. 6. For the purposes of the provision in clause (h) of sub-section (2) of section 13, relating to investment of the trust funds in any concern in which any of the specified persons has a substantial interest, it may be noted that this provision has to be applied only with reference to investments in the capital of the concern as distinct from investments in the debentures of a company or by way of loans to a company or other concern. This is because under clause (a) of sub-section (2), a trust will be deemed to have used or applied its income or property for the benefit of the specified persons if any part of such income or property is, or continues to be, lent to any such person for any period during the previous year without adequate security or adequate interest or both. From this it follows that if the lending of the trust funds to any of the specified concerns either by way of debentures or otherwise is for adequate security and for adequate interest, that would not constitute use or application of the income or property for the benefit of any of the specified persons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be that a charitable trust or institution would forfeit the exemption from tax on its income if the funds of the trust or institution are invested in any concern in which the author of the trust, founder of the institution or any of the other persons specified in this behalf has a substantial interest. Accordingly, where the charitable institution or fund holds investments in any such concern, it will not satisfy the test of being eligible for exemption from tax on its income for the purpose of section 80G and, consequently, persons making donations to such an institution or fund would lose the tax relief in respect of their donations. As it is not the intention to deny tax relief to persons making donations to a charitable institution or fund which has invested its moneys in any of the prohibited concerns only up to the limit of 5 per cent of the capital of the concern, Explanation 2 appearing below sub-section (5) of section 80G has been amended. This amendment makes it clear that persons making donations to charitable institutions and funds will continue to be eligible for tax relief on such donations by way of deduction under section 80G, notwithstanding that the institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal rate which would have been applicable if their shares had been determinate. Finance Act, 1970 25. In order to put an effective curb on the proliferation of such trusts, and to reduce the scope for tax avoidance through such means, the Finance Act, 1970 has replaced section 164 by a new section. Under section 164 as so replaced, a "representative assessee", who receives income for the benefit of more than one person whose shares in such income are indeterminate or unknown, will be chargeable to income-tax on such income at the flat rate of 65 per cent or the rate which would be applicable if such income were the total income of an association of persons, whichever course would be more beneficial to the Revenue. Finance Act, 1970 26. With a view to obviating hardship in genuine cases where the circumstances are such that tax evasion could not be considered to be the main purpose of creating the trust, certain exceptions have been specified where the flat rate of tax of 65 per cent will not apply. These exceptions are as under : 1. Where none of the beneficiaries of the trust has any other income chargeable to income-tax, the income of the trust will be charged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, "relative" includes not only the wife and children of the settlor but also brother or sister, parent, grandparent as well as grandchildren, great grandchildren, etc. In all these cases, the benefit of exemption from the flat rate of 65 per cent will be available only where it is shown that these relatives were, at the relevant time, mainly dependent on the settlor for their support and maintenance. This provision will accordingly cover cases where a discretionary trust was created any time in the past to provide for, e.g., a widowed sister, a disabled brother, besides the wife and children, including grandchildren of the settlor, all of whom were being maintained and supported by the settlor. If any of these relatives had their own independent means of livelihood, they would not be considered as being mainly dependent on the settlor for their support and maintenance. 4. Another exception to the provision for taxation of the income at the rate of 65 per cent is where the income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant year's Finance Act in the case of an association of persons, whichever is applicable. Accordingly, advance tax will be payable during the financial year 1971-72 and subsequent years on the income of private discretionary trusts in accordance with the provisions of section 164 as explained in the preceding paragraphs. [Section 2(37A) as amended by section 3(c) of the Finance Act, and section 164 as substituted by section 21 of the Finance Act] Finance Act, 1970 Capital gains arising from transfer of agricultural land in urban areas 29. Capital gains arising from the transfer of a capital asset have been chargeable to income-tax for several years past. Where the transfer of the capital asset is effected within a period of 24 months from the date of its acquisition by the assessee, the capital gain is treated on a par with ordinary income and charged to tax on that basis. Gains arising from the transfer of a capital asset held by the assessee for more than 24 months are charged to tax on a concessional basis. In the case of companies, such gains are taxed at the rate of 40 per cent where they relate to lands and buildings, and at 30 per cent where they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having a population of not less than ten thousand and also beyond the distance notified by the Central Government from the limits of any such municipality or cantonment board, will continue to be excluded from the term "capital asset". Finance Act, 1970 31. The amendment to section 2(14), as stated in the preceding paragraph, applies from 1-4-1970, i.e., for and from the assessment year 1970-71. However, by an amendment to section 47 it has been specifically provided that no capital gain or loss will be computed with reference to any transfer of agricultural land in India effected before 1-3-1970. Finance Act, 1970 32. The effect of the amendments to section 2(14) and section 47, as stated above, will be that capital gains arising from transfer of agricultural lands situated in the municipal and other urban areas on or after 1-3-1970, will become liable to taxation even where such land was held for bona fide agricultural purposes, often as the main source of livelihood. With a view to relieving the burden of taxation on the capital gains in such cases, a provision has been made, in a new section 54B, for exempting from tax the capital gain arising from the transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, and section 37(2B) inserted by section 10(b) of the Finance Act] Finance Act, 1970 Guest houses maintained in businesses and professions 35. Under the Income-tax Act, prior to its amendment by the Finance Act, 1970, expenditure incurred by an assessee on the maintenance of guest houses for the purposes of his business or profession has been allowable as a deduction in computing the profits and gains of the business or profession, subject to certain limits and conditions specified in rule 6C of the Income-tax Rules. This rule covers expenditure on guest houses maintained at the principal place of the business or profession in India, any place where the assessee has an establishment for processing of raw materials, manufacture, processing or production of any article or thing, or any other industrial establishment employing not less than 50 whole-time employees throughout the relevant year, and, in the case of a business or profession having not less than 100 whole-time employees on its rolls also "holiday homes" for the use of such employees while on leave. The rule also covers guest houses at Delhi and at two other places in India which may be either the capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1970 Present set up 38. The field organisation of the Income-tax Department is, at present, organised into territorial charges with one or more Commissioners of Income-tax at the head. Each Commissioner is assisted by several Inspecting Assistant Commissioners of Income-tax who supervise and control the work of the Income-tax Officers assigned to their charge. The jurisdiction of Commissioners of Income-tax is laid down by the Board, and, within their respective jurisdictions, they also perform the functions of Commissioners of Wealth-tax and Gift-tax as also Controllers of Estate Duty. In recent years, the functions of the Commissioner of Income-tax have increased enormously both in the technical sphere, partly statutory and partly non-statutory, and on the administrative side, with the result that the present strength of Commissioners is found to be inadequate for timely performance of all these functions. Finance Act, 1970 New cadre of Additional Commissioners 39. With a view to ensuring greater attention to the functions of Commissioners of Income-tax, without fragmenting their charges into non-viable units, and enabling them to devote special attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 263 and 264; b. sanction for proceedings under section 147(a) and issue of notice under section 148 [section 151(2)]; c. approval of annuity contract under section 80E(3) and withdrawal of approval; d. relief when salary, etc., is paid in arrears or in advance under section 89(1); e. determination of period to be excluded for interest calculation -section 243(2); f. determination of appearance by authorised representatives under section 288(4); g. recognition of Provident Funds under Part A of the Fourth Schedule; h. approval of Superannuation Funds under Part B of the Fourth Schedule; i. approval of Gratuity Funds under Part C of the Fourth Schedule; j. corresponding powers under the Gift-tax Act and Wealth-tax Act. 2. Functions to be performed by the Additional Commissioners of Income-tax (Recovery) - All the functions of the Commissioner of Income-tax, under the 1961 Act and the 1922 Act, in connection with the recovery of taxes including stay of demands, withholding of refunds under section 241 and the work of Tax Recovery Commissioners. MEASURES FOR PROVIDING TAX RELIEF AND AVOIDING INCONVENIENCE TO ASSESSEES IN CERTAIN CASES Finance Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l attention or rehabilitation. The income of all these categories of institutions will be exempt from tax altogether, as in the case of Universities and other educational institutions. The amendment takes effect from 1-4-1970 and accordingly applies for and from the assessment year 1970-71. [Section 10(22A) inserted by section 4(b) of the Finance Act] Finance Act, 1970 Standard deduction for expenditure on travelling in the case of salaried employees 43. Hitherto, a salaried taxpayer owning a conveyance (motor car, motor cycle, scooter, bicycle, etc.) and using it for the purpose of employment, has been eligible for a standard deduction from his salary income to cover the expenditure incurred by him on the maintenance of the conveyance and its wear and tear attributable to its use for the purpose of employment. The standard deduction for a motor car has been Rs. 200 per month where the gross yearly salary does not exceed Rs. 25,000, and Rs. 250 per month, where it exceeds Rs. 25,000; for a motor cycle, scooter or other moped, it has been Rs. 50 per month, and for bicycle, Rs. 5 per month. The standard deduction has not been available in the case of salaried employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wnership of the property continues as long as the marriage subsists. In view of this position, income from all properties, including business, shares, securities and other investments, which before the marriage belonged to the spouses separately, as also income from properties acquired by either spouse after the marriage, belongs to them jointly and the assessment of such income has to be made on the spouses jointly in the status of an association of persons or body of individuals. In regard to income from salary and other income derived by personal exertion, however, the spouses will be assessable individually on their separate incomes. Finance Act, 1970 46. The Finance Act, 1970 has amended section 80C (relating to tax relief in respect of long-term savings in specified media in the case of individuals and Hindu undivided families) so as to extend to married couples governed by the system of "community of property" in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu the benefit of tax relief on their long-term savings in the specified media on the same lines as are presently available in the case of individuals. Under the section as amended, married c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerns, who though technically not resident in India, conduct their activities in this country on a more or less permanent basis through a branch or other establishment and are regularly assessed to income-tax here. Besides, the existing provision, if interpreted strictly, would require tax to be deducted at source with reference to the income element embedded in payments made by a large number of consumers for goods or services provided by non-resident concerns operating in India. With a view to avoiding hardship and inconvenience in such cases, the Finance Act, 1970 has made a specific provision in section 195 under which any non-resident, including a foreign company, may obtain, from the Income-tax Officer, a certificate authorising him to receive payments of income by way of interest (other than "interest on securities") or any other sum (other than dividends) which is chargeable to tax in India, without deduction of tax at source. Such application may be made in the cases and under the circumstances to be specified by the Central Board of Direct Taxes in the Income-tax Rules. The Rules will also specify the conditions subject to which such a certificate may be granted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 1970 has made a provision in section 212 authorising the Commissioner of Income-tax to extend the due date for payment of the last instalment of advance tax in deserving cases. Such extension will be granted by the Commissioner where he is satisfied, that, having regard to the nature of the business carried on by the assessee and the date of expiry of the previous year in respect of such business, it will be difficult for the assessee to furnish the estimate of his current income and of the advance tax payable by him on such income before the due date of the final instalment. The assessee will, however, be required to pay the advance tax demanded from him by the Income-tax Officer on or before the due date specified in the law for this purpose and, if he does this, he may be allowed time to furnish the estimate of his current income and of the advance tax payable thereon up to a period of 30 days following the last day of the previous year in respect of his business. Where such extension is granted by the Commissioner, the assessee may pay the further amount of advance tax (i.e., the amount by which the advance tax already paid by him falls short of the advance tax paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the financial corporation is approved by the Central Government for this purpose. Up to and inclusive of the assessment year1965-66, the amount of the deduction under this provision was limited to 10 per cent of the total income of the corporation. Under the Finance Act, 1966, the quantum of the deduction was increased to 25 per cent of the total income in the case of a financial corporation having a paid-up capital of not exceeding Rs. 3 crores. This amendment was made with a view to facilitating the building up of internal resources of these corporations at a fast pace, so as to enable them to dispense with the need for obtaining subventions from the State Governments. The amendment made by the Finance Act, 1966, was effective from 1-4-1966 and was applicable to assessments for the assessment year 1966-67 and subsequent assessment years. The intention was that in the assessment for 1966-67, any financial corporation which was already entitled to the deduction up to 10 per cent of its total income under the earlier law, should qualify for the increased quantum of deduction if it transferred the necessary further amount to the reserve in the accounts of the relevant previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services are provided, has been approved by the Central Government before 1st October of the relevant assessment year. During the clause-by-clause consideration of that Bill in the Lok Sabha, an amendment was made to this provision which had the effect of making the concessional basis of taxation available subject only to the condition that the approval of the Central Government to the relevant agreement should have been applied for before 1st October of the assessment year, even though approval may be refused subsequently. As the provision for approval of the agreement by the Central Government was intended to prevent abuse of the tax concession, the Finance Act, 1970 has made a clarificatory amendment to the above-mentioned provision in section 80MM so as to make it clear that the tax concession will be available only where the relevant agreement is approved by the Central Government and that such approval is to be applied for before 1st October of the relevant assessment year. [Section 80MM as amended by section 16 of the Finance Act] AMENDMENTS TO WEALTH-TAX ACT Finance Act, 1970 Increases in the rates of ordinary wealth-tax and modifications in the scheme of levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness premises" (i.e., buildings and lands used by the taxpayer for the purposes of his own business or profession) are excluded from the scope of the levy. The Finance Act, 1970 has made certain modifications in the scheme of levy of additional wealth-tax in the case of individuals and Hindu undivided families, as explained in the following paragraphs. Finance Act, 1970 58. For and from the assessment year 1971-72, additional wealth-tax will be leviable on the net value of lands and buildings situated in "urban areas" and included in the net wealth of the individual or Hindu undivided family. For the purpose, "urban area" is defined to mean any area within the limits of a municipality or cantonment board which has a population of not less than 10,000 according to the latest census for which relevant figures have been published. Power has been vested in the Central Government to bring within the term "urban area", by notification in the Official Gazette, any area falling outside the limits of any such municipality or cantonment board and up to a maximum distance of 8 kilometres from such limits. This will be done by the Central Government having regard to the extent of, and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of acquiring, improving, constructing, repairing, renewing or reconstructing such land or building. But in respect of other debts which are deductible in computing the net wealth of the assessee, these will first be deducted from the gross value of assets other than lands and buildings in "urban areas" (excluding business premises), and only the balance, if any, will be deducted from the value of such lands and buildings. Finance Act, 1970 63. The above-mentioned provisions, for increases in the rates of ordinary wealth-tax and changes in the scheme of levy of additional wealth-tax on the value of urban lands and buildings, will be effective from 1-4-1971, i.e., for and from the assessment year 1971-72. The maximum rate of ordinary wealth-tax was increased to 3 per cent with effect from the assessment year 1969-70 under the Finance Act, 1968. In the context of this change and the further increases in the rates of ordinary and additional wealth-tax under the Finance Act, 1970, the provision in rule 2 at the end of Part II of the Schedule to the Wealth-tax Act, which has the effect of limiting to 2.5 per cent the wealth-tax chargeable in the case of individuals and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of one residential house will be limited to Rs. 1 lakh in all cases. This provision will be effective from 1-4-1971, and will be applicable for and from the assessment year 1971-72. [Section 5(1)(iv) as amended by section 26(b) of the Finance Act] Finance Act, 1970 Exemption from wealth-tax of the value of one farm house 66. Under section 5(1)(iv), before its amendment by the Finance Act, 1970, as stated in the preceding paragraph, a "farm house" (i.e., a residential house used by the taxpayer which is situated on agricultural land and which is used by him for supervising or directing his agricultural operations) was exempt from wealth-tax irrespective of its value, because such farm houses would, by and large, be situated in places having a population of not more than 10,000 persons. Under the clause as amended by the Finance Act, 1970, the exemption will hereafter be limited to Rs. 1 lakh even in such cases. Persons having extensive agricultural holdings may have farm houses situated in the midst of such holdings, the value of which may even exceed Rs. 1 lakh; and such persons may also own a residential house apart from the farm house. As a farm house is essent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on from wealth-tax, the Finance Act, 1970 has extended the exemption from wealth-tax to the following categories of investments : 1. Securities of the Central Government or of any State Government. 2. Shares in Indian companies. 3. Debentures, issued by any co-operative society (including a co-operative land mortgage bank and a co-operative land development bank) or any other institution or authority, which may be notified by the Central Government in the Official Gazette for the purpose of this exemption. 4. Units in the Unit Trust of India. 5. Deposits in banking companies, or co-operative banks, including land mortgage banks and land development banks. 6. Deposits with a financial corporation which is engaged in providing long-term finance for industrial development in India and which is provided for the purposes of section 36(1)(viii). Finance Act, 1970 69. There will be an overall limit of Rs. 1,50,000 on the exemption in respect of investments in the above-mentioned assets taken together with the investments already exempt from wealth-tax, namely, the 5-Year Fixed Deposits with the Central Government and investments or deposits in various small savings sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istribution and allocation of work on the functional basis among Commissioners of Wealth-tax including Additional Commissioners 73. The Wealth-tax Act already provides for the distribution and allocation of work among Commissioners of Wealth-tax on the functional basis by orders of the Central Board of Direct Taxes. In the context of the creation of a cadre of Additional Commissioners of Income-tax to take over some of the functions of the Commissioners and allocation of the work on the functional basis among Commissioners and Additional Commissioners for the purposes of the Wealth-tax Act as well, the Finance Act, 1970 has made a specific provision in new section 11AA. Under the new section, in a case where two or more Commissioners (including Additional Commissioners) have been vested with concurrent jurisdiction over any assessee, the Commissioner competent to perform any function under the Wealth-tax Act will be the Commissioner (or Additional Commissioner) who is empowered to perform such functions under the orders made by the Board under the existing provisions for distribution and allocation of the work among them. [Section 11AA inserted by section 26(c) of the Finance A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled on such a trust to wealth-tax at the flat rate of 1.5 per cent or at the appropriate higher rate of wealth-tax which would be applicable if such assets were held by an individual (who is a citizen of India and resident in India) at the progressive rates of tax applicable in the case of an individual. The flat rate of 1.5 per cent will be applied under this provision to the whole of the net wealth without the initial exemption of Rs. 1 lakh which is available under the rate schedule of ordinary wealth-tax in the case of individuals. Where the assets of the trust include lands and buildings in urban areas to which the additional wealth-tax applies (vide paragraphs 58-62 of this circular), such additional wealth-tax will also be chargeable for the purpose of ascertaining whether the appropriate rate of wealth-tax chargeable on such net wealth in the case of an individual is higher than the flat rate of 1.5 per cent. Where the aggregate of ordinary wealth-tax and additional wealth-tax (if any) exceeds wealth-tax at the rate of 1.5 per cent on the net wealth, the higher amount will be the wealth-tax payable. Finance Act, 1970 77. This provision is complementary to the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estate over Rs. 20 lakhs. With a view to bringing the rates of gift-tax more in line with the rates of estate duty and to reducing opportunities for avoidance of estate duty liability by making gifts, the Finance Act, 1970 has made the following changes in the rate structure of gift-tax : 1. The value of gifts generally exempt from gift-tax has been reduced from Rs. 10,000 to Rs. 5,000. 2. The slabs of taxable gifts have been regarded and the rates of gift-tax in some of the slabs have been revised upward. Under the revised rate schedule, the rate of gift-tax on the first slab of Rs. 20,000 of the value of all taxable gifts, [i.e., after deducting the initial exemption of Rs. 5,000 as stated at (1) above] is 5 per cent; on the next slab Rs. 20,001—Rs. 50,000 the rate is 10 per cent; in the slab Rs. 50,001—Rs. 1,00,000, 15 per cent; in the slab Rs. 1,00,001—Rs. 2,00,000, 20 per cent; in the slab Rs. 2,00,001—Rs. 5,00,000, 25 per cent; in the slab Rs. 5,00,001—Rs. 10,00,000, 30 per cent; in the slab Rs. 10,00,001—Rs. 15,00,000, 40 per cent; in the slab Rs. 15,00,001—Rs. 20,00,000, 50 per cent; and on the value of all taxable gifts over Rs. 20,00,000, the rate of gift-tax is 75 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of section 80L of the Income-tax Act for exempting income up to Rs. 3,000 from specified categories of investments including units in the Unit Trust of India (vide paragraphs 12 and 13 of this circular), the Finance Act, 1970, has made the following changes in the relevant provisions of the Unit Trust of India Act : 1. The existing provisions conferring exemption from tax up to Rs. 1,000 on income in respect of units has been deleted. 2. In the case of income in respect of units paid to a unit-holder who is a non-resident, tax will be deductible at source from such income only where it exceeds Rs. 3,000, as against Rs. 1,000 under the provision, before amendment. [Section 32 as amended by section 38 of the Finance Act] Amendment to companies (profits) Surtax Act Finance Act, 1970 Inclusion of Additional Commissioners of Income-tax in the categories of tax authorities for the purposes of surtax 82. Under the existing provision in section 3, the tax authorities for the purposes of that Act are the same as those for the purposes of the Income-tax Act. In the context of the amendment to the Income-tax Act to include Additional Commissioners of Income-tax in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undivided family which has at least two members, aged not less than 18 years, who are entitled to claim partition, or which has at least two members, entitled to claim partition who are not lineally descended one from the other and also who are not lineally descended from any other living member of the family 7,000 b. Resident taxpayers other than Hindu undivided families referred to in(a) above 4,000 Where the total income does not exceed Rs. 20,000, the tax chargeable after allowing the tax relief on account of personal allowances as at (2) below (where due) is limited, by way of marginal relief, to 40 per cent of the amount by which the total income exceeds the above limit of Rs. 7,000 or Rs. 4,000, as the case may be. 2. Tax relief in the case of resident individuals and Hindu undivided families on account of personal allowances : a. A resident individual whose total income does not exceed Rs. 10,000 and who has, during the previous year, incurred any expenditure on the maintenance of any one or more of his parents or grandparents mainly dependent on him, is entitled to a reduction in the amount of tax chargeable on his total income, on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from all sources in respect of the previous year exceeds Rs. 1,000. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. 2. Co-operative Societies Rates of income-tax (exclusive of surcharge on income-tax) (1) On total income not exceeding Rs. 10,000 15 per cent of the total income; (2) On total income exceeding Rs. 10,000 but not exceeding Rs. 20,000 Rs. 1,500 plus 25 per cent of the excess; over Rs. 10,000; (3) On total income exceeding Rs. 20,000 Rs. 4,000 plus 40 per cent of the excess over Rs. 20,000. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. 3. Registered firms Rates of income-tax (exclusive of surcharges on income-tax) On total income— (1) not exceeding Rs. 10,000 Nil; (2) exceeding Rs. 10,000 but not exceeding Rs. 25,000 4 per cent of the excess over Rs. 10,000; (3) exceeding Rs. 25,000 but not exceeding Rs. 50,000 Rs. 600 plus 6 per cent of the excess over Rs. 25,000; (4) exceeding Rs. 50,000 but not excee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany is not a company in which the public are substantially interested,— (i) in the case of an industrial company— (1) on so much of the total income as does not exceed Rs. 10,00,000 55 per cent; (2) on the balance, if any, of the total income 60 per cent (ii) in any other case 65 per cent of the total income Provision for marginal relief in the case of a domestic company in which the public are substantially interested and whose total income exceeds Rs. 50,000 In the case of such a company, the income-tax payable shall be limited to the aggregate of (a) the income-tax which would have been payable by it if its total income had been Rs. 50,000, and (b) 80 per cent of the amount by which its total income exceeds Rs. 50,000. [The term "domestic company" means an Indian company or any other company which has made the prescribed arrangements for the declaration and payment of dividends within India. The term "industrial company" means a company which is mainly engaged in the generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rates of income-tax (exclusive of surcharge on income tax) On total income— (1) not exceeding Rs. 5,000 Nil ; (2) exceeding Rs. 5,000 but not exceeding Rs. 10,000 10 per cent of the excess over Rs. 5,000 (3) exceeding Rs. 10,000 but not exceeding Rs. 15,000 Rs. 500 plus 17 per cent of the excess over Rs. 10,000; (4) exceeding Rs. 15,000 but not exceeding Rs. 20,000 Rs. 1,350 plus 23 per cent of the excess over Rs. 15,000; (5) exceeding Rs. 20,000 but not exceeding Rs. 25,000 Rs. 2,500 plus 30 per cent of the excess over Rs. 20,000; (6) exceeding Rs. 25,000 but not exceeding Rs. 30,000 Rs. 4,000 plus 40 per cent of the excess over Rs. 25,000; (7) exceeding Rs. 30,000 but not exceeding Rs. 40,000 Rs. 6,000 plus 50 per cent of the excess over Rs. 30,000; (8) exceeding Rs. 40,000 but not exceeding Rs. 60,000 Rs. 11,000 plus 50 per cent of the excess over Rs. 40,000; (9) exceeding Rs. 60,000 but not exceeding Rs. 80,000 Rs. 23,000 plus 70 per cent of the excess over Rs. 60,000; (10) exceeding Rs. 80,000 but not exceeding Rs. 1,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of 51 per cent thereof or more, consist of income derived from a profession carried on by the firm 10 per cent of the amount of income tax; (b) any other registered firm 20 per cent of the amount of income-tax. (2) Special surcharge. The rate of this surcharge is 10 per cent of the amount of income-tax as increased by the ordinary surcharge on income-tax referred to in (1) above. 4. Local authorities Rate of income-tax (exclusive of surcharge on income-tax) On the whole of total income - 50 per cent. Surcharge on income-tax Surcharge is leviable at the rate of 10 per cent of the amount of income-tax. B. Companies 1. Life Insurance Corporation of India (established under the Life Insurance Corporation Act, 1956) Rates of income-tax (i) On that part of its total income which consists of profits and gains from life insurance business 52.5 per cent (ii) On the balance, if any, of the total income The rate of income-tax applicable under item (2) below to the total income of a domestic company which is a company in which the public are substantially interested. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 51 per cent of such total income. II. In the case of a company other than a domestic company— (i) on so much of the total income as consists of,— (a) royalties received from an Indian concern in pursuance of an agreement made by it with the Indian concern after the 31st March, 1961, or (b) fees for rendering technical services received from an Indian concern in pursuance of an agreement made by it with the Indian concern after the 29th February, 1964 and where such agreement has, in either case, been approved by the Central Government - 50 per cent; (ii) on the balance, if any, of the total income - 70 per cent. C. Special provisions regarding computation of tax on "long-term" capital gains (i.e., capital gains other than "short-term" capital gains) in the case of companies In the case of companies, income-tax on "long-term" capital gains included in their total income is chargeable at the rates specified in section 115(ii) and not at the rates of tax applicable to the total income of the company. The rates of income-tax specified in section 115(ii) are as follows : (a) in respect of "long-term" capital gains relating to lands or buildings or any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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