TMI BlogAmendments at a glance , Amendments to Income-tax Act , Amendments to Wealth-tax Act , Amendments to Gift-tax Act , Amendments to Companies (Profits) Surtax ActX X X X Extracts X X X X X X X X Extracts X X X X ..... plantation or replacement of tea bushes 60-62 23(1), 2nd prov. Liberalisation of tax holiday for newly constructed residential units let out on rent 63 23(2) Computation of income from house property occupied by the owner for purposes of his residence 64-66 32(1A), 32(2), Amortisation of expenditure on renovation or extension of, 34(1)/(2), or improvement to, leased business premises 56-57 35(2)(iv), 38(2), 41(2A)/(5), 43(1), Explns. 1 4, 55(1), 57(ii), 59(3) 35D Amortisation of certain preliminary expenses 42-47 35E Amortisation of expenditure on prospecting for, and development of, certain minerals 48-55 64(2), 10(2), Conversion of separate property of an individual into 295(2)(b) joint Hindu family property 81-85 80B(5) Definition of "gross total income" 101-102 80G(4), prov. Deduction in respect of charitable and other donations 103-104 80K Deduction in respect of dividends attributable to "tax holiday" profits 105-106 80QQ Tax con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prosecutions for default in furnishing return of income or 276D, 279(3) in producing accounts and documents called for by notice 35-39 280ZA Tax credit certificates for shifting industrial undertakings from urban areas 67 295(2)(kk) Rule making power vested in Board for laying down procedure for interest calculation 77 Rule 60 of 2nd Rate of interest chargeable on arrears of tax in the case of Sch. sale of immovable property in recovery proceedings 116 Rule 15(1)(bb) Procedure for grant of approval to superannuation funds of Part A, and gratuity funds and investment or deposit of the moneys rules 4(1), of recognised provident funds, etc. 78-80 11 (1)(cc) of Part B, and rules 4(1), 8A, 9(1)(bb) of Part C of 4th Sch. Wealth-tax Act 5(1)(via) Exemption from wealth-tax of the value of annuities due on annuity deposits 117-118 15B(3) Penalty for failure to pay tax on self-assessment 119 18(2A), prov. Procedure for waiver or reduction of pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer or to produce his account books and other evidence in support of his return and an assessment can be made only after the examination of such account books and evidence and after hearing the assessee. This procedure has resulted in avoidable delays in completion of regular assessments even though, in the bulk of cases, no substantial point of dispute is involved and the income returned by the assessee is subjected only to certain routine adjustments so as to correct obvious errors. The Taxation Laws (Amendment) Act, 1970 4. With a view to enabling the administration to speed up the work of regular assessments in the bulk of cases which do not involve any substantial point of dispute, while guarding against leakage of revenue cases where the income declared in the return happens to be grossly understated, section 143 has been replaced by a new section. Under sub-section (1) of section 143 as substituted, it will be open to the Income-tax Officer, after receipt of the return of income, to make a regular assessment without requiring the presence of the assessee or the production by him of any evidence in support of the return, and without being satisfied that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose. For instance, it is not open to the Income-tax Officer to make an addition to the profits by applying a higher rate of gross profit than that shown in the books, even though in the earlier year's assessment the profit was estimated in this manner and was confirmed in appeal. Similarly, it will not be open to the Income-tax Officer while making a summary assessment to disallow any claim in respect of interest on loans even though the amounts on which interest is claimed to have been paid were added to the assessee's income in a past assessment as unexplained cash credits. The assessment made under section 143(1) will be final, except where proceedings are initiated under section 143(2) for making a fresh assessment. The Taxation Laws (Amendment) Act, 1970 5. Sub-section (2) of section 143 as substituted provides for initiation of proceeding calling for the books of account and other evidence in certain circumstances. Where a return of income has been received, the Income-tax Officer may, without making a "summary" assessment under section 143(1), straightaway issue a notice under section 143(2) to the assessee requiring the presence of the assessee or the production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may, however, be noted that the bar to the recovery of the disputed tax and to the levy of interest thereon, operates only in relation to demand made in pursuance of the assessment under section 143(1). It will have no relevance to the recovery of the demand which may be raised in pursuance of the fresh assessment under section 143(3). The Taxation Laws (Amendment) Act, 1970 8. Sub-section (3) of section 143 as substituted envisages the completion of regular assessment after examining the account books and other evidence and after hearing the assessee. Where no assessment has been made under section 143(1), the assessment under section 143(3), will be the first regular assessment, and in this respect the new provision is broadly, similar to the existing provision. Where a "summary" assessment has been made under section 143(1), the assessment under section 143(3) will be a "fresh" regular assessment. While such a fresh assessment is mandatory in cases where the assessee has objected to the assessment made under section 143(1), the position is different in cases in which notice under section 143(2) has been issued by the Income-tax Officer on his own volition after obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 153(1). Thus, assessments for the assessment year 1969-70 or any later year will have to be completed within two years from the end of the assessment year or one year from the date of filing of a return or revised return, whichever is later. The alternative time limit of 8 years from the end of the assessment year will, of course, apply in cases falling under section 271(1)( c ). The Taxation Laws (Amendment) Act, 1970 Provisional assessment 10. As the new scheme of making regular assessments under section 143(1) authorises the Income-tax Officer to make certain adjustments to the returned income or loss for obvious matters, the existing provision in section 141 for the making of a provisional assessment to demand tax has been omitted. However, the existing provision in section 141A for the making of a provisional assessment to grant refund of the tax paid in excess, has been retained with certain modifications. Under one of these modifications, the Income-tax Officer is authorised, while making a provisional assessment under that section, to make certain adjustments to the income or loss declared in the return. These adjustments are similar in all respects to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions to other income-tax authorities for the proper administration of the Act and such authorities and all other persons employed in the execution of the Act will be bound to observe and follow the orders, instructions and directions of the Board. It has, however, been made clear that the orders, instructions or directions of the Board shall not be such as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner. This position has already been established by court decisions. As under the existing section 119(1), the orders, instructions or directions of the Board should not interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions. The Taxation Laws (Amendment) Act, 1970 14. Under a new sub-section (2) of section 119, the Board has been specifically empowered to issue administrative directions and instructions for the purpose of proper and efficient management of the work of assessment and collection of revenue. Such directions or instructions may be by way of general or special orders in respect of any class of incomes or class of cases. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin whose jurisdiction he is functioning. [Section 25 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Modifications in the provisions relating to charge of interest for delay in furnishing the return of income, and the time for furnishing return of loss 17. Section 139 has been amended so as to place on a more sound footing the provision relating to charge of interest for delays in furnishing returns of income and the time available for furnishing return showing losses. Under the existing section 139, simple interest at 9 per cent per annum is chargeable for the delay in furnishing the return beyond the specified date in cases where the Income-tax Officer has extended the time for submission of the return on an application made by the assessee in this behalf. The specified date for this purpose, in the generality of cases, is 30th September of the assessment year and in cases where accounts of the business or profession are maintained for a year ending after 31st December interest is chargeable only for delays in furnishing the return of income beyond 31st December of the assessment year. No interest is, however, chargeable in cases where the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed as a registered firm under section 183( b ) will be the tax that would be payable on the total income of the firm on the footing that it is an unregistered firm. This provision is on the lines of the existing provision in sub-clause ( a ) of clause ( iii ) of the proviso to section 139(1). Similarly, the existing provision in sub-section (1A) of section 139 to the effect that in a case where the amount of tax on which interest was payable is reduced as a result of a proceeding by way of appeal, rectification or revision, the interest shall be reduced accordingly and any excess interest paid, refunded, is being continued under clause ( b ) of new sub-section (8). Sub-section (1A) of section 139 has accordingly been omitted. The Taxation Laws (Amendment) Act, 1970 20. The existing provision in sub-section (8) of section 139 which empowers the Income-tax Officer to reduce or waive the interest payable by any person for delay in furnishing the return of income under certain circumstances is being retained in the second proviso to clause ( a ) of the new sub-section (8). Further, specific power has been vested in the Board, under a new clause ( kk ) of section 295(2), to sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the above-mentioned time limit even if the time limit specified in sub-section (1) or sub-section (2) of section 153 for the completion of assessments or reassessments has expired. Under the existing provisions of section 153(3), such fresh assessments are not subject to any time limit. The time limit laid down under new sub-section (2A) of section 153 will be operative only in relation to assessments for the assessment year 1971-72 or any subsequent year. [Section 31 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Penalties for non-payment of tax 23. Non-payment of tax due on self-assessment - Section 140A, relating to payment of tax on self-assessment, has been replaced by a new section with effect from 1-4-1971. Besides consequential amendments, arising out of the omission of section 141, sub-section (3) of section 140A, as substituted, provides that where the assessee fails to pay the tax on self-assessment as required under sub-section (1), he shall be liable to a penalty up to 50 per cent of the tax payable and such penalty may be imposed, in the case of continuing default in successive instalments instead of at one time. The aggregate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43 and 244, relating to payment of interest by the Central Government to the assessee where the refund due to the latter is not granted within a specified period, have been amended with a view to generally reducing the period after which interest will be payable in such cases. Under the existing section 243, interest is payable by the Central Government if the refund is delayed beyond six months from the receipt of the claim in cases where the total income of the assessee consists solely of income from interest on securities or dividends or both. In cases where the assessee has income also from sources other than these, the interest runs from the date of expiry of three months from the date on which the total income is determined on assessment. Under the existing section 244, interest becomes payable by the Central Government if a refund arising out of an order in appeal, revision or other proceeding is not granted within six months from the date of such order. A similar period of six months also applies in cases where the refund arising out of any order is withheld with the previous approval of the Commissioner on the ground that the order giving rise to the refund is the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to refunds arising on assessments completed, or out of orders in appeal, revision or other proceedings passed on or after 1-4-1971. In the case of refund claims made prior to 1-4-1971 and refunds arising on assessments completed, or out of orders in appeal, revision or other proceedings passed, prior to 1-4-1971, interest will accrue if the refund is not granted before the expiry of the existing time limit. [Sections 42 and 43 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Streamlining of provisions relating to imposition of penalties 28. Revision of monetary limit for imposition of penalty by the Inspecting Assistant Commissioner in cases of concealment of income - Section 274 presently provides that cases where the minimum penalty imposable for concealment of income exceeds Rs. 1,000 should be referred by the Income-tax Officer to the Inspecting Assistant Commissioner and that the latter alone shall have the power to impose the penalty in such cases. This provision was made at a time when the minimum penalty imposable for concealment of income was an amount equal to 20 per cent of the tax sought to be avoided. However, with effect from 1-4-1968 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5 lakhs or less, the Commissioner will be competent to reduce or waive the minimum penalty without referring the matter to the Board. The monetary limit of Rs. 50,000 continues to apply in regard to the requirement of obtaining the Board's approval to the waiver or reduction of the penalty imposable for defaults in furnishing the return of income. The Taxation Laws (Amendment) Act, 1970 31. The amendment of section 271 will take effect from 1-4-1971, and, accordingly, the revised limit of Rs. 5,00,000 in terms of concealed income will apply in cases where the order waiving or reducing the minimum penalty imposable for concealment of income is passed on or after that date. [Section 48 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 32. Time limit for completion of penalty proceedings - Section 275 which specifies the time limit for completion of penalty proceedings has been substituted by a new section. Under the existing section, penalty proceedings for concealment of income or defaults in furnishing the return or accounts called for by notice or failure to pay advance tax on the taxpayer's own estimate, etc., are required to be completed wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been stayed by an order of the court, will be excluded in computing the period of limitation - has been retained. The Taxation Laws (Amendment) Act, 1970 34. The amendment of section 275 will come into effect from 1-4-1971. Accordingly, the revised time limit will apply to penalty proceedings commenced on or after that date as also to penalty proceedings commenced before that date and pending on 1-4-1971, provided the period of limitation specified in the existing provisions of section 275 has not already expired. [Section 50 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Prosecutions for defaults in furnishing the return of income or in producing the accounts and documents called for by notice 35. Under the existing provisions of section 276, there is no liability to prosecution in the case of a person who fails to furnish his return of income voluntarily as required under section 139(1). A person who fails without reasonable cause or excuse to furnish the return of income called for by a notice under section 139(2) or fails to produce the accounts and documents called for by a notice under section 142(1) is liable to prosecution but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment ( i.e., the gross tax as reduced by the tax deducted at source and the advance tax paid, if any) does not exceed Rs. 3,000. As an inducement for furnishing the return of income voluntarily within a reasonable period even after the expiry of the due date, it has been also provided that no prosecution shall lie for the delay in furnishing such return of income if the return is furnished at any time up to the last day of the relevant assessment year. The Taxation Laws (Amendment) Act, 1970 37. The new section 276C will come into effect from 1-4-1971. Accordingly, defaults in furnishing the return of income called for by notice given under section 139(2), or under section 148, on or after that date will come within the purview of the new section. The new section will apply also to such defaults where these occur after 31-3-1971, i.e., where the return of income becomes due after that date. The Taxation Laws (Amendment) Act, 1970 38. New section 276D provides that the punishment on conviction of a person for wilful defaults in producing the accounts and documents called for by a notice under section 142(1) shall be rigorous imprisonment up to one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h has been allotted to the Bench of which he is a member and which pertains to an assessee whose total income as computed by the Income-tax Officer does not exceed Rs. 25,000. With a view to facilitating speedier disposal of appeals by the Appellate Tribunal, the monetary limit of Rs. 25,000 specified in section 255(3) has been increased to Rs. 40,000 so that a single member Bench of the Appellate Tribunal will be empowered to dispose of appeals in any case which pertains to an assessee whose total income as computed by the Income-tax Officer does not exceed Rs. 40,000. The amendment of section 255(3) for this purpose takes effect from 1-4-1971. [Section 46 of the Amending Act] Tax incentives for promoting development of the economy in certain spheres The Taxation Laws (Amendment) Act, 1970 Amortisation of certain preliminary expenses 42. Section 8 of the Amending Act has introduced two new sections 35D and 35E, with effect from 1-4-1971. New section 35D provides for the amortisation of certain preliminary expenses incurred by an Indian company or a resident assessee other than a company before the commencement of business or in connection with the extension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct Taxes is also empowered to specify in the Income-tax Rules any other item or items of expenditure in respect of which the law does not provide for any allowance or deduction, and, thereupon, the items of expenditure so specified will also be eligible for amortisation under section 35D. The Taxation Laws (Amendment) Act, 1970 43. The aggregate amount of the expenditure under all the specified heads will, for the purpose of amortisation be limited to 2½ per cent of the cost of the project. The "cost of the project" has been defined to mean the actual cost of the fixed assets, namely, land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings), which are shown in the books of the assessee as on the last day of the previous year in which the business of the assessee commences. Where the amortisation is to be allowed with reference to expenditure incurred in connection with the extension of an existing industrial undertaking or in connection with the setting up of a new industrial unit, the "cost of the project" is defined to mean the actual cost of the fixed assets as stated abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany in a foreign country in respect of purchase outside India of capital plant and machinery, where the terms under which such moneys are borrowed or debt is incurred, provide for the repayment thereof during a period of not less than 7 years. The Taxation Laws (Amendment) Act, 1970 45. It may be noted that the provision for amortisation is not intended to supersede any other provision in the income-tax law under which the expenditure is allowable as a deduction against profits. For instance, where a company which is already in business, incurs expenditure on issue of debentures, and such expenditure is admissible as a deduction against profits of the year in which it is incurred by virtue of the decision of the Supreme Court in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, section 35D will not have the effect of bringing that expenditure within the scope of the expenditure to be amortised against profits over a 10-year period. As a corollary to this, where any expenditure has been included for the purpose of amortisation under section 35D on a claim being made by the assessee in that behalf, such expenditure will not qualify for deduction under any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 49. As in the case of preliminary expenses, amortisation in respect of expenditure on prospecting for, and development of, the specified minerals, will also be allowed only in the case of Indian companies and resident assessees other than companies. The benefit of amortisation will not be available to a foreign company even if such company declares its dividends in India, and regardless of the pattern of its shareholding. It will also not be available to non-resident taxpayers generally. The Taxation Laws (Amendment) Act, 1970 50. The expenditure to be amortised under section 35E will be the expenditure incurred under the specified heads after 31-3-1970, during a 5-year period ending with the "year of commercial production", i.e., the previous year in which, as a result of any operation relating to prospecting commercial production of any one or more of the specified minerals or associated minerals commences. The term "operation relating to prospecting" comprises operation undertaken for the purpose of exploring, locating or proving deposits of any mineral and in particular includes any such operation which turns out to be infructuous or abortive. Where the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the year of commercial production. If there is any unabsorbed amount at the end of the 10th year, it will lapse. The Taxation Laws (Amendment) Act, 1970 53. As in the case of amortisation of preliminary expenses under section 35D, the amortisation of expenditure on prospecting for, and development of, specified minerals is also subject to the requirements that, where the assessee is a person other than a company or a co-operative society, his accounts for the year or years in which the expenditure is incurred have been audited by a chartered accountant or other person as stated in paragraph 46 and also subject to the requirement that the assessee furnishes along with his return of income for the first year in which the amortisation is claimed, the report of such audit in a form to be prescribed for the purpose, duly signed and verified by the chartered accountant or other person setting forth such particulars as may be prescribed. The Taxation Laws (Amendment) Act, 1970 54. The amortisation under section 35E is also available only to the assessee who incurs the expenditure. However, in the case of an Indian company the benefit of amortisation is preserved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the building (in any previous year other than the previous year in which it was constructed or done), the assessee will be entitled to a "terminal allowance" equal to the shortfall of the moneys payable taken together with the scrap value, if any, from the written down value of the structure or work. The term "moneys payable", in respect of any structure or work, has been defined to include any insurance or compensation moneys payable in respect thereof and, where the structure or work is sold, the price for which it is sold. The word "sold" will have the same meaning as it has under the existing provisions of section 32, i.e., it will include a transfer by way of exchange or a compulsory acquisition under any law but would not include a transfer from a company to an Indian company in a scheme of amalgamation. The Taxation Laws (Amendment) Act, 1970 57. The following consequential amendments have also been made to the other provisions of the Income-tax Act in this connection: 1. Section 32(2) relating to carry forward of unabsorbed depreciation allowance has been amended to secure that the unabsorbed depreciation allowance in respect of the structure or wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 41(2A). 6. Section 43 has been amended in regard to the following matters : ( 1 ) Explanation 1 to section 43( 1 ) provides that for the purpose of calculation of depreciation and "terminal allowance" in respect of an asset representing capital expenditure on scientific research related to the business which is subsequently used for the business itself, "actual cost" will mean the actual cost as reduced by the deductions already allowed under section 35(1)( iv ). This Explanation has been amended to secure that a structure or work referred to in section 32(1A) in relation to a rented building for scientific research related to the business is treated in the same manner as any other asset representing capital expenditure on scientific research related to the business. ( 2 ) Explanation 4 to section 43( 1 ) provides that in a case where an asset, having once belonged to the assessee and having been used by him for the purpose of his business or profession but thereafter ceased to be his property, is required by him, the depreciation is calculated on the basis of the actual cost when he first acquired the asset - reduced by the depreciation actually allowed, and fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible for the five assessment years 1971-72, 1972-73, 1973-74, 1974-75 and 1975-76. It may be noted that the deduction under this section is not admissible to an assessee who carries on the business of "printing" of books, unless the books so printed are "published" by him. For the purposes of this provision, "books" will not include newspapers, journals, magazines, diaries, brochures, tracts, pamphlets and other publications of a similar nature by whatever name called. Where the assessee is entitled also to the deduction under section 80H (in respect of profits derived from a new industrial undertaking employing displaced persons) or section 80J (in respect of profits and gains from newly established industrial undertakings, generally) or section 80P (in respect of certain categories of the income of co-operative societies), the deduction under the new section 80QQ will be admissible to the extent of 20 per cent of the profits and gains from publication of books (or printing and publication of books) included in the gross total income as reduced by the deductions under sections 80H, 80J and 80P. The Taxation Laws (Amendment) Act, 1970 59. By virtue of a consequential ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 1-4-1969 and will, accordingly, be applicable for the assessment year 1969-70 and subsequent years. Simultaneously, rule 8 of the Income-tax Rules is being amended retrospectively so as to secure that the subsidy shall not be set off against the expenditure on replanting for the purpose of the deduction of such expenditure in computing the income in terms of that rule. Accordingly, for the assessment year 1969-70 and subsequent years, the full amount of the expenditure on replantation will continue to be admissible as a deduction in computing the income of a tea estate in India, without its being reduced by the amount of the subsidy. The Taxation Laws (Amendment) Act, 1970 61. New clause ( 30 ) of section 10 requires that the scheme for grant of subsidy should be notified in the Official Gazette by the Central Government. Steps are being taken to have the requisite notification issued at an early date. The new clause also requires that in order to be eligible for exemption under that clause, the assessee should furnish to the Income-tax Officer, along with his return of income for the assessment year concerned or within such further time as the Income-tax Officer may al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new proviso, so as to liberalise the tax concession presently available in such cases. Under the proviso as substituted, in the case of house property the erection of which is completed after 31-3-1970, the annual value will be reduced by an amount up to Rs. 1,200 in respect of each residential unit for each year for a total period of 5 years from the date of completion of the construction. In other words, exemption from tax will be available up to a rental value of Rs. 100 per month in respect of each tenement for a total period of 5 years, as against 3 years at present. As under the existing provision the exemption will be available only where the net income from the property as computed otherwise is not a loss. It may also be noted that the exemption under this provision is available only in respect of house property which is let out on rent and not in respect of house property which is occupied by the owner for his own residence. The Taxation Laws (Amendment) Act, 1970 64. Computation of income from house property occupied by the owner for the purpose of his own residence - Under the existing provisions of section 23(2), income from house property occupied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years. [Section 4 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Tax credit certificates for shifting of industrial undertakings from urban areas 67. Section 280ZA relating to the grant of tax credit certificates for shifting of industrial undertakings from urban areas so as to relieve congestion, presently, applies only in the case of public companies. As industrial undertakings in urban areas are, in several cases, owned by private companies and even foreign companies, and the shifting of such undertakings to other areas would help to relieve congestion, section 280ZA has been amended so as to extend the benefit of tax credit certificates under that section to all companies. This amendment will come into effect on 1-4-1971 and, accordingly, private companies or foreign companies shifting their industrial undertakings from an urban area to any other area on or after that date will be eligible for the grant of tax credit certificates under that section, subject to the satisfaction of the other conditions specified therein. [Section 54 of the Amending Act] Measures for rationalisation and simplification of some of the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrival in India. The Select Committee which considered the Taxation Laws (Amendment) Bill, 1969, was of the view that, having regard to the availability of Indian technicians in this field, there would be no justification for continuing the tax exemption for management technicians any longer. The Taxation Laws (Amendment) Act, 1970 70. In the case of other foreign technicians, the period of exemption of the remuneration from tax has been reduced from 36 months to 24 months. During this period, the foreign technician will be entitled to exemption on his remuneration up to an amount calculated at the rate of Rs. 4,000 for every month of his employment in India during the relevant year. The remuneration, if any, in excess of Rs. 4,000 per month will be liable to tax but, if the employer pays the tax on such excess to the Central Government, the perquisite represented by the tax so paid by the employer will also be exempt from further taxation in the hands of the technician. After the initial period of 24 months from the date of his arrival in India, the whole of the remuneration of the technician will be chargeable to tax. However, if the employer pays the tax on the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be the authorities for granting approval to scientific research institutions or bodies for the purpose of the new provision in section 10( 6 )( viia ) also. The Taxation Laws (Amendment) Act, 1970 73. As under the existing provisions in section 10( 6 )( vii ), the foreign technician should not have been resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India in order to be eligible for the exemption from tax on his remuneration. The existing requirement of approval of the contract of service of the technician by the Central Government also continues to apply, with the modifications that such approval will, hereafter, be required to be obtained in all cases, and that the application for the approval should be made to the Central Government before the commencement of service of the technician in India or within 6 months of such commencement. The exemption from tax under the new provisions will not be available in any case in the absence of such approval. Presently, the exemption from tax is available, without requirement of approval, for a period of 12 months in the case of technicians other than industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section has been vested in the Income-tax Officer and the Board is empowered to provide in the Income-tax Rules the nature of the relief that is to be granted in different categories of cases and the manner in which it is to be granted. [Section 23 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Simplification of interest calculations 77. With a view to simplifying calculation of interest payable by assessees for various delays under the Income-tax Act and also interest payable by Central Government to assessees in certain circumstances, and eliminating infructuous work in having to demand and recover small amounts of interest, power has been vested in the Central Board of Direct Taxes, under new clause ( kk ) inserted in section 295(2), to make rules laying down the procedure to be followed in calculating the interest chargeable from and payable to assessees under the Income-tax Act. Such rules may include provisions for the rounding off, to whole months, of the period for which the interest is to be calculated and may also specify the circumstances under which and the extent to which petty amounts of interest payable by assessees may be ignored. [S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vident funds and approved superannuation funds and gratuity funds 80. Parts A, B and C of the Fourth Schedule, which specify the rules for the recognition of provident funds and the approval of superannuation funds and gratuity funds, have been amended so as to empower the Central Board of Direct Taxes to regulate by rules, made in the Income-tax Rules, the investment or deposit of the moneys of a recognised provident fund or an approved superannuation fund or gratuity fund. However, it has been specifically provided that any rule made under this power shall not require the investment of more than 50 per cent of the moneys of any such fund in Government securities. Compliance with the rules to be made by the Board in this behalf will be one of the conditions for recognition or continuation of recognition of provident funds or approval or continuance of approval of superannuation funds or gratuity funds. [Section 57( a ), ( b )( ii ) and ( c )( iii ) of the Amending Act] Measures for countering evasion or avoidance of tax The Taxation Laws (Amendment) Act, 1970 Conversion of separate property of an individual into joint Hindu family property 81. Section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 64. Where the income from the converted property or any part thereof falls due to be included in the income of the individual by virtue of these provisions, such income will be excluded from the total income of the family or, as the case may be, from the total income of the spouse or the minor son. The Taxation Laws (Amendment) Act, 1970 82. The term "property" has been defined in the Explanation to section 64(2), to include any interest in property, movable or immovable, the proceeds of sale thereof and any money and investment for the time being representing the proceeds of sale and where the property is converted into any other property by any method, such other property. For the purpose of determining the amount of the income from the converted property which is attributable to the interest of the individual in the property of the family or the interest of the spouse or the minor son of the individual in the property of the family, a notional partition will be assumed to take place in the family as on the last day of the relevant previous year and the share of the family property which would have been allotted to the individual, his spouse and minor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income of the individual, will be subject to the provision in new sub-section (2) of section 64. Accordingly, section 10( 2 ) will not operate to frustrate the purpose underlying the provision in section 64(2). The Taxation Laws (Amendment) Act, 1970 85. The amendment of section 64 and the consequential amendments to sections 10 and 295 will come into effect on 1-4-1971. Accordingly, the new provision will be applicable for the assessment year 1971-72 and subsequent assessment years, but it will apply to income derived from separate property converted into Hindu undivided family property from 1-1-1970 onwards. [Sections 3( a ), 16 and 55( a ) of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Assessment of unregistered firms 86. Section 183 presently provides that in the case of an unregistered firm, the Income-tax Officer may either determine the tax payable by the firm itself on its total income or may, in certain circumstances, proceed to assess the firm as a registered firm and charge tax on the partners in respect of their shares in the income of the firm. The latter course is to be adopted where the Income-tax Officer finds that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court held that registration could not be refused to a firm merely on the ground that one of the partners is a benamidar of another partner. According to the Court, "the beneficial interest in the income pertaining to the share of the said benamidar may have relevance to the matter of assessment (of the real owner of the income) but none in regard to the question of registration". This position in law gives room for introduction of benami partners in partnership firms with a view to reducing tax liability. In order to counter such devices, section 185(1) has been amended by the insertion of an Explanation, under which a firm shall not be regarded as a genuine firm, if any partner of the firm was, in relation to the whole or any part of his share in the income or property of the firm, at any time during the previous year, a benamidar of any other partner to whom the first mentioned partner does not stand in the relationship of a spouse or minor child. The Explanation will apply for the purpose of grant of registration to the firm under section 185, as also for the purpose of the provision in section 186(1) that in the case of a firm which has been granted registration, or wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to make laws with respect to taxes on agricultural income, under article 246(1) of the Constitution read with entry 82 of List I (Union List) in the Seventh Schedule, and article 246(3) read with entry 46 of List II (State List). The expression "agricultural income", for the purpose of the above-mentioned entries, means agricultural income as defined for the purposes of the enactments relating to Indian income-tax vide article 366(1) of the Constitution. Under the definition of "agricultural income" in clause ( 1 ) of section 2, the expression means : a. any rent or revenue derived from land which is used for agricultural purposes and which is either assessed to land revenue in India or is subject to a local rate, assessed and collected by officers of the Government as such; b. any income derived from such land by agricultural operations including processing of the agricultural produce raised or received as rent-in-kind so as to render it fit for the market, or the sale of such produce; and c. income attributable to farm houses, i.e., any building owned and occupied by the receiver of rent or revenue of any such land or by the cultivator or receiver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural income subject to the condition that the building is situated on, or in the immediate vicinity of, land which is assessed to land revenue or a local rate, as at present, or, in the alternative, the building is on or in the immediate vicinity of land which (though not assessed to land revenue or any local rate) is situated outside "urban areas", i.e., any area which is comprised within the jurisdiction of any municipality or cantonment board having a population of not less than ten thousand persons (according to the last preceding census of which the relevant figures have been published before the first day of the previous year) or within such distance (up to a maximum of 8 kilometres) from the limits of any such municipality or cantonment board as the Central Government may notify in the Official Gazette. Such notification is to be issued by the Central Government only where it is satisfied that the pace of urbanisation outside any such municipality or cantonment board justifies the treatment of such areas as "urban areas". The effect of this modification will be that income attributable to farm houses situated in such "urban areas" will not be treated as agricultural i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om his employer for himself, his wife and children in connection with his proceeding on home leave outside India. This provision does not also, presently, cover passage moneys or free or concessional passage received by the individual in connection with his proceeding to his home country after retirement or termination of his service in India. The Taxation Laws (Amendment) Act, 1970 98. The provisions in clauses ( 5 ) and ( 6 )( i ) of section 10, as stated in the preceding paragraphs, have been amended, retrospectively from 1-4-1962, so as to extend the scope of the exemption under those clauses to— a. the value of any travel concession or assistance received by or due to an Indian citizen from his employer or former employer for himself, his spouse and children, in connection with his proceeding to his home-district in India after retirement from service or termination of his service; b. passage moneys or the value of free or concessional passage received by an individual of foreign nationality from his employer or former employer for himself, his spouse and children, in connection with his proceeding to his home country after retirement from service or te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Part B of the Table appended to Paragraph 20 of the Sixth Schedule to the Constitution (broadly, certain areas in Assam and on the North-East Frontier of India) or in the State of Nagaland or in the Union territories of Manipur and Tripura is exempt from income-tax in respect of income arising to him from any source in the said areas of Nagaland or the Union territories of Manipur and Tripura. This exemption is also available to him in respect of income by way of dividends or interest on securities. In the case of S.K. Dutta, ITO v. Lawrence Singh Ingty [1968] 68 ITR 272, the Supreme Court held that the existing provision in clause ( 26 ) of section 10, to the extent it denied exemption from tax to a member of a Scheduled Tribe who is in the service of Government was unconstitutional. Section 10( 26 ) has accordingly been amended to bring it in line with the Supreme Court's ruling, by the commission of the words "who is not in the service of Government" from that clause. This amendment is deemed to have taken effect on 1-4-1962. [Section 3( d ) of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Definition of "gross total income" 101. Under the exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the deduction under section 80T in respect of long-term capital gains arising to the spouse or minor child denied to the individual and the whole of such capital gains subjected to tax as his income, such assessments should be revised in the light of amendment and the appropriate amount of tax relief allowed to the assessee. The deduction under section 80L in respect of dividends on shares in Indian companies (since enlarged to cover income from the investments in specified financial assets) will also be allowable with reference to the income of the spouse or minor child which is assessable as the income of the individual under section 64, and completed assessments for past years should be revised where appropriate in the light of the amended definition. [Section 18 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Deduction in respect of charitable and other donations 103. Under section 80G, an assessee is entitled, subject to certain conditions, to a deduction in the computation of his total income of a specified percentage of the donations made by him to certain funds, charitable institutions, or for the repair or renovation of any temple, mosque, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lifying for the deduction will, as at present, be subject to the alternative limit of 10 per cent of the "gross total income" of the donor (as reduced by any portion thereof on which income-tax is not payable and by any amount in respect of which the assessee is entitled to a deduction under any other provision of Chapter VIA). The Taxation Laws (Amendment) Act, 1970 104. The amendment to section 80G will apply, retrospectively, from the assessment year 1968-69. Accordingly, where any claim has been made and allowed for the deduction under section 80G in respect of charitable donations amounting to more than Rs. 2,00,000 on the ground that such amounts included donations for the repair or renovation of any notified temple, etc., the assessment should be revised so as to withdraw the unintended benefit. [It may be noted that the amendment does not change the position in regard to donations to the National Defence Fund, the Jawaharlal Nehru Memorial Fund or the Prime Minister's Drought Relief Fund, which continue to be eligible for the deduction under section 80G without any ceiling limit.] [Section 19 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies of such Certificates. Prior to 1-4-1968, the section provided for the determination of the tax payable in such a case as the aggregate of: ( i ) the tax calculated on the ordinary income, i.e., income other than ( a ) compensation received on the determination or modification of the terms of a managing agency, etc., ( b ) capital gains, and ( c ) interest on National Savings Certificates (First Issue) or the Bank series of such Certificates, at the average rate of tax applicable to such ordinary income; ( ii ) the tax calculated on the income by way of compensation received on the determination or modification of the terms of a managing agency, etc., in the manner provided in section 112; ( iii ) the tax calculated on the capital gains under the special provisions of section 114; and ( iv ) the tax on the interest on National Savings Certificates (First Issue) or the Bank series of such Certificates, at the average rate of tax applicable to the ordinary income referred to at ( i ) above. The Taxation Laws (Amendment) Act, 1970 108. With effect from 1-4-1968, the special provisions in section 112, for calculation of tax on income by way of compensation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the partners as evidenced by the instrument of partnership on the basis of which the registration was granted. This requirement has, in practice, led to hardship where due to any reason the firm was not able to furnish the declaration along with the return of income. One of such reasons will be where some partner or partners were not available for signing the declaration before the date of furnishing the return of income (which may be signed by any one of the partners and not by all of them). With a view to avoiding inconvenience and hardship to taxpayers in regard to this matter, clause ( ii ) of the proviso to section 184(7) has been substituted by a new clause under which the declaration for continuation of registration may be furnished, not necessarily along with the return of income, but before the expiry of the time allowed for furnishing the return, whether fixed originally or on extension. Further, where the Income-tax Officer is satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the said period, he may allow the declaration to be furnished at any time before the assessment is made. The Taxation Laws (Amendment) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nity has been allowed to it as required by section 185(2). Similarly, there is no appeal against the Income-tax Officer's refusal to allow the registration granted to a firm for any year to have effect for the subsequent year because of certain defects in the declaration furnished by it under section 184(7). With a view to avoiding inconvenience and hardship to assessees in such cases, section 246 which specifies the orders of the Income-tax Officer against which an appeal lies to the Appellate Assistant Commissioner, has been amended by substituting a new clause ( j ) for the existing clause ( j ) of that section. Under clause ( j ) as substituted, an appeal will lie to the Appellate Assistant Commissioner against the following orders of the Income-tax Officer, namely : 1. An order under section 185(1)( b ) refusing registration to a firm where the Income-tax Officer is not satisfied as to its genuineness. 2. An order under section 185(2) rejecting the application for registration of a firm because of certain defects in that application which were not rectified within the time allowed by the Income-tax Officer. 3. An order under section 185(3) (which is a new provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dends at a rate higher than the effective rate of tax otherwise chargeable on such dividends, section 235 has been amended so as to secure that the tax relief in such cases is limited to the Central income-tax actually payable by the receiving company on the agricultural element of the dividend. This amendment will take effect on 1-4-1971 and will, accordingly, be applicable for the assessment year 1971-72 and subsequent years. The Taxation Laws (Amendment) Act, 1970 115. The tax relief under section 235 is presently available only to the "shareholder", i.e., the person who is registered as the shareholder in the books of the company. It is not available under the existing provisions of this section, in a case where the shares in respect of which the dividend is received stand registered in the name of a person other than the beneficial owner, e.g., where shares belonging to a taxpayer are registered in the name of a bank for facility of collection of dividends. The tax relief is also not available in a case where an individual is chargeable to tax under section 64 on the dividends in respect of shares standing registered in the name of the spouse of the individual. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the higher rate will be operative in cases where the proclamation of sale is made on or after 1-4-1971. [Section 56 of the Amending Act] Amendments to Wealth-tax Act The Taxation Laws (Amendment) Act, 1970 Exemption from wealth-tax of the value of annuities due on annuity deposits made under the provisions of the Income-tax Act 117. Chapter XXIIA, inserted by the Finance Act, 1964, provided for the making of annuity deposits by resident non-corporate taxpayers (other than individuals who are not citizens of India, local authorities and registered firms) for the assessment years 1964-65 to 1968-69 (inclusive), at rates specified in the Finance Acts from year to year. Under section 280D, annuity deposits made or recovered in any year are repayable by the Central Government in 10 annual equated instalments of principal and interest at such rate as may be notified by the Central Government. The proviso to that section permits the payment of the commuted value of the outstanding annuities in any case in which the concerned authority (Income-tax Officer) is satisfied that genuine hardship will be caused unless such payment is made. The Taxation Laws (Amendment) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment for any past year, having occurred before 1-4-1971, continues on or after that date, it will be open to the Wealth-tax Officer to levy a penalty or penalties under section 15B(3) as amended, subject to the ceiling of 50 per cent of the tax, provided the power to levy penalty has not already been exercised before 1-4-1971. [Section 60 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Procedure for levy of penalties for concealment of wealth 120. Section 18 provides for the imposition of penalties for failure to furnish the return of wealth or complying with notices for production of documents, etc., and for concealment of wealth. Sub-section (3) of that section, presently, provides that where the minimum penalty imposable for concealment of wealth as stated above, exceeds Rs. 1,000 the Wealth-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall thereafter proceed to impose the penalty. This limit of Rs. 1,000 in terms of minimum penalty imposable was prescribed at a time when the minimum penalty for concealment of wealth was specified to be 20 per cent of the wealth-tax sought to be avoided. Under the Finance Act, 1968, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his circular. With a view to bringing the provision relating to voluntary disclosure of concealed wealth in line with the corresponding provision in the Income-tax Act, section 18(2A) has been amended by the addition of a proviso under which the Commissioner will be required to obtain the previous approval of the Board to the waiver or reduction of the penalty imposable for concealment of wealth where the amount of concealed wealth in respect of which the penalty is imposable exceeds Rs. 5 lakhs for any one of the assessment years covered by the disclosure. This amendment will take effect on 1-4-1971. The position stated in paragraph 31, in relation to the similar amendment of section 271(4A), will be applicable in relation to wealth-tax as well. [Section 61( a ) of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Time limit for completion of penalty proceedings 122. Sub-section (5) of section 18, presently, specifies a time limit of two years for the completion of penalty proceedings for concealment of wealth or for defaults in furnishing the return, accounts, etc. This two-year time limit is presently reckoned from the date of completion of the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18(5) has not already expired. [Section 61( c ) of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Enhancement of fees payable by assessees along with their appeals and reference applications in wealth-tax cases to the Income-tax Appellate Tribunal 123. In conformity with the amendments made to the relevant provisions of the Income-tax Act, the fee payable by assessee along with their appeals and reference applications in wealth-tax cases to the Income-tax Appellate Tribunal has been increased from Rs. 100 to Rs. 125. For this purpose, sections 24, 26 and 27 of the Wealth-tax Act have been amended with effect from 1-4-1971. [Sections 62, 63 and 64 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Rounding off of net wealth and also the wealth-tax payable or refundable 124. With a view to simplifying calculations, two new sections, 44C and 44D, have been introduced in the Wealth-tax Act with effect from 1-4-1971. New section 44C provides that the net wealth computed under the other provisions of the Wealth-tax Act will be rounded off to the nearest multiple of Rs. 100 by ignoring any amount less than Rs. 50 comprised in such net weal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasing amounts ranging from five rupees to nine rupees, to ten rupees. The new section 44B provides that the amount of gift-tax, interest, penalty or any other sum payable, and the amount of refund due, under the provisions of the Gift-tax Act, will be rounded off to the nearest rupee. These provisions will be applicable also to assessments for the assessment year 1970-71 or any earlier year, which are completed on or after 1-4-1971. [Section 70 of the Amending Act] The Taxation Laws (Amendment) Act, 1970 Simplification of interest calculations 128. With a view to simplifying interest calculations, provision has been made, in a new clause ( ee ) of sub-section (2) of section 46, so as to empower the Central Board of Direct Taxes to make rules laying down the procedure to be followed in calculating the interest chargeable from and payable to assessees under the Gift-tax Act. The new clause specifically provides that such rules may include provisions for the rounding off, to whole months, of the period for which the interest is to be calculated and also specify the circumstances in which and the extent to which petty amounts of interest payable by assessees may be igno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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