TMI BlogAmendments at a glance ,Rate structure , Amendments to Income-tax Act , Amendments to Wealth-tax Act , Amendments to Gift-tax Act , Amendments to Companies (Profits) Surtax Act, Miscellaneous provisionsX X X X Extracts X X X X X X X X Extracts X X X X ..... deriving income from supply of water and electricity outside their jurisdictional areas 49 10(26A) Exemption from tax on certain incomes of the resident of Ladakh 89-90 11(1A) Capital gains derived by charitable and religious trusts 73-78 13(4) Forfeiture of exemption from income-tax on the income of charitable or religious trusts in certain cases 79-80 16(iv) Deduction for expenses on travelling to salaried taxpayers 82-84 33(5) Development rebate—Notification for its withdrawal in respect of machinery or plant installed after 31-5-1974 26-28 36(1)(viii) Financial corporations providing long-term finance for agricultural development in India 50-51 37(3) and rule Expenditure incurred on travelling by employees and other 6D persons for the purpose of business or profession 24-25 40(c), Expenditure on provision of remuneration, benefit of amenity 58(1)(a)(iv) to directors of companies and certain other persons 20-23 40(a)(v), Expenditure on payment of salaries or provision of perqui- 40A(5)/6 sites to employees 15-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the five-year tax holiday 47-48 Wealth-tax Act 4(1)(a), Prov. Aggregation of assets belonging to the spouse or minor child of an individual with the net wealth of the individual 95 4(1)(b)/(7) Tax treatment of members of co-operative housing societies 5(1)(xxx) 98-101 4(1A) , Expln. Conversion of separate property of an individual into joint (c)/(d), Hindu family property 96-97 5(1)(iv) Exemption in respect of one residential house - Liberalisation thereof 93-94 5(1)(viii), (xv) Withdrawal of exemption from wealth-tax in respect of jewellery, etc., and limiting of exemption in respect of motor cars, etc. 102-106 5(1)(xx) Shares in new industrial companies - Withdrawal of exemption from 107 5(1)(xxviii), Financial assets qualifying for exemption from wealth- (xxix), 21(4)/ tax 108-110 prov. 18(1)(i),(1A) Penalty for failure to furnish returns, etc. 92 32, Expln. II Recovery of wealth-tax arrears 111 Sch. Increase in the rates of ordinary wealth-tax in the case of indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. An Explanation has been added at the end of Paragraph C of Part I of the First Schedule to make it clear that the rates of income-tax and surcharges prescribed in the case of registered firms for the assessment year 1971-72 will apply also in the case of an unregistered firm assessed as a registered firm under section 183(b). The modification at (1) has been made in the context of the provision made in section 164 through the Finance Act, 1970, for charging tax on the income of a private discretionary trust at the flat rate of 65 per cent or the higher rate which would be appropriate to the total income of the trust at the rates of tax applicable in the case of an association of persons. The modification at (2) has been made in the context of the amendment of section 183(b) by the Taxation Laws (Amendment) Act, 1970, under which an unregistered firm may be assessed as a registered firm and subjected to the tax chargeable on registered firms at the rates specified in this behalf in the annual Finance Act, and its partners charged to tax on their respective shares in the total income of the firm, where this course is beneficial to the Revenue. Finance (No. 2) Act, 1971 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increase in the rate of surcharge on the income-tax in the case of non-corporate taxpayers as explained in paragraph 5 of this circular. 3. Dividends payable by domestic companies to foreign companies - In the case of dividends payable during the financial year 1971-72 by a domestic company on shares in that company held by a foreign company, tax is deductible at source at the uniform rate of 24.5 per cent. Formerly, a lower rate of 14 per cent was applicable in cases where the dividend was payable to the foreign company by a closely-held Indian company mainly engaged in a priority industry. The special concession in respect of taxation of inter-corporate dividends in such cases has been discontinued by an amendment to section 80M as explained in paragraph 45 of this circular. In the context of this change, the special concessional rate of 14 per cent in respect of dividends of the special category has been discontinued and the uniform rate of 24.5 per cent, which has so far been applicable to other dividend payments to foreign companies by domestic companies, has now been made applicable to all dividend payments by domestic companies to foreign companies. Finance (No. 2) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 1971-72 in the following particulars : 1. Individuals, Hindu undivided families, associations of persons, etc. - In these cases, the rate of surcharge of income-tax has been increased from 10 per cent to 15 per cent of the basic income-tax in all cases where the total income exceeds Rs. 15,000. Where the total income is Rs. 15,000 or less, the rate of surcharge continues to be 10 per cent, as formerly. Further in a case where the total income exceeds Rs. 15,000 by a small amount, the surcharge leviable is the lower of the following two quantities : a. 15 per cent of the income-tax, or b. the aggregate of (i) the surcharge which would be leviable if the total income were Rs. 15,000 only, and (ii) 40 per cent of the amount by which the total income exceeds Rs. 15,000. The operation of this marginal relief provision is illustrated in the following examples : Example I Total income Rs. 15,100 Income-tax Rs. 1,373 (Rs. 1,350 plus 23 per cent of Rs. 100) Surcharge leviable Under alternative (a) Rs. 205.95 (15 per cent of Rs. 1,373) Under alternative (b) Rs. 175.00 (R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable income in such cases will be as under : a. Long-term capital gains relating to buildings or lands or any rights therein - The deduction will be Rs. 5,000 plus 35 per cent of the amount of such gains over Rs. 5,000 (as against 45 per cent before the amendment). b. Long-term capital gains relating to other capital assets - The deduction will be Rs. 5,000 plus 50 per cent of the amount by which such gains exceed Rs. 5,000 (as against 65 per cent before the amendment). 2. Companies - Under section 115, as amended by section 25 of the Finance (No. 2) Act, 1971, the rates of tax in respect of long-term capital gains in such cases will be as under : a. Long-term capital gains relating to buildings or lands or any rights therein - The rate of tax will be 45 per cent, as against 40 per cent before the amendment. b. Long-term capital gains relating to other capital assets - The rate of tax will be 35 per cent, as against 30 per cent before the amendment. Finance (No. 2) Act, 1971 7. The changes set forth in the preceding paragraph will become effective from 1-4-1972 and will, accordingly, apply to the assessment year 1972-73 in relation to current incomes of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, apply from the assessment year 1972-73 in relation to current incomes of the financial year 1971-72 or other accounting period corresponding to it. Incentives for savings and investment Finance (No. 2) Act, 1971 Deduction in respect of long-term savings in specified media 11. Under the provisions of section 80C, tax relief is allowed in respect of long-term savings effected by certain categories of taxpayers out of their income. In the case of an individual, long-term savings through life insurance or deferred annuity policies on the life of the individual, his spouse or child, certain provident funds and superannuation funds and 10-Year and 15-Year Cumulative Time Deposit Accounts, qualify for tax relief. In the case of Hindu undivided families, long-term savings effected through insurance policies on the life of any member of the family qualify for tax relief. In the case of an assessee being an association of persons or a body of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, long-term savings through policies of life insura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r from investments in specified categories of financial assets is exempt from tax up to an aggregate amount of Rs. 3,000 which is deducted in computing the taxable income. The investments covered by this provision are : (i) Government securities; (ii) notified debentures; (iii) deposits under notified schemes of the Central Government; (iv) shares in Indian companies; (v) units in the Unit Trust of India; (vi) deposits with banking companies, co-operative banks, land mortgage banks and land development banks; and (vii) deposits with approved financial corporations engaged in providing long-term finance for industrial development in India. Section 80L, which deals with this matter, has been amended by section 17 of the Finance (No. 2) Act, 1971, so as to modify this provision in certain respects as explained hereunder : 1. The deduction under this provision has been limited to individuals, Hindu undivided families, and associations of persons or bodies of individuals consisting only of husband and wife governed by the system of community of property in force in the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu. It will, therefore, not be allowed henceforth in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee participating in a recognised provided fund to the extent it is chargeable to tax. In this context, the expression "profits in lieu of salary" will have the same meaning as in section 17(3) and will, therefore, include any compensation paid by the assessee to an employee or a former employee in connection with the termination of his employment or modification of the terms and conditions relating thereto. The term "salary" will, however, not include "perquisite" and the sums transferred from the account of the employee in an unrecognised provident fund to a recognised provident fund. Finance (No. 2) Act, 1971 16. Under section 40(a)(v) [as it stood before its omission by the Finance (No. 2) Act, 1971], any expenditure which resulted directly or indirectly in the provision of any benefit or amenity or perquisite to an employee or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, was not allowable as deduction in computing the taxable profits of the business or profession to the extent the aggregate of such expenditure and allowance exceeded one-fifth of the salary payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee who is a citizen of India (and his spouse and children) in connection with his proceeding to any place in India, whether on leave or after retirement from service, to the extent the amount thereof does not exceed the value of the travel concession or assistance which would have been received by the employee if he had proceeded to his home district in India. [The value of such travel concession or assistance is already exempt from tax under section 10(5).] 2. Passage moneys or the value of any free or concessional passage granted by the assessee to an employee who is not a citizen of India (and his spouse and children) in connection with his proceeding to his home country out of India, whether on leave or on retirement from service. [Such passage moneys and the value of such free or concessional passage is already exempt from tax under section 10(6)(i).] 3. The employer's contributions to the employee's account in a recognised provident fund or an approved superannuation fund or for the employee's benefit to an approved gratuity fund. 4. Where the assessee is a company, expenditure incurred by it for the purpose of promoting family planning amongst its employees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,000, in a year, in respect of any one director or person who has a substantial interest in the company or a relative of the director or such person. Where such expenditure or allowance relates to only a part of a year, the monetary ceiling will be an amount calculated at the rate of Rs. 6,000 per month or part of a month comprised in the period to which the expenditure or allowance relates. Where the director or other person or relative is also an employee of the company, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to section 40A(5)(a) (reproduced in paragraph 17 above), will not be taken into account for applying the ceiling. Finance (No. 2) Act, 1971 21. It has been specifically provided [in the first proviso to section 40A(5)(a)] that where a company incurs expenditure on payment of any salary or the provision of any perquisite to a person, who, besides being an employee of the company, is also a director of the company or a person who has a substantial interest in it or a relative of a director of such person, the deduction to the company in respect of such expenditure, taken together with the allowance in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch headquarters, in respect of any other expenditure (including hotel expenses or allowances paid) in connection with such travel. The rates of daily allowance for the purpose of computing the amount under item (b) above as laid down in rule 6D before its recent amendment were as under : i. in respect of an employee whose salary is Rs. 1,000 per month or more Rs. 100 per day or part thereof; ii. in respect of any other employee Rs. 50 per day or part thereof; iii. in respect of any other person an amount calculated at the rates applicable in the case of the highest paid employee of the assessee. The rates of Rs. 100 and Rs. 50 specified at (i) and (ii) above are to be increased, respectively, to Rs. 150 and Rs. 75 in respect of the period of stay of the employee or other person at Bombay, Calcutta or Delhi. Finance (No. 2) Act, 1971 25. With a view to curbing ostentatious expenditure on travelling for business purposes, rule 6D of the Income-tax Rules has been amended by the Income-tax (Third Amendment) Rules, 1971 [Notification No. SO 2168, dated 28-5-1971]. Under the amendment, the rate of daily allowance of Rs. 100, specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government has issued Notification No. SO 2167, dated 28-5-1971, in exercise of the powers conferred by section 33(5) directing that the deduction in respect of development rebate shall not be allowed in respect of a ship acquired or machinery or plant installed after 31-5-1974. Finance (No. 2) Act, 1971 Definition of "company" 29. Under section 2(17), before its amendment by the Finance (No. 2) Act, 1971, the term "company" was defined, inter alia, to mean : (i) any Indian company; or (ii) any association, whether incorporated or not and whether Indian or non-Indian which is declared by a general or special order of the Central Board of Direct Taxes to be a company for the tax purposes of the Act. This power to declare any association to be a "company" for tax purposes has been made use of for several years past with a view to conferring the status of a "company" on foreign companies as also on entities which are not otherwise within the scope of that concept. Such declaration is given by the Board, ordinarily, in the case of any entity which possesses the ordinary characteristics of a company limited by shares and which is a legal person according to the laws of the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not and whether Indian or non-Indian, will be treated as a "company" for purposes of the Income-tax Act. This power of the Board has now been specifically made exercisable even in relation to past assessment years (whether commencing before, or on, or after 1-4-1971) and the declaration will have effect for any assessment year or years specified therein. Finance (No. 2) Act, 1971 Definition of "Indian company" 31. The definition of the term "Indian company" in section 2(26) before its amendment by the Finance (No. 2) Act, 1971, covered only those companies which are formed and registered under the Companies Act, 1956, or the law relating to companies formerly in force in any part of India including Jammu and Kashmir or in the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry. It did not cover statutory corporations which, as stated in paragraph 29, had to seek a declaration to be a "company" for purposes of taxation. Such a declaration did not, however, confer the status of "Indian company" on such statutory corporations. Apart from this, statutory corporations, by their very nature, do not often have a share capital as such and hence such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary sense of the term, it is not practicable to apply to such entities the tests of "a company in which the public are substantially interested". The same difficulty arises with regard to companies limited by guarantee. Finance (No. 2) Act, 1971 34. In order to obviate the difficulties pointed out above, the definition of "a company in which the public are substantially interested " in section 2(18) has been amended by section 3(b) of the Finance (No. 2) Act, 1971 in order to provide that a company which is registered under section 25 of the Companies Act, (i.e., a company having for its object the promotion of commerce, art, science, religion, charity or any other useful object and which prohibits payment of dividends to its members) will be regarded as a company in which the public are substantially interested without the application of the various tests as to the composition of the ownership of the shares in, and control over, the affairs of the company. Further, in order to cover the cases of entities which are not registered as companies but are declared to be companies for tax purposes and to companies limited by guarantee which are not registered under section 25, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith this change, the rate schedule of tax in the case of a registered firm, in Paragraph C of Part I and in Paragraph C of Part III of the First Schedule to the Finance (No. 2) Act, 1971 applies also to an unregistered firm assessed as a registered firm under section 183(b) [vide paragraph 3 supra]. Finance (No. 2) Act, 1971 37. Under section 67, any interest, salary, commission or other remuneration paid by the firm to its partners is included in the total income of the firm, but in determining the shares of the individual partners in the income of the firm, these sums are excluded from the firm's total income. Further, where the firm is a registered firm, the tax, if any, payable by the firm on its total income is also deducted from its total income and the balance apportioned amongst the partners according to their profit-sharing ratios. The salary, interest, commission or other remuneration paid to a partner is then added to the amount falling to his share as aforesaid and the resultant amount is treated as his share in the income of the firm. This provision secures that the partner of a registered firm is not subjected to tax in respect of his share in the tax paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in specified industries. This provision was introduced in the law in 1965, with a view to conserving our foreign exchange resources by encouraging foreign enterprises and foreign nationals to retain in India the sale proceeds of their investments in shares in Indian companies instead of repatriating such sale proceeds outside India. Finance (No. 2) Act, 1971 42. In actual practice the impact of this provision on our foreign exchange resources has been found to be minimal. There has also been a distinct improvement in our balance of payments position. In these circumstances, section 54A has been omitted by section 11 of the Finance (No. 2) Act, 1971 so as to withdraw the above tax relief with effect from 1-4-1972. Accordingly, from the assessment year 1972-73, foreign enterprises and foreign nationals will be chargeable to tax on the capital gains arising to them on the sale of shares held by them in Indian companies, regardless of whether the sale proceeds are invested in other assets in India or are repatriated outside India. Finance (No. 2) Act, 1971 Withdrawal of special tax concession to foreign companies in respect of certain inter-corporate dividends 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to widely-held domestic companies, i.e., 55 per cent and even on the balance of the income, a closely-held domestic company engaged in industrial activities is subjected to tax at 60 per cent which is less than the rate of tax applicable to other closely-held domestic companies. Section 80M has, accordingly, been amended by section 18 of the Finance (No. 2) Act, 1971 so as to discontinue the special concessional treatment allowed to foreign companies in respect of dividends received by them on their investments in the shares of closely-held Indian companies engaged in priority industries. The quantum of the deduction in respect of such dividends in computing the taxable income of the foreign company has been reduced from 80 per cent to 65 per cent so as to bring it in line with the quantum of the deduction allowed in respect of dividends received by a foreign company from domestic companies generally. As a result of this change, the effective incidence of tax on dividends received by a foreign company from any domestic company will, henceforth, be 24.5 per cent. This amendment will come into effect from 1-4-1972 and will, accordingly, apply for the assessment year 1972-73 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m on the capital employed in the industrial undertaking or ship or hotel business, as the case may be, computed in the manner laid down in the Income-tax Rules. Rule 19A, before its recent amendment, provided, inter alia, for the inclusion, in the capital base of a new industrial undertaking or a hotel, all debentures (in the case of a company) and certain long-term borrowings from approved sources (in the case of all categories of taxpayers), for the purpose of the provision in section 80J. In the case of a ship too, rule 19A, in effect, provided for the inclusion of all borrowings in the capital base. Finance (No. 2) Act, 1971 48. As the interest payable on debentures and long-term borrowings (in fact on all borrowings) is already allowed as a deduction in arriving at the profits on the industrial undertaking or hotel, the inclusion of such debentures and borrowings again in the capital base and exemption of profits up to 6 per cent of such capital base amounts to a double advantage besides creating a bias in favour of borrowed capital as against own capital. It was, accordingly, announced by the Finance Minister in paragraph 43 of his Budget speech for 1971-72 that debe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the computation of their taxable profits, of amounts transferred by them out of such profits to a special reserve account up to a specified percentage of their total income. Where the financial corporation has a paid-up share capital not exceeding Rs. 3 crores, the special reserve may be up to 25 per cent of the current profits, while in the case of a financial corporation having a paid-up share capital exceeding Rs. 3 crores, the special reserve may be up to 10 per cent of the current profits. This deduction is available only where the financial corporation is approved by the Central Government for this purpose. The objective underlying this provision is to enable financial corporations to build up their internal resources at an accelerated pace and thus become independent of subventions from Government for financing their activities. Finance (No. 2) Act, 1971 51. Certain financial corporations have recently been set up for the purpose of providing long-term finance for agricultural development in India. One such corporation is the Agricultural Refinance Corporation which has been established under an Act of Parliament with a view to providing refinance to co-operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encourage Indian companies to carry out research and development programmes and develop indigenous technical know-how. Finance (No. 2) Act, 1971 53. Section 80MM has been amended by section 19 of the Finance (No. 2) Act, 1971 so as to extend this tax concession also to cover cases where technical know-how or technical services are provided by resident non-corporate taxpayers such as individuals, Hindu undivided families, partnership firms, etc. In order to avoid any possible abuse of the concession, it has been provided that the concession would be available only if the accounts of the resident non-corporate taxpayer (not being a co-operative society) for the relevant accounting year have been audited by a chartered accountant or any other accountant authorised in law to audit the accounts of companies and the taxpayer furnishes the report of such audit in a form to be prescribed in the Income-tax Rules along with his return of income. Finance (No. 2) Act, 1971 54. In the context of the amendment of section 80MM to extend the deduction under that section to resident non-corporate taxpayers, section 80A has been amended by section 14 of the Finance (No. 2) Act, 1971 so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only in a case where the technical know-how or technical services were provided to a foreign company by an Indian company and the shares in the foreign company were allotted to it in consideration thereof. Where, however, the shares are allotted to any resident non-corporate taxpayer, the dividend income does not enjoy exemption from tax in his hands. Section 80N has, accordingly, been amended by section 20 of the Finance (No. 2) Act, 1971 so as to extend its operation to resident non-corporate taxpayer as well. Dividend income received on shares allotted to a resident non-corporate taxpayer in a foreign company in consideration of the provision of technical know-how or technical services to such foreign company will, henceforth, be exempt from tax. Further, the power to accord approval to agreements under which the technical know-how or technical services are provided has been vested in the Central Board of Direct Taxes, instead of the Central Government. The requirement that the approval of the agreement should be obtained before 1st October of the relevant assessment year has also been replaced by the requirement that the application for the grant of such approval should be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough, in these cases, the supply of technical know-how to foreign enterprise results in the export of Indian technical know-how and adds to the foreign exchange earnings, the Indian company which undertook this work was not entitled to the tax concession. Further, the tax concession was not available where the technical know-how or services were provided by a non-corporate taxpayer. Finance (No. 2) Act, 1971 62. Section 80-O has been amended by section 21 of the Finance (No. 2) Act, 1971 so as to extend this tax concession also to cover cases where technical know-how or technical services are provided by resident non-corporate taxpayers, such as individuals, Hindu undivided families, partnership firms, etc., and to make this concession available in all cases where the technical know-how or technical services are provided to a foreign Government or a foreign enterprise, regardless of whether the foreign enterprise is a corporate body or not. In order, however, to avoid any possible abuse of the concession, it has been provided that in the case of resident non-corporate taxpayers (other than co-operative societies), the concession would be available only if the accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. attachment and sale of the defaulter's movable property ; b. attachment and sale of the defaulter's immovable property ; c. arrest of the defaulter and his detention in prison; d. appointment of a receiver for the management of the defaulter's movable and immovable properties. For this purpose, "Tax Recovery Officer" has been defined in the Income-tax Act to mean : (i) a Collector or an Additional Collector ; (ii) any officer of a State Government who exercises powers to effect recovery of arrears of land revenue, etc., under the relevant State law, if such officer is authorised to exercise the powers of a Tax Recovery Officer; and (iii) any gazetted officer of the Central or State Government authorised by the Central Government to exercise the powers of a Tax Recovery Officer. Although the existing definition includes the State Government Officers referred to above, in actual practice, the work of tax recovery has already been taken over by gazetted officers of the Central Government, who are generally Income-tax Officers, and the present position is that, except in relation to a few districts, the work has entirely been taken over by the Income-tax Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(44)(iii) to exercise the power of a Tax Recovery Officer under the Second Schedule] will hereafter lie to the Tax Recovery Commissioner instead of the revenue authority to which appeals ordinarily lie against the orders of a Collector under the law relating to land revenue of the State concerned. Appeals against the orders passed before the date of appointment of a Tax Recovery Commissioner in respect of any area by any Tax Recovery Officer (including State Revenue Officers) will also lie to the Tax Recovery Commissioner and not to the appellate authority of the State Government. Further, as a transitional measure, it has been provided that the appeals pending with the State Government authorities on the date of appointment of a Tax Recovery Commissioner, in respect of any area wherein the work of recovery of tax has been taken over by Tax Recovery Officers of the Central Government, will stand transferred to the Tax Recovery Commissioner exercising jurisdiction over that area. Finance (No. 2) Act, 1971 68. Apart from attending to the appellate work, the Tax Recovery Commissioners will be placed in overall administrative charge of tax recovery work in their respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 27 of the Finance (No. 2) Act, 1971 making certain modifications therein as explained below : 1. The scope of the section has been enlarged to cover transfers of agricultural land valued at more than Rs. 50,000. [Agricultural land is liable to wealth-tax and transfers of agricultural land are liable to gift-tax. Capital gains arising from transfer of agricultural land situated in urban areas are liable to income-tax. Apart from these considerations agricultural land is liable to be attached and sold for recovery of income-tax arrears. Hence, transfers of agricultural land have been brought within the scope of the restriction on registration in cases where taxation liabilities remain unsatisfied.] 2. The provision has been extended to cover existing liabilities under the Companies (Profits) , 1964 as also the Super Profits Tax Act, 1963 which preceded it. 3. The Central Board of Direct Taxes has been empowered to exempt, by notification in the Official Gazette, any institution, association or body or any class of institutions, associations or bodies from the requirement of obtaining a tax clearance certificate under this provision. [This power has been conferred on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the trust funds, constituting its corpus or income, are invested in a concern in which the author or founder of the trust or any substantial contributor to it or any relative of such author, founder or contributor is substantially interested. Where the investment of the trust funds in such concern exceeds 5 per cent of the capital of the concern, exemption is forfeited in respect of the whole of the income of the trust, while in a case where the investment does not exceed 5 per cent, the exemption is lost only in respect of the income from such investment, the other income continuing to enjoy tax exemption. In order to enable charitable and religious trusts to change their investments suitably, without forfeiting exemption from tax, a specific provision was also made in the Income-tax Act to the effect that the aforesaid provisions would not apply in a case where the investment of the trust funds in the prohibited concerns does not continue after 31-12-1970. In order to avail of the benefit of this relaxation, many charitable or religious trusts divested themselves of investments in prohibited concerns before 1-1-1971. If the provisions of the law were construed strictly, such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by which the cost of acquisition of the new asset exceeds the aggregate of the cost of acquisition of the capital asset transferred and the cost of any improvements made to such asset, will be regarded as having been applied to such purposes. Finance (No. 2) Act, 1971 77. In a case where the asset which is transferred formed part of property held under trust in part only for charitable or religious purposes, a proportionate amount of the capital gain will be regarded as having been applied to charitable or religious purposes. Thus, where the whole of the net consideration received as a result of the transfer is utilised in acquiring the new capital asset, the whole of the "appropriate fraction" of the capital gain will be regarded as having been applied to charitable or religious purposes, while in a case where only a part of the net consideration is utilised for acquiring the new capital asset, so much of the "appropriate fraction" of the capital gain as is equal to the amount, if any, by which the "appropriate fraction" of the amount utilised for acquiring the new asset exceeds the "appropriate fraction' of the cost of the transferred asset will be regarded as having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from such investment and the remaining income will continue to enjoy exemption from tax. Finance (No. 2) Act, 1971 80. The relevant provision in section 13(4) before its amendment by the Finance (No. 2) Act, 1971, however, referred, in one place, to "the moneys of the trust" instead of to "the funds of the trust" and this verbal variation in the phraseology used within section 13(4) itself, and between section 13(2)(h) and section 13(4), was likely to create unintended hardship in certain cases. This is because in a case where the shares in the prohibited concern form part of the corpus of the trust or have been donated to it in kind, it could be argued that since the shares were not paid for by the trust in cash, no "moneys of the trust" had been invested in the prohibited concern and as such the saving provision in section 13(4) would not apply and that the trust would lose exemption from tax in respect of its entire income and not merely in respect of income from such investment alone, even if the trust investment in the prohibited concern did not exceed 5 per cent of the capital of the concern. Such an interpretation would not have been in keeping with the intention und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs. 50 per month. The standard deduction in the case of employees owning a motor car continues to remain at the level of Rs. 200 per month. Finance (No. 2) Act, 1971 84. These increases in the standard deduction are operative from 1-4-1972 and will, accordingly, apply for assessments for the assessment year 1972-73 and subsequent years. Finance (No. 2) Act, 1971 Labour co-operative societies and fisheries co-operative societies 85. Under the Income-tax Act, co-operative societies enjoy certain tax concessions in respect of their income. Co-operative societies connected with agriculture, banking, rural credit, milk production and cottage industries enjoy complete exemption from tax in respect of their business income from these activities, while co-operative societies engaged in other activities are liable to tax on their business income in excess of Rs. 20,000. Further, the income of all co-operative societies by way of interest or dividends received from investments with other co-operative societies is wholly exempt from income-tax, and in the case of certain co-operative societies having a gross income not exceeding Rs. 20,000, income by way of interest on se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80L. In the context of this change, section 194A has been amended by section 26 of the Finance (No. 2) Act, 1971 so as to provide that income-tax will not be deductible at source from interest paid on deposits with a co-operative society made by a member of the society. This amendment is effective from 1-4-1971. Finance (No. 2) Act, 1971 Exemption from tax of certain incomes of the residents of Ladakh 89. Under section 10(26A), before its amendment by the Finance (No. 2) Act, 1971, income accruing or arising to any resident of Ladakh district from any source in that district or outside India was completely exempt from income-tax up to and including the assessment year 1969-70. The exemption was available only in the case of persons, other than Government servants, who were resident in Ladakh district in the previous year relevant to the assessment year 1962-63. This concession was allowed in view of the position that the residents of Ladakh had suffered hardship and their trade had been adversely affected as a result of the Chinese aggression and it was necessary to allow them time to rehabilitate themselves. The strategic importance of the area was also kept in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lth in higher slabs. Under the rate schedule as modified, wealth-tax will be chargeable on every rupee of the net wealth where the net wealth exceeds the exemption limit of Rs. 1,00,000 in the case of an individual or Rs. 2,00,000 in the case of a Hindu undivided family. Accordingly, wealth-tax will be chargeable on the first slab of Rs. 5,00,000 of the net wealth at the rate of 1 per cent. The rates of wealth-tax in the next two slabs, i.e., from Rs. 5,00,001—Rs. 10,00,000 and Rs. 10,00,001—Rs. 15,00,000 will continue at 2 per cent and 3 per cent, respectively. On net wealth in the slab over Rs. 15,00,000, the revised rate of ordinary wealth-tax is 8 per cent, as against 4 per cent in the slab Rs. 15,00,001 —Rs. 20,00,000 and 5 per cent on net wealth over Rs. 20,00,000 formerly. No wealth-tax will be payable in a case where the net wealth does not exceed Rs. 1,00,000 in the case of an individual or Rs. 2,00,000 in the case of a Hindu undivided family. Further, where the net wealth exceeds the exemption limit of Rs. 1,00,000 or Rs. 2,00,000, as the case may be, by a small margin, the wealth-tax payable will be the lower of (a) tax at the rate of 1 per cent on the amount of the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... let out on rent even though that may be the only house belonging to the assessee. Finance (No. 2) Act, 1971 94. One result of the modifications in the rate schedule of wealth-tax as explained in paragraph 91 will be that in the case of an assessee who owns a house which is let out on rent who has no other investment qualifying for exemption from wealth-tax will be payable on the entire value of such house where it exceeds the exemption limit of Rs. 1,00,000, subject only to the marginal relief provision explained earlier. As this might cause genuine hardship to persons of small means who depend upon house property, often as the sole means of livelihood and may even discourage construction of the house property by such persons, the exemption in section 5(1)(iv) has been liberalised. Under the provision as amended by section 32(a) of the Finance (No. 2) Act, 1971, one house or part of a house belonging to the assessee will be entitled to exemption from wealth-tax, subject to the ceiling limit of Rs. 1,00,000 over the exemption even where the house is not used by the assessee for his own residence but is let out on rent. This liberalisation of the exemption in section 5(1)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, or which is specifically exempt from charge of gift-tax under section 5 of that Act, will apply only in relation to transfers in respect of which gift-tax is chargeable or which are specifically exempt from gift-tax for the assessment years 1964-65 to 1971-72 (both inclusive). Assets which are the subject of transfer in respect of which gift-tax is chargeable during the assessment year 1972-73 or in any later year will, nevertheless, be aggregated with the net wealth of the individual making the transfer. Finance (No. 2) Act, 1971 96. Conversion of separate property of an individual into Hindu joint family property - The provision in the Wealth-tax Act for the aggregation of assets transferred by an individual to or for the benefit of the spouse or minor child in certain circumstances as explained in the preceding paragraph, has so far not been applicable in relation to transfer of assets made through the medium of a Hindu undivided family. This is in view of the position that, according to the courts, the conversion of the separate property of an individual into joint Hindu family property, by impressing such separate property with the character of property belong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve housing societies 98. Co-operative housing societies are becoming increasingly popular amongst members of the middle and upper middle classes as these enable them to pool their resources and build houses or flats in multi-storeyed buildings, often with the aid of loans from State Governments, State Housing Boards and other financing bodies. Co-operative house building societies fall broadly into two classes, namely, (a) those in which the houses or flats legally belong to the members themselves, the society being only a means to secure the land, the necessary financial resources by way of loan or otherwise, arranging for the construction and attending to the maintenance of the houses or flats, (b) societies in which the building belongs to the society itself and not to individual members to whom the house or flat is merely allotted or leased for use. While in the former type of societies, the houses or flats are, for wealth-tax purposes, treated as belonging to the members themselves, in the latter type of societies, the members cannot legally be regarded as owning the houses or flats and their right vis-a-vis the society is only to the extent of the value of the shares held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is already covered by the net value of the house or flat. Finance (No. 2) Act, 1971 101. The amendments explained in paragraphs 99 and 100 will come into effect from 1-4-1972 and will, accordingly, apply for the assessment year 1972-73 and subsequent years. Finance (No. 2) Act, 1971 Withdrawal of exemption from wealth-tax in respect of jewellery, etc., and limiting of exemption in respect of motor cars, etc. 102. Section 5(1) provides exemptions from wealth-tax in respect of certain assets by excluding these in the computation of the net wealth. One of these exemptions which is contained in clause (viii) of section 5(1), is in respect of— "furniture, household utensils, wearing apparel, provisions and other articles intended for the personal or household use of the assessee". Another item of exemption [which was provided in section 5(1)(xv) prior to 1-4-1963] was in respect of— "jewellery belonging to the assessee, subject to a maximum of Rs. 25,000 in value". In the case of CWT v. Mrs. Arundhati Balkrishna [1970] 77 ITR 505, the Supreme Court held that the expression "other articles intended for the personal or household use of the assessee" in section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d boats will hereafter be exempt up to an aggregate value of Rs. 25,000 only. Finance (No. 2) Act, 1971 105. During the course of the debate on the Budget for the year 1971-72 in the Lok Sabha, it was suggested that the inclusion of furniture, utensils or other articles which are made wholly or partly of, or contain (whether by way of embedding, covering or otherwise) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals in the net wealth would result in unintended hardship inasmuch as taxpayers would be required to disclose the value of petty items like silver plated cutlery, blades containing coating of platinum or other precious metals, etc. It was, accordingly, suggested that such furniture, utensils and other articles should continue to enjoy exemption from wealth-tax. In his reply to the debate, the Finance Minister has observed as follows : 'In giving an extended meaning to the term "jewellery" and excluding furniture, utensils and other articles falling under the categories described above from the scope of the exemption, it is not the intention to enter into pettifogging enquiries into the details of such ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, shares forming part of such issue will continue to qualify for exemption without any ceiling limit irrespective of whether such shares are actually subscribed for before or after that date. Finance (No. 2) Act, 1971 Financial assets qualifying for exemption from wealth-tax 108. Under a provision introduced by the Finance Act, 1970, exemption from wealth-tax is available in respect of the investments in specified financial assets up to an aggregate value of Rs. 1,50,000. The categories of investments qualifying for this exemption comprise— a. Government securities, including small savings securities of the Central Government. b. Fixed deposits with the Central Government, as also in Post Offices on Government account, and Recurring and Time Deposits in Post Offices. c. Shares in Indian companies. d. Notified debentures. e. Units in the Unit Trust of India. f. Deposits with banking companies, including co-operative banks, land mortgage banks and land development banks. g. Deposits with approved financial corporations engaged in providing long-term finance for industrial development in India. By certain amendments to section 5 under section 32 of the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative societies and deposits by members with a co-operative society, as also the withdrawal of the exemption in respect of these assets in the case of discretionary trusts which are chargeable to tax at the flat rate of 1½ per cent or at the rates applicable in the case of an individual, whichever is higher, will all become effective from 1-4-1972, i.e., for the assessment year 1972-73 and subsequent assessment years. Finance (No. 2) Act, 1971 Recovery of wealth-tax arrears 111. Under section 32, the provisions of the Income-tax Act relating to recovery of arrears of income-tax are made applicable also for the purposes of recovery of arrears of wealth-tax and sums imposed by way of a penalty, fine and interest. In the context of the amendments made in the Income-tax Act so as to vest in Tax Recovery Commissioners jurisdiction over orders of Tax Recovery Officers, a consequential amendment has been made in section 32 by section 35 of the Finance (No. 2) Act, 1971 so as to confer on Tax Recovery Commissioners jurisdiction over appeals against orders of Tax Recovery Officers in proceedings for recovery of wealth-tax also. This amendment will take effect from 1-1-1972 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese amendments will take effect from 1-4-1972 and will, accordingly, apply for the assessment year 1972-73 and subsequent years. Finance (No. 2) Act, 1971 Exemption of gifts made by charitable or religious institutions or funds 114. Section 45 excludes from the purview of the Gift-tax Act, inter alia, any gifts made by an institution or fund the income whereof is exempt from income-tax under section 11 of the Income-tax Act. Under certain amendments made through the Finance Act, 1970, to the provisions of sections 11 and 13 of the Income-tax Act, charitable or religious institutions and funds may not qualify for exemption from income-tax on the whole or a part of their income in certain circumstances. Some of these circumstances are : (a) where the institution or fund fails to apply its income to charitable or religious purposes within the same year or within three months immediately following that year; and (b) where the institution or fund makes investments in a concern in which the founder of the institution or fund and his relatives have a substantial interest and the investment does not exceed 5 per cent of the capital of such concern. As it is not the intention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip which has been notified by the Central Government for the purpose of the exemption under the Income-tax Act in respect of donations made for the repair or renovation of such places. These provisions in section 5(1) of the Gift-tax Act, before amendment by the Finance (No. 2) Act, 1971, referred to section 88 of the Income-tax Act. As section 88 has been replaced with effect from 1-4-1968 by section 80G, two drafting amendments have been made to section 5(1) by section 37(c) of the Finance (No. 2) Act, 1971 so as to refer to section 80G of the Income-tax Act. These amendments have been made retrospectively from 1-4-1968. AMENDMENTS TO COMPANIES (PROFITS) SURTAX ACT Finance (No. 2) Act, 1971 Rates of surtax 117. Under the provisions of the Companies (Profits) Surtax Act, surtax is leviable on so much of the chargeable profits of a company as exceed the "statutory deduction", at the rate or rates specified in the Third Schedule to that Act. The term "statutory deduction" is defined to mean an amount equal to 10 per cent of the capital of the company as computed in accordance with the provisions of the Second Schedule or an amount of Rs. 2,00,000, whichever is greater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in extending its activities, as stated above, section 30 of the Deposit Insurance Corporation Act, 1961 has been amended by section 53 of the Finance (No. 2) Act, 1971 so as to continue the exemption from taxation of the Corporation on its income for a further period of 5 years. This will cover the profits of the Corporation up to 31-12-1976. Finance (No. 2) Act, 1971 Housing and Urban Development Finance Corporation (P.) Ltd. 122. The Housing and Urban Development Finance Corporation (P.) Ltd. is registered as a company under the Companies Act and is wholly owned by the Government. The primary objective of the Corporation is to provide finances to State Housing Boards, etc., for accelerating housing and urban development programmes. The Corporation will concentrate progressively, on the financing of programmes intended for housing the weaker sections of the community and will thus meet a pressing social need. With a view to enabling the Corporation to perform these functions effectively and to build up its resources, section 54 of the Finance (No. 2) Act, 1971 has made an independent provision exempting from income-tax and surtax the income of the Corporation for a 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome exceeds Rs. 80,000 but does not exceed Rs. 1,00,000 Rs. 37,000 plus 75 per cent of the amount by which the total income exceeds Rs. 80,000 ; (11) where the total income exceeds Rs. 1,00,000 but does not exceed Rs. 2,00,000 Rs. 52,000 plus 80 per cent of the amount by which the total income exceeds Rs. 1,00,000 ; (12) where the total income exceeds Rs. 2,00,000 Rs. 1,32,000 plus 85 per cent of the amount by which the total income exceeds Rs. 2,00,000 : Provided that for the purposes of this paragraph, in the case of a Hindu undivided family which at any time during the previous year satisfies either of the following two conditions, namely,— (a) that it has at least two members entitled to claim partition who are not less than eighteen years of age, or (b) that it has at least two members entitled to claim partition who are not lineally descended one from the other and who are not lineally descended from any other living member of the family : (i) no income-tax shall be payable on a total income not exceeding Rs. 7,000; (ii) where the total income exceeds Rs. 7,000 but does not exceed Rs. 7,660, the income-tax payable thereon sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified; (b) in the case of any other registered firm, a surcharge calculated at the rate of twenty per cent of the amount of income-tax computed at the rate hereinbefore specified ; and (c) a special surcharge calculated at the rate of ten per cent on the aggregate of the following amounts, namely : (i) the amount of income-tax computed at the rate hereinbefore specified; and (ii) the amount of the surcharge calculated in accordance with clause (a), or as the case may be, clause (b) of this sub-paragraph. Explanation : For the purposes of this paragraph, "registered firm" includes an unregistered firm assessed as a registered firm under clause (b) of section 183 of the Income-tax Act. 4. In the case of every local authority Rate of income-tax On the whole of the total income - 50 per cent. Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge for purposes of the Union calculated at the rate of ten per cent of such income-tax.B. Companies 1. In the case of the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956,— Rates of income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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. ANNEXURE II RATES OF INCOME-TAX FOR DEDUCTION OF TAX AT SOURCE FROM "SALARIES" AND RETIREMENT ANNUITIES AND FOR COMPUTING "ADVANCE TAX" PAYABLE DURING THE FINANCIAL YEAR 1971-72 A. Taxpayers Other Than Companies 1. Individuals, Hindu undivided families, unregistered firms, associations of persons (other than co-operative societies), bodies of individuals and artificial juridical persons Rates of income-tax (1) where the total income does not exceed Rs. 5,000 Nil; (2) where the total income exceeds Rs. 5,000 but does not exceed Rs. 10,000 10 per cent of the amount by which the total income exceeds; Rs. 5,000 ; (3) where the total income exceeds Rs. 10,000 but does not exceed Rs. 15,000 Rs. 500 plus 17 per cent of the amount by which the total income exceeds Rs. 10,000 ; (4) where the total income exceeds Rs. 15,000 but does not exceed Rs. 20,000 Rs. 1,350, plus 23 per cent of the amount by which the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputed in accordance with the preceding provisions of this paragraph shall be increased by a surcharge for purposes of the Union calculated at the following rates, namely :— (a) in a case where the total income does not exceed Rs. 15,000 - 10 per cent ; (b) in any other case -15 per cent : Provided that the amount of surcharge payable shall, in no case, exceed the aggregate of the following sums, namely : (i) an amount calculated at the rate of 10 per cent on the amount of income-tax on an income of Rs. 15,000 if such income had been the total income (the income of Rs. 15,000 for this purpose being computed as if such income included income from various sources in the same proportion as the total income of the person concerned); and (ii) 40 per cent of the amount by which the total income exceeds Rs. 15,000. 2. In the case of every co-operative society Rates of income-tax (1) where the total income does not exceed Rs. 10,000 15 per cent of the total income; (2) where the total income exceeds Rs. 10,000 but does not exceed Rs. 20,000 Rs. 1,500 plus 25 per cent of the amount by which the total income exceeds Rs. 10,000; (3) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act. 4. In the case of every local authority Rate of income-tax On the whole of the total income - 50 per cent. Surcharge on income-tax The amount of income-tax computed at the rate hereinbefore specified shall be increased by a surcharge for purposes of the Union calculated at the rate of fifteen per cent of such income-tax.B. Companies 1. In the case of the 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, in accordance with Paragraph F of this Part, to the total income of a domestic company which is a company in which the public are substantially interested. 2. In the case of a company, other than the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956,— Rates of income-tax 1. In the case of a domestic company, — (1) where the company is a company in which the public are substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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