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TMI BlogProvisions at a glance , Provisions explainedX X X X Extracts X X X X X X X X Extracts X X X X ..... mendments in other enactments 19 Circular No. 159, dated 31-12-1974 Explanatory Notes Interest-tax Act, 1974 Introduction 1. The Interest-tax Bill, 1974, as passed by Parliament, received the assent of the President on 23-9-1974 and has been enacted as the Interest-tax Act, 1974 (45 of 1974). Section 27 of the Interest-tax Act, 1974 empowers the Board to make, subject to the control of the Central Government, rules for carrying out the purposes of the Act. The Board has, in exercise of this power, made the Interest-tax Rules, 1974 which have been published in the Official Gazette on 30-12-1974. This circular explains the main provisions contained in the Act and the Rules. Interest-tax Act, 1974 2. The Interest-tax Act imposes a special tax on the gross amount of interest received by scheduled banks on loans and advances made in India. The banks are expected to adjust their functioning to the tax and reimburse themselves to the extent necessary by making a proper adjustment in interest rates charged from borrowers. The tax is thus expected to have both monetary and fiscal impact inasmuch as it will serve the purpose of raising the cost of borrowed funds and supplementing Gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant previous year. It will be manifest that no deduction on account of bad debts will be allowable in respect of interest accruing or arising to the bank in any previous year preceding the previous year relevant to the assessment year 1975-76, as such interest has not been taken into account in computing the chargeable interest under the Interest-tax Act. It should be noted that no deduction other than the deduction on account of bad debts is allowable in computing the chargeable interest. The term "interest" will include (a) commitment charges on the unutilised portion of any credit sanctioned for being availed of in India, and (b) discounts on promissory notes and bills of exchange drawn or made in India. Discounts on treasury bills are, however, exempted from the levy. It may be noted that interest on loans and advances made outside India, commitment charges in respect of such loans and advances and discounts on promissory notes drawn or made outside India are not chargeable to interest-tax. Interest on Government securities and on debentures and other securities issued by local authorities, companies or statutory corporations is also not regarded as "interest" for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining the chargeable interest and the amount of interest-tax payable by the assessee. [Section 8 of the Act] Interest-tax Act, 1974 Self-assessment 7. Section 9 provides for the payment of interest-tax by the assessee on the basis of his own assessment. Where the assessee has furnished a return of chargeable interest and the interest-tax payable on the basis of the return exceeds any interest-tax already paid for the relevant assessment year, he will be required to pay the excess within 30 days of furnishing the return. It should be noted that, unlike the corresponding provision in section 140A of the Income-tax Act, interest-tax will be payable on the basis of self-assessment even in cases where the tax so payable does not exceed Rs. 500. In case of default in payment of interest-tax or any part thereof on the basis of self-assessment, the assessee would be liable to pay such penalty as the Income-tax Officer may direct. No penalty will, however, be imposable in a case where a regular assessment has been made by the Income-tax Officer within 30 days of furnishing the return by the assessee. In case of continuing default, it would be open to the Income-tax Officer to levy furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 1974. In the case of scheduled co-operative banks, the accounts are closed on 30th June every year. Since interest accruing before 1-8-1974 is excluded from the tax base, no tax will be payable by co-operative banks for the assessment year 1975-76. The advance payment for the assessment year 1976-77 will be made by such banks in two instalments falling due on 15-9-1975 and 15-3-1976. In case of default in payment of any instalment of interest-tax payable in advance, the assessee shall be deemed to be an assessee in default in respect of such instalment and the arrears would be recoverable in accordance with the procedure laid down under the Income-tax Act for the recovery of income-tax. [Section 11 of the Act] Interest-tax Act, 1974 Penalties for failure to furnish returns, comply with notices, concealment of interest, etc. 10. Section 12 provides for imposition of penalties for delay or default in furnishing returns of chargeable interest, non-compliance with notices under section 8(1) and for concealment of chargeable interest. In a case where the assessee, without reasonable cause, delays or defaults in furnishing the return of chargeable interest under section 7(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest-tax Act and the maximum penalty will be equal to one and a half time of 85 per cent of the interest-tax so chargeable. Before imposing the penalty under section 13, the Income-tax Officer will have to hear the assessee or give him a reasonable opportunity of being heard. [Sections 13 and 14 (Part) of the Act] Interest-tax Act, 1974 Appeals, revisions, rectifications and reference applications 12. The provisions relating to appeals, rectifications, revisions and reference applications in respect of interest-tax are broadly similar to the corresponding provisions in the Companies (Profits) Surtax Act, 1964. The Interest-tax Rules, 1974 have prescribed the following separate forms for presentation of appeals, etc. : (a) Form No. 3 for appeal to the Appellate Assistant Commissioner of Income-tax under section 15. (b) Form No. 4 for appeal to the Appellate Tribunal against the order of the Appellate Assistant Commissioner or Commissioner of Income-tax. (c) Form No. 5 for filing a memorandum of cross-objections to the Appellate Tribunal. [Sections 15, 16, 17, 19, 20 and 21 (Part) of the Act] Interest-tax Act, 1974 Interest-tax to be deductible in computing taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with or arising out of the Act will lie only at the instance of the Commissioner who will also have the power to compound any offence punishable under the Act. The provisions for prosecution and punishment for offences are on the lines of the corresponding provisions in the Companies (Profits) Surtax Act, 1964. [Sections 23, 24, 25 and 26 of the Act] Interest-tax Act, 1974 Power to make rules and remove difficulties 17. The Central Government have been empowered to make an order for removal of any difficulty that may arise in the operation of the Act provided the order is not inconsistent with the provisions thereof. This power will be exercisable during the period of two years from the coming into force of the Interest-tax Act, i.e., before 23-9-1976. The Central Board of Direct Taxes has been empowered to make rules for carrying out the purposes of the Act. The power to make rules will, on the first occasion of the exercise thereof, be available for making rules with retrospective effect also, so, however, that no retrospective effect will be given from the date earlier than the coming into force of the Act. [Sections 27 and 29 of the Act] Interest-tax Act, 1974 Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 55. South Indian Bank Ltd. 56. Tamil Nadu Merchantile Bank Ltd. 57. Tanjore Permanent Bank Ltd. 58. Traders' Bank Ltd. 59. United Industrial Bank Ltd. 60. United Western Bank Ltd. 61. Vijya Bank Ltd. 62. Vysya Bank Ltd. Foreign Banks (13) 63. Algomene Bank Dederland N.V. 64. American Corporation 65. Bank of America National Trust & Saving Association 66. Bank of Tokyo Ltd. 67. Banque National de Paris 68. British Bank of the Middle East 69. Charted Bank 70. First National City Bank 71. Habib Bank Ltd. 72. Merchantile Bank Ltd. 73. Mitsui Bank Ltd. 74. National and Gridlays Bank Ltd. 75. National Bank of Pakistan State Co-operative Bans(14) 1. Andhra Pradesh Sate Co-operative Bank 2. Bihar State Co-operative Bank 3. Gujrat State Co-operative Bank 4. Haryana State Co-operative Bank 5. Kerala State Co-operative Bank 6. Madhya Pradesh State Co-operative Bank 7. Madras State Co-operative Bank 8. Maharashtra State Co-operative Bank (Incorporating the Vidarbha Co-operative Bank) 9. Mysore State Co-operative Apex Bank 10. Orissa State Co-operative Bank 11. Punjab State Co-operative Bank 12. Rajasthan State Co-operative Bank 13. Uttar Pradesh Co-opera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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