TMI BlogThe Finance (No. 2) Act, 1977--Explanatory Notes on the provision relating to direct taxesX X X X Extracts X X X X X X X X Extracts X X X X ..... lotteries and crossword puzzles and other categories of income liable to such deduction under the Income-tax Act, 1961; and the rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases where accelerated assessments are required to be made during the financial year 1977-78. (ii) Amendment of the Income-tax Act, 1961, with a view to providing incentives for savings and investment; providing tax concessions for encouraging rural development programmes, setting up of small-scale industrial undertakings in rural areas and facilitating the merger of sick industrial units with sound ones; providing tax relief in certain cases; creating a new appellate authority and a few other matter. (iii) Amendment of the Wealth-tax Act, 1957, with a view to increasing the rates of wealth-tax and creating a new appellate authority. (iv) Amendment of the Gift-tax Act, 1958, the Companies (Profits)Surtax Act, 1964, and the Interest-tax Act, 1974, with a view to creating a new appellate authority. (v) Amendment of Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, with a view to extending the requirement of making compulsory deposits for another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1976, except for slight modifications as explained in Paragraph 5.6 of this circular. 3.3 Sub-section (8) of section 2 of the Finance Act, 1976, had provided that a company may make a deposit at any time during the financial year 1976-77, with Industrial Development Bank of India under a Scheme to be notified by the Central Government in this behalf and, if it does so, the surcharge on income-tax payable by it for the assessment year 1977-78, shall be reduced by the amount of the deposit so made. The Central Government had notified the Companies Deposits (Surcharge on Income-tax) Scheme, 1976, for the purpose. The proviso to sub-section (1) of section 2 of the Finance Act has accordingly provided that the surcharge on income-tax payable by a a company for the assessment year 1977-78 shall be reduced by the amount of deposit made by it during the financial year 1976-77 with the Industrial Development Bank of India under the aforesaid Scheme. (ii) Rates for deduction of tax at source during the financial year 1977-78, from incomes other than "Salaries" and retirement annuities. 4. The rates for deduction of tax at source during the financial year 1977-78 from income other tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edule to the Finance Act) is higher than 34.5 per cent., tax will be deducted at such higher rate. In respect of interest on a tax free security payable to non-corporate non-residents, the rate for deduction will be 17.25 percent. made up of income of 15 per cent. and surcharge of 2.25 percent. (being 15 per cent of the income-tax). (c) Payment of copyright royalties to foreign companies in respect of books on certain subjects. As explained in Paragraph 23.1 of this circular section 115A of the Income-tax Act, 1961, has been amended by the finance Act to secure that royalty received by a foreign company from an Indian concern in consideration of the transfer of all or any rights (including the granting of any licence) in respect of copyright in any book will be chargeable to income-tax at the rate of 40 per cent. of the gross amount of such income, if the book is on a subject the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the financial year 1977-78, to be imported into India under an Open General Licence. A list of these subjects is given in Annex. I to this circular. In view of the amendment made in section 115A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinuance of the option to companies to make deposits with the Industrial Development Bank of India in lieu of payment of surcharge. The modification in regard to above matters are explained in Paragraph 5.2 to 5.7 of this circular. Raising of exemption limit. 5.2 The exemption limit in the case of individuals, Hindu undivided families, unregistered firms association of person, bodies of individuals and artificial juridical persons has been raised from Rs.8,000 to Rs. 10,000. It is relevant to note that although the rate schedule (including the nil rate slab of income up to Rs. 8,000) has not been changed, a provision has been made (vide clause (i) of the proviso below Sub-Paragraph I or, as the case may be, Sub-paragraph II of Paragraph A of Part III of the First Schedule to the Finance Act] to the effect that no income-tax shall be payable in cases where the total income of the taxpayer does not exceed Rs. 10,000. In order to avoid hardship in cases where the total income of the tax payer exceeds Rs. 10,000 by a small margin, a provision has been made under clause (ii) of the same provisions for the grant of marginal relief in such cases. Under this provision, where the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, Hindu undivided families, unregistered firm, etc., the net agricultural income will be taken into account for computation of advance tax and charging of income-tax on current incomes in cases where accelerated assessments are made during the financial year 1977-78. It is, however, to be noted that with the raising of the exemption limit from Rs. 8,000 to Rs. 10,000 the net agricultural income will be taken into account only if the total income of the taxpayer exceeds Rs. 10,000. 5.5. In consequence of the raising of the exemption limit to Rs.10,000, concurrently with maintaining the nil rate slab of income at the existing level of Rs. 8,000, the Finance Act had made certain modification in the provisions relating to calculation of income-tax in cases where the taxpayer has net agricultural income in addition to total income. The modified provisions are contained in section 2(6) of the Finance Act, 1977. Under the provisions as modified, income-tax be calculated in such cases in the following manner:- (i) The agricultural and non-agricultural components of the taxpayer's income will be aggregated and income-tax (excluding surcharge) determined on the aggregate income as if s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any deduction in respect of the income-tax attributable to the net agricultural income, with the result that the agricultural component of the taxpayer's income would have been charged to income-tax. As this would have rendered to provision unconstitutional, it has been provided that, for the purposes of determining the income-tax on the net agricultural income as increased by Rs. 8,000, the exemption limit will be taken to be Rs.8,000 and not Rs. 10,000] (iii) The amount of income-tax determined under (i) shall be reduced by the amount determined under (ii). However, where the sum so arrived at exceeds 70 per cent. of the amount by which the total income exceeds Rs. 10,000 the excess shall be disregarded. (iv) The amount of income-tax as determined under (iii) will be increased by a surcharge at the rate of 15 per cent . of such income-tax and the amount so arrived at will be the income-tax payable by the taxpayer on his total income. Modification in the rules for computation of net agricultural income 5.6 The net agricultural income is to be computed in accordance with the rules contained in Part IV of the First Schedule to the Finance Act. The mode of computation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for "fees for technical services" Section 9(1)(vii) 7.1 The Finance Act, 1976 inserted a new clause (vii) in section 9(1) of the Income-tax Act with effect from 1st June, 1976, specifying the circumstances in which income by way of fees for technical services will be deemed to accrue or arise in India and also defining the expression "fees for technical services". Under the aforesaid clause (vii) income by way of "fees for technical services" of the following types is deemed to accrue or arise in India:- (a) fees for technical services payable by the Central Government or any State Government; (b) fees for technical services payable by a resident, except where the payment is relatable to a business or profession carried on by him outside India or to any other source of his income outside India; (c) fees for technical services payable by a non-resident if the payment is relatable to a business or profession carried on by him in India or to any other source of high income in India. The Finance Act has added a proviso to clause (vii) in section 9(1) of the Income-tax Act to secure that the deeming provisions contained in the said clause do not apply in relation to any inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 10(26A) of the Income-tax Act, before its amendment by the Finance Act, income accruing or arising to any resident of Ladakh district from any source in that district or outside India was completely exempt from income-tax up to and including the assessment year 1974-75. The exemption was available only in the case of person who were resident in Ladakh district in the previous year relevant to the assessment year 1962-63. 9.2 Section 10(26A) has been amended by the Finance Act retrospectively from 1st April, 1975, to revive this exemption for a further period of five years, i.e., for the assessment year 1975-76 to 1979-80. [Section 5(b) of the Finance Act] Modification of the provisions relating to investment or deposit of moneys accumulated or set apart for application to charitable or religious purposes - Section 11(2)(b) 10.1 Under sub-section (2) of section 11 of the Income-tax Act, income accumulated or set apart for application to charitable or religious purposes in India is required to be invested or deposited in any one or more of the modes specified in clause (b) of the said sub-section. Sub-clause (ii) of the said clause (b) provides that moneys so accumulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 13 of the Income-tax Act by the Taxation Laws (Amendment) Act, 1975, provides that if any funds of a charitable or religious trust or institution are invested or deposited or continue to remain invested or deposited otherwise than in any of the modes or forms specified in sub-section (5) of that section, at any time during any previous year commencing on or after 1st April, 1978, the section 11 or section 12 of the Income-tax act for the assessment year 1979-80 or any subsequent assessment year. In order to give more time to the trusts and institutions to bring their investments in line with the provisions of section 13(5) of the Income-tax Act, the date for change-over to the specified modes or forms has been extended by three years, i.e.,from 1st April, 1978, to 1st April, 1981. If any funds of such trusts and institutions are invested or deposited or continue to remain invested or deposited in any modes or from other than those specified in section 13(5) at any time during any previous year commencing on or after 1st April, 1981, the trust or institution will not be entitled to exemption under section 11 or section 12 of the Income-tax Act for the assessment year 1982-83 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years. [Section 8 of the Finance Act] Modification of the provisions relating to investment allowance - Section 32A 13.1 The Finance Act has made a number of important modifications in the scheme of investment allowance contained in section 32A of the Income-tax Act. At present investment allowance is granted in respect of the following assets:- (i) new ships or net aircraft acquired by an assessee engaged in the business of operation of ships or aircraft. (ii) New machinery or plant installed for the purposes of business of generation or distribution of electricity of any other form of power. (iii) New machinery or plant installed for the purpose of business of construction, manufacture or production of any one or more of the article of things specified in the list in the Ninth Schedule to the Income-tax Act. (iv) new machinery or plant installed in a small-scale industrial undertaking for the purpose of business of manufacture of production of any other articles or things. The Finance Act has substituted sub-clauses (ii) and (iii) of clause (b) of section 32A(2) referred to above by two new sub-clauses. Under the new provisions, investment allowance will be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule. The question whether any machinery or plant has been used mainly for the purposes of business of construction, manufacture or production of an article or thing not specified in the said list will depend upon the extent to which the machinery or plant has been used for the purpose of such business during the previous year. thus, the question will have to be decided with reference to the number of days or hours for which the machinery or plant has been actually used by the taxpayer for the purposes of such business. The number or quantity of articles or things manufactured or produced for the two business may be a fair, but not a conclusive, test of the text to which the machinery or plant has been used for the two businesses. The question will, therefore, have to be decided on the facts of each case. The burden of proving that the machinery or plant has been installed and used mainly for purposes of business of construction, manufacture or production of an article or thing not falling in the Eleventh Schedule will be on the person claiming the benefit of the provision and necessary evidence in support thereof will have to be adduced by him. 13.5 New sub-section (2B) ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Eleventh schedule. It may be noted that this conditions in applicable in the case of both small-scale industrial undertakings and other undertakings. 13.7 The expression "laboratory Financed by the Government" has been defined as a laboratory owned by any body including a society registered under the Societies Registration Act, 1860, and financed wholly or mainly by the Government. The expression "public sector company" has been defined to mean any corporation established by or under any Central State or Provincial Act or a Government company saddened in section 617 of the Companies Act, 1956. The term "Government company" as defined in the said section 617 means any company in which not less then fifty-one per cent. of the paid-up share capital is held by the central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company as thus defined. 13.8 The aforesaid amendments to section 32A will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Instead, the assessee will be allowed depreciation in respect of the asset so acquired or created as if such asset was used by the assessee for the purposes of the business and the provisions of section 32 (depreciation); section 34 (conditions for depreciation allowance, etc.); section 41 (profits chargeable to tax); and section 43 (definitions of certain terms relevant to income from profits and gains of business or profession)will so far as may be, apply accordingly. 14.3 No deduction will be allowed under sub-section (1) of section 35CC in respect of expenditure incurred on any programme of rural development unless the assessee furnished, along with the return of income for the assessment year for which the deduction is claimed, a statement of such expenditure in the prescribed from rule signed and verified by a chartered accountant or other qualified accountant, and setting forth such particulars as may be prescribed. 14.4 where a deduction under sub-section (1) of section 35CC is claimed and allowed for the assessment year in respect of any expenditure on any programme of rural development, no deduction shall be allowed in respect of such expenditure under any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction in respect of amounts transferred to the special reserve account up to 25 per cent. of the total income as so computed. 15.4 The amendment will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Substitution of the fair market value of an asset as on 1st January, 1964, in place of its cost of acquisition for purposes of computing capital gains - Sections 50 and 55. 16.1 Capital gain arising from the transfer of a capital asset is computed by deducting, from the full value of the consideration received or accruing as a result of the transfer, the expenditure incurred wholly and exclusively in connection with the transfer and the "cost of acquisition" of the capital asset, as also the cost of any improvement thereto. Where the capital asset because the property of the assessee before 1st January, 1954, the assessee may, at his option, substitute that fair market value of the asset as on that date in place of its cost of acquisition [vide section 55(2)(i) of the Income-tax Act] Where the capital asset became the property of the assessee by any of the modes specified in sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from income-tax. The specified assets for the purposes of this provision are the following:- (i) securities of the Central Government or a State Government. (ii) savings certificates as defined in section 2(c) of the Government Saving Certificates Act, 1959. (iii) Units in the Unit Trust of India. (iv) debentures specified by the Central Government for the purposes of section 80L(1)(ii) of the Income-tax Act: (v) Shares in any Indian company which are issued to the public or are listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956, and any rules made thereunder: (vi) deposits for a period of not less than three years with the State Bank of India or any subsidiary bank of the State of India or any nationalised bank or any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). 17.2 Sub-section (2) of new section 54E provides for the forfeiture of this exemption in cases where the specified asset is transferred, or converted (otherwise than by transfer) into money, within a period of three years from the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax-payer is sold for Rs. 2 lakhs resulting in a capital gains of Rs. 1 lakhs, the tax-payer may invest Rs. 1 lakhs in any one or more of the specified assets and utilise, say, Rs. 50,000, for purchasing a flat for residential purposes. In this illustration, one-half of the capital gains (i.e., Rs. 50,000) will be exempt under section 54E and the remaining one-half under section 54 of the Income-tax Act. 17.5 An assessee may sometimes not be in a position to invest or deposit the full value of the consideration received or accruing as a result of the transfer in specified assets before the completion of the assessment for the assessment year in which the capital gains arising from the transfer are chargeable to tax. In such cases, capital gains arising from the transfer of the asset will have to be included in assessment of the assessee for the relevant assessment year. However, if after completion of the assessment but within the specified period of six months, the assessee invests or deposits the full value of the consideration or part thereof in specified assets, it is but fair that the benefit of the tax concession should be allowed to him by amending the assessment order made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act relaxing the aforesaid provisions relating to carry forward and set off of accumulated business loss and unabsorbed depreciation allowance in certain cases of amalgamation. Sub-section (1) of new section 72A provides that where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company and the Central Government , on the recommendation of the specified authority, is satisfied that certain conditions specified in this behalf are fulfilled, the Central Government may make a declaration to that effect and thereupon, notwithstanding anything contained in any other provision of the Income-tax Act, the accumulated loss and unabsorbed depreciation of the amalgamating company shall be deemed to be the loss or, as the case may be, allowance for depreciation of the amalgamated company for the previous year in which the amalgamation was effected and the other provisions of the Act relating to carry forward and set off of loss and allowance for depreciation shall apply accordingly. It is to be noted that as the unabsorbed loss of the amalgamating company is deemed to be the loss for the previous year in which the amalgamation wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company would have been entitled to carry forward and set off under the provisions of section 72 if the amalgamating had not been affected. similarly "unabsorbed depreciation" means so much of the allowance for depreciation of the amalgamating company which remains to be allowed an which would have been allowed to the amalgamating company under the provisions of the Income-tax Act if the amalgamating had not been effected. The term "specified authority" means such authority as the Central Government may, by notification in the Official Gazette, specify for the purpose of this provision. 18.5 The new section 72A will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. 19.1 Under section 80G of the Income-tax Act, an assessee is entitled to a deduction in the computation of his taxable income of an amount equal to 50 per cent. of the donations made by him to certain funds and charitable institutions, or for the repair or renovation of any temple, mosque, gurdwara, church or any other place which is notified by the Central Government for the purposes of the is section to be of historic, archa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and plant(other than tools, jigs, dies and moulds) installed, as on the last day of the previous year, for the purposes of the business of the undertaking does not exceed Rs.10 lakhs. For this purpose, the value of the machinery or plant owned by the taxpayer shall be the actual cost thereof to the taxpayer and the value of machinery or plant hired by the taxpayer shall be the actual cost to the owner thereof. 20.2 In order to qualify for the new tax concession, the industrial undertaking will have to fulfil, the following conditions: (i) The industrial undertakings should begin to manufacture or produce articles after 30th September, 1977, in any rural area. (ii) The industrial undertaking should not have been formed by the splitting up, or the reconstruction, of a business already inexistence, Where an industrial undertaking is formed as a result of re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B in the circumstances and within the period specified n that section, this condition will not apply and the same will qualify for the new tax concession. (iii) The industrial undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 The Finance Act has made certain provisions as to the treatment to be accorded in cases where an assessee is entitled to a deduction under the new section 80HHA and any one or more of the provisions in section 80HH, 80J, and 80QQ of the Income-tax Act. These provisions are briefly as under: (i) Where an assessee is entitled to a deduction both under section 80HH and new section 80HHA, in relation to the profits and gains of the same industrial undertaking, the deduction in relation to the profits and gains of the same industrial undertaking, the deduction in relation to such profits and gains will be allowed only under either of these provisions. (ii) Where an assessee is entitled to a deduction both under the new section 80HHA and section 80J in relation to the profits and gains of the same industrial undertaking, the deduction under new section 80HHA will be allowed first and the provisions of section 80J will apply to the balance of income after allowing such deduction. (iii) Consequential changes have also been made in section 80J, 80P and 80QQ of the Income-tax Act in order to provide that the deduction under each of the aforesaid sections will be allowed with referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian technician, etc., in Indian currency, the amount paid in Indian currency will not be taken into account for the purpose of the deduction under new provision. The expression "foreign currency" will have the meaning assigned to it in the Foreign Exchange Regulation Act, 1973. Under section 2(g) of that Act, the term "foreign currency" means any currency other Indian currency. 21.4 The expression "foreign employer" under the new section 80RRA will have the same meaning as under the existing provision. The expression "technician" will mean a person having specialised knowledge and experience in the various fields specified in the new section (which are the same as those specified in the existing section ) or any other field which the Board may prescribe in this behalf and who is employed in a capacity in which such specialised knowledge and experience are actually utilised. 21.5 The new section will come into force with effect from 1st April, 1978, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Exemption of closely held industrial companies from compulsory distribution of dividends - Sections 104 and 109 22.1 Under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(1A) 23.1 Under section 115A(1) of the Income-tax Act, income by way of royalty (other than lump sum royalty for transfer outside India of, or the imparting of information outside India in respect of data, documentation, drawings, etc., relating to any patent, invention etc.,) received by a foreign company from an Indian concern in pursuance of an agreement made on or after 1st April, 1976, is charged to tax at the rate of 40 per cent on the gross amount of such income, if the agreement is approved by the Central Government. The Finance Act has inserted a new sub-section (1A) in section 115A to provide that the aforesaid condition, namely, that the agreement between the foreign company and the Indian concern should have been approved by the Central Government will not apply in cases where the royalty is paid in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book if the book is on a subject the books on which are permitted, according to the Import Trade Control Policy of the Government of India for the financial year 1977-78, to be imported into India under an Open General Licence. The list of these subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dividend paid or distributed during the financial year to each such person; and (c) such other particulars as may be prescribed. 24.4 The aforesaid provision will come into force with effect from 1st October 1977, and will accordingly apply in relation to dividends paid or distributed on or after that date. [Section 24 and 25 of the Finance Act] Exemption limit for payment of "advance tax" in the case of non residents (other than companies) - Section 208 25.1 Advance tax is payable only in cases where the income subject to advance tax exceeds the following limits:- Rs. a. in the case of a company or a local authority - 2,500 b. in the case of a registered firm - 30,000 c. in the case of a person other than a company, local authority or a registered firm— i. if the person is a non-resident - 5,000 ii. if the person is a resident - 10,000 With the raising of the exemption limit in the case of individual, etc., to Rs. 10,000 the Finance Act has substituted clause (c) of sub-section (2) of section 208 of the Income-tax Act by a new clause with a view to raise the aforesaid limit of Rs. 5,000 in the case of non-resident assessee to Rs. 10,000. The new cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Income-tax Officer. In the circumstances, a penalty under section 273(1) cannot be levied for furnishing a false estimate of advance tax under section 212(3A). 26.3 In order to remove this lacuna, the Finance Act has inserted a separate clause (ia) is section 273 for the calculation of the penalty imposable for furnishing a false estimate of advance tax under section 212(3A). Under the new clause, penalty in such cases will be calculated with reference to the amount by which the advance tax actually paid during the financial year falls short of 75 percent. of the assessed tax. Under the proviso to sub-section (3A) of section 212, the Commissioner can extend the date for furnishing an estimate under the said sub-section in certain circumstances, and where the date is so extended, the assessee can pay advance tax up to the date so extended. The Finance Act has added an Explanation in section 273 to provide that the amount paid by the assessee after the end of the relevant financial year, but on or before the date extended by the Commissioner under the proviso to sub-section (3A) of section 212, will be regarded as tax actually paid by the assessee during the financial year f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioners of Income-tax (Appeals); (ii) transfer of appeals which are pending immediately before the appointed day with Appellate Assistant Commissioner and Commissioners of Income-tax to the Commissioner (Appeals); and (iii) action required to be taken after the appointed day in relation to any appeal disposed of by Appellate Assistant Commissioner Paragraph 27.3 to 27.5 of this circular. Categories of orders where appeals will lie to Commissioners (Appeals) - Section 246(2) 27.3 New sub-section (2) inserted in section 246 of the Income-tax Act by the Finance Act provides that an appeal will lie to the Commissioner (Appeals) against any of the following orders :- (a) an order under section 104 relating to the payment of additional income-tax on undistributed profits by closely-held companies : [It is relevant to note that by virtue of the provisions contained in section 107A(9), as amended by the Finance Act, no appeal shall lie to the Commissioner (Appeals) against an order under section 104 in a case where a decision has been given by the Board on an application made by the company under that section. (b) an order specified in clause (c) to (o) (both inclusive) of, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) - Section 246(3) 27.4 New sub-section (3) inserted in section 246 provides that every appeal against an order specified in sub-section (2) of that section which is pending immediately before the "appointed day" before an Appellate Assistant Commissioner or a Commissioner shall stand transferred on the appointed day to the Commissioner (Appeals). Any matter arising out of or connected with such appeal which is pending immediately before the appointed day before an Appellate Assistant Commissioner or a Commissioner shall also similarly stand transferred on that day to the Commissioner (Appeals). The expression "matter arising out of or connected with such appeals" would cover penalty proceedings initiated by the Appellate Assistant Commissioner or Commissioner in the course of an appeal before him. Where any appeal or matter stands transferred to the Commissioner which it was on the appointed day. The proviso to new sub-section (3) inserted in section 246, however, provides that the appellant may, in such cases, demanded that before proceeding further with the appeal or matter, the previous proceeding or any part thereof be reopened or that he be re-heard. The foregoing provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax excluded in cases where assessment function of the Income-tax Officer are assigned to the Inspecting Assistant Commissioner. Section 126 - Board may empower Commissioners (Appeals) to have the same powers as Appellate Assistant Commissioner in regard to discovery, production of evidence, etc., to call for information and to inspect registers of companies. Section 154 - rectification of mistakes by Commissioner (Appeals). Section 177(2), 189(2), 271, 271A and 271B - Commissioner (Appeals) to have the same powers as Appellate Assistant Commissioner in regard to imposition of penalty. Section 245 - Commissioners (Appeals) authorised to set off refund against tax remaining payable. Section 245A - Inclusion of Commissioner (Appeals) as an income-tax authority for purposes of Chapter XIXA relating to Settlement of Cases. Section 247 to 251 - Provisions relating to appeal by partner or person denying liability to deduct tax; form of appeal and limitation; procedure in appeal; and powers of Appellate Assistant Commissioners in disposing of appeals to apply in relation to appeals before Commissioners (Appeals). Section 253 - Appeals against orders passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of individuals and Hindu undivided families (other than those having one or more members with independent net wealth exceeding Rs. 1 lakhs) wealth-tax will be chargeable under the revised rate schedule on the new slab of net wealth up to Rs. 2,50,000 at the rate of 1/2 per cent. The rates of wealth-tax in the other slabs will be 1 per cent on the slab from Rs. 2,50,001 - 5,00,000 (as against 1/2 per cent. laid down by the Finance Act, 1976); 2 per cent. on the slab from Rs. 5,00,0001 -10,00,00 (as against 1 1/2 per cent. laid down by the Finance Act, 1976); 2 1/2 per cent. on the slab from Rs. 10,00,000 - 15,00,000 (as against 2 per cent. laid down by the Finance Act, 1976); and 3 1/2 per cent. on the slab of net wealth over Rs. 15,00,000 (as against 21/2 per cent. laid down by the Finance Act, 1976). 28.2 In the case a Hindu undivided families having one or more members with independent net wealth exceeding Rs. 1 lakh, the net wealth in the new slab up to Rs. 2,50,000 will be charged to wealth-tax at the existing rate of 1 1/2 per cent. The new rates of wealth-tax on the other slabs will be 2 per cent. on the slab from Rs. 2,50,001 - 5,00,000 (as against 11/2 per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f wealth-tax determined as payable by him under that act, where the net wealth determined as payable by him under that Act, appeal to the Commissioner (Appeals) will also lie in cases where the net wealth determined on assessment exceeds Rs. 15 lakhs and the person denies his liability to be assessed under the Wealth-tax Act; (b) any penalty imposed under section 18(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 18(3); (c) any assessment or order referred to in clauses (a) to (h) (both inclusive) or clause (i) of sub-section (i) of section 23, where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the powers of function conferred on or assigned to him under section 8AA; (d)any penalty imposed by an Inspecting Assistant Commissioner under section 18A [It may be noted that under the existing provisions of section 24(1) of the Wealth-tax Act, an appeal against an order passed by an Inspecting Assistant Commissioner under section 18A lies to the Appellate Tribunal]; (e) any order made by a Wealth-tax Officer in the case of such person or classes of persons as the Board may, having regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining payable. Section 35. - Rectification of mistakes by Commissioner (Appeals). Section 35K - Statement made or account or other document produced by a person before the Commissioner (Appeals) not to be inadmissible as evidence in prosecution proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty impossible on such person would be reduced or waived under section 18B of the Wealth-tax Act or that the offence in respect of which such proceeding was taken would be compounded. Section 37.- Commissioner (Appeals) not other document produced by a person before the Commissioner (Appeals) not to be inadmissible as evidence in prosecution proceedings merely on the ground that such statement was made or such account or other document was produced in the belief that the penalty imposable on such person would be reduced or waived under section 18B of the Wealth-tax Act or that the offence in respect of which such proceeding was taken would be compounded. Section 37. - Commissioners (Appeals) to have the same power as Appellate Assistant Commissioners to take evidence on oath, etc. Section 42A - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person denies his liability to be assessed under the Gift-tax Act]; (b) any assessment or order referred to in clauses (a) to (h) (both inclusive) of sub-section (1) of section 22 where such assessment or order has been made by the Inspecting Assistant Commissioner in exercise of the powers or functions conferred on or assigned to him under section 7AA of that Act; (c) any penalty imposed under section 17(1)(c) with the previous approval of the Inspecting Assistant Commissioner under section 17(3); (d) any penalty imposed by an Inspecting Assistant Commissioner under section 17A of the Act; [If may be noted that under the existing provisions of section 23(1)of the Gift-tax Act, an appeal against an order passed by an Inspecting Assistant Commissioner under section 17A lies to the Appellate Tribunal)]. (e) any order made by a Gift-tax Officer in the case of such person or classes of person as the Board may, having regard to the nature of the cases, the complexities involved and other relevant consideration, direct. It may be noted that an appeal against an assessment or order specified above will lie on or after the appointed day to the Commissioner (Appeals) even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) has expired without an appeal having been presented or the appeal, if presented, has been disposed of. Section 46.- Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which, the Commissioner (Appeals) to permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Gift-tax Officer. [Section 39 of, and Part III of the Fifth Schedule to, the Finance Act, 1964] AMENDMENTS TO THE COMPANIES (PROFITS) SURTAX ACT, 1964 Creation of new appellate authority, namely, Commissioner (Appeals) 31.1 As stated in Paragraph 27.2 of this circular, the Finance Act has made necessary provisions for creating a new appellate authority, namely, Commissioner (Appeals), for the purposes of the various direct taxes enactments, including the Companies (Profits) Surtax Act. These provisions will come into force on the "appointed day" i.e., such date as the Central Government may, by notification in the Official Gazette, appoint. [vide section 39(3) of the Finance Act] Appeals under the Companies (Profits) Surtax Act not to lie to Appellate Assistant Commissioners 31.2 The A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n disposing of appeals etc., contained in this section will apply to proceedings before Commissioners (Appeals). Section 12. Appeals against orders passed by Commissioners (Appeals) to lie to the Appellate Tribunal and Development appeals to the Tribunal against such orders to be authorised by the Commissioner of Income-tax. Section 13. Rectification of mistakes by Commissioner (Appeals). Section 17. - Commissioner of Income-tax not to revise any order under that section in cases where an appeal against the order lies to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired or the assessee has not waived his right of appeal or where the order has been made the subject of an appeal to the Commissioner (Appeals). Section 25. - Board empowered to frame rules specifying the circumstances in which, the conditions subject to which and the manner in which, the Commissioner (Appeals) may permit an appellant to produce evidence which he did not produce or he was not allowed to produce before the Income-tax Officer. AMENDMENTS TO INTEREST TAX ACT, 1974 Creation of a new appellate authority, namely, Commissioner (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated below:- Section 3(1)- Inclusion of Commissioner of Income-tax (Appeals) as a tax authority. Section 3(2)- Board not to issue instructions, etc., so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate function. Section 12 - Commissioner (Appeals) to have power to impose penalty for failure to furnish returns, comply with notices, concealment of interest etc. Section 15 - The provisions of this section relating to form of appeal and limitation; procedure in appeal; powers of the appellate authority in disposing of appeals, etc., will apply to proceedings before the Commissioner (Appeals). Section 16 - Appeals against orders passed by Commissioner (Appeals)to lie to the Appellate Tribunal and Departmental appeals to the Tribunal against such orders to be authorised by the Commissioner of Income-tax. Section 17- Rectification of mistakes by Commissioner (Appeals) Section 20 - Commissioners of Income-tax not to revise any orders under that section in cases where an appeal against the order lies to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... THE VOLUNTARY DISCLOSURE OF INCOME AND WEALTH ACT - 1976 Extension of time for payment of tax and making deposits in notified securities 34.1 Person making a disclosure of income under section 14 of the Voluntary disclosure of Income and Wealth Ordinance, 1975 (later replaced by the Voluntary Disclosure of Income and Wealth Act, 1976),in cases of search and seizure were required to pay at least one-half of the tax chargeable in respect of the income of the previous year or years for which the declaration was made by 31st March, 1976 and the remaining amount by 31st March, 1977. Person making a voluntary disclosure of wealth under section 15 of the said Act were similarly required to pay one-half of the wealth-tax chargeable in respect of the net wealth for the assessment year or years for which the declaration was made by 31st march, 1976, and the balance by 31st March, 1977. In addition they were required to invest an amount equal to 21/2 per cent. of the net wealth or, as the case may be, the value of assets declared by them in notified Government securities within thirty days from the date on which the declaration was made. A large number of persons who made declarations un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Credit Guarantee Corporation of India Limited. 36.1 The Credit Guarantee Corporation of India Ltd. is registered as a company under the Companies Act, 1956. About 60 per cent. of its paid-up capital is held by the Reserve Bank of India and the remaining by the State bank of India and its subsidiaries, nationalised banks and other banking and financial institutions. The Corporation guarantees loans advanced by banks and financial institutions to small borrowers in the priority and other sectors which have remained relatively neglected. the Corporation serves a desirable socio-economic purpose and with a view to enabling it to perform its functions effectively and to build up its reserves, the Corporation was exempted from income-tax and surtax by section 23 of the Finance Act, 1973, for a five-year period covering the assessment year 1972-73 to 1976-77 (both inclusive). The Credit Guarantee Corporation of India Ltd. is proposed to be shortly merged with the Deposit Insurance Corporation. The Finance (No.2) Act, 1977 has amended section 23 of the Finance Act 1973 in order to continue the exemption of the Credit Guarantee Corporation of India Ltd. from income-tax and surtax for a fu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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