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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 ..... 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 two years and exempting person over t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned 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 than "Salaries" and retirement annuities payable to par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill 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, the rate for deduction of tax at source from income by way of ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment 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 total income of the taxpayer exceeds Rs. 10,000 by a small margin, a provision has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrent 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 such income were the total income [It may be noted that under section 2(2) of the Finance Act 1977 (which lays down the method of calculating income-tax in such cases for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the net agricultural income under these provisions is the same as in the relevant provisions of the finance Act. 1976, except for the modification that the unabsorbed loss in agricultu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances 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 income by way offers for technical services payable in pursuance of an agreement made before 1st April, 1976, and approved by the Central Government . For this purpose, an agreement made on or after 1st April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-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 accumulated or set apart may be deposited in any account with the Post Office Saving Bank [including deposits made under Post Office (Time Deposits) Rules, 1970] or a banking company to which the Banking Regulation Act, 1949, applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 and subsequent years. 11.2 One of the modes of deposit specified in sub-clause (iii) of clause (a) of sub-section (5) of section 13 deposit in any account with the State Bank of India or a subsidiary bank of the State Bank of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 allowed in respect of new machinery or plant installed for the purposes of business of construction, manufacture or production of all article or things, except certain articles or things of low priority specified in the list in the new Eleventh Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) inserted in section 32A provides for the grant of investment allowance at the higher rate of 35 per cent. in respect of machinery or plant installed after 30th June, 1977, but before 1st April, 1982, for the purposes of business of manufacture or production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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. [Section 9, 28 and 29(2)(f) of the Finance Act] Rural development allowance - New section 35CC 14.1 The Finance Act has introduced a new section 35CC in the Income-tax Act under which companies and co-operative societies will be entitled to a deduction in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, 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 provision of the Income-tax Act for the same or any other assessment year. 14.5 The new section 35CC will come into force with effect from 1st September, 1977, and will accordingly apply in relation to the assessment year 1978-79 and subsequent years. Higher deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-section (1) of section 49 (e.g., under a gift or will or by succession, inheritance, etc.)and the capital asset became the property of the "previous owner" before 1st January, 1954, the assessee may, at his option, substitute the fair market value of the asset as on the date in place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of its acquisition. For this purpose, the amount of capital gain exempted from tax by reason of the amount invested or deposited by the assessee in the specified asset which is so transferred or converted will be deemed to be income by way of "long-term capital gains" of the previous year in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 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 earlier. Accordingly, section 155 of Income-tax Act has been amended to provide that, in such cases, the Income-tax Officer will amend the assessment order made by him so as to exclude the amount of capital gain not chargeable to tax in accordance with the provisions of new section 54E. The peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial 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 was effected, the amalgamated company will have the right to carry forward the loss for a period of eight assessment years immediately succeeding the assessment year relevant to the previous year in which the amalgamation was effected. 18.3 The declaration referred to in the preceding paragraph will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States. Donations made to the Government or to any such local authority institution or association as is approved in this behalf by the Central Government to be utilised for the purposes of promoting family plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue 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 undertaking should not have been formed by the transfer to a new business of machinery or plant previously used for any purpose. In a case where any machinery or plant or any part thereof previously used for any purpose is transferred to a new industrial undertaking and the total value of the machinery of plant so transferred does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 reference to the income of the industrial undertaking after allowing, inter alia, the deduction under section 80HHA. 20.6 The aforesaid 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. Tax relief in respect of remuneration rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rency" 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 section 104 of the Income-tax Act, closely-held companies are required (subject to certain exceptions) to distribute dividends up to the statutory percentage of their distributable income within a period of twelve months immediately following the expiry of the previous year. If the distribution of dividends falls short of the required amount or if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subjects is given in Annex. I to this Circular. 23.2 This relaxation will not apply in cases where an agreement made on or after 1st April, 1976 is regarded as an agreement made before the said date by virtue of Explanation 1 to the proviso to section 9(1)(vi) of the Income-tax Act. 23.3 The aforesaid provision will come into force with effect from 1st Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 clause (c) accordingly prescribes a uniform limit of Rs. 10,000 for purpose of payment of advance tax in the case of all assessees, other than companies, local authorities and registered firm. 25.2 The aforesaid amendment will take effect from 1st September, 1977, and will accordingly apply in relation in relation to advance tax payable on or after that date. Removal of lacuna in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the purpose of calculating the penalty imposable under new clause (ia). 26.4 The aforesaid amendments will come into force with effect from 1st September, 1977. As the new clause (ia) inserted in section 273 provides the basis for the imposition of a penalty for furnishing a false estimate under section 212(3A) of the Income-tax Act, the provisions of the said clause will apply onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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, section 246(1), where such order is made by the Inspecting Assistant Commissioner in exercise of the powers of functions conferred or assigned to him under section 125 or section 125A. (c) an order made by the Inspecting Assistant Commissioner imposing a fine under section 131(2): (d) an order made in the case of a foreign company, where the company denies its liability to be assessed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions regarding the transfer of pending appeals, etc., to the Commissioner (Appeals) do not apply in relation to any appeal against an order made by the Inspecting Assistant Commissioner under section 272A which immediately before the appointed day, is ending before the Appellate Tribunal and such appeals will continue to be heard and disposed of by the Appellate Tribunal. Action required to be taken by App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Commissioners (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 264 - Commissioner of Income-tax not to revise any order under that section in cases where an appeal lies against the order to the Commissioner (Appeals) but has not been made and the time within which such appeal may be made has not expired, or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance 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. laid down by the finance Act, 1976); 2 1/2 per cent, on the slab from Rs. 5,00,001 -10,00,000 (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.10,00,000 (as against 2 1/2 per cent. laid down by the Finance Act, 1976). 28.3 As stated in paragraph 28.1 above, the new rate schedule has come into force with effect from 1st April, 1977, and will accordingly apply in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 the nature of the cases, the complexities involved and other relevant considerations, direct. It may be noted that an appeal against an assessment or other specified above will lie on or after the appointed day to the Commissioner (Appeals) even though the assessment or order may have been made before the appointed day. OTHER PROVISIONS 29.3 The Finance Act has amended a number of other provisions of, and made a few new provisions in, the Weal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - Publication of information relating to any penalty imposed on a person prohibited until time for presenting an appeal to the Commissioner (Appeals) 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) may permit an appellant to produce evidence wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 though the assessment or order may have been made before the appointed day. OTHER PROVISIONS 30.3 The Finance Act has amended a number of other provision of, and made a few new provisions in, the Gift-tax Act to provide for the appointment, jurisdiction, functions and powers of Commissioners of Gift tax (Appeals), the procedure to the followed in appeals filed before them and other related matters. These provisions are briefly indicated below. Section 2(via). - Definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NTS 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 Appellate Assistant Commissioner will cease to be an appellate authority under the Companies (Profits) Surtax Act from the appointed day and an appeal against any assessment or order made by an Income-tax Officer under that Act will lie from the appointed day to the Commissioner (Appeals) [vide section 11 of the Companies(Profits) Surtax Act, as amended by the Finance Act.] Where the functions of an Income-tax Officer are assigned to an Inspecting Assistant Commissioner appeals against any assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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) 32.1 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 purpose of the various direct taxes enactments, including the Interest-tax 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 Interest tax Act not to lie to Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal; 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 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 39, of and Part V of the Fifth Schedule to, the Finance Act] AMENDMENTS TO THE COMPULSORY DEPOSIT SCHEME (INCOME-TAX PAYERS) ACT, 1974 Continuance of the scheme of compulsory deposit by income-tax payers for two years 33.1 Under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, individuals who are citizens of India, Hindu undivided families and trustees of discretiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 976 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 under these provisions were, however, not able to comply with the aforesaid time limits for payment of tax and for investment in notified Government securities, thereby forfeiting the benefit of immunity from penalty, prosecution, etc., provided under that Act. 34.2 In order to give a last chance to such person to pay their tax dues and to make investment in notified Government securities, the Finance Act has amended the relevant provisions of the Voluntary Disclosure of Income and Wealth Act, 1976, to provide that taxpayers who pay th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation 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 further period of two years, i.e., assessment years 1977-78 and 1978-79. 36.2 The aforesaid amendment has come into force with effect from 1st April, 1977. AMENDMENT TO THE OIL INDUSTRY (DEVELOPMENT) ACT, 1974 Exemption of Oil Industry Development Board 37.1 The Oil Industry Development Board has been established under section 3 of the Oil Industry (Development) Act, 1974. The main function of the Board is to render financial and other assistance for the promotion of all such measures as are conducive to the development of oil industry. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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