TMI BlogThe Finance Act, 1981--Explanatory note on provisions relating to direct taxesX X X X Extracts X X X X X X X X Extracts X X X X ..... r the Income-tax Act and the rates for computation of "advance tax" and charging of income-tax on current incomes in certain cases for the financial year 1981-82. 2. Amendment of the Income-tax Act, 1961 with a view to enhancing the standard deduction available in the case of salaried assessees; plugging certain loopholes for tax avoidance through the medium of oral trusts and associations of persons; facilitating the association or participation of foreign companies in the business of prospecting for, or extraction or production of, mineral oils and natural gas; providing incentives for export-oriented and other priority industries; increasing the quantum of deduction in respect of medical treatment of physically and mentally handicapped dependants; providing for tax relief in certain cases; upgrading the qualifications for appointment as members of the Income-tax Appellate Tribunal; raising the scale of fees for appeal, etc., to the Appellate Tribunal and providing for a few other matters. 3. Amendment of the Wealth-tax Act, 1957 with a view to plugging certain loopholes for tax avoidance through the medium of oral trusts and associations of persons and raising the scale of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aragraph 5.4 of this circular. Rates for deduction of income-tax at source during the financial year 1981-82 from incomes other than "salaries" and "retirement annuities" 4. The rates for deduction of income-tax at source during the financial year 1981-82 from incomes, other than "salaries" and "retirement annuities" payable to partners of registered firms engaged in specified professions, have been specified in Part II of the First Schedule to the Finance Act. These rates apply to income by way of interest on securities, other categories of interest, dividends, insurance commission, winnings from lotteries and crossword puzzles, winnings from horse races and other categories of non-salary income of non-residents. As explained later in this circular, the rate of surcharge on income-tax in the case of corporate taxpayers has been reduced from 7.5 per cent to 2.5 per cent of the income-tax. Consequently, the rates for deduction of income-tax at source during the financial year 1981-82 differ from the rates specified in Part II of the First Schedule to the Finance (No. 2) Act, 1980 for purposes of deduction of tax at source from such incomes during the financial year 1980-81 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the Central or a State Government (not being interest on a tax-free security) or interest on debentures or other securities issued by or on behalf of a local authority or a statutory corporation or interest on debentures issued by companies where such, debentures are listed in a recognised stock exchange in India payable to, resident taxpayers (other than companies) during the financial year 1981-82, tax will continue to be deducted at the rate of I 0 per cent. In the case of interest on other securities (not being interest on a tax-free security) or dividend payable to resident taxpayers (other than companies) during the financial year 1981-82, income-tax will, however, be deductible at the rate of 22 per cent made up of basic income-tax of 20 per cent and surcharge of 2 per cent. This is less than the rate at which tax was deductible from such income during the financial year 1981-82 by 1 per cent. This change has been made with a view to providing for the seduction of income-tax at source from dividends payable to resident assessees (other than companies) at the same rate as in the case of income-tax deductible at source from dividends payable to domestic companies which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has any net agricultural income in addition to total income. The modifications in regard to the above matters are explained in paragraphs 5.2 to 5.4 of this circular. 5.2 Raising of the exemption limit - The exemption limit in the case of individuals, Hindu undivided families (other than those with one or more members having separate income exceeding Rs.15,000), unregistered firms, associations of persons, bodies of individuals and artificial juridical persons has been raised from Rs.12,000 to Rs.15,000. It may be noted that the nil rate slab in the case of these classes of assessees has also been raised to Rs. 15,000. The exemption limit in the case of Hindu undivided families with one or more members having separate income exceeding the exemption limit has, however, been retained at the present level of Rs. 12,000. 5.3 Modification in the rate schedule - The rate schedule applicable in the case of individuals, Hindu undivided families (other than those with one or more members having separate income exceeding the exemption limit), unregistered firms, associations of persons, etc., has been modified. The pre existing third and fourth slabs of income, namely, Rs.15,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his total income. This amount will be increased by the surcharge, at the rate of 10 per cent of such income-tax which will be the tax payable by the assessee. As regards Hindu undivided families with one or more members having separate income exceeding the exemption limit, and having net agricultural income in addition to total income, there is no change in the provisions in the Finance (No. 2) Act, 1980, in this behalf. [Section 2 of, and the First Schedule to, the Finance Act] AMENDMENTS TO INCOME-TAX ACT Complete tax holiday for industrial units situated in free trade zones - New section 10A 6.1 Under the existing provisions, a partial tax holiday is granted to all categories of assessees in respect of profits made by them from an industrial undertaking newly set up in India. Where the industrial undertaking is set up prior to 1-4-1981, the "tax holiday" concession consists of exemption from income-tax up to a specified percentage of the capital employed in the undertaking for five initial assessment years, subject to certain conditions. The percentage specified in this behalf was 7.5 per cent in the case of a company and 6 per cent in the case of others. Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify f or the purposes of this section. The tax exemption is granted with reference to the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce any article or thing and each of the four immediately succeeding assessment years. The provisions of this section apply to any industrial undertaking which fulfils the following conditions, namely: 1. The industrial undertaking should begin to manufacture or produce any article or thing during the previous year relevant to the assessment year 1981-82 or any subsequent assessment year in any of the free trade zones. (This is subject to the exception explained in paragraph 6.8.) 2. The industrial undertaking should not have been formed by the splitting up or reconstruction of a business already in existence. However, 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of the business of the undertaking or any expenditure incurred for the purposes of such business in any of such previous years had been given full effect to for that assessment year itself. The natural consequence of this provision is that any amount representing the unabsorbed depreciation under section 32(2), the unabsorbed investment allowance under section 32A(3)(ii), the unabsorbed capital expenditure on scientific research under section 35(4), or the unexpired capital expenditure in relation to the family planning under the first proviso to section 36(1)(ix) in relation to the tax holiday period will not be carried forward or set off against profits for any subsequent assessment year. In other words, it is presumed that the allowances for depreciation, investment allowance, development rebate, capital expenditure on scientific research or for family planning were fully absorbed by the income of the industrial undertaking in any of the previous years relevant to the five initial assessment years and that no amount of unabsorbed allowance or deduction is to be carried forward to any assessment year following the five-year tax holiday period. 2. No loss under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t apply to him for any of the five assessment years for which the tax holiday provisions would have normally applied to him. The dispensation has been made on the consideration that some assessees may find the general tax concessions available in relation to industries in the rest of India more attractive than the new scheme. 6.8 Sub-section (5) of the new section 10A provides an option to assessees deriving profits and gains from existing industrial undertakings situated in the free trade zone. Accordingly, assessees deriving profits and gains from industrial units set up in any of the previous years relevant to the assessment years 1977-78 to 1980-81 will, at their option, be entitled to claim complete tax holiday for the unexpired period of five years. The tax concession in relation to the existing units is being made optional on the consideration that some assessees may find it more profitable to avail of the general tax concessions which are allowed in relation to new industrial undertakings under the existing provisions. Accordingly, an assessee deriving profits and gains from an industrial undertaking set up in any previous year relevant to the assessment years 1977-78 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial undertaking set up in the free trade zone derives more than ordinary profits which may be expected to arise in that business. This provision has been made with a view to avoiding abuse of the new tax concessions by manipulation of profits between associate concerns or different units of the same concern. 6.11 This amendment has come into force with effect from 1-4-1981 and is accordingly applicable in relation to the assessment year 1981-82 and subsequent years. [Section 3 of the Finance Act] Raising of standard deduction admissible in the case of salaried taxpayers - Section 16 7.1 Under section 16(i), salaried assessees are entitled to a standard deduction in computation of their taxable salary. Prior to the amendment made by the Finance Act, standard deduction was allowed in an amount equal to 20 per cent of the salary up to Rs.10,000 and 10 per cent of the balance, subject to an overall ceiling of Rs.3,500. This standard deduction was, however, restricted to Rs. 1,000 in the following cases: a. where the employee is in receipt of conveyance allowance from his employer, or b. where he is provided with any motorcar, motorcycle, scooter or any any other mope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1982-83 and subsequent years. [Section 4 of the Finance Act] Amendment of the definition of a small-scale industrial undertaking in pursuance of the statement on industrial policy Section 32A and section 80HHA 8.1 Under the existing provisions of the Income-tax Act, the following tax concessions are available in the case of small-scale industrial undertakings, namely: 1. Investment allowance is admissible in respect of any machinery or plant installed in a small-scale industrial undertaking for the purpose of business of manufacture or production of any article or thing including an article or thing of low priority specified in the list in the Eleventh Schedule to the Income-tax Act [section 32A(2)(b)(ii)]. 2. An assessee is entitled to deduction, in the computation of his taxable income, of an amount equal to 20 per cent of the profits and gains derived from a small-scale industrial undertaking set up in a rural area for 10 initial assessment years [section 80HHA]. 3. An assessee owning a small-scale industrial undertaking is entitled to a deduction, in the coi-riputation of his taxable income, of an amount equal to 20 per cent of profits and gains (25 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .20 lakhs. Another amendment made in this section is intended to secure that in a case where an industrial undertaking was not eligible for the tax concession for the reason that the investment in machinery or plant in earlier years exceeded Rs.10 lakhs, such undertaking would be eligible for the benefit of this tax concession for the unexpired portion of the 10-year period specified in that section provided that the total investment in machinery or plant at the end of the relevant previous year does not exceed Rs.20 lakhs. For example, where the industrial undertaking was not eligible for the initial 3 assessment years for the reason that the value of the machinery or plant installed in the said undertaking exceeded Rs.10 lakhs, such an undertaking would be eligible for the tax concession under section 80HHA for the balance period of 7 assessment years commencing with the assessment year 1981-82 or any subsequent assessment year relevant to the previous year provided that the value of the machinery or plant installed therein as on the last day of 3. The amended definition of a "small-scale industrial undertaking" in section 80HHA will also apply for the purposes of the tax holi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tea gardens situate in the plains Rs. 30,000 ii. for tea gardens situate in hilly areas other than Darjeeling district Rs. 35,000 iii. for tea gardens situate in hilly areas of the district of Darjeeling Rs. 40,000 For this purpose, the "district of Darjeeling" means the district of Darjeeling as it existed on the 28th February, 1981, being the date on which the Finance Bill, 1981 was introduced in the Lok Sabha. 9.4 This provision will take effect from 1-4-1982 and will, accordingly, apply in relation to the assessment year 1982-83 and subsequent years. [Section 6 of the Finance Act] Increase in the quantum of aggregate of the deductions in respect of profits transferred to special reserve in the case of approved financial corporations and public housing finance companies - Section 361)(viii) 10.I Under section 36(1)(viii), approved financial corporations engaged in providing long-term finance for industrial or agricultural development in India and approved public companies engaged in carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, are entitled to a deduction in the computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral oils but may carry out such operations through its nominee, such as, a public sector undertaking, it has been provided that the participation in such business can be of such nominee as well. 2. Under the existing provision, the agreement between the Central Government and the person concerned may make provision in relation to the allowance of the specified categories of expenditure but not in respect of depreciation allowance. Such an agreement cannot, therefore, provide for a differential basis for the computation of the depreciation allowance. This provision has been amended to provide that deductions permitted under the agreement may cover depreciation allowance as well. 11.3 The Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 ("Territorial Waters Act") specifies that the Exclusive Economic Zone of India is an area adjacent to the territorial waters and the limit of the zone is 200 nautical miles from the base line. In this Exclusive Economic Zone, the Central Government has sovereign rights for the purpose of exploration, exploitation, conservation and management of natural resources. Under section 7(7) of the Territoria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship, aircraft, machinery or plant in connection with such business, whether by way of sale or by hire. 3. Employees of the persons referred to in (1) and (2) above. Any notification issued by the Central Government in pursuance of this provision will be required to be laid before each House of Parliament. For the purpose of section 42 and section 293A "mineral oils" will also include petroleum and natural gas. 11.5 These provisions have come into force with effect from 1-4-1981. [Sections 8 and 22 of the Finance Act] Increase in the quantum of deduction in respect of medical expenses on handicapped dependants - Section 80D 12.1 Under section 80D, resident individuals and Hindu undivided families incurring expenditure on the medical treatment (including nursing) of a handicapped dependant are entitled to a specified deduction in respect of such expenditure in the computation of their total income. The handicapped dependant for this purpose means a relative of the individual, being the husband, wife, brother, sister or any lineal ascendant or descendant of that individual, or a member of the Hindu undivided family who is not dependent on any person other than such indiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Schedule 13.1 The Ninth Schedule to the Income-tax Act contains a list of priority industries which are at present entitled to the following tax concessions, namely: 1. Under section 80M, full deduction is granted in respect of income by way of dividends received by a domestic company from an Indian company formed and registered under the Companies Act, 1956 after 28th February, 1975 and engaged exclusively or almost exclusively in the manufacture or production of any one or more of the following articles or things specified in the Ninth Schedule, namely: 1. Non-ferrous metals. 2. Ferro-alloys and special steels. 3. Steel castings and forgings. 4. Electric motors. 5. Industrial and agricultural machinery. 6. Earth-moving machinery. 7. Machine tools. 8. Fertilizers, namely, ammonium sulphate, ammonium sulphate nitrate (double salt), ammonium nitrate, calcium ammonium nitrate (nitrolime stone), ammonium chloride, superphosphate, urea and complex fertilizers of synthetic origin containing both nitrogen and phosphorus, such as, ammonium phosphates, ammonium sulphate phosphate and ammonium nitrophosphate. 9. Soda ash. 10. Caustic soda. 11. Commercial vehicl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting and publication of books, or publication of books without the activity of printing, is entitled to a deduction, in the computation of his taxable income, of an amount equal to 20 per cent of the profits and gains of such business. This deduction was admissible up to and including assessment year 1980-81. The deduction under this section is not admissible to an assessee who carries on the business of printing of books, unless the books so printed are also published by him. For the purposes of this section, the expression "books" does not include newspapers, journals, magazines, diaries, brochures, pamphlets and other publications of a similar nature. 14.2 With a view to providing continued encouragement to the book publishing industry in India, the Finance Act has extended the benefit of this tax concession for a further period of five assessment years beginning with assessment year 1981-82 and ending with assessment year 1985-86. 14.3 This provision has come into force with effect from 1-4-1981. [Section 12 of the Finance Act] Provisions to counteract tax avoidance through the medium of multiple associations of persons without share specifications - Section 86 and new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or may not be liable to tax since it is, in the generality of cases, below the exemption limit. The net result of this arrangement is that the assessee who is in fact entitled to receive such income and who diverts such income to the association of persons as a whole pays only a very small fraction of the tax that is due from him. 15.4 In order to counteract such attempts at tax avoidance through the creation of multiple associations of persons without defining the shares of the members, the Finance Act has inserted a new section 167A to provide that where the share of the members of an association of Persons (not being a company or a cooperative society) in the income of such association are indeterminate or unknown, tax shall be charged on the total income of such association at the maximum marginal rate. For this purpose, the expression "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year. Sub-section (2) of section 167A provides that where the individual shares of the members of such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of such part while the balance of its income in which the shares of the members are specific, will be chargeable at the normal rates. Further, for the purpose of determining the rate of income-tax to be applied to the income of a member of such association, every member will be deemed to be entitled to receive an equal share in that part of the total income of the association in which the shares of the members are indeterminate or unknown and the amount of the share so determined, as increased by the share of the member in that part of the income of the association in which the shares of members are specified, will be included in the assessment of the member for rate purposes. 15.7 These provisions have come into force with effect from 1-4-1981 and are accordingly applicable in relation to the assessment year 1981-82 and subsequent years. [Sections 13 -and 16 of the Finance Act] Provision to counteract tax avoidance through creation of oral trusts - Section 160 and new section 164A 16.1 Under section 160, the expression "representative assessee" includes a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wakf Validating Act, 1913) and which is also not deemed under the new Explanation 1 to be a trust declared by a duly executed instrument in writing. 16.2 The Finance Act has also inserted a new section 164A to provide for the charge of tax in case of an oral trust. Under the new section 164A, any income which a trustee receives or is entitled to receive on behalf of or for the benefit of any person under an oral trust will be chargeable to income-tax at the maximum marginal rate. For this purpose, the expression "maximum marginal rate" has the same meaning as in the Explanation 2 below section 164(3). Accordingly, the "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax) applicable in relation to the highest slab of income in case of an association of persons as specified in the Finance Act of the relevant year. 16.3. The effect of the above provisions will be as follows: i. an oral trust, the terms whereof are not subsequently recorded in writing and intimated to the Income-tax Officer in the specified manner, will be chargeable to income-tax at the maximum marginal rate in all cases; and ii. an oral trust, the terms whereof are subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by an Income-tax Officer lies to the Appellate Assistant Commissioner, and in certain cases to the Commissioner of Income-tax (Appeals). Appeals from orders passed by or with the approval of the Inspecting Assistant Commissioner lie to the Commissioner of Income-tax (Appeals). The second appeal from an order of the Appellate Assistant Commissioner or the Commissioner (Appeals) lies to the Income-tax Appellate Tribunal. Appeals from certain orders passed by the Commissioner of Income-tax also lie to the Income-tax Appellate Tribunal. Other direct tax enactments contain practically identical provisions in regard to appeals which can be filed to the Appellate Tribunal. 18.2 At present, the Central Government is empowered to constitute an Appellate Tribunal consisting of as many Judicial and Accountant Members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by the Income-tax Act. The qualifications for being appointed as a Judicial Member or an Accountant Member in the Appellate Tribunal are as under: a.Judicial Member: (i) the person should have held a civil judicial post for at least 10 years, (ii) the person shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll qualify for appointment as an Accountant Member. 18.4 Under the provisions relating to the proposed Customs Tribunal, the fee for filing of an appeal to the Tribunal, except in the case of a departmental appeal will be Rs. 200. Under the Income-tax Act, such fee had been fixed at Rs. 125 only. The Finance Act has raised the fee for appeal before the Income-tax Appellate Tribunal to the level prescribed under the proposed Customs Tribunal. The fee for filing reference application to the High Court is also increased from Rs. 125 to Rs. 200, as provided in relation to the proposed Customs Tribunal. 18.5 The provisions relating to raising of the fee for appeal to the Tribunal and for filing reference application to the High Court have taken effect from 1-6-1981. Accordingly, in a case where the assessment proceedings were initiated after 31-3-1971 but before 1-6-198 1, the fee payable would be Rs. 125, whereas in a case where the assessment proceedings were initiated after 31-5-1981, the enhanced fee of Rs. 200 will become payable. For this purpose, the assessment proceedings shallbe deemed to have been initiated on the date on which the assessee was served with a notice calling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing some of the listed industries as of low priority. On a review the Finance Act has amended the Eleventh Schedule so as to exclude therefrom the following articles or things, namely: 8. Broadcasting television receiver sets, radio )including transistor sets); radiograms and tape recorders (including cassette recorders and tape decks). 11. Electric fans. 12. Domestic electrical appliances, not falling under any item in this list. Explanation: "Domestic electrical appliances" means electrical appliances used in the household and similar appliances used in places, such as, restaurants, hostels, offices, educational institutions and hospitals. 13. Household furniture, utensils, crockery and cutlery not falling under any other item in this list. 14. Pressure cookers. 15. Vacuum flasks and other vacuum vessels. 16. Tableware and sanitary ware. 17. Glass and glassware. 18. Chinaware and porcelain ware. 19. Mosaic tiles and glazed tiles. 20. Organic surface active agents, surface active preparations and washing preparations whether or not containing soap. 21. Sanitary detergents. 26. Pigments, colours, paints, enamels, varnishes, blacks and cellulose lacquer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from an individual who is a citizen of India and is resident in India at the rates specified in Part I of Schedule I or at the rate of 3 per cent, whichever course wold be more beneficial to the revenue. 2. An oral trust will, however, be regarded as a trust declared by a duly executed instrument in writing, if a statement in writing signed by the trustee setting out the purpose of the trust, particulars as to the trustees, the beneficiaries and the trust property is forwarded to the Wealth-tax Officer within the specified time limit. The time limit specified in this behalf is a period of three months from 1-6-1981 where an oral trust has been created before that date and in any other case, a period of three months from the date of the declaration of the trust. 20.5 The net effect of these provisions will be as follows: 1. An oral trust the terms whereof have no subsequently been reduced to writing intimated to the Wealth-tax Officer as specified above, will be chargeable to wealth tax at the rates applicable to an individual who is a citizen of India and is a resident of India or at the rate of 3 per cent, whichever course is more beneficial to the revenue. 2. An oral tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide for assessment in the case of associations of person which do not define the shares of the members in the assets thereof. Sub-section (1) of new section 21AA provides that where assets chargeable to wealth-tax are held by an association of persons (other than a company ora co-operative society) and the individual shares of the members of the said association in income or the assets of the association on the date of its formation or at any time thereafter, are indeterminate or unknown, wealth-tax will be levied upon and recovered from such association the like manner and to the same extent as it is leviable upon and recoverable from an individual who is a citizen of India and is resident in India at the rates specified in Part I of Schedule I or at rate of 3 per cent, whichever course is more beneficial to the revenue. 21.4 Sub-section (2) of new section 21AA provides that where any business or profession carried on by such as association has been discontinued or where it is dissolved, the Wealth-tax Officer is empowered to make an assessment of the net wealth of such association as if no discontinuance or dissolution had taken place and the other provisions of the Wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years. [Section 27 and 31 of the Finance Act] Enhancement of fees in respect of appeals to the Appellate Tribunal or reference application to the High Court-Section 24, 26, and 27 22.1 Under section 24(2) and section 26(2) of the Wealth-tax Act, a fee of Rs. 12 is payable by an assessee in respect of the appeals to the Appellate Tribunal. Similarly, under section 27(1) a fee of Rs. 125 is payable by an assessee in respect of a reference application to the High Court. The Finance Act has enhanced the fee payable in this behalf from Rs. 125 to Rs. 200. Where the assessment proceedings were initialed after 31-3-1971 but before 1-6-1981, the existing fee of Rs. 125 will be payable by the assessee. Where however, the assessment proceedings are initiated after 31-5-1981, the enhanced fee of Rs. 200 will be payable. For the purpose, the assessment proceeding will be deemed to have been initiated on the date on which the assessee was served with a noticed calling upon him to file the return of net wealth for the relevant assessment year or the date on which the return of net wealth was furnished voluntarily by the assessee, whichever is earlier. Thus, where the dispute r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y defined to mean the total income as determined for the purpose of the Income-tax Act(subject to certain deductions) as reduced by the tax payable thereon. The statutory deduction is Rs. 2 lakhs or 15 per cent of the capital of the company, whichever is higher. The capital of the company for the purposes of surtax means the aggregate of (i) paid-up share capital; (ii) development rebate and investment allowance reserve;and (iii) other reserves excluding such amounts credited thereto as have been allowed as deduction in computing the taxable income. 24.2 Although both income-tax and surtax are payable by companies, unlike income-tax, so far surtax was not payable in advance during the financial year immediately preceding the relevant assessment yar. The Finance Act has made specific provisions for the payment of surtax in advance. These provisions are broadly on the lines of the corresponding provisions in the Income-tax Act relating to payment of advance tax by companies. 24.3 The Finance act has inserted a new section 7A relating to advance payment of surtax. For this purpose, the expression "chargeable amount", in relation to any previous year, means so much of the chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere it has not been regularly assessed hitherto for such a company will be required to furnish an estimate of its current chargeable amount and the advance surtax payable thereon before the last instalment of advance surtax is due in is case. A company, which has been assessed by way of regular assessment and has furnished the statement within the specified time limit, will be required to pay the advance surtax in three equal instalments. A company which has not been previously assessed by way of regular assessment will be required to pay the advance surtax in accordance with the estimate furnished by it on such of the dates applicable in its case as have not expired or in one lump sum if only the last of such dates has not expired. 24.7 Sub-section (6) of section 7A provides that where a company which has already been assessed by way of regular assessment and is required to furnished statement of advance surtax, estimates on or before the date on which the first instalment of advance surtax is payable in its case that the current chargeable amount is likely to be less than the chargeable amount on which advance surtax is payable by it in accordance with its statement, or for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est by the Central Government at eh rate of 12 percent per annum on the amount by which the aggregate amount of advance surtax paid by the company during the financial year exceeds the amount of surtax determined on regular assessment, from 1st April of the relevant assessment year to the date of the regular assessment. This provision is broadly on the lines of section 214 of the Income-tax Act. 24.12 New section 7C specified in circumstances in which the company is required to pay interest. Sub-section (1) provides that where the aggregate amount of advance surtax paid by the company during the financial year is less than 83 1/3 per cent of the amount of assessed surtax, such company will be required to pay simple interest at the rate of 12 per cent per annum on the amount of such shortfall from 1st April of the assessment year to the date of the regular assessment. Sub-section (2) of section 7C provides that where a company has not furnished the statement of advance surtax or the estimate in lieu of the statement of advance surtax or the new company not previously assessed by way of regular assessment has not furnished the estimate of advance surtax, such a company will be liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides for the penalty payable by a company for making a false estimate or for failure to pay advance surtax. Where a company has furnished a false statement of advance surtax under section 7A(5)(a), such a company shall be liable to pay penalty which shall not be less than 10 per cent, but which will not exceed 1 1/2 times the amount by which the surtax actually paid during the financial year falls short of 83 1/3 per cent of the assessed surtax or the amount which would have been payable if the company had filed a correct statement of advance surtax, whichever is less. Where a company has, without reasonable cause, failed to furnish the statement of advance surtax in accordance with section 7A(5)(a), it will be liable to a penalty or an amount which will not be less than 10 per cent but which will not exceed 1 1/2 times of 83 1/2 per cent of the assessed surtax. 24.17 Where a company has furnished a false estimate of advance surtax under section 7A(5)(b)/7A(6)7A(7)/7A(9), it will be liable to a penalty which will not be less than 10 per cent but which will not exceed 1 1/2 times the amount by which the surtax actually paid during the financial year falls short of- (i) 83 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 200 with effect from 1st June, 1981. Accordingly, where the assessment proceedings were initiated after 31-3-1971 but before 1-6-1981, the existing fee of Rs. 125 will be payable. Where, however, the assessment proceedings are initiated after 31-5-1981, the enhanced fee of Rs. 200 will become payable. For this purpose, the assessment proceedings will be deemed to have been initiated on the date on which the assessee was served with a notice calling upon him to file the return of chargeable profits for the relevant assessment year or the date on which the return of chargeable profits for the relevant assessment year was furnished by the assessee voluntarily. Thus, where the dispute relates to the assessment, the question whether the existing fee or the enhanced fee will be payable will depend upon the date on which the assessment proceedings are deemed to have been commenced. 25.2 This amendment is similar to the amendment made in section 253 of the Income-tax Act referred to in paragraph 18.3 25.3 This provisions taken effect from 1-6-1981. [Section 40 of the Finance Act] Tax concessions to foreign companies engaged in prospecting for, or extraction or production of, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains of any business of life insurance; iv. income chargeable to income-tax under section 41(2); v. income chargeable under the Income-tax Act under the head "Interest securities " paid by the Central Government and declared to be income-tax free or from the securities of the State Government issued income-tax free and the income-tax thereon is payable by the State Government; vi. 50 per cent of the amount of donations which qualifies for deduction under section 80G of the Income-tax Act; vii. income by way of dividends from an Indian company or company which has made the prescribed arrangement for the declaration and payment of dividends within India; viii. income by way of royalties received from Government ora local authority or any Indian concern; ix. in the case of a foreign company, it income by way of interest or fees for rendering technical servicer from Government or a local authority or any Indian concern; x. in the case of a banking company- (a) any amount transferred to the serve fund under section 17(1) of the Banking Companies Act, 1949 Act, 1949 or deposited by it with the Reserve Bank of India under section 11(2)(b)(ii), or (b) transfer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the chargeable profits. In other words, the amount of dividends and royalties computed for the purposes of the Income-tax Act after allowing all deduction (including deductions under section 80M and 80MM) will only be excluded for the purpose of surtax. 27.5 This provisions has come into force from 1-4-1981 and will, accordingly, apply in relation to assessment year 1981-82 and subsequent years. [Section 43 of the Finance Act] AMENDMENT TO INTEREST-TAX ACT Amendment of provisions relating to the payment of fee in connection with appeal to the Appellate Tribunal - Section 16 28.1 Under section 16(6), a fee of Rs. 125 is payable by an assessee in respect of an appeal to the Appellate Tribunal. The Finance act has raised the fee from Rs. 125 to Rs. 200 with effect from 1-6-1981. Accordingly, where the assessment proceedings were initiated before 1-6-1981, the existing fee of Rs. 125 will be payable. Where, however, the assessment proceedings are initiated after 31-5-1981, the enhanced fee of Rs. 200 will become payable. For this purpose, the assessment proceedings will be deemed to have been initiated on the date on which the assessee was served with a notice calling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary trusts, are required to make compulsory deposits for the assessment years 1975-76 to 1981-82 (both inclusive), if the "current income" exceeds Rs. 15,000. In view of the continuing need to raise the level of savings in the economy, it is decided to continue the compulsory deposit scheme in the case of income-tax payers for another two years, i.e., for the assessment years 1982-83 and 1983-84. The rates of deposit will, however, remain unchanged. Repayment of compulsory deposit 30.2 Under the existing provisions, compulsory deposit made or recovered from a depositor in any financial year is repayable in five equal instalment commencing from the expiry of 2 years from the end of the financial year in which the deposit was made or recovered. The Income-tax Officer is, however, empowered to permit earlier repayment of the deposit or any instalment thereof together with interest due thereon in the cases of extreme hardship. 30.3 Under an amendment made in 1977, individuals who are over 70 years of age have been exempted from the requirement of making any compulsory deposit. The Finance Act has liberalised the position by providing that where a person has reached the age of 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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