TAXATION LAWS (AMENDMENT) ACT, 1975 - CIRCULAR NO. 179, DATED 30-9-1975, CIRCULAR NO. 197, DATED 17-4-1976 AND CIRCULAR NO. 204, DATED 24-7-1976

Amendments at a glance

SECTION/SCHEDULE PARTICULARS
Income-tax Act
10(6)(via) Tax exemption of remuneration received by non-Indian employees of foreign philanthropic institutions, etc. 4-5
124(2), 127(1), Concurrent jurisdiction of Income-tax Officers 7, 9
130A(c)
125A, 127(1), Concurrent jurisdiction of Inspecting Assistant Commis-
130A(c) sioners and Income-tax Officers 8-9
131(1A) Powers relating to discovery, production of evidence, etc. 11
132 Powers of search and seizure 12
132A(existing Powers to requisition books of account, etc. 13
section 132A
renumbered
as section
132B)
133A Powers of survey 14-15
179(1)/(2) Liability of directors of private companies in certain cases 17
189(3), Expln. Recovery of tax due from partners of dissolved firms 18
221(1), Expln. Penalties for non-payment of tax 19
222(1), Expln. Attachment and sale of property transferred by the assessee to his relatives in certain cases 20
223(2) Tax Recovery Officer to whom certificate to be issued 21
244(1A) Interest on refund of disputed tax or penalty 22-23
249(2)(b), Prov. Appeal against best judgment assessment under section 144 29-30
249(4) Payment of tax before appeal to the Appellate Assistant Commissioner is admitted 24
271(4A)/(4B) Commissioner�s power to reduce or waive penalty or interest
273A in certain cases 31-32
276B Punishment for failure to deduct and pay tax 34
276C Punishment for wilful attempt to evade tax 35
276CC Punishment for failure to furnish return of income 36
277 Punishment for false statement and verification, etc. 37
278 Punishment for abetment of false returns, etc. 38
278A Punishment for second and subsequent offences 39
278B Criminal liability in cases of offences by companies 40
278C Criminal liability in the case of offences by Hindu undivided families 41
278D Presumption as to assets, books of account, etc., in certain cases 42
279(1A) Prosecution at the instance of Commissioner 43
279A Certain offences to be non-cognizable 44
281 Certain transfers to be void 25-26
281B Provisional attachment to protect revenue in certain cases 27
287 Publication of information regarding prosecutions 46
292A Bar on application of provisions of section 360 of the Code of Criminal Procedure or Probation of Offenders Act to prosecutions under the Act 45
292B Return of income, etc., not to be invalid on certain grounds 47
Rules 19A(1), Procedure for recovery of tax 28
53(cc), 59(1),
68A, 73(3A)/
(4) (Expln.)
of 2nd Sch.
WEALTH-TAX ACT
8, prov. Concurrent jurisdiction of WTO 48
8AA Concurrent jurisdiction of IAC and WTO 48
8B(1) Commissioner�s power to transfer cases 48
11B(c) Performance of functions by WTO 48
18B Commissioner�s power to reduce or waive penalty 48
23(2A) Payment of tax before appeal to AAC is admitted 48
34A(3A) Interest on refund of disputed tax or penalty 48
34B Certain transfers to be void 48
34C Provisional attachment to protect revenue 48
35A to 35N Offences and prosecutions 48
37A, 37B Searches and seizures and power to requisition books of account, etc. 48
42A(2) Publication of information regarding prosecutions 48
42C Return of wealth/income, etc., not to be invalid on technical grounds 48
GIFT-TAX ACT
7, prov. Concurrent jurisdiction of GTO 49
7AA Concurrent jurisdiction of IAC and GTO 49
7B(1) Commissioner�s powers to transfer cases 49
11AA(c) Performance of functions by GTO 49
16A Time limit for completion of assessment and reassessment 50-51
33A(3A) Interest on refund of disputed tax or penalty 49
35A Offences by companies 49
35B Offences by HUFs 49
35C Barring of application of provisions of section 360 of Criminal Procedure Code, etc. 49
41A(2) Publication of information regarding prosecutions 49
41C Return of gifts/income, etc., not to be invalid on certain grounds 49
SURTAX ACT
18 Application of provisions of Income-tax Act - Amendments consequential to amendments in I.T. Act 52

 

Amendments to Income-tax ACt

MEASURE FOR GRANTING TAX RELIEF

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Tax exemption of remuneration received by non-Indian employees of foreign philanthropic institutions, etc. - New section  10(6)(via)

4. The Amending Act has introduced a new sub-clause (via) in clause (6) of section 10 with a view to exempting from income-tax remuneration received by individuals other than Indian citizens, from foreign philanthropic institutions, associations or bodies in certain circumstances. The exemption from income-tax will be available if the following conditions are fulfilled, namely:

1. The individual concerned is not a citizen of India.

2. He is either an employee of, or a consultant to, an institution or association or body established orformed outside India.

3. The said association, institution or body is established or formed solely for philanthropic purposes.

4. The said association, institution or body is approved by the Central Government.

5. The remuneration is received for services rendered in India.

6. The services in question are rendered for a purpose which has been approved by the Central Government.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

5. This amendment will apply in relation to the assessment year 1976-77 and subsequent years.

[Section 3(i) of the Amending Act]


AMENDMENTS OF PROVISIONS RELATING TO JURISDICTION 
OF INCOME-TAX AUTHORITIES

TAXATION LAWS (AMENDMENT) ACT, 1975-I

6. The Amending Act has made certain amendments to the provisions in Chapter XIIIB relating to jurisdiction of income-tax authorities with a view to streamlining the administrative set up in the income-tax offices and to make it functionally more efficient. The substance of the main changes made in this behalf is explained in paragraphs 7 to 9 below.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Concurrent jurisdiction of Income-tax Officers - Section 124(2)

7. At present, the Commissioner can direct that two or more Income-tax Officers will exercise concurrent jurisdiction in respect of the same area or the same persons or classes of persons or the same incomes or classes of income or the same cases or classes of cases but under such direction, the same function, in respect of the same case cannot be performed by more than one Income-tax Officer. The Amending Act has modified the provision in section 124 in order to enable the same function in  relation to the same case being performed by more than one Income-tax Officer according to such written orders of the Commissioner or the Inspecting Assistant Commissioner as may be made by him  for the purposes of facilitating the performance of such functions by the Income-tax Officers concerned. The underlying object is to provide greater flexibility in the distribution of work among the Income-tax Officers.

[Section 29 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Concurrent jurisdiction of Inspecting Assistant Commissioner and Income-tax Officers - New section 125A

8. The Amending Act has inserted a new section 125A to enable jurisdiction over any area, or persons or classes of persons, or incomes or classes of income, or cases or classes of cases, being exercised concurrently by the Inspecting Assistant Commissioner and the Income-tax Officers working under him.  Under the new provision, the Commissioner will have the power to direct, by an order in writing, that all or any of the powers conferred on and functions assigned to the Income-tax Officer or Income-tax Officers (where two or more Income-tax Officers exercise concurrent jurisdiction) will be exercised or performed concurrently by the Inspecting Assistant Commissioner. Where the Commissioner makes such an order,  the distribution of powers and functions in relation to the cases will be made by the Inspecting  Assistant Commissioner between himself and the Income-tax Officers under him. Further the Inspecting Assistant Commissioner will have the power to issue directions to the Income-tax Officers in individual cases subject to the condition that no directions prejudicial to the assessee will be issued without giving him an opportunity of being heard. For this purpose instructions by the Inspecting Assistant Commissioner as to the lines on which investigations should be made in a case would not be regarded as instructions prejudicial to the assessee. Where the Inspecting Assistant Commissioner performs functions of the Income-tax Officer, any provisions of the Income-tax Act requiring the approval or sanction of the Inspecting Assistant Commissioner will not apply and an appeal against the Inspecting Assistant Commissioner�s order will lie to the Commissioner and therefrom to the Income-tax Appellate Tribunal.

[Section 31 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Consequential amendments

9. In view of the amendment of section 124(2) and insertion of new section 125A as discussed in the preceding paragraphs, consequential changes have been made in the provisions of section 127 and section 130A.

[Sections 32 and 33 of the Amending Act]


MEASURES FOR ENLARGEMENT OF POWERS OF INCOME-TAX 
AUTHORITIES

TAXATION LAWS (AMENDMENT) ACT, 1975-I

10. The Amending Act has made several amendments to the provisions in Chapter XIIIC with a view to enlarging the powers of income-tax authorities in certain directions. The substance of the main changes in this behalf is explained in paragraphs 11 to 15.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Powers relating to discovery, production of evidence, etc. - Section 131

11. At present, Income-tax Officers, Appellate Assistant Commissioners, Inspecting Assistant Commissioners, and Commissioners exercise powers of discovery and inspection, enforcing attendance of persons, compelling production of books of account, etc., and issuing commissions. These powers are, however, not available to Assistant Directors of Inspection. With a view to enabling Assistant Directors of Inspection to make proper investigation in the cases entrusted to them, the Amending Act has modified the provisions of section 131 to confer on the Assistant Director of Inspection all such powers as the Income-tax Officer exercises under that section. Assistant Directors of Inspection will be able to exercise these powers in cases where there is reason to suspect that any income has been concealed or is likely to be concealed by any person or class of persons within his jurisdiction, even though no proceedings with respect of such persons or classes of persons may be pending before him or any other income-tax authority.

[Section 34 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Powers of search and seizure - Section 132

12. The Amending Act has made several amendments to section 132 with a view to enlarging the powers of search and seizure vested in the income-tax authorities. The main changes are as follows:

1. At present, searches and seizures can be authorised only by the Director of Inspection or the Commissioner. Now, this power will also vest in such Deputy Directors of Inspection and Inspecting Assistant Commissioners as may be especially empowered by the Board for the purpose. While Directors of Inspection and Commissioners will continue to have the power to authorise Deputy Directors of Inspection, Inspecting Assistant Commissioners, Assistant Directors of Inspection and Income-tax Officers to carry out any search, the Deputy Directors of Inspection and Inspecting Assistant Commissioners especially empowered by the Board will be able to authorise only Assistant Directors of Inspection and Income-tax Officers for the purpose.

2. Under the existing law,  a search can, inter alia, be authorised if the officer issuing the search warrant has reason to believe that the person concerned is in possession of any money, bullion, jewellery or other valuable article or thing which represents, either wholly or partly, income or property that has not been disclosed for income-tax purposes. It will now be possible to issue a search warrant even in a case where the officer issuing such warrant has reason to believe that such money, bullion, jewellery, etc., would not be disclosed by the person concerned for income-tax purposes in future.

3. At present, an authorisation can be issued only for the search of a building or a place. This power is now being extended to cover the search of a vehicle, vessel and aircraft as well.

4. Under the existing rule 112(5), the authorised officer is empowered to search any person in or about the building or place in respect of which a search has been authorised, if he has reason to suspect that any article for which search is being made is concealed about his person. This power has been enlarged and included in section 132(1)(iia). The authorised person will now have the power to search any person who has got out of, or is about to get into, or is in building, place, vessel, vehicle or aircraft in respect of which the search has been authorised, if he has reason to suspect that such person has secreted about his person any books of account, other documents, money, bullion, jewellery or other valuable article for which the search is being made.

5. The Commissioner has been empowered to authorise a search of any building, place, vessel, vehicle or aircraft within his territorial jurisdiction even in cases where he has no jurisdiction over the person concerned, if he has reason to believe that any delay  in obtaining authorisation from the Commissioner having jurisdiction over the person would be prejudicial to the interests of the revenue.

6. The Commissioner�s power to authorise a search has been enlarged in another direction as well. Where a search for any books of account or other documents or assets has been authorised by any authority competent to do so and any Commissioner has reason to suspect that such books of account, other documents or assets are kept in any building, place, vessel, vehicle or aircraft not mentioned in the search warrant, he may authorise the authorised officer to search such other building, place, vessel, vehicle or aircraft. Thus, if a search warrant is issued by the Commissioner of Income-tax, Bombay, authorising the search of a premises in Madras and the authorised officer finds that the books of account, other documents or assets have been secreted in a building or place not specified in the search warrant, he could request any of the local Commissioners to authorise him to search that building or place.

7. Under the existing law, the onus of proving that books of account, other documents, money, bullion, jewellery or other valuable articles or things found in the possession or control of a person in the course of a search belong to that person and relate to his affairs is on the Income-tax Department. New sub-section (4A) inserted in section 132 by the Amending Act will enable a rebuttable presumption being made that the books of account, other documents and assets found in the possession or control of any person in the course of a search belong to such person; that the contents of such books of account and other documents are true; and that the signature and every other part of such books of account and other documents are in the handwriting of the persons who can be reasonably assumed to have signed or written the books of account or documents.

8. At present a summary assessment has to be made by the Income-tax Officer under sub-section (5) of section 132 with the previous approval of the Commissioner. The Inspecting Assistant Commissioner has now been empowered to approve such summary assessments.

9. Sub-section (5) of section 132 authorises the Income-tax Officer to retain out of the assets seized in the course of a search, such assets as would be sufficient to satisfy the tax payable on the estimated undisclosed income, as also the existing liabilities under the direct taxes laws. The Income-tax Officer will now be able to determine, apart from the tax payable on the undisclosed income, the amount of interest payable and the amount of penalty imposable on the basis of the estimated undisclosed income and retain seized assets to the extent necessary to satisfy the liability towards such interest and penalty as well.

10. Under the existing provision, the authorised officer has to take action for the retention of the seized books of account, etc, beyond the initial period of 180 days, whether or not he exercises jurisdiction over the case. Under the amended provision, the authorised officer, if he is not the assessing officer, will be required to hand over the books of account, etc., seized by him to the assessing officer within a period of 15 days of the seizure and thereafter the powers and functions of the authorised officer under sub-sections (8) and (9) of section 132 will be exercised by the assessing officer.

[Section 35 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Powers to requisition books of account, etc., - New section 132A

13. The Amending Act has substituted the existing section 132A by a new section and has renumbered the existing section 132A as section 132B. The new section 132A provides that where any books of account, other documents or assets have been taken into custody by any officer or authority under any other law (e.g., by the Collector of Customs, Sales Tax Commissioner, etc.), the Director of Inspection or the Commissioner of Income-tax may, in the circumstances covered by section 132, authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer to require such officer or authority to deliver to him such books of account, other documents or assets. Where such a requisition is made, the officer or authority concerned will be required to deliver the books of account, other documents and assets to the requisitioning officer either forthwith or when such officer or authority is of the opinion that it is no longer necessary to retain the same in his or its custody.

[Section 36 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Powers of survey - Section 133A

14. The Amending Act has substituted a new section for the existing section 133A with a view to enlarging the scope and powers of survey available to the income-tax authorities. The main changes made in this behalf are as follows:

1. At present, the powers of survey are vested in the Income-tax Officers or the Inspectors of Income-tax authorised by them in this behalf. These powers will now be available to the Inspecting Assistant Commissioners and the Assistant Directors of Inspection as well.

2. Under the existing law, the power of the income-tax authorities is limited to the inspection of the books of account and other documents available at the place of business or profession of the assessee, placing of marks of identification thereon and taking of extracts therefrom. Under the amendment, the Inspecting Assistant Commissioner, the Assistant Director of Inspection and the Income-tax Officer will have the further power to check or verify the cash, stocks or other valuables found in the premises where the business or profession is carried on and also to require the proprietor, employee, etc., to furnish information which may be useful for or relevant to any proceeding under the Income-tax Act.

3. At present, the income-tax authorities have the power to enter only a place where business is carried on. Such entry can be made during the hours at which such place is open for the conduct of business or profession. Under the amendment, the income-tax authorities will also have the power to enter any other place in which the person carrying on business or profession states that any of his books of account or other documents or any part of his cash or stocks or other valuable articles or things relating to his business or profession are kept. The entry to such other place will, however, be made only after sunrise and before sunset.

4. The Inspecting Assistant Commissioner, the Assistant Director of Inspection and the Income-tax Officer will now have the power to make an inventory of any cash, stocks or other valuable articles or things checked or verified by them and also to record the statement of any person which may be useful for or relevant to any proceeding under the Income-tax Act.

5. The income-tax authorities will also have the power to collect information and record statements of persons concerned at any time after any function, ceremony or event even before the stage of assessment proceedings for the following year for which the information may be relevant, if they are of the opinion, that having regard to the nature, scale or extent of the expenditure incurred, it is necessary to do so. The object of this provision is to help collecting evidence about ostentatious expenditure immediately after the event to be used at the time of assessment.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

15. It may be noted that while the Inspecting Assistant Commissioner, the Assistant Director of Inspection and the Income-tax Officer will have all the powers under the new provision, the Inspector of Income-tax has not been vested with the new powers referred to in items (2) and (4) of the preceding paragraph. Further, the Inspector of Income-tax can exercise the powers of survey vested in him only if he is authorised by the Income-tax Officer to do so.

[Section 37 of the Amending Act]


Measures for reducing tax arrears

TAXATION LAWS (AMENDMENT) ACT, 1975-I

16. The Amending Act has made several changes in the provisions of the Income-tax Act for facilitating expeditious recovery of taxes. The substance of the main changes in this behalf is explained in paragraphs 17 to 28.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Liability of directors of private companies in certain cases - Section 179

17. Section 179 imposes, in certain cases, a personal liability on the directors of a private company in respect of the tax payable by the company. Under this provision, in a case where a private company is wound up on or after 1-4-1962 and it is found that any tax assessed on the company, whether before the commencement of the liquidation, or in the course of or after the liquidation, cannot be recovered from the company, then, every person who was a director of the company at any time during the relevant previous year is held jointly and severally responsible for the payment of the tax that cannot be so recovered. A director can escape this vicarious liability if he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. The Amending Act has enlarged the scope of this provision so as to impose personal liability on the directors of a private company in respect of any tax payable by the company even in cases where the company has not gone into liquidation. Further, where a private company is converted into a public company and the tax assessed in respect of any income of any previous year during which such company was a private company cannot be recovered from the company, persons who were directors of the company in any such previous year will be jointly and severally responsible for the payment of such unrecovered tax, so, however, that the personal liability of a director in such a case will not extend to the tax payable for any assessment year prior to the assessment year 1962-63.

[Section 50 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Recovery of tax due from partners of dissolved firms - Section 189

18. Sub-section (1) of section 189 provides that where any business or profession carried on by a firm is discontinued or where the firm is dissolved, the assessment of the total income of the firm shall be made as if no such discontinuance or dissolution has taken place. Sub-section (3) of that section further provides that every person who was at the time of such discontinuance or dissolution a partner of the firm will be jointly and severally liable for the amount of tax, penalty or other sum payable by the firm. Under sub-section (4) of section 182, a registered firm may retain out of the share of each partner in the income of the firm a sum not exceeding 30 per cent thereof until such time as the tax which may be levied on the partner in respect of that share is paid by him. It further provides that where the tax so levied cannot be recovered from the partners, the firm shall be liable to pay the tax to the extent of the amount which had been retained or which could have been so retained.

Under the Explanation  inserted by the Amending Act in sub-section (3) of section 189, every person who was a  partner of the firm at the time of discontinuance of its business or profession, or at the time of dissolution of the firm itself, will be jointly and severally liable for the amount of tax which could have been retained by the firm under sub-section (4) of section 182 before its discontinuance or dissolution but which was not so retained.

[Section 52 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Penalties for non-payment of tax - Section 221

19. Under section 221, the Income-tax Officer is empowered to levy a penalty in a case where the assessee is in default or is deemed to be in default in making payment of tax. The Amending Act has inserted an Explanation in sub-section (1) of that section in order to clarify that the penalty will be exigible even in a case where the tax is paid after the due date but before the levy of the penalty.

[Section 53 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Attachment and sale of property transferred by the assessee to his relatives in certain cases - Section 222

20. Under section 222, the Tax Recovery Officer is empowered to recover arrears of tax, inter alia, by attachment and sale of assessee�s movable or immovable property or by appointment of a receiver for the management of assessee�s movable and immovable properties. With a view to curbing attempts at defeating the recovery of tax dues by transfer of properties to near relatives, the Amending Act has inserted an Explanation in sub-section (1) of section 222, to provide that, for the purpose of that sub-section, the assessee�s movable or immovable property will include property which has been directly or indirectly transferred by him after 31-5-1973 to his spouse or minor child or daughter-in-law or son minor child without adequate consideration where such property is held by, or stands in the name of, any of the aforesaid persons. Accordingly, where an assessee is in default, it will be open to the Tax Recovery Officer to proceed against any movable or immovable property transferred by him after 31-5-1973 to the aforesaid relatives. The property transferred to the minor child or son�s minor child will continue to remain liable to be proceeded against even after the date of attainment of majority by the minor, but the liability will  be restricted to any arrears due from the assessee in respect of any period prior to the said date.

[Section 54 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Tax Recovery Officer to whom certificate to be issued - Section 223

21. At present, when a certificate is issued to a Tax Recovery Officer for recovering any amount for which an assessee is in default, the Tax Recovery Officer is first required to take steps to recover the amount himself and it is only when he is not able to recover the entire amount and has information that the assessee has property within the jurisdiction of another Tax Recovery Officer that he can forward the certificate to such other officer. The Amending Act has substituted the existing sub-section (2) of section 223 by a new sub-section to provide that the Tax Recovery Officer to whom a certificate has been issued may forward the certificate or a certified copy thereof to another Tax Recovery Officer within whose jurisdiction the assessee resides or has property for realising the tax or part of the tax due, not only when he is himself not able to recover the entire amount but also when he considers that doing so would expedite or secure the recovery of the dues.

[Section 55 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Interest on refund of disputed tax or penalty - Section 244

22. Sub-section (1) of section 244 provides that where a refund is due to the assessee as a result of any order passed in appeal or other proceeding under the Income-tax Act and the refund is not granted within a period of three months from the end of the month in which such order is passed, the assessee will be entitled to receive simple interest at 12 per cent per annum on the amount of the refund due from the date immediately following the expiry of the aforesaid period of three months to the date on which the refund is granted. The Amending Act has inserted a new sub-section (1A) in section 244 to provide that where any amount has been paid by the assessee in pursuance of any order of assessment or penalty and the assessee becomes entitled to a refund in respect of such amount or any part thereof as a result of an appeal or other proceeding under the Income-tax Act, the Central Government shall pay interest on the amount so refundable from the date the disputed demand was originally paid to the date on which the refund is granted. No interest will, however, be payable for a period of one month from the date of the order passed in appeal or other proceedings. In other words, where the refund is granted within one month of the date of the order giving rise to the refund, interest will be payable from the date of payment to the date of such order, and where the refund is delayed for more than a month from the date of the order giving rise to the refund, interest will be payable for the period from the date of payment to the date of granting the refund as reduced by one month. Where the amount of tax or penalty has been paid in instalments, the interest will be calculated on the amount of each such instalment or any part thereof which is found to be in excess in appeal or other proceedings from the date on which such instalment was paid to the date on which the refund is granted. No interest under the new provision will be paid in respect of any payment made before 1-4-1975. Further, where interest is payable under the new sub-section (lA), no interest will be paid under sub-section (l) of section 244.

In this connection, it may be noted that in view of the provision in rule 119A of the Income-tax Rules, 1962, the period for which interest is to be calculated is rounded off to whole months and, for this purpose any fraction of a month is ignored.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

23. The above amendment will come into force with effect from 1-10-1975 and will, accordingly, apply in relation to refunds arising out of orders in appeal or other proceedings passed on or after 1-10-1975.

[Section 56 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Payment of tax before appeal to the Appellate Assistant Commissioner is admitted - Section 249

24. Section 249 has been amended, inter alia, to provide that no appeal against any order passed by the Income-tax Officer (including any order of assessment, imposition of penalty or refusal or cancellation of registration of a firm) shall be admitted by the Appellate Assistant Commissioner unless at the time of filing of the appeal, the assessee has paid the tax due on the income returned by him, and where the assessee has not furnished the return of income, he has paid an amount equal to the amount of advance tax which was payable by him. The Appellate Assistant Commissioner has, however, been empowered to waive this requirement in appropriate cases if he is satisfied that there are good and sufficient reasons for doing so. In such cases, he will have to record such reasons in writing.

[Section 59(ii) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Certain transfers to be void - Section 281

25. Under section 281, transfers effected by an assessee during the pendency of any proceeding under the Income-tax Act with the intention to defraud the revenue are regarded as void as against any claim in respect of any tax or any other sum payable by the assessee as a result of the completion of such proceeding. This provision is applicable in cases where the assessee creates a charge on any of his assets, or parts with the possession thereof by way of sale, mortgage, exchange or any other mode of transfer whatsoever. Bona fide purchasers for value without notice are, however, protected against the operation of this section. The Amending Act has substituted a new section for the existing section 281 with a view to enlarging the scope of the provision. The main changes are as follows:

1. Creation of any charge on, or transfer of, assets made not only during the pendency of proceedings but also after completion thereof but before the service of notice by the Income-tax Officer under rule 2 of the Second Schedule will be void.

2. The Department would no longer be under obligation to prove that the charge was created or the transfer was made with the intention to defraud the revenue.

3. Assets covered by the provisions of the new section have been defined to mean land, building, machinery, plant, shares, securities and fixed deposits in banks to  the extent to which they do not form part of the stock-in-trade of the business of the assessee.

4. The charge or transfer shall not be void if made for adequate consideration and without notice of pendency of such proceedings or, as the case may be, without notice of such tax or other sum payable by the assessee. The charge or transfer shall also not be void if the charge is created or the transfer is made with the previous permission of the Income-tax Officer.

5. The new provision will apply only if the amount of tax or other sum payable or likely to be payable exceeds Rs. 5,000 and the assets charged or transferred exceeds Rs. 10,000 in value.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

26. The provisions of new section 281 will apply in relation to any charge created or transfer made on or after 1-10-1975. Charges created or transfers made before that date will continue to be governed by the earlier provision.

[Section 73 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Provisional attachment to protect revenue in certain cases - New section 281B

27. The Amending Act has inserted a new section 281B with a view to empowering the Income-tax Officer to make a provisional attachment of any property of the assessee during the pendency of any proceeding for assessment or reassessment of any income (even though there is no demand outstanding against the assessee), if he is of the opinion that it is necessary to do so to protect the interests of the revenue. The order of provisional attachment will be made only after obtaining the approved of the Commissioner. Such provisional attachment will ordinarily cease to have effect after the expiry of the period of six months but, in appropriate cases, the Commissioner may,  for reasons to be recorded by him in writing, extend this period from time to time so, however, that the total period of extension shall in no case exceed two years. This provision has been made in order to protect the interests of the revenue in cases where the raising of demand is likely to take time because of investigations and there is apprehension that the assessee may thwart the ultimate collection of that demand.

[Section 74 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Amendments to the provisions of the Second Schedule

28. Some of the rules in the Second Schedule dealing with the procedure for recovery of tax have been amended for facilitating expeditious recovery. These amendments are as follows:

1. Rule 19A has  been amended to enable a Gazetted Officer of the Central Government working as a Tax Recovery Officer to delegate any of his functions to any other officer lower  than him in rank but not below the rank of an Inspector of Income-tax. Where the Tax Recovery Officer is an Income-tax Officer, he will be able to delegate his functions to any other officer only after obtaining the approval of the Inspecting Assistant Commissioner. The object of this change is to enable the Tax Recovery Officer to expedite recovery of taxes by delegating some of his work to his subordinates.

2. A new clause (cc) has been inserted in rule 53 to provide that a proclamation of sale of immovable property shall also specify the reserve price, if any, below which the property may not be sold. A proviso added to rule 56 lays down that no sale shall be made under the rule if the amount bid by highest bidder is less than the specified reserve price.

3. A sub-rule added to rule 59 provides that where the sale of a property for which a reserve price has been specified is postponed for want of a bid equal to or exceeding the reserve price, an Income-tax Officer, if so authorised by the Commissioner, may, at a subsequent sale, bid for the property on behalf of the Central Government.

The object of the provisions mentioned in (2) and (3) above is to defeat the manoeuvres of defaulters who try to manage that adequate bids for property put up for auction are not made.

4. A new rule 68A has been inserted to provide that where sale of a property is postponed for want of a bid equal to or exceeding the reserve price, an Income-tax Officer, duly authorised by the Commissioner in this behalf, may accept the property in satisfaction of the whole or any part of the amount due from the defaulter at an agreed price. It also provides that where the price of the property agreed upon exceeds the amount due from the defaulter, the excess shall be paid to the defaulter within a period of 3 months failing which simple interest at the rate of 12 per cent per annum shall be payable to the defaulter for the period commencing on the expiry of the said period of 3 months and ending with the date of the payment of the amount.

5. A new sub-rule (3A) has been added to rule 73 to provide for execution of warrant of arrest issued by one Tax Recovery Officer, by any other Tax Recovery Officer within whose jurisdiction the defaulter may, for the time being, be found. An Explanation added to sub-rule (4) of rule 73 stipulates that where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter.

The object of these provisions is to defeat attempts by tax defaulters to evade arrest by moving from place to place, and to make the karta of a Hindu undivided family liable for arrest and detention in a civil prison, where the family is a defaulter.

[Section 81 of the Amending Act]


Amendment of provisions relating to appeals to 
appellate assistant commissioner

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Appeal against best judgment assessment under section 144 - Section 249

29. Where a best judgment assessment is made under section 144, the assessee is entitled to apply for cancellation of the assessment under section 146. Besides, he has a right to appeal to the Appellate Assistant Commissioner against the best judgment assessment. The appeal to the Appellate Assistant Commissioner, however, becomes infructuous if the Income-tax Officer reopens the assessment under section 146. Where the Income-tax Officer refuses to cancel the best judgment assessment, the assessee can file an appeal to the Appellate Assistant Commissioner against such refusal. The Appellate Assistant Commissioner can take up the appeal against the best judgment assessment only after the appeal against the Income-tax Officer�s order under section 146 is disposed of.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

30. With a view to obviating the necessity on the part of the assessee to file an unnecessary appeal against the best judgment  assessment under section 144 even in cases where such assessment is subsequently cancelled by the Income-tax Officer himself under section 146, the Amending Act has inserted a proviso in section 249(2)(b) to provide that in a case where the assessee had made an application under section 146 for reopening of the best judgment assessment, the period of limitation for filing an appeal against the best judgment assessment will be reckoned after excluding the period from the date on which application under section 146 is made to the date of the service of the order passed thereon. In view of this, the assessee would be in a position to await the order of the Income-tax Officer on his application under section 146 and, if the Income-tax Officer refuses to reopen the best judgment assessment, file an appeal to the Appellate Assistant Commissioner against such assessment within the limitation period as now laid down.

[Section 249 has been further amended to provide that no appeal to the Appellate Assistant Commissioner shall be admitted unless the tax payable on the basis of the return filed by the assessee has been paid or, where the assessee has not furnished the return of income for the relevant assessment year, an amount equal to the amount of advance tax which was payable by him has been paid. This provision has been explained in paragraph 24 of this circular.]

[Section 59 (i) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Amendment of the provisions relating to Commissioner�s power to reduce or waive penalty in certain cases - New section 273A

31. The Amending Act has deleted the existing sub-sections (4A) and (4B) of section 271 relating to powers of the Commissioner to reduce or waive penalty in certain cases and re-enacted these provisions with several modifications in new section 273A. The main points of difference between the existing provisions in section 271(4A) and (4B) on the one hand and new section 273A on the other are as follows:

1. Under the existing provision, the Commissioner has the power to reduce or waive penalties under section 271(1)(a) and (c) only. This power is now being enlarged to cover reduction or waiver of penalty under section 273 for furnishing false estimate of, or failure to pay, advance tax, as also interest chargeable under sections 139(8), 215 and 217. The power to waive or reduce the penalty imposable under section 273 or interest chargeable under section 139(8) or 215 or 217 will be available only in cases where the Commissioner is satisfied that, apart from making voluntarily and in good faith full and true disclosure of his income, the assessee has paid the tax  on the basis of the income so disclosed before a notice under section 139(2) or section 148 is issued to him. Another prerequisite for the exercise of the power by the Commissioner will be that he should be satisfied that the assessee has co-operated in any enquiry relating to the assessment of his income for the relevant assessment year.

2. For the purposes of the new provision, disclosure will be treated as full and true if the additions made to the income returned are not of such a nature as to attract penalty for concealment of income under section 271(1)(c).

3. It has been clarified that the Commissioner will have the power to reduce or waive the penalty or interest even after such penalty or interest has been imposed or levied. Further, the Commissioner will be able to exercise the power under section 273A either on an application made by the assessee or on his own motion.

4. In line with the existing provision for obtaining approval of the Board for waiver of penalties in certain cases, it has been provided that where the minimum penalty imposable under section 273 for the relevant assessment year, or where the disclosure relates to more than one assessment year, the aggregate of the minimum penalty imposable under that section for those years, exceeds Rs. 50,000, the Commissioner will have to obtain the prior approval of the Board before reducing or waiving the penalty.

5. If in the case of a person reduction or waiver of penalty or interest has been made in relation to any assessment year, such person shall not be entitled to any relief under this provision on any subsequent occasion for that or any other assessment year.

6. A new provision has also been made in sub-section (4) of new section 273A to the effect that the Commissioner may, on an application being made by the assessee and after recording his reasons, reduce or waive any penalty payable by an assessee under the Income-tax Act, or stay or compound any proceeding for the recovery of such penalty in cases of genuine hardship if he is satisfied that the assessee has co-operated in any enquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

32. The provisions of section 273A relating to reduction or waiver of penalty or interest, otherwise than in cases of genuine hardship referred to in sub-section (4), will apply in relation to cases where the application for reduction or waiver of penalty or interest is made by the assessee on or after 1-10-1975 or where the Commissioner of Income-tax decides to consider the case on his own motion on or after that date. The power under sub-section (4) to reduce or waive penalty in cases of genuine hardship or to compound any proceeding relating to recovery of penalty will be available to the Commissioner in respect of penalties that have already been imposed before 1-10-1975 as also those that may be imposed thereafter.

[Sections 61(iv) and 64 of the Amending Act]


JUDICIAL ANALYSIS

EXPLAINED IN - In Yogendra Chandra v. CWT [1991] 187 ITR 58 (HP) the above circular was explained with the following observations :

�The circular of the Central Board of Direct Taxes, also shows that the intention of the enactment of sub-section (4) of section 18B of the Act and section 273A of the Income-tax Act was to enlarge the powers of the Commissioner in the matter of grant of relief to an assessee regarding, the amount of penalty. This is how the Department understood the contents of these provisions. Their understanding was clearly consistent with the avowed object with which greater powers for grant of relief in the matter of penalty were being conferred on the Commissioner by these provisions, particularly those contained in sub-section (4). The interpretation of the Central Board of Direct Taxes can be considered only as an aid to understanding the intention of Parliament in enacting, in particular, sub-section (4). Such an interpretation is permissible, as is clear from the decision of the Supreme Court in Desh Bandhu Gupta and Co. v. Delhi Stock Exchange Association Ltd. [1980] 50 Comp. Cas 84 (SC)/AIR 1979 SC 1049, wherein the Supreme Court took note of a press statement or press note which had been issued by the Finance Ministry immediately upon the issue of the notification in question for coming to a conclusion as to the nature of contracts which were to be considered as being covered by the notification issued under the Securities Contracts (Regulation) Act, 1956. Also, from its decision in K.P. Varghese   v. ITO [1981] 131 ITR 597 (SC), in which, after noticing with approval the decision in Desh Bandhu Gupta�s case (supra), the Court said that the circulars issued by the Central Board of Direct Taxes could be utilised to understand the scope of a provision to which they related.� (p. 68)


Amendments to provisions relating to offences 
and prosecutions

TAXATION LAWS (AMENDMENT) ACT, 1975-I

33. The Amending Act has made several amendments to the provisions of the Income-tax Act relating to offences and prosecutions in order to provide for more stringent punishment for offences under that Act and to take away the discretion  vested in courts to award monetary punishment as an alternative to rigorous imprisonment or to reduce the term of imprisonment below the prescribed minimum. The substance of the main changes made in this behalf is explained in paragraphs 34 to 45.

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Punishment for failure to deduct and pay tax - Section 276B

34. Under section 276B, a person who, without reasonable cause or excuse, fails to deduct or after deducting fails to pay the tax as required of him under section 80E(9) or Chapter XVIIB is punishable with rigorous imprisonment for a term which may extend to six months and with fine which shall not be less than the sum calculated at the rate of 15 per cent per annum on the amount of such tax from the date on which the tax was deductible to the date on which the tax is actually paid. This section has now been amended to provide that where the amount of deduction involved exceeds Rs. 1 lakh, the person shall be punishable with rigorous imprisonment up to seven years and with fine. The rigorous imprisonment will not, however, be for a period of less than six months in any case. In cases, where the amount of deduction involved does not exceed Rs. 1 lakh, the punishment will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine.

The new provisions will apply in relation to offences committed on or after 1-10-1975. Offences committed earlier will continue to  be governed by the existing provisions.

[Section 68 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Punishment for wilful attempt to evade tax - New section 276C

35. Section 276C which deals with cases of wilful failure to furnish returns of income has been replaced by new section 276C which deals with cases of wilful attempt to evade tax, etc., and the existing section 276C,  with certain modifications, has been renumbered as section 276CC. The new section 276C makes a wilful attempt to evade any tax, penalty or interest chargeable  or imposable under the Income-tax Act or to evade the payment of any such tax, penalty or interest punishable under the law. Any person (i) who has in his possession or control any books of account or other documents (being books of account or other documents relevant  to any proceeding under the Act) containing a false entry or statement; or (ii) who makes or causes to be made any false entry in such books or documents; or (iii) who omits or causes to be omitted any entry or statement in such books or documents; or (iv) who causes any other circumstance to exist which will have the effect of enabling him to evade any tax or payment thereof shall be guilty of offence under the new provision. Where the amount sought to be evaded through the wilful attempt exceeds Rs. 1 lakh, the punishment will be rigorous imprisonment for a minimum term of six months and a maximum term of seven years and fine. Where the amount sought to be evaded is Rs. 1 lakh or less, the punishment will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine. Punishment for wilful attempt to evade the payment of any tax, penalty or any interest will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine.

The provisions of new section 276C will apply in relation to offences committed on or after 1-10-1975.

[Section 68 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Punishment for failure to furnish return  of income - New section 276CC

36. New section 276CC provides for punishment for wilful failure to furnish returns of income under sub-section (1) of section 139 or in response to notice under sub-section (2) of that section or section 148. The punishment under this section will depend on the amount of tax which would have been evaded if the failure had not been discovered. Where the amount of such tax exceeds Rs. 1 lakh, the punishment will be rigorous imprisonment for a minimum term of six months and a maximum term of seven years and fine, and in any other case, rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine. The provisions of the new section 276CC will not apply in respect of a default in furnishing a return of income under section 139(l) for any assessment year prior to the assessment year 1975-76, and where the return relates to the assessment year 1975-76 or any subsequent assessment year, if the return is  furnished before the end of the relevant assessment year or if the tax payable on the total income determined on regular assessment, as reduced by advance tax paid and any tax deducted at source, does not exceed Rs. 3,000.

The provisions of the new section 276CC will apply in relation to defaults committed on or after 1-10-1975. Defaults committed prior to that date will continue to be governed by the existing section 276C.

[Section 68 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Punishment for false statement and verification, etc. - New section 277

37. The Amending Act has substituted a new section for the existing section 277. Under the amended provision, punishment for a false verification in a statement or for delivery of a false account or statement has been linked to the quantum of the tax sought to be evaded. Where the amount of tax which would have been evaded if the statement or account had been accepted as true exceeds Rs. 1 lakh, the punishment will be rigorous imprisonment for a minimum term of six months and a maximum term of seven years and fine. In any other case, the punishment will be rigorous imprisonment for a minimum term of three months and maximum term of three years and fine. The new provision will apply in relation to offences committed on or after 1-10-1975. Offences committed prior to that date will be punishable under the existing section 277.

[Section 70 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Punishment for abetment of false returns, etc. - New section 278

38. The existing section 278 has also been substituted by a new section with a view to linking the punishment for abetment of making and delivery of a false account, statement or declaration relating to any taxable income, as also abetment of wilful attempt to evade tax, with the quantum of tax, etc., sought to be evaded. Under the new provision, the abetment of the aforesaid offences in cases where the amount of tax, penalty or interest which would have been evaded if the account, statement or declaration had been accepted as true, or which is wilfully attempted to be evaded, exceeds Rs. 1 lakh, the punishment will be rigorous imprisonment  for a minimum period of six months and a maximum period of seven years and fine. In any other case the punishment will be rigorous imprisonment for a minimum term of three months and a maximum term of three years and fine.

The provisions of new section 278 will apply in relation to offences committed on or after 1-10-1975. The offences committed earlier will continue to be covered, by the existing section 278.

[Section 70 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Punishment for second and subsequent offences - New section 278A

39. A new section 278A has been inserted to provide that where a person who has been convicted of an offence under section 276B or section 276C(1) or section 276CC or section 277 or section 278 is again convicted for an offence under any of these provisions, he shall be punishable for the second and every subsequent offence with rigorous imprisonment for a minimum term of six months and a maximum term of seven years and with fine.

[Section 70 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Criminal liability in cases of offences by companies - New section 278B

40. New section 278B makes certain provisions with regard to offences committed by companies, firms, associations of persons and bodies of individuals, whether incorporated or not. Where an offence has been committed by a company, firm, association of persons or body of individuals, the person who was in charge of, and was responsible to, the company or, as the case may be, the firm, association or body for the conduct of its business at the time when the offence was committed will be  deemed to be guilty of the offence, unless he proves that the offence was  committed without his knowledge or that he had exercised all due diligence to prevent the commission of the offence. Further, if in the case of a company, it is proved that the offence had been committed with the consent or connivance of or is attributable to any neglect on the part of, any director, manager, secretary, or other officer of the company, such director, manager, secretary, or other will be deemed to be guilty of the offence and will be liable to be prosecuted and punished accordingly. This provision will also apply, mutatis mutandis, in relation to offences committed by a firm, association of persons or body of individuals.

[Section 70 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Criminal liability in the cases of offences by Hindu undivided families - New section 278C

41. The Amending Act has inserted a new section 278C to provide for criminal liability of the karta or members of a Hindu undivided family in respect of offences committed by the family. Under this provision, where an offence has been committed by a Hindu undivided family, the karta thereof will be deemed to be guilty of the offence and will be liable to be prosecuted and punished accordingly, unless he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of the offence. In a case where it is proved that the offence was committed with the consent or connivance of, or is attributable to any neglect on the part of, any other member of the family, such other member shall also be deemed to be guilty of the offence and shall be liable to be prosecuted and punished accordingly.

[Section 70 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Presumption as to assets, books of account, etc., in certain cases - New section 278D

42. The Amending Act has inserted a new section 278D to provide that the new rule of evidence contained in section 132(4A) in  respect of assets, books of account or other documents found in the course of any search or obtained on requisition from other authorities under new section 132A will apply for the purposes of evidence in prosecution proceedings under section 278.

[Section 70 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Consequential amendment in section 279

43. Section 279 has been amended in consequence of the insertion of sections 273A, 276CC and 278A.

[Section 71 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

 Certain offences to be non-cognizable - New section 279A

44. The Amending Act has inserted a new section 279A to provide that, notwithstanding anything contained in the provisions of the Code of Criminal Procedure, 1973, the following offences shall be deemed to be non-cognizable within the meaning of that Code:

  (a)  failure to deduct or pay tax [Section 276B];

  (b)  wilful attempt to evade tax, etc. [Section 276C];

  (c)  failure to furnish returns of income [Section 276CC];

  (d)  false statement in verification, etc. [Section 277];

  (e)  abetment of false return, etc. [Section 278].

[Section 72 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Bar on provisions of section 360 of the Code of Criminal Procedure or Probation of Offenders Act to prosecutions under the Income-tax Act - New section 292A

45. The Amending Act has inserted a new section 292A with a view to barring the application of section 360 of the Code of Criminal Procedure, 1973 and the provisions of the Probation of Offenders Act, 1958 to a person convicted of an offence under the Income-tax Act unless the person is under 18 years of age. The object is to secure that adults convicted of tax offences are not let off with mere admonition or on probation of good conduct without undergoing punishment as provided in law.

[Section 78 (Part) of the Amending Act]


MISCELLANEOUS PROVISIONS

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Publication of information regarding prosecutions - Section 287

46. Section 287 has been amended to enable the Central Government to publish the particulars relating to prosecutions under the Income-tax Act even before the matter is disposed of by the first appellate court.  The object is to give publicity to prosecutions for tax offences in good time for it to have a deterrent effect on those who may be tempted to evade tax.

[Section 77 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-I

Return of income, etc., not to be invalid on certain grounds - New section 292B

47. A new section 292B has been inserted to provide that no return of income, assessment, notice, summons or other proceeding shall be invalid merely by reason of any mistake, defect or omission, if the return, assessment,  notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purposes of the Act. This provision has  been made to provide against purely technical objections without substance coming in the way of the validity of assessment proceedings, etc.

[Section 78 of the Amending Act]

 

Amendments to Wealth-tax Act

Taxation Laws (Amendment) Act, 1975-I

Amendments to the Wealth-tax Act broadly in line with amendments in the Income-tax Act

48. The Amending Act has made several amendments to the Wealth-tax Act, in order to bring its provisions relating to jurisdiction matters, searches and seizures, prosecutions, etc. broadly in line with the corresponding provisions in the Income-tax Act as they have emerged after their amendment by the Amending Act. The table below shows the provisions of the Wealth-tax Act that have been amended by the Amending Act and the corresponding provisions, if any, in the Income-tax Act, 1961:

Section of the Amending Act

Section of the Wealth- tax Act that has been amended

Corresponding section of the Income- tax Act

Subject-matter of amendment in brief

1

2

3

4

84

8

124

Concurrent jurisdiction of Wealth-tax Officers/Income-tax Officers

85

8AA

125A

Concurrent jurisdiction of Inspecting Assistant

 

(new)

(new)

Commissioner and Wealth-tax Officers/Income-tax Officers

86

8B

127

Commissioner�s powers to transfer cases

87

11B

130A

Performance of functions by Wealth-tax Officers/Income-tax Officers having concurrent jurisdiction

92

(part)

18B

(new)

273A

(new)

Commissioner�s power to reduce or waive penalty

94

23

249

Payment of tax before appeal to Appellate Assistant Commissioner is admitted

97

34A

244

Interest on refund of disputed tax or penalty

98

34B

281

Certain transfers to be void

 

34C

281B

Provisional attachment to protect revenue

 

(new)

(new)

 

100

35A

276C

 

 

(new)

(new)

 

 

35B

276CC

 

 

(new)

(new)

 

 

35C

276D

Offences and prosecutions

 

(new)

(new)

 

 

35D

277

 

 

(new)

(new)

 

 

35E

Nil

 

 

(new)

 

 

 

35F

278

 

 

(new)

(new)

 

 

35G

278A

Offences and prosecutions

 

(new)

(new)

 

 

35H

278C

 

 

(new)

(new)

 

 

35-I

279(1)/(2)

 

 

(new)

 

 

 

35J

279A

 

 

(new)

(new)

 

 

35K

279(lA)/(3)

 

 

(new)

 

 

 

35L

292

 

 

(new)

 

 

 

35M

292A

 

 

(new)

(new)

 

 

35N

278D

 

 

(new)

(new)

 

102

37A

132

Searches and seizures and power to requisition

 

37B

132A

books of account, etc.

 

(new)

(new)

 

103

42A

287

Publication of information regarding prosecutions

104

42C

292B

Return of wealth/income, etc., not to be invalid

 

(new)

(new)

on technical grounds


Amendments to Gift-tax Act

Taxation Laws (Amendment) Act, 1975-I

Amendments to the Gift-tax Act broadly in line with amendments in the Income-tax Act

49. The Amending Act has made several amendments to the Gift-tax Act in order to bring its provisions relating to jurisdiction matters, prosecutions, etc., broadly in line with the corresponding provisions in the Income-tax Act as they have emerged after their amendment by the Amending Act. The table below shows the provisions of the Gift-tax Act that have been amended by the Amending Act and the corresponding provisions in the Income-tax Act:

Section of the Amending Act

Section of the Wealth- tax Act that has been amended

Corresponding section of the Income- tax Act

Subject-matter of amendment in brief

1

2

3

4

107

7

124

Concurrent jurisdiction of Gift-tax Officers/Income-tax Officers

108

7AA

125A

Concurrent jurisdiction of Inspecting Assistant

 

(new)

(new)

Commissioner and Gift-tax Officers/Income-tax Officers

109

7B

127

Commissioner�s powers to transfer cases

110

11AA

130A

Performance of functions by Gift-tax Officers/Income-tax Officers having concurrent jurisdiction

118

33A

244

Interest on refund of disputed tax or penalty

120

35A

278B

Offences by companies

 

(new)

(new)

 

 

35B

278C

Offences by Hindu undivided families

 

(new)

(new)

 

 

35C

292A

Barring of provisions of section 360 of the Code

 

(new)

(new)

of Criminal Procedure or Probation of Offenders Act to prosecution under the Gift-tax Act/Income-tax Act

121

41A

287

Publication of information regarding prosecutions

122

41C

292B

Returns of gifts/income, etc., not to be invalid

 

(new)

(new)

on certain grounds

 

Taxation Laws (Amendment) Act, 1975-I

Time limit for completion of assessment and reassessment - New section 16A

50. At present, there is no statutory time limit for completion of assessment or reassessment under the Gift-tax Act. The Amending Act has inserted a new section 16A to prescribe the time limit for completion of assessment under section 15 as well as for completion of assessment or reassessment under section 16. These time limits are as follows:

1. Assessment under section 15 - Where the assessment relates to the assessment year 1974-75 or any earlier year, the order of assessment must be made before 1-4-1979 or before the expiry of one year from the date of filing of a return or revised return under section 14, whichever is later. Where the assessment relates to the assessment year 1975-76 or any later year, the order of assessment must be made within four years from the end of the relevant assessment year or within one year from the date of filing of the return or a revised return under section 14, whichever is later.

2. Assessment or reassessment under section 16 - Where any proceeding for assessment or reassessment is pending on 1-4-1975, the order of assessment or reassessment must be made before 1-4-1979. Where a notice for assessment or reassessment under section 16(l)(a), i.e., for failure to file a return or for concealment, is served on or after 1-4-1975, the order of assessment or reassessment must be made within four years from the end of the financial year in which the said notice is served. Where a notice for assessment or reassessment under section 16(1)(b), i.e., in cases where there is no failure to file a return or there is concealment, is served on or after 1-4-1975, the order of assessment or re-assessment must be made within four years from the end of the relevant assessment year or before the expiry of one year from the date of service of the notice under section 16(l)(b), whichever is later.

3. Fresh assessment in pursuance of orders under section 22, section 23 or section 24 - The time limits specified in (l) and (2) above will not, however, apply in cases where fresh assessments are made in pursuance of orders passed on or after 1-4-1975 by the Appellate Assistant Commissioner under section 22 or by the Appellate Tribunal under section 23 or by the Commissioner under section 24 setting aside or cancelling the assessment. Such fresh assessments may be made within four years from the end of the financial year in which the Appellate Assistant Commissioner�s order under section 22 or the Appellate Tribunal�s order under section 23 is received by the Commissioner or the order under section 24 is passed by the Commissioner.

4. Cases where there is no time limit for completion of assessment or reassessment- The time limit for completion of the assessment set forth above will not be applicable in cases where the assessment or reassessment is made in consequence of, or to give effect to, any finding or direction contained in an order under section 22, section 23, section 24, section 26 or section 28 or in an order of any court in a proceeding otherwise than by way of appeal or reference under the Gift-tax Act. Where under any of the aforesaid orders, any gift is excluded from the taxable gifts for any assessment year, the assessment of such gift for another assessment year, will be regarded as one made in consequence of, or to give effect to, any finding or direction contained in the said order. In this type of cases, orders of assessment or reassessment may be made at any time, subject, however, to the provisions of sub-section (3) of section 16A explained at (3) above.

Taxation Laws (Amendment) Act, 1975-I

51. In computing the period of limitation for the purposes of section 16A as explained in the preceding paragraph, the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to section 38, as also the period during which the assessment proceeding is stayed by an order or injunction of any court will be excluded.

Section 90 of the Amending Act, which will come into force with effect from 1-1-1976, has likewise inserted a new section 17A in the Wealth-tax Act providing for statutory time limits for completion of assessments and reassessments under that Act.

[Section 112 of the Amending Act]

Amendments to companies (profits) surtax Act

Taxation Laws (Amendment) Act, 1975-I

Consequential amendments

52. The Amending Act has made certain amendments in section 18 of the Companies (Profits) Surtax Act, 1964 under which various sections and schedules of the Income-tax Act and the Income-tax (Certificate Proceedings) Rules have been made applicable to the proceedings under the Companies (Profits) Surtax Act. These amendments have been made with a view to including in section 18 references to certain new sections inserted in the Income-tax Act by the Amending Act.

[Section 124 of the Amending Act]

 

II

Amendments at a glance

SECTION/SCHEDULE

PARTICULARS

 

INCOME-TAX ACT

144A

Powers of Inspecting Assistant Commissioner to issue pre-assessment directions 2-4

144B

Reference to Inspecting Assistant Commissioner in certain cases 5-6

153, clause

Time limit for completion of assessments and reassessments 7

(iii)/ (v) of

 

Expln. I

 

 

WEALTH-TAX ACT

17A

Time limit for completion of assessments or reassessments 8-12

 

 

Amendments to Income-tax Act

Taxation Laws (Amendment) Act, 1975-II

Powers of the Inspecting Assistant Commissioner to issue pre-assessment directions - Section 144A

2. The Amending Act has inserted a new section 144A empowering the Inspecting Assistant Commissioner to issue pre-assessment directions to the Income-tax Officer. It provides that the Inspecting Assistant Commissioner may, either on his own motion or on a reference from the Income-tax Officer or on the application of an assessee, call for and examine the assessment record of any assessee in which an assessment is pending, and issue such directions to the Income-tax Officer as he deems fit so as to enable the Income-tax Officer to complete the assessment. The directions shall be issued only where the Inspecting Assistant Commissioner considers it necessary or expedient to do so having regard to the nature of the case or the amount involved or for any other reason. The directions in question shall be binding on the Income-tax Officer. However, any directions which are prejudicial to the assessee shall be issued by the Inspectng Assistant Commissioner only after the assessee has been given an opportunity of being heard. Any direction issued by the Inspecting Assistant Commissioner in regard to the lines on which investigation may be made in an assessment, shall not be treated as a direction prejudicial to the assessee.

Taxation Laws (Amendment) Act, 1975-II

3. The above-mentioned power of the Inspecting Assistant Commissioner to issue pre-assessment directions to the Income-tax Officer in individual cases is in addition to the general power conferred on him by section 119(3) to issue instructions.

Taxation Laws (Amendment) Act, 1975-II

4. The provision contained in section 144A will be applicable in respect of all assessment proceedings which were pending on 1-1-1976 or which are initiated on or after that date.

[Section 45 (Part) of the Amending Act]

Taxation Laws (Amendment) Act, 1975-II

Reference to Inspecting Assistant Commissioner in certain cases - Section 144B

5. The Amending Act has inserted another provision, namely, section 144B which empowers the Inspecting Assistant Commissioner to issue pre-assessment directions to the Income-tax Officer. Under the provisions of this section the Income-tax Officer is required to send a draft order of assessment to the assessee in a case where he proposes to make an assessment under section 143(3) and the proposed addition or disallowance is in excess of the amount fixed by the Board in this behalf. If the assessee objects to such addition or disallowance, he will have to forward his objection to the Income-tax Officer within seven days of the receipt of the draft order. The time available for filing of the objection can, on an application by the assessee, be extended by the Income-tax Officer by a further period not exceeding 15 days. If the assessee intimates acceptance of the variation proposed by the Income-tax Officer or an objection thereto is received from him, the Income-tax Officer shall complete the assessment on the basis of the draft order. Where, on the other hand, any objections are received by the Income-tax Officer, he will be required to forward the draft order together with the assessee�s objections to the Inspecting Assistant Commissioner. After considering the draft assessment order and the objections raised by the assessee and after examining the assessment record; if necessary, the Inspecting Assistant Commissioner shall issue in respect of the matters covered by the objections such directions as he thinks fit to enable the Income-tax Officer to complete the assessment. While issuing any directions which are prejudicial to the assessee, the Inspecting Assistant Commissioner will have to give an opportunity of being heard to the assessee. The directions issued by the Inspecting Assistant Commissioner shall be binding on the Income-tax Officer. The Board is empowered to fix the amount (which shall not be less than Rs. 25,000) variations in excess whereof proposed by the Income-tax Officer will attract the provisions of this section. The Board is also empowered to fix different amounts for different areas. By its order [F. No. 201/121/75-IT(A-II), dated 23-12-1975], the Board has fixed an amount of Rs. 1 lakh for the purpose.

Taxation Laws (Amendment) Act, 1975-II

6. The provision contained in section 144B will be applicable in respect of all assessment proceedings which were pending on 1-1-1976 or which are initiated on or after that date. It will, however, not be applicable to any case where the assessment is made by the Inspecting Assistant Commissioner under section 125 or section 125A.

[Section 45 (Part) of the Amending Act]

Taxation Laws (Amendment) Act, 1975 -II

Time limit for completion of assessments and reassessments - Section 153

7. Section 153 lays down the time limit for completion of assessments and reassessments. Prior to the amendment by the Amending Act, Explanation 1 to this section provided that in computing the period of limitation the time taken in reopening the whole or any part of the proceeding or in giving any opportunity to the assessee to be reheard under the proviso to section 129 or any period during which the assessment proceeding is stayed by an order or injunction of any court shall be excluded. The Amending Act has substituted this Explanation by a new Explanation. The provision as amended includes three new items specifying the period to be excluded in computing the time limit for completion of assessments and reassessments. These are contained in clauses (iii), (iv) and (v) of the new Explanation 1. Of these, clauses (iii) and (v) will come into force with effect from 1-4-1976. The only new item which has come into force from 1-1-1976 is that contained in clause (iv). This clause provides for exclusion of the following in computing the period of limitation :

            (a)        the period (not exceeding 180 days) from the date the Income-tax Officer forwards the draft order to the assessee under sub-section (1) of section 144B to the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under that section ; or

            (b)        in a case where no objection to the draft order is received, a period of 30 days.

[Section 47 (Part) of the Amending Act]

 

Amendments to Wealth-tax Act

Taxation Laws (Amendment) Act, 1975-II

Time limits for completion of assessments or reassessments under the Wealth-tax Act - New section 17A

8. Time limits for completion of assessments and reassessments under various provisions of the Wealth-tax Act are being prescribed for the first time. The provisions that are being made in this regard are as follows :

A. For assessment under section 16

1. In respect of assessments for the assessment year 1974-75 and earlier years, the last date for their completion shall be 31-3-1979 or the date of expiration of one year from the date of filing of the return or revised return, whichever is later.

2. In respect of assessments for the assessment year 1975-76 and subsequent years, the last date for their completion shall be the date of expiration of four years from the end of the assessment year in which the net wealth was first assessable, or one year from the date of filing of the return or revised return, whichever is later. Thus for the assessment year 1976-77, the last date for completion of assessment would be 31-3-1981. In case, however, the assessee files his return or revised return, say on 20-2-1981, the assessment thereof may be completed before 20-2-1982.

B. For assessment under section 17

1. Where any proceeding for assessment or reassessment is pending on 1-4-1975, the last date for completion thereof shall be 31-3-1979, irrespective of the assessment year to which the proceeding relates.

2. Where the assessment or reassessment is to be in a case falling under clause (a) of sub-section (1) of section 17 for which a notice has been served under that section on or after 1-4-1975, the assessment will have to be completed before the expiration of a period of four years from the end of the assessment year in which such notice was served. Thus, where the notice under section 17(1)(a) has been served on 30-10-1976, the last date for completion thereof shall be 31-3-1981, irrespective of the assessment year to which the notice relates.

3. Where the assessment or reassessment is to be made in a case falling under clause (b) of sub-section (1) of section 17, and a notice under that section has been served on or after 1-4-1975, the assessment thereof will have to be completed before the expiry of a period of four years from the end of the assessment year in which the net wealth was first assessable, or one year from the date of the service of such notice, whichever period expires later. Thus, if a notice under section 17(1)(b) relating to the assessment year 1973-74 is served on 30-10-1976, the assessment will have to be completed on or before 31-3-1978. But if the said notice is served, say on 30-10-1977, the assessment can be completed at any time before 30-10-1978.

Taxation Laws (Amendment) Act, 1975-II

9. As under the corresponding provisions of the Income-tax Act, the aforesaid time limit for completion of assessments and reassessments will not apply in cases where a fresh assessment has to be made in pursuance of an order setting aside or cancelling an assessment where such order is passed under certain sections of the Wealth-tax Act on or after 1-4-1975. Thus, a fresh assessment in pursuance of an order passed on or after 1-4-1975 by the Appellate Assistant Commissioner under section 23 or the Appellate Tribunal under section 24 setting aside or cancelling an assessment may be made before the expiry of four years from the end of the financial year in which the order under section 23 or under section 24 is received by the Commissioner. Similarly, where the fresh assessment is made in pursuance of an order of the Commissioner under section 25 passed on or after 1-4-1975, such fresh assessment may be made before the expiry of four years from the end of the financial year in which the order under section 25 is passed.

Taxation Laws (Amendment) Act, 1975-II

10. Where the assessment or reassessment is made on an assessee or any other person in consequence of, or to give effect to, any finding or direction contained in an order under section 23, section 24, section 25, section 27, or section 29, or in an order of any court in a proceeding otherwise than by way of appeal or reference under the Wealth-tax Act, the time limits prescribed in sub-sections (1) and (2) of section 17A shall not apply. Such an assessment or reassessment may be completed at any time, subject to the provisions of sub-section (3) of that section.

Taxation Laws (Amendment) Act, 1975-II

11. Explanation 1 to section 17A specifies certain periods to be excluded while computing the period of limitation for completion of assessment or reassessment. Clause (iii) of this Explanation will come into force with effect from 1-4-1976. Clauses (i) and (ii) specify the following periods for exclusion :

(a) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to section 39 ; or

(b) the period during which the assessment proceeding is stayed by an order or injunction of any court.

Taxation Laws (Amendment) Act, 1975-II

12. Explanation 2 provides that where a person is held to be a benamidar of another in respect of an asset and that asset is excluded from his wealth in pursuance of an order referred to in section 17A(4), then, an assessment in respect of such asset on the person held to be the real owner thereof shall, for the purposes of section 17(2) and section 17A, be deemed to be one made in consequence of, or to give effect to, any finding or direction contained in the said order, if the real owner of the asset on whom the assessment is to be made had been given an opportunity of being heard before the said order was passed.

[Section 90 (Part) of the Amending Act]

 

III

Amendments at a glance

SECTION/SCHEDULE

PARTICULARS

 

INCOME-TAX ACT

2(15A)

�Child� to include step-child and adopted child 2

10(23C)

Tax exemption in respect of income of certain trusts of national importance, etc. 3

11(1)(a)/(b)/

Exemption of income from property held for charitable or religious purposes 4

Expln. (1B),

 

(2), (3A)

 

13(1)(bb)/(d),

Circumstances, in which exemption under section 11

(3)(b), (5),(6)

is not available 5-8

23(1)

Determination of annual value where the rent received exceeds the municipal valuation 9

23(2)

Restriction of concession in respect of self-occupied property to one house 10

26, Expln.

Computation of income from self-occupied house property owned by co-owners 11

32(1)(i)

Depreciation allowance on ships 12

35C(1)(a)

Extension of agricultural development allowance to co-operative societies 13

44AA

Compulsory maintenance of accounts by certain persons carrying on business or profession 14

49(1)(iv), Expln

Cost of acquisition for the purpose of computing capital gains 15

64(1), (2)(b)/(c)

Income of individual to include income of spouse,

and Expln. (2)

minor child, etc. 16

69C

Unexplained expenditure, etc. 17

69D

Amount borrowed or repaid on hundi 18

73, Expln.

Treatment of losses in speculation business 19

80A(1),(3)

Deduction to be made in computing total income 20

80B(1), (9)

Definitions for Chapter VIA 21

80G(1), (5)(i)

Deduction in respect of donations to certain funds, charitable institutions, etc. 22

80GG

Deduction in respect of rents paid 23

and rule 11B

 

80H

Withdrawal of deduction in case of new industrial undertakings employing displaced persons, etc. 24

80HH(8)

Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas 25

80J(1), (3)

Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases 26

80L(1)(viia)

Deduction in respect of interest on certain securities, dividends, etc. 27

80P(3)

Deduction in respect of income of co-operative societies 28

80QQ(2)

Deduction in respect of profits and gains from the business of publication of books 29

80V

Deduction in respect of interest on moneys borrowed to pay taxes 30

80VV

Deduction in respect of expenses incurred in connection with proceedings under the Act 31

104(4), 109 (ib)/(iii)(1)/(3)

Income-tax on undistributed income of certain companies 32

139(2), (6) and

Return of income 33

rule 114

 

139A

Permanent account numbers 34

140(c), (d)

Return by whom to be signed 35

140A(1)

Self-assessment 36

141A(1)

Provisional assessment for refund 37

142(1)

Service of notice under section 142(1) after issue of notice under section 139(2) 38

142(2A) to (2D)

Audit in certain cases 39

144(b)

Best judgment assessment 40

146(2)

Reopening of assessment at the instance of the assessee 41

154(1)(bb)

Rectification of mistake 42

176(3A)

Discontinued business 43

185(1), Expln.

Procedure on receipt of application for registration of a firm 44

Chap. XIXA

Settlement of cases 45

245A

Definitions 46

245B

Settlement Commission 47

245C

Application for settlement of cases 48

245D

Procedure on receipt of application under section 245C 49

245E

Power for Settlement Commission to reopen completed

 

proceedings 50

245F

Powers and procedure of Settlement Commission 51

245G

Inspection, etc., of reports 52

245H

Powers of Settlement Commission to grant immunity from prosecution, etc. 53

245-I

Order of settlement to be conclusive 54

245J

Recovery of sums due under order of Settlement Commission 55

245K

Bar on subsequent application for settlement in certain cases 56

245L

Proceedings before the Settlement Commission to be judicial proceedings 57

245M

Certain persons who have filed appeals to the Appellate Tribunal entitled to make application to Settlement Commission 58

246

Appeals to the Appellate Assistant Commissioner 59

(iiia), (iva)

 

253(1)(a),(b),

Appeals to the Appellate Tribunal 60

(c)

 

271(1)(b)/(i)

Penalty for failure to furnish returns, comply with notices

& (iii)/Explns. 1

and concealment of income, etc. 61

to 4, (1A), (3)

 

(d), (4A), (4B)

 

271A

Failure to keep, maintain or retain books of account, documents, etc. 62

272A

Penalty for failure to answer questions, sign statements, allow inspections, etc. 63

272B

Penalty for failure to comply with provisions relating to permanent account numbers 64

274(2)

Procedure in regard to imposition of penalty 65

276

Failure to make payments or deliver returns, etc. 66

276D

Failure to produce books of account and documents 67

285A(1) and

Information by contractors in certain cases 68

rule 121A

 

285B

Submission of statements by producers of cinematograph films 69

295(2)(ee),

Power to make rules 70

(eea), (eeb),

 

(eec), (mma)

 

296

Rules, notifications, etc., to be placed before Parliament 71

 

WEALTH-TAX ACT

4(5A)

Net wealth to include gifts of money made by mere book entries 74

4(1)(v), (1A)

Net wealth to include certain assets 72-73

(b)/(c)

 

15A(c)

Signing of wealth-tax returns 72-73

15B(1)

Self-assessment tax to be paid before filing of return and penalty for default in payment thereof 72-73

18(1)(i) to (iii)

Penalty for failure to furnish returns, concealment of

& Explns 1 to 4

assets, etc. 72-73

18A

Penalty for failure to answer questions, etc. 72-73

22A to 22M

Settlement Commission 72-73

24(1)

Appeal to Appellate Tribunal from the order of AAC 72-73

26(1)

Appeal to Appellate Tribunal from the order of Commissioner 72-73

35(1)(c)

Rectification of mistakes 72-73

46(4)

Rules, notifications, etc., to be placed before Parliament 72-73

 

GIFT-TAX ACT

6A

Aggregation of gifts made during certain period 77

14A(c)

Signing of gift-tax returns 75-76

17(1)(i), (3)

Penalty for failure to furnish returns, etc. 75-76

17A

Penalty for failure to answer questions, etc. 75-76

23(1)

Appeal to Appellate Tribunal from the order of the AAC 75-76

25(1)

Appeal to Appellate Tribunal from the order of the Commissioner 75-76

35(1)(b)/(c)

Prosecutions 75-76

46(4)

Rules, notifications, etc., to be placed before Parliament 75-76

18

Rebate on advance payments 78

 

SURTAX ACT

25(3)

Rules, notifications, etc., to be placed before Parliament 79

 

 

AMENDMENTS TO INCOME-TAX ACT

TAXATION LAWS (AMENDMENT) ACT, 1975-III

�Child� to include step-child and adopted child - New section 2(15A)

2 The term �child� occurs in several provisions of the Act, e.g., section 64 which provides for inclusion of certain types of income arising to a minor child of an individual in the said individual�s assessment under certain circumstances.

According to the definition introduced by the Amending Act, the term �child�, in relation to an individual, will include a step-child and an adopted child of the individual as well. The amended provision is applicable in relation to the assessment year 1976-77 and subsequent years.

[Section 2 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Tax exemption in respect of income of certain trusts of national importance, etc. - New section 10(23C)

3.1 The Amending Act has inserted a new clause (23C) in section 10 exempting from income-tax the income of the following funds :

  (a)  The Prime Minister�s National Relief Fund ;

  (b)  The Prime Minister�s Fund (Promotion of Folk Arts) ;

  (c)  The Prime Minister�s Aid to Students Fund.

The provision also empowers the Central Government to grant exemption from income-tax by notification in the Official Gazette in respect of�

  (a)  any other fund or institution established for charitable purposes, having regard to its objects and importance throughout India or throughout any one or more States ; and

  (b)  any trust or institution, which is either wholly for public religious purposes or wholly for public religious and charitable purposes, and which is administered and supervised in a manner so as to ensure that its income is properly applied for its purposes.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

3.2 The tax exemption granted to the funds or institutions notified in this behalf will relate to such assessment year or years as may be specified in the notification, including an assessment year or years which commenced before the date of issue of the notification.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

3.3 These provisions have come into force with effect from 1-4-1976.

[Section 3(ii) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Amendments to section 11

4.1 A number of amendments have been made in the provisions of the Income-tax Act relating to taxation of charitable or religious trusts or institutions, with a view to rationalising them and making them more effective. The modifications made in section 11 are explained hereunder:

1. Hitherto, one of the conditions for tax exemption in the case of a trust or institution for charitable or religious purposes was that the whole of its income during any previous year should be applied for its objects within the previous year in which it was derived. Income applied by a trust or institution to charitable or religious purposes during the period of three months immediately following the previous year could be deemed to be income applied to such purposes during the previous year in cases where the trustees exercised an option in this behalf. This provision has been liberalised in two respects. Firstly, instead of having to apply its entire income within the specified period, the trust or institution will have to apply only 75 per cent of the income to such purposes. (In computing this 75 per cent of the income to be so applied, voluntary contributions or donations referred to in section 12 will also be deemed to be part of the income derived from property held under trust.) Secondly, the period during which the specified percentage of the income, has to be applied to charitable or religious purposes has also been extended. If the income applied to charitable or religious purposes during the previous year falls short of 75 per cent of the income derived during the year, the trust or institution may apply an amount equal to the shortfall for such purposes during the previous year immediately following the year in which such income was derived. If the whole or any part of the income has not been received during the previous year, and the shortfall in the income applied to charitable or religious purposes arises on that account only, then a further extended time has been provided for applying the income to such purposes in the year in which such income is received or in the previous year next following. Thus, in a case where the income derived in a previous year amounted to Rs. 1 lakh out of which an amount of Rs. 40,000 was not received during the previous year, the person in receipt of the income could obviously not apply Rs. 75,000 to such purposes. In such a case if an amount of not less than Rs. 60,000 has actually been applied to such purposes in the year in which the income of Rs. 1 lakh was derived, the deficiency could be made up in the year in which balance of income is received or in the previous year next following. For availing of the benefit of the extended time beyond the relevant previous year, the trust or institution will, in either case, have to exercise an option in writing under clause (2) of the Explanation  to section 11(1) within the time allowed under sub-section (1) or sub-section (2) of section 139 for furnishing the return of income, whether fixed originally or on extension. Income applied to such purposes during the extended time shall be deemed to have been applied to such purposes during the previous year in which it was derived.

2. Where, in the previous year, the income applied by a trust or institution to charitable or religious purposes in India falls short of 75 per cent of its income and the trust or institution has exercised an option under clause (2) of the Explanation to sub-section (1) of section 11 but such shortfall is not made good during the extended period, such income will be deemed to be the income of a later previous year as explained hereunder. In a case where the income was not received in the previous year in which it was derived, it will be deemed to be the income of the previous year immediately following the previous year in which the income was received. In any other case, it will be deemed to be the income of the previous year immediately following the previous year in which the income was derived.

3. Prior to the amendment made by the Amending Act, sub-section (2) of section 11 permitted accumulation or setting apart of the income of a charitable or religious trust or institution for a period up to 10 years under certain circumstances. Sub-section (3) of section 11, inter alia, provides that where the income of a charitable or religious trust or institution accumulated or set apart under the aforesaid provision is not actually applied to the purposes for which it was so accumulated or set apart within the specified period, it will be deemed to be the income of the previous year immediately following the expiry of the specified period.

4. As the failure to apply the income accumulated or set apart in the specified manner may arise due to circumstances beyond the control of the trustees, etc. the Amending Act has inserted a new sub-section (3A) in section 11. The new sub-section provides that in such cases the Income-tax Officer may, on receipt of an application from the person in receipt of the income, allow such income to be applied for such other charitable or religious purposes in India as are in conformity with the objects of the trust or institution. Where there is a failure to apply the income so accumulated or set apart even for such other purposes, the case will be dealt with under sub-section (3) as if the revised purpose were a purpose for which the income was originally allowed to be accumulated or set apart under sub-section (2).

TAXATION LAWS (AMENDMENT) ACT, 1975-III

4.2 The aforesaid amendments have come into force with effect from 1-4-1976 and will, accordingly, apply in relation to the assessment year 1976-77 and subsequent years.

[Section 4 of the Amending Act]

 TAXATION LAWS (AMENDMENT) ACT, 1975-III

Amendments to section 13

5. Section 13 spells out certain circumstances in which the exemption provided under section 11 or section 12 in respect of income from property held under trust for charitable or religious purposes will not be available. The Amending Act has made a number of amendments to this section. These are briefly explained in paragraphs 6 to 8  below.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

6. According to the definition contained in clause (15) of section 2, the expression �charitable purpose� includes (a) relief of the poor, (b) education, (c) medical relief, and (d) advancement of any other object of general public utility not involving the carrying on of any activity for profit. The effect of the words in italics above is that a trust or institution established for the advancement of any object of general public utility, other than relief of the poor, education or medical relief, can be said to have been established for charitable purposes only if its object does not involve the carrying on of any activity for profit. Such a restriction does not obtain in the case of trusts established for relief of the poor, education and medical relief. The Amending Act has introduced a new clause (bb) in sub-section (1) of section 13 to provide that in the case of a charitable trust or institution for the relief of the poor, education or medical relief, any income derived from business will not be exempt from income-tax unless the said business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution. The aforesaid provision will come into force with effect from 1-4-1977 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years.

[Section 5(i)(a) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.1 A new clause (d) has been inserted in sub-section (1) of section 13 and a new sub-section (5) has also been inserted in the said section with a view to regulating the modes and forms in which the funds of trusts or institutions claiming exemption under section 11 or section 12 can be deposited or invested. Clause (d) of section 13(1) provides that if any funds of a charitable or religious trust or institution are invested or deposited or remain invested or deposited in any mode or form other than those specified in section 13(5) at any time during any previous year commencing on or after 1-4-1978, the income of the said trust will lose exemption from income-tax. Although the provision will take effect from 1-4-1977, it will be applicable only in relation to the assessment year 1979-80 and subsequent years.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.2 The aforesaid provision in clause (d) of section 13(1) has been made subject to clause (bb) of section 13(1). The effect of this will be that the restriction in clause (d) of section 13(1) will not apply to any investment made in a business by a charitable trust or institution established for the relief of the poor, education or medical relief, if the said business is carried on by the trust or institution in the course of the actual carrying out of a primary purpose of the trust or institution.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.3. The forms and modes of investing and depositing funds referred to in clause (d) of section 13(1) have been spelt out in sub-section (5) of section 13. For this purpose, the funds of charitable and religious trusts and institutions have been divided into the following four types :

  (a)  funds represented by corpus (including original corpus) of any charitable or religious trust or institution existing immediately before 1-6-1973 ;

  (b)  funds represented by corpus coming into existence on or after 1-6-1973 and being either the original corpus or contributions with a specific direction to form part of the corpus, but not in the form of cash ;

  (c)  funds represented by corpus coming into existence on or after 1-6-1973 and being either original corpus or contributions made with specific direction to form part of the corpus, in the form of cash ;

  (d)  funds other than those represented by the corpus referred to in (a), (b) and (c) above.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.4 Funds of the type mentioned at (a) and (b) in para 7.3 above have been grouped into one category and clause (b) of section 13(5) provides that they may be invested or deposited in any form or mode except in equity shares of a company which is neither a Government company nor a statutory corporation. In other words, in respect of these funds there is no restriction regarding their investment except that they should not be in the form of equity shares of a company which  is neither a Government company nor a statutory corporation. It may be noted that these provisions do not prohibit investment in the form of preference shares of companies in the private sector.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.5 The funds of the type mentioned at (c) in para 7.3 above fall in another category and clause (a) of section 13(5) provides the following forms and modes for their deposit or investment :

  (a)  investment in Government savings certificates ;

  (b)  deposit in any Post Office Savings Bank Account ;

  (c)  deposit in any account with any nationalised bank (including the State Bank of India and its subsidiary banks) ;

  (d)  investment in units of the Unit Trust of India ;

  (e)  investment in any Central Government or State Government securities ;

  (f)  investment in debentures of any corporate body, the principal whereof and the interest whereon are guaranteed by the Central or a State Government ; and

  (g)  investment or deposit in any Government company.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.6 The funds of the type mentioned at (d)  in para 7.3  above fall in the third category and clause (c) of section 13(5) provides that they can be invested or deposited only in any of  the four forms and modes mentioned at (a) to (d) of paragraph 7.5 above.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.7 The provision contained in clause (d) of section 13(1), which restricts the  deposit or investment of the funds of a charitable or religious trust or institution to the forms and modes specified in section 13(5), will not apply, however, to any moneys accumulated or finally set apart and invested or deposited in the manner referred to in clause (b) of sub-section (2) of section 11. This exception has been carved out because the forms or modes in which the moneys accumulated or set apart, referred to in sub-section (2) of section 11, have been specified in that sub-section itself.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

7.8 Although these provisions come into force with effect from 1-4-1977, as mentioned in para 7.1 above, the restrictions contained in section 13(1)(d) will be applicable only in respect of the previous years commencing on or after 1-4-1978. The trusts and institutions concerned have, thus, the time available till then to bring about the necessary changes in the forms and modes of investments held by them so as to conform with the new provisions.

[Section 5(i)(b) and section 4(iii) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

8. Section 13 provides, inter alia, that a charitable or religious trust or institution shall not be entitled to exemption under section 11 or section 12 if any part of its income or property is used or applied directly or indirectly for the benefit of any person specified in section 13(3). One of the categories of persons specified therein consists of those who have made a �substantial contribution� to the trust or institution. The expression �substantial contribution� was not defined by the Income-tax Act so far. The new clause (b) of section 13(3) states that a person whose total contribution to the trust up to the end of relevant previous year exceeds Rs. 5,000, shall be treated as a person who has made a �substantial contribution�. The amount of Rs. 5,000 will be reckoned from the date on which the trust or institution is created or established. The object of this provision is to give a precise definition of the term �substantial contribution� rather than leaving it to varying interpretations by various authorities. The amended provision will apply in relation to the assessment year 1977-78 and subsequent years.

[Section 5(i)(b) and section 5(iii) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Determination of annual value where the rent received exceeds the municipal valuation - Section 23(1)

9. Hitherto, the annual value of house property chargeable to income-tax under the head �Income from house property� was deemed to be the sum for which the property might reasonably be expected to let from year to year. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub-section (1) of section 23 has been amended to provide that where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in excess of the sum for which the property might reasonably be expected to let from year to year, the annual rent received or receivable shall be taken as the annual value of the property. Where the property is let out only for a part of the previous year the annual rent for this purpose will be the rent received or receivable for a period of twelve months calculated on the basis of the average rent received or receivable for the period the property was actually let out. This amendment has come into force with effect from 1-4-1976 and is, accordingly, applicable in relation to the assessment year  1976-77 and subsequent years.

[Section 6 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Restriction of concession in respect of self-occupied property to one house - Section 23(2)

10. The existing provision contained in sub-section (2) of section 23 provides for a concessional treatment in respect of income from self-occupied house property. The annual value of the self-occupied property is first determined in the same manner as if the property had been let out and then it is reduced by one-half of the amount so determined, or Rs. 1,800, whichever is less. Where, however, the sum so arrived at exceeds 10 per cent of the owner�s total income, as computed without including the income from such property and without making any deduction under Chapter VIA, the excess is disregarded. Hitherto, this concessional tax treatment was available in respect of two houses specified by the assessee. This amendment to sub-section (2) of section 23 now restricts the concession to only one house which may be specified by the assessee. This amendment has come into force with effect from 1-4-1976 and, accordingly, applies in relation to the assessment year 1976-77 and subsequent years.

[Section 6 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Computation of income from self-occupied house property owned by co-owners - Section 26

11. Section 26 provides that where a property is owned by two or more persons and their respective shares are definite and ascertainable, the share of each such person in the income from the property is to be included in his total income. As mentioned earlier, sub-section (2) of section 23 provides for a concessional tax treatment in respect of income from self-occupied property. The new Explanation to section 26 provides that where a property is used by co-owners for self-residence, each such co-owner will be individually entitled to the concessional tax treatment under sub-section (2) of section 23. This amendment has come into force with effect from 1-4-1976 and, accordingly, applies in relation to the assessment year 1976-77 and subsequent years.

[Section 7 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Amendment in the provision relating to depreciation allowance on ships - Section 32(1)(i)

12. Section 32 provides for depreciation allowance on various types of assets used for the purposes of a business or profession, carried on by an assessee. Clause (i) of sub-section (1) of section 32 provided that in the case of a ship, depreciation will be allowed at such percentage on its actual cost to the assessee as may be prescribed in any case or class of cases. The provision as now amended will enable the Board to prescribe, having regard to the date of purchase of ships, different percentages of depreciation in respect of different classes of ships for different periods.

[Section 8 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Extension of agricultural development allowance to co-operative societies - Section 35C

13. Section 35C provides that where a company is engaged in the manufacture or processing of any article which is made from or uses any product of agriculture or dairy farming, etc., and has incurred after 29-2-1968 any expenditure in the provision of any goods or services to a person who is a cultivator or producer of such product in India, the company shall be allowed a weighted deduction of a sum equal to one and one-fifth times the amount of such expenditure. The amendment now made extends the above concession to co-operative societies also. This provision has come into force with effect from 1-4-1976 and is, accordingly, applicable in relation to the assessment year 1976-77 and subsequent years.

[Section 9 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Compulsory maintenance of accounts by certain persons carrying on business or profession - New section 44AA

14.1 A new section 44AA has been inserted to provide for compulsory maintenance of accounts by certain categories of taxpayers. It has been provided that all taxpayers carrying on the profession of law, medicine, engineering, architecture, accountancy, technical consultancy or interior decoration or any other profession that may be notified by the Board shall maintain such books of account and other documents as may enable the Income-tax Officer to compute their total income, under the Income-tax Act. It may be noted that in the case of persons carrying on professions listed above or professions notified by the Board, the requirement of maintenance of accounts is applicable irrespective of the income or gross receipts of the person.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

14.2  In the case of a person engaged in business, or a profession other than those referred to above, the requirement of maintenance of accounts is applicable only if the income from such business or profession exceeds Rs. 25,000 or the total sales, turnover or gross receipts thereof are in excess of Rs. 2,50,000 in any of the three years immediately preceding the previous year. In the case of a business newly set up, such books of account, etc., have to be maintained if the income is likely to exceed Rs. 25,000 or the turnover or the gross receipts are likely to exceed Rs. 2,50,000 during the previous year.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

14.3 Under sub-section (3) of section 44AA, the Board has been empowered to prescribe, by rules, the books of account and other documents to be kept and maintained, having regard to the nature of the business or profession carried on by any class of persons and the form and the manner in which and the place at which they shall be so kept and maintained. Under sub-section (4), the Board has been empowered to prescribe, by rules, the period for which the books of account and other documents are to be retained.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

14.4 Section 44AA has come into force with effect from 1-4-1976. The requirement contained in sub-sections (1) and (2) of this section regarding maintenance of books of account and documents will, therefore, apply in relation to books of account, etc., for accounting years commencing on or after that date.

[Section 11 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Amendment of the provision relating to cost of acquisition for the purpose of computing capital gains - Section 49

15. The income chargeable under the head �Capital gains� is computed after deducting from the full value of the consideration received as a result of the transfer of the capital asset the expenditure incurred in connection with such transfer and the cost of acquisition of the capital asset together with the cost of any improvement thereto. Section 49 specifies the manner in which the cost of acquisition is to be determined in the case of certain types of capital assets. This section, however, did not contain any provision for determining the cost of acquisition of a capital asset in cases where the asset became the property of a Hindu undivided family by the mode referred to in section 64(2). Section 64(2) provides that where an individual, being a member of a Hindu undivided family, converts at any time after 31-12-1969, his separate property into property belonging to the Hindu undivided family, he will be deemed to have transferred the property through the family to the members of the family for being held by them jointly. Under the provisions of section 64(2), as amended by section 13(b) of the Amending Act, income derived from the converted property will be deemed to arise to the individual himself and not to the family. By virtue of the aforesaid provision, capital gains arising from the transfer of the converted property will be chargeable to tax in the hands of the individual. However, where the converted property is transferred by the Hindu undivided family after the death of the individual, capital gains arising from the transfer will be chargeable to tax in the hands of the family. Section 49, as amended by the Amending Act, provides that the cost of acquisition of such an asset in the case of the Hindu undivided family will be deemed to be the cost for which the individual acquired the said property. The cost of the acquisition of the asset in such cases will be increased by the cost of improvement of the asset incurred or borne by the individual or, as the case may be, the Hindu undivided family. The amended provision takes effect from 1-4-1976 and will, accordingly, apply in relation to the assessment year 1976-77 and subsequent years.

[Section 12 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Income of individual to include income of spouse, minor child, etc. - Section 64

16.1 Section 64 contains provisions intended to check tax avoidance by persons through diversion of income to the members of their family. A number of amendments have been made in this provision which are explained hereinbelow :

TAXATION LAWS (AMENDMENT) ACT, 1975-III

16.2 Clause (ii) of the amended sub-section (1) of section 64 is a new clause which provides that where the spouse of an individual derives any income by way of salary, commission, fees or any other form of remuneration from a concern in which the individual has a substantial interest, such income will be included in computing the total income of the individual. An exception has, however, been provided in cases where the spouse in receipt of such income possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

16.3 For the purpose of this provision, an individual will be deemed to have substantial interest in a concern, if :

  (a)  where the concern is a company, at any time during the previous year, its shares (not being shares entitled to a fixed rate of dividend) carrying not less than twenty per cent of the voting power are owned beneficially by such individual or partly by him or partly by one or more of his relatives ;

  (b)  in any other case, such individual is entitled, or such individual and one or more of his relatives are entitled, in the aggregate, to twenty per cent or more of the profits of the concern at any time during the previous year. The term �relative� for this purpose will have the meaning assigned to it in section 2(41) and will, therefore, mean the husband, wife, brother or sister or any lineal ascendant or descendant of the individual.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

16.4 Clause (iii) of the amended sub-section (1) of section 64 provides that the income arising to a minor child from admission to the benefits of partnership will be included in all cases in the income of that parent who has higher income even though neither of the parents is a partner in the firm to the benefits of which the minor is admitted. It may be noted that the provisions of clause (iii) will apply even in a case where the minor is admitted to the benefits of partnership in a firm by reason of the investment made by him out of gifts made by his grandparent.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

16.5 Clauses (iv) and (v) of the amended sub-section (1) of section 64 contain the same provisions as those contained in clauses (iii) and (iv) respectively of sub-section (1) as it stood before amendment. A new Explanation 3 has, however, been inserted for the purpose of these two clauses in order to get over the difficulty caused by the Supreme Court�s decision in the case of  CIT v. Prem Bhai Parekh [1970] 77 ITR 27. In the said case a minor was admitted to the benefits of partnership and the capital investment by him in the partnership came out of a gift made to him by his father without adequate consideration. The Supreme Court held that the income arising to the minor from his admission to the benefits of partnership could not be included in the hands of the father under section 16(3)(a)(iv) of the 1922 Act because the connection between the asset transferred by the father to the minor son and the income arising to the latter out of his admission to the benefits of partnership was remote and not proximate. For attracting the provision  contained in the aforesaid section 16(3)(a)(iv), the income in question must arise as a result of the transfer and not only in some manner connected with it. According to the newly insertedExplanation 3, for the purposes of clauses (iv) and (v), where the assets transferred by an individual to his spouse or minor child, without adequate consideration, or invested by the spouse or minor child in a business, such part of the income arising from the said business to the spouse or minor child as is proportionate to the portion of investment representing assets transferred by the individual without adequate consideration will be included in the assessment of the individual.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

16.6 Clause (vi) of the amended sub-section (1) of section 64 provides that the income arising directly or indirectly from assets transferred by an individual to his son�s minor child or to his son�s wife, otherwise than for adequate consideration, shall be included in the income of such individual. This provision will, however, apply only in respect of assets so transferred on or after 1-6-1973 and not in respect of any assets transferred prior to that date.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

16.7 Hitherto, section 64(2) provided that where an individual converts his separate property into property belonging to the Hindu undivided family of which he is a member, then, the income derived from such converted property, insofar as it is attributable to the interest of the individual, his spouse and minor sons in the property of the family, will be assessed in the hands of the individual. The provision, as amended, provides that in such cases the entire income from the converted property will be includible in the income of such individual, and not merely that part of the income which is attributable to the interest of the individual, his spouse or minor sons in the family property. After a partition of the Hindu undivided family (whether partial or total), however, only the income received by the spouse or minor child (as against only minor son previously) out of his or her share in the said converted property obtained on the partition shall be so includible.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

16.8 The amendments to section 64 as explained in paragraphs 16.2 to 16.7 will apply in relation to the assessment year 1976-77 and subsequent years. It may be noted that whereas the new clause (vi) of sub-section (1) will cover only assets transferred on or after 1-6-1973, the amended sub-section (2) will cover the cases where the conversion of property has taken place on or after 1-1-1970.

[Section 13 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Unexplained expenditure, etc. - New section 69C

17. The new section 69C provides that where an assessee incurs in any financial year an expenditure about the source of which he offers no explanation or the explanation offered by him is found to be not satisfactory, the amount covered by such expenditure shall be treated as income of the assessee for the financial year in which such expenditure is incurred. The provision is only clarificatory. Accordingly although it comes into force with effect from 1-4-1976, the principle, will apply not only in relation to assessments for the assessment year 1976-77 and subsequent years but also to assessments for earlier assessment years.

[Section 14 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Amount borrowed or repaid on hundi - New section 69D

18.1 The new section 69D provides that if any amount is borrowed from any person on a hundi or any amount due on it is repaid to any person, otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be assessed as the income of the person borrowing or repaying the said amount, for the previous year in which the amount is borrowed or repaid. Where any amount borrowed is assessed as the borrower�s income under this provision, it will not be assessed again in his hands under this provision, on repayment of that amount. The requirement contained in the provision will apply also to the amount of interest paid on the amount borrowed on hundi.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

18.2 The term �hundi� which has not been defined in the Income-tax Act, denotes, in common commercial parlance, an indigenous instrument in vernacular language which can be used by the holder thereof to collect money due thereon without using the medium of currency. It may also be regarded as an indigenous form of a bill of exchange expressed in vernacular language which has been in use in the mercantile community in India for the purpose of collecting dues. There are numerous varieties of hundis, for example, darshani hundi, muddati hundi, shaha jogi hundi, jokhmi hundi, nam jog hundi, dhani jog hundi, jawabi hundi and zickri chit. The characteristics of hundis will differ according to the variety of the same. It may, however, be mentioned here that the characteristics of a hundi resemble almost all the characteristics of a bill of exchange. The following characteristics are found in most of the hundis :

  (a)  a hundi is payable to a specified person or order or negotiable without endorsement by the payee ;

  (b)  a holder is entitled to sue on a hundi without an endorsement in his favour ;

  (c)  a hundi accepted by the drawee could be negotiated without endorsement ;

  (d)  if a hundi is lost, the owner could claim a duplicate or a triplicate from the drawer and present it to the drawee for payment. Interest can be charged where usage is established.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

18.3 This provision will come into force with effect from 1-4-1977. Accordingly, any payment on or after 1-4-1977 in respect of an amount borrowed on a hundi will have to comply with the requirements of this provision regardless of whether the hundi was executed prior to the said date or on or after that date.

[Section 14 (Part) of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Treatment of losses in speculation business - Section 73

19.1 Section 73 provides that any loss computed in respect of speculation business carried on by an assessee will not be set off except against the profits and gains, if any, of another speculation business. Further, where any loss, computed in respect of a speculation business for an assessment year is not wholly set off in the above manner in the said year, the excess shall be allowed to be carried forward to the following assessment year and set off against the speculation profits, if any, in that year, and so on. The Amending Act has added an Explanation to section 73 to provide that the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans or advances will be treated on the same footing as a speculation business. Thus, in the case of aforesaid companies, the losses from share dealings will now be set off only against profits or gains of a speculation business. Where any such loss for an assessment year is not wholly set off against profits from a speculation business, the excess will be carried forward to the following assessment year and set off against profits, if any, from any speculation business.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

19.2 The object of this provision is to curb the device sometimes resorted to by business houses controlling groups of companies to manipulate and reduce the taxable income of companies under their control.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

19.3 This provision will come into force with effect from 1-4-1977 and will apply in relation to the assessment year 1977-78 and subsequent years.

[Section 15 of the Amending Act]


JUDICIAL ANALYSIS

EXPLAINED IN - In CIT v. Arvind Investments Ltd. [1991] 192 ITR 365 (Cal.) it was held that the object of Circular No. 204, dated 24-7-1976, is to curb devices to manipulate and reduce the taxable income of a company under the management of a controlling group of persons. But the circular has clearly stated in paragraph 19.1 that �the business of purchase and sale of shares by companies which are not investment or banking companies or companies carrying on business of granting loans and advances will be treated on the same footing as speculation business�.

The circular does not leave any room for doubt that the Explanation will apply to the business of purchase and sale of shares of certain companies. Nowhere in the circular has any indication been given that where the only business of a company consists of purchase and sale of shares, the Explanation will not apply.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Deduction to be made in computing total income - Section 80A

20. Two amendments have been made to section 80A. They are both of a consequential nature. The amendment to sub-section (1) is in consequence of insertion of two new sections 80V and 80VV by section 26 of the Amending Act, regarding deduction of interest on money borrowed to pay taxes and allowance of expenses incurred in connection with income-tax proceedings, respectively. The second amendment is to sub-section (3) which is in consequence of omission of section 80H by section 20 of the Amending Act.

[Section 16 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Amendment to section 80B

21. This section contains definitions of the terms used in Chapter VIA. Through the amendment, clauses (1) and (9) have been omitted. This amendment is consequential to the omission of section 80H by section 20 of the Amending Act.

[Section 17 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Deduction in respect of donations to certain funds, charitable institutions, etc. - Section 80G

22.1 Section 80G provides that in computing the total income of an assessee, a deduction will be allowed in respect of donations to certain funds, charitable institutions, etc., and the said deduction will be fifty per cent of the aggregate of sums specified in sub-section (2) in the case of a company and fifty-five per cent of the said aggregate in the case of other assessees. The amendment introduced now provides for deduction at a uniform rate of fifty per cent in the case of all assessee-companies as well as others.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

22.2 The second amendment contained in this section is consequential to the insertion of clause (23C) in section 10.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

22.3 These amendments have come into force with effect from 1-4-1976 and will, accordingly, apply in relation to the assessment year 1976-77 and subsequent years.

[Section 18 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Deduction in respect of rents paid - New section 80GG

23.1 Under section 10(13A), any house rent allowance specifically granted to an employee by his employer to meet expenditure actually incurred on payment of rent is exempted from income-tax to such extent (not exceeding Rs. 400 per month) as may be prescribed. The Amending Act has introduced a new section 80GG providing a somewhat similar concession to other assessees also. Under the new provision, an assessee will be entitled to a deduction in respect of house rent paid by him for his own residence in excess of 10 per cent of his total income but subject to a ceiling of 15 per cent thereof, or Rs. 300 p.m., whichever is less. The deduction will be permissible only if the individual concerned does not own any house property himself anywhere, nor does his spouse, minor child or the Hindu undivided family of which he is a member own any house property anywhere. Further, this deduction will be permissible only subject to certain conditions or limitations that may be prescribed under the rules, taking into account the area or place where the accommodation is situated. An Explanation has also been appended to section 80GG to make it clear that 10 per cent or 15 per cent of the total income mentioned in the provision is to be computed before making any deduction under that section. Since the new provision will apply to all assessees who are not covered by section 10(13A) it will include self-employed persons as well as salaried employees who are not in receipt of any house rent allowance from their employer.

TAXATION LAWS (AMENDMENT) ACT, 1975-III

23.2 Under the Income-tax (Fourth Amendment) Rules, 1976 notified by the Board under Notification No. SO 275(E), dated 1-4-1976, a new rule 11B has been inserted in the Income-tax Rules, 1962, prescribing the condition for allowance of deduction under section 80GG. The new rule states that the deduction to be allowed under section 80GG in respect of any expenditure incurred by an assessee towards payment of rent for any furnished or unfurnished accommodation occupied by him for the purposes of his own residence will be allowed subject to the condition that the accommodation is situated in any of the following places, namely:

Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bombay, Calcutta, Cochin, Coimbatore, Delhi, Hyderabad, Indore, Jabalpur, Jaipur, Kanpur, Lucknow, Madras, Madurai, Nagpur, Patna, Poona, Sholapur, Srinagar, Surat, Trivandrum, Vadodara (Baroda) and Varanasi (Banaras).

[Section 19 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Deduction in case of new industrial undertakings employing displaced persons, etc.- Section 80H

24. Section 80H provided that in computing profits and gains derived from an industrial undertaking employing displaced persons, etc., and fulfilling certain conditions, an amount equal to fifty per cent of the said profits would be allowed as deduction. The Amending Act has omitted this provision. No deduction under section 80H will be available in relation to the assessment year 1976-77 and subsequent years.

[Section 20 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas - Section 80HH

25. The Amending Act has omitted sub-section (8) of section 80HH. This amendment is consequential to the omission of section 80H by section 20 of the Amending Act.

[Section 21 of the Amending Act]

TAXATION LAWS (AMENDMENT) ACT, 1975-III

Deduction in respect of profits and gains from newly established industrial undertakings or ships or hotel business in certain cases - Section 80J

26. Consequent upon omission of section 80H by section 20 of the Amending Act, this amendment omits references to section 80H in section 80J.

[Section 22 of the Amending Act]