3. The rates of income-tax for the assessment year 1976-77 in the case of all categories of taxpayers (corporate as well as non-corporate) are specified in Part I of the First Schedule to the Finance Act, 1976. These rates are the same as those specified in Part III of the First Schedule to the Finance Act, 1975, as modified by the Finance (Amendment) Act, 1975, for purposes of computation of "advance tax", deduction of tax at source from "salaries" and retirement annuities payable to partners of registered firms engaged in specified professions and computation of income-tax payable in certain cases where accelerated assessments were required to be made during the financial year 1975-76.

Rates for deduction of income-tax at source during the financial year 1976-77 on incomes other than "salaries" and retirement annuities

4.1 The rates for deduction of income-tax at source during the financial year 1976-77 from incomes, other than "salaries" and retirement annuities payable to partners of registered firms engaged in the specified professions, are set forth in Part II of the First Schedule to the Finance Act, 1976. As explained in paragraphs 26, 29, 30, 34 and 36 of this circular, the Finance Act, 1976 has made several modifications in the scheme of taxation of income by way of dividends, royalties and technical service fees in the case of foreign companies. These modifications are reflected in the rate schedule for deduction of income-tax at source. The position in this regard is explained in paragraphs 5 to 7 of this circular.

4.2 The rates for deduction of income-tax at source (including surcharge on income-tax) in respect of other categories of incomes are the same as were prescribed for the purpose under the Finance Act, 1975.

5. Deduction of income-tax from dividends paid by domestic companies to foreign companies - The rate for deduction of income-tax at source from dividends paid by a domestic company to a foreign company has been fixed at 25 per cent as against 25.725 per cent (income-tax 24.005 per cent plus surcharge 1.225 per cent) under the Finance Act, 1975.

6. Deduction of income-tax from royalties paid by Indian concerns to foreign companies - The rate for deduction of income-tax at source from royalties paid by Indian concerns to foreign companies will depend upon whether such royalties are payable under approved agreements or not, and where such royalties are payable under approved agreements, whether such agreements were made before 1-4-1976 or on or after that date. The rates specified in this behalf are as follows :

1. Royalties payable under agreements [not being agreements referred to in (c) below] made on or after 1-4-1976 and approved by the Central Government from—

2. Royalties payable under agreements made before 1-4-1976 and approved by the Central Government.

Income-tax will be deducted at source from royalties paid by Indian concerns to foreign companies under approved agreements made after 31-3-1961 but before 1-4-1976 on the same basis as was provided in the Finance Act, 1975. In other words, no income-tax will be deducted at source from any lump sum consideration paid for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawings or specifications relating to any patent, invention, model, design, secret formula or process, or trade mark or similar property, if the payment is made outside India. Income-tax will be deducted at the rate of 52.5 per cent (income-tax 50 per cent plus surcharge 2.5 per cent) from royalty income other than such lump sum consideration payable outside India. The deduction at the rate of 52.5 per cent will be made with reference to the gross amount of such royalty unless the person responsible for payment of royalty has obtained a certificate under section 195(2) specifying the appropriate proportion of such royalty chargeable under the Act and, in that case, the above rate will be applied to the proportion of the royalty income which is so chargeable. While determining the chargeable proportion of the royalty income, the Income-tax Officer will have to keep in view the special provisions of new section 44D relating to computation of income by way of royalty, etc., in the case of foreign companies as explained in paragraph 26 of this circular.

3. Royalties payable under agreements made on or after 1-4-1976 in cases where agreements are made on the basis of proposals approved by the Central Government before that date.

Under section 9(1)(vi), as inserted by section 4 of the Finance Act, 1976, an agreement made by a foreign company with an Indian concern on or after 1-4-1976 can, at the option of the foreign company, be regarded as an agreement made before that date if the agreement is made on the basis of proposals approved by the Central Government before that date. Where, by virtue of the aforesaid provision, an agreement made on or after 1-4-1976 is regarded as an agreement made before that date, the deduction of income-tax at source will be made on the same basis as in the case of royalties payable under agreements made before that date and explained in (2) above.

4. Royalties payable under agreements which have not been approved or which were made before 1-4-1961.

From other royalties payable by Indian concerns to foreign companies, e.g., royalties payable under agreements which have not been approved by the Central Government or those which were made before 1-4-1961, income-tax will be deducted at the rate of 73.5 per cent (income-tax 70 per cent plus surcharge 3.5 per cent). The deduction at this rate will be made with reference to the gross amount of such royalty unless the person responsible for payment of royalty has obtained a certificate under section 195(2) specifying the appropriate proportion of such royalties chargeable under that Act and in that case, the above rate will be applied to the portion of the royalty income which is so chargeable. While determining the chargeable portion of the royalty income, the Income-tax Officer will have to keep in view the provisions of section 44D as explained in paragraph 26 of this circular. It has also to be noted that whereas lump sum consideration received by a foreign company for the transfer outside India of, or the imparting of information outside India in respect of any data, documentation, etc., under an agreement made before 1-4-1976, and approved by the Central Government will not be deemed to accrue or arise in India, this exemption is not available in respect of such lump sum consideration received under an agreement which has not been approved by the Central Government.

7. Deduction of income-tax from income by way of technical service fees - The rate for deduction of tax at source from technical service fees paid by Indian concerns to foreign companies will depend upon whether the technical service fees are payable under approved agreements or not, and where such technical service fees are payable under approved agreements, whether such agreements were made before 1-4-1976 or on or after that date. The rates specified in this behalf are as follows:

*In either of these cases, the deduction at the specified rate will be made with reference to the gross amount of technical service fees unless the person responsible for paying such fees has obtained a certificate under section 195(2) specifying the appropriate proportion of such fees chargeable under that Act and, in that case, the specified rates will be applied to the portion of the fees which is so chargeable. Further, while determining the chargeable portion of the technical service fees the Income-tax Officer will have to keep in view the provisions of new section 44D as explained in paragraph 26 of this circular.

Rates for deduction of income-tax at source from "salaries", computation of "advance tax" and charging of income-tax in special cases during the financial year 1976-77

8. Rates for deduction of income-tax at source from "salaries", in the case of individuals during the financial year 1976-77, as also for computation of "advance tax" payable during that year in the case of all categories of taxpayers, have been specified in Part III of the First Schedule to the Finance Act, 1976. These rates are also applicable for deduction of income-tax at source during the financial year 1976-77 from retirement annuities payable to partners of registered firms engaged in certain professions (chartered accountants, solicitors, lawyers and architects) and for charging income-tax during 1976-77 on current incomes in special cases where accelerated assessments have to be made. These special cases are: calculation of income-tax on undisclosed income represented by seized assets [section 132(5)]; levy of tax on provisional basis on the income of non-residents from shipping of cargo or passengers from Indian ports [section 172(4)]; assessment of persons leaving India [section 174(2)]; assessment of persons likely to transfer property to avoid tax [section 175]; and assessment of profits of a discontinued business [section 176(2)].

9.1 The rates specified in Part III of the First Schedule to the Finance Act, 1976 in the case of non-corporate taxpayers are materially different from those specified in Part I of the First Schedule for the assessment of income liable to tax for the assessment year 1976-77. The main differences are as follows :

1. The rate schedule in the case of individuals, Hindu undivided families (other than those having at least one member with independent total income exceeding Rs. 8,000), unregistered firms, associations of persons, bodies of individuals, and artificial juridical persons has been completely recast. The table below gives the comparative rates of income-tax on various slabs of income (a) as specified in Part I of the First Schedule to the Finance Act, 1976; and (b) as specified in Part III of the First Schedule to the Finance Act, 1976.

Income slab	Rate as specified in Part I of the First Schedule to the Finance Act Per cent	Rate as specified in Part III of the First Schedule to the Finance Act Per cent
Up to Rs. 8,000	Nil	Nil
Rs. 8,001 - Rs.15,000	17	15
Rs.15,001 - Rs. 20,000	20	18
Rs. 20,001 - Rs. 25,000	30	25
Rs. 25,001 - Rs. 30,000	40	30
Rs. 30,001 - Rs. 50,000	50	40
Rs. 50,001 - Rs. 70,000	60	50
Rs. 70,001 - Rs. 1,00,000	70	55
Over Rs. 1,00,000	70	60

The income-tax calculated on the basis of the above rates will, in either case, be increased by a surcharge of 10 per cent of such income-tax.

2. In the case of Hindu undivided families, having one or more members with independent income exceeding Rs. 8,000, the rates of income-tax applicable in respect of various slabs of income are the same as those specified for the next higher slab in the case of individuals, other Hindu undivided families, unregistered firms, etc.

3. In the case of co-operative societies, registered firms and local authorities, the rates of income-tax remain at the existing levels.

9.2 No separate rate schedule has been specified in the case of Life Insurance Corporation of India. This is in view of the position that the basis of taxation of profits from life insurance business has been modified and the rate of income-tax to be charged on the profits and gains of the life insurance business determined on the modified basis has been laid down in new section 115B. These changes have been explained in paragraphs 37 and 40 of this circular.

9.3 In the case of other companies, the rates of income-tax, as also surcharge thereon, have been specified in Paragraph E of Part III of the First Schedule to the Finance Act, 1976. These rates are the same as specified in Paragraph F of Part I of the First Schedule to the Finance Act, 1976. It may, however, be noted that royalties and technical service fees received by foreign companies under approved agreements will be charged to tax at the rate of 52.5 per cent (income-tax 50 per cent plus surcharge 2.5 per cent) in case where such income is received under agreements made before 1-4-1976. Royalties received under agreements which although made on or after that date, are regarded under section 9(1)(vi) as agreements made before that date will also be chargeable to income-tax at the rate of 52.5 per cent.

[Royalties and technical service fees received under approved agreements made on or after 1-4-1976 will be chargeable to tax on gross basis at the rates specified in new section 115A as inserted by section 20 of the Finance Act, 1976. The position in this behalf has been explained in paragraph 36.]

10.1 Deposits with IDBI in lieu of payment of surcharge on income-tax by companies - Although the rates of income-tax and surcharge thereon in the case of companies have been maintained at the existing levels, the Finance Act, 1976 has provided that a company may, in lieu of payment of surcharge on income-tax, make, before the last instalment of advance tax is due in its case, a deposit with the Industrial Development Bank of India under a scheme to be framed by the Central Government in this behalf and if it does so, the amount of surcharge payable by it shall be reduced by the amount of such deposit. It may be noted that in order to get the benefit of this provision, it will be necessary for the company to make the requisite deposit with the IDBI before the last instalment of advance tax is due in its case and, accordingly, where the last instalment of advance tax falls due on 15-12-1976,the deposit will have to be made on or before 14-12-1976. Similarly, where the last instalment is due on 15-3-1977, the deposit will be required to be made on or before 14-3-1977. The liability towards payment of surcharge on income-tax will stand reduced only to the extent of the deposit made within the time allowed and surcharge on income-tax will be payable to the extent of shortfall in the deposits, if any. In making an order under section 210 for payment of advance tax, the Income-tax Officer will take into account the full amount of surcharge on income-tax payable by the company and where the company makes any deposit with the IDBI, the order made by the Income-tax Officer under section 210, as also the notice of demand issued in pursuance thereof, shall have effect as if the surcharge on income-tax specified therein had been reduced by the amount of deposit made by the company. Where the advance tax is paid by the company on the basis of its own estimate, the company will not be required to pay surcharge on income-tax to the extent of the deposit made by it with the IDBI.

10.2 It has also been provided that a company may make a deposit with the IDBI under a scheme to be notified by the Central Government in this behalf at any time during the financial year 1976-77 and if it does so, the surcharge on income-tax payable by it for the assessment year 1977-78 shall be reduced by the amount of deposit so made. In this connection, it may be noted that the abatement in the liability towards surcharge on income-tax will be limited to the amount of the deposit made during the financial year 1976-77 and the company will not be able to make any further deposit after the expiry of the financial year 1976-77 in lieu of its liability towards surcharge on income-tax whether such liability arises on self-assessment or is determined on assessment or in any subsequent proceedings by way of rectification, appeal or revision.

EXPLAINED IN - Citing reference to paragraph 10.2, the Tribunal observed as follows, in Indian Oxygen Ltd. v. ITO [1983] 6 ITD 291 (Cal.):

"The fact that the assessee-company made deposit of Rs. 15 lakhs with the IDBI on 15-12-1976, i.e., within the financial year 1976-77 was not in dispute. That being the position, it has to be held that the assessee company was entitled to the benefit of set off of Rs. 15 lakhs against the amount of surcharge payable by it for the assessment year 1977-78 in view of the clear provisions of the act as also the contents of the Board’s circular mentioned hereinbefore ...." (p. 294)

Partially integrated taxation of non-agricultural income with income derived from agriculture

11. As in the past, the Finance Act, 1976 provides that in the case of individuals, Hindu undivided families, unregistered firms or other associations of persons or bodies of individuals and artificial juridical persons, the net agricultural income will be taken into account for determining the rates of income-tax on incomes liable to tax for the assessment year 1976-77, as also for computation of advance tax and charging of income-tax on current incomes in cases where accelerated assessments are required to be made during the financial year 1976-77. The mode of computation of net agricultural income in such cases will be the same as set forth in the relevant provisions of the Finance Act, 1975, except that the unabsorbed losses in agriculture incurred during the previous years relevant to the assessment years 1974-75 and 1975-76 could be set off against the agricultural income for the previous year relevant to the assessment year 1976-77. Similarly, any unabsorbed losses in the three previous years relevant to the assessment years 1974-75, 1975-76 and 1976-77 could be taken into account in determining the net agricultural income for purposes of payment of "advance tax" during the financial year 1976-77.

(a) lump sum consideration paid for the transfer outside India or, the imparting of information outside India in respect of, any data, documentation, drawings or specifications relating to any patent invention, model, design, secret formula or process or trade mark or similar property	20 per cent of the gross amount of such consideration
(b)royalties other than any portion there-of covered by (a) above	40 per cent of the gross amount of such royalties.

1. From technical service fees payable under approved agreements made on or after 1-4-1976	40 per cent of the gross amount.
2.*From technical service fees payable under appproved agreements made after 29-2-1964 but before 1-4-1976	52.5 per cent (income- tax 50 per cent plus 2.5 per cent surcharge).
3.*From technical service fees payable under agreements which have not been approved by the Central Government or those which were made before1-3-1964	73.5 per cent (income- tax 70 per cent plus3.5 per cent surcharge).