sections referred to in the sub-section. This has been made clear in the draft, by separating the situations into para- graphs (a) and (b) in this sub-clause;
(ii) reduction or enhancement of income resulting from an amendment under section 35 itself is not at present covered by section 35(5). This has now been added in the draft ;
(iii) as already explained in the notes under the clause' corresponding to existing section 35(1), action under sec- tion 35 is essentially in the nature of an amendment. Fur- ther, the extension of the provisions of section 35(1) to the special cases dealt with in section 35(5) and subsequent sub-sections is purely artiﬁcial, and it would be better if the word "rectification" is not used in respect of these special cases. Hence the word "amendment" has been used-
in this and the subsequent sub-sections;
(iv) the existing sub-section speaks of the period "referred to" being "computed" in a certain manner. Sec- tions 35(8), 35(9). etc., however, speak of the period "speci-
fied" being "reckoned" from a certain date. For the sake.
of uniformity, the expressions used in section 35(8) have, in the draft, been used in all the sub-clause/s.
Sub-clause (2).----This is new. The existing section is silent on the question whether an order similar to that under section 35(5) can be passed in the case of a member of an association where the assessment of the association itself is revised. It seems desirable to add such a provision, and this sub-clause is intended to achieve that object. Since the provision is new, a proviso has been added t-o save the rule contained in existing section 14(2)(b) which enacts that tax is not payable by an assessee on any amount on- which the tax has already been paid by the association.
Sub-clause (3).--The only change that requires explana- tion is the omission of clause (b) of existing section 35(8). This clause is meant for a -casewhere a company is assessed under section 23A and in consequence it becomes necessary to compute or recompute the: total income of the share- holder. As already explained. above, section 23A (as it stands in the present Act as amended up-to-date and as embodied in the draft) has no relevancy now on the income of the shareholders. Clause (b) of section 35(8) has, there- fore, been omitted. Other changes are consequential.
Sub-clause (4).----Existing section 35(9) provides: that where a company does not ay the tax on its proﬁts "within three years after the ﬁnancial year in which the dividend was declared", the Income-tax Oﬂicer may proceed to re- compute the amount of tax deemed to have been paidby the shareholders. This presupposes that the assessment of the company has taken place and the company has failed to pay the tax. There may, however, be cases where the 1 Clause 16!.
e 4119 V the assessment of the company itself is delayed. In such cases, it would not be proper to insist that the company should pay the tax within three years from the year in which "the dividend was declared". It would seem desira- ble to allow, in such cases, a period of at least one year from the end of the ﬁnancial year in which the assessment of the company is made. Necessary alteration has been made in the draft sub-clause on this point. Other changes are 'verbal and consequential.
Sub-clause (5).--This embodies existing section 35(11) introduced by the Finance Act, 1958.
Sub--clause (6).'----This is new. Cases sometimes arise when an assessee claims deduction for a bad debt in res- 'pect of a particular previous year, and the Income-tax Offi- cer is of opinion that the deduction should have been claimed for an earlier previous year. Under the existing law, the assessee cannot obtain any deduction for such earlier years. The draft sub-clause is intended to remove "this hardship by conferring the necessary power on the Income-tax Oﬁicer.
Notes to clause 163.
'3 This reproduces existing section 29. The words "or other person" have been omitted, since the deﬁnition of "'assessee", even in the existing Act, covers all persons by "whom any tax etc., is payable. Moreover, in cases where A is liable to pay tax on the income of B, A will either be a "representative assessee",' or other person who would fall '-under the deﬁnition of assessee.
Notes to clause 164.
Existing section 24 (3) has been embodied here, since it deals with the steps consequential on the assessment of the income of assessee. Instead of the words "to have set off" the words "to have carriedforward' and set off", have 'been substituted, for the sake-of precision.
Notes to clause 165.
Existing section 23 (6) has been placed here, since that again deals with a step consequential on assessment.
The existing words "wh'ene_V§r theulncome-tax Officer makes a determination in accordance with the provisions of sub-section (5)" have been replaced, by the words "whenever a registered ﬁrm is assessed or an unregistered ﬁrm IS assessed under section .......... ..",= since the existing 'words do notecorrectly describe the nature of the action taken by the Income-tax Oﬂicer. In essence, the Income-
tax Ofﬁcer makes an "assessment", as i; 'clear by the words "the total income .......... ..shall be asse$ed" in section. 23 'Vida Chapter on Liability in spccialécases. Vi '. ' ' «4 '9 420 (5) (a) (ii) and by the words "in the case of an unregistered ﬁrm, the Income-tax Oﬂicer may .......... ..proceed to assess the total income" in section 23 (5) (b).
Notes to" clause 166.
The various kinds of returns submitted in respect. of salary, dividend etc., have been dealt with here in one c ause.
Sub-clause (1).-Existing section 20A, dealing with the return to be submitted by a person paying any interest, says that the return is to be furnished to "prescribed oﬂi-- cer". Rule 43A of the rules made under the Act provides: that the return should be made to the Income-tax Officer in whose jurisdiction a person responsible for paying in-- terest resides. It would be convenient if this rule is em-- bodied in the section itself. .One modiﬁcation, however, seems desirable to be made in. the rule while embodying; it in this section. The return should be furnished to the Income-tax Officer having jurisdiction to assess the person submitting the return, (that is, irrespective of the residence of such person) so that the Income-tax Oﬂicer can verify the items during the course of his examination of accounts without any additional labour. The necessary addition has, therefore, been made in the draft sub-clause.
Sub-clause (2).--Clause (a) of existing section 21 pro- vides that the return to be furnished in respect of salaries should contain the name etc., ofsthe person who receives the salary from the "authority, company" etc. It is silent ;about a person receiving salary from the Government, 'even though the opening line of the section says that the pres- cribed person in the case of "every Government ofﬁce" has to submit the return under this section. This lacuna has been supplied in the draft.
No addition is proposed in respect of foreign Go'vern-- ments as it may be diﬂicult toenforce the requirement of return from such Governments. ' Clause (b) of section 21 speaks of the amount (if the income "so received or so due" "by" each such person (that is, the person receiving salary). The clause, ;as it stood before its amendment in 1939, spoke only of income "received by" such person. The words "or so due"iwere added in 1939 to cover the case where salary has b come due. At the time of the amendment, however, a small am- matical inaccuracy. seems to' have crept in. The_i ome was described as income "due by" such person whllelwhat was intended, obviously, was income due "to" such person- Necessary verbal changes have. therefore, been made in the draft to remove this inaccuracy. ' Sub--clause (3).--This does not require any comments- The provision contained in e' isting section 58T hasfbeern referred to here, in vjﬁew of subject-matter.' . VI ' Cf. draft clause 314'.
42-1 Notes to clause 167.
This embodies existing section 20. The words "or that no tax is payable" have been added to deal with a situa-, tion not covered by the Act---namely, where the company' is not taxable for the year concerned.
CHAPTER xv LIABILITY IN SPECIAL CASES Notes to clause 168.' General Existing section 24B is meant to deal with the case of' death of the assessee and the proceedings to be taken against the legal representative. The language of sub--
section (1), however, is not direct enough to bring out in proper perspective the main idea behindthis section. Fur-U ther, it does not deal step by step with the various stages.
at which the proceedings might, stand at the time of death.
In the draft, therefore, verbal alterations have been made in order to make it clear that the following possible situa--
tions are to be covered by thisesection :---
(1) where a person dies before any' proceedings for' assessment of his income have been commenced;
(2) where proceedings for assessment have been com--
menced by the issue of notice, but the assessment ' has not been completed;
(3) where proceedings for assessment have been com» pleted, but the notice of. demand has not been served, so that no "arrears" have come into being; ' and (4) where assessment has already-b en made and the notice of demand also served, ﬂu the actual rea1i--
sation, of the tax has not been"3 completed, so that the amount of the tax is in "arrears".
Sub-clause (1).--It has been made clear that the liabi-~ lity of the legal representative is to be arrived at "in the like manner and to the same. extent? as the deceased.. Compare existing sections 40 (1) and 41(1).
Sub-clause (2).--This is mainly in ended to preserve the continuity of the proceedings andgtp ensure that all the possible situations referredfto in the' beginning of the'- notes to this clause under the head "General" are covered. by the combined operation of sub-clauses (1) and (2)..
Sub--clause (3).--This is intended to remove any doubts. as to whether a legal representative is or is not an assessee, It has to be read with the draft deﬁnition of assessee and? the notes thereto. Compare also the 1 ',words of existing' section. 24B (2), "as if such e1:ecutor;: ........ ..were the- assessee". ' 3 Q 422 Sub-clause (4)--is intended to apply, to lega1-re- zpresentatives, certain useful provisions which havebeén incorporated in the group of sections dealing with "re- presentative assessees".
Subeclause (5)--does not need any comments. Sub-clause (6)--does not need any comments.
Notes to clause 169.
General.--The assessments under existing sections 40, A41 and 42(1) are really "representative assessments" as .they are styled under the South African Income-tax Act. This will be clear from the following analysis :--
(i) Section 40(1) relates to persons under disability. The persons under disability enumerated in the section are, "minors, lunatics and idiots".  The income really belongs to the per» sons under disability, and all that the sections provides is a machinery for enforcing the liability of the incapa-- citated person. The tax is recoverable from the guardian etc. in the like manner and to the like amount as it w c Id be leviable upon the person under disability if of full a e and in direct receipt of the income. This is a case where Income received by the guardian etc., on behalf of the incapacitat- .cd person is taxed in the hands of guardian etc., and can therefore be treated as a representative assessment.
(ii) Section 40 (2), dealing with trustees or agents of non-residents, also limits the liability of the trustee or ':agent by the words "in the like manner and to the same amount" as the liability of the beneﬁciary if in direct receipt of the income. Here again, the income which a trustee etc. received on behalf of the beneﬁciary is taxed in the hands of a trustee etc. It is therefore a representative assessment.
(iii) Secion 41 relates to income received on behalf of :a beneﬁciary by the Court of wards, Administrator-General, the Official Trustee, trustee appointed under a deed of trust etc. The section makes these persons liable: to be assessed in respect of income received by them "on ?behalf of" the beneﬁciary and "in the like manner and ?to the same amount" as the beneficiary. (There are two provisos "which are not relevant for the purposes of the present dis-
-cussion). The assessment is thus a representative one.
(iv) Section 42 relates to the agent of a non-resident and empowers the department to treat the agent as the' .assessee in respect of tax leviable on certain income,of the non-resident deemed to arise in India. The income does not "belong to the agent, but, for facilitating the collection of tax he is made liable and "is (deemed to be the assessee ;for all the purposes" 'of the Act.' He is thus a representative .assessee. - ' l 423 It would, therefore, contribute to clarity if all these: provisions are simpliﬁed and treated in a uniform manner" The substance of these provisions is the same, namely, that. the tax is leviable and recoverable from A even though nor- mally it would be recoverable and leviable from B. The treatment of all these provisions in one section will also- avoid the unnecessary repetition of the words "the tax shall be leviable and recoverable" or words like " ....... shall be deemed to be the assessee" etc. The scheme adopted, therefore, is to collect these pro--- visions at one place (in so far as the rules applicable are common to all the cases), under the head "Representative assessees".
General Scheme of sections relating to representative assessees.
The group of sections begins with deﬁnitions, followed by the substantive provisions deﬁning the liability of the representative. Special provisions applicable only to special classes of representative assessees are placed at the end.
Assistant has been taken from the South African. Income-tax Act in framing these provisions. The following sections of that Act have been drawn upon :--
Section 69.--Deﬁnitions.
Section 70.--Liability -of representative assessee.
Section 71.--Right of representative assessee to recover the tax from the beneﬁciary.
Section 72.----Personal liability of representative assessee in cases Where he parts with the estate without making provision for" tax.
Section 75.--Remedies of the department against pro-~ perty with agent or trustee to be the same as the remedies against the property of the principal or the beneﬁciary.
Sub-clau_se (1) Item (i).--Existing section 42(1), main para, latter part,. making the agent liable for the tax on certain income of non-resident, has been incorporated here. (The earlier part of the main para of the section has already been incorporat- ed in the group of sections relating to deemed income). The first prowiso to section 42(1) has been dealt with in a separate clause in this Chapter, while the second and third provisos have been embodied in another separate clause
-in this Chapter.
Existing section 42(2) has 'already been incorporated in the Chapter relating to provisions gainst avoidance of liability to income-tax, while $ction ) has been incor- porated in the group of section' relatin o deemed incomes.
424Item (z'i).--This represents a part of existing section 440(1). There seems, however, to be no reason why there should be two provisions, one in section 40(1) and the other in section 41(1), for trustees. Convenience requires that all trusts should be dealt with in one section. Accordingly, the reference to trustees in existing section 40(1) should be omitted. This will, of course, lead to the result that oral trusts not covered by section 41 will not be covered by the new provision. However, this would not create any practical difficulties, as the trustee will be still chargeable under the main charging section, namely, section 3; more- over such instances will be very few. As a matter of fact, it becomes difﬁcult to administer existing section
-40(1) in the case of oral trusts; in the ﬁrst place, it' is not «easy to verify the existence of a trust, and in the second place, even if the trust is ascertained, it is not easy to ﬁnd out with certainty the shares of the beneﬁciaries. Oral trusts should not, it is suggested, be included in the ambit «of the provisions relating to representative assessments.
Existing section 40(2) will be covered by another clause that follows in this chapter, deﬁning "agent" in relation to non-residents.
Items (iii) & (iv).--Existing section 41(1) has been bro- ken into these two items, for the sake of clarity. Trustees or authorities appointed under law. like the Official trustee, the Administrator General, the Court of wards, or receivers or managers appointed by the court have been dealt with in item (iii), while trustees 'appointed under a trust deed have been dealt with in item (iv). In both the items, it has been made clear that income which the trustee, the court of wards etc. receives in fact would be also governed by the item, vide the words "receives or" added before the words "entitled to receive". This change has been made on the lines of existing section 40(1).
Sub-clause (2).-----This sub-clause is intended to make it clear that the persons liable as representative assessees are to be deemed to be assessees. This will place them within the scope of "assessee" as proposed to be deﬁned sin the draft. (vide also notes to clause 2, deﬁnition of "ass ee"). Existing sections 40(1) and 41 (1) achieve this result y pro- viding that the tax shall be leviable from the guardi n etc., while existing section 42(1) main para last words, straight- away provides that the agent shall be deemed to §be an assessee. ; , The sub-clause adopts the method used'in section 42(1).
Notes to clause 170 Geneml.--The liability of the representative ass i see is dealt with in this section. The notes to the clause d' ﬁning "Representative assessee" may also be perused as to the general scheme of these sections. I Sub-clause (1).---rA unif "rtn provision has bee made
-as to the nature and extent the liability of the rep sente-
425tive assessee. The existing sections on the subject, 1'..e. sec-
tions 40(1), 41(1) and 42(1), ex ress themselves in different ' ways; for example, section 40 =1), after providing that the guardian etc. is to pay the tax (vide the words "the tax shall be levied .......... ..") goes on to say that "all the pro- visions of this Act shall apply accordingly". Section 40(2) also employs the same language. Section 41(1) is also on the same lines. Section 42(1), main para, last line, pro- vides that the agent "shall be deemed to be for all the purposes of this Act, the assessee" in respect of the tax payable by the non-resident.
It is desirable that this diversity of language be replac- ed by the same formula for all these cases, since such diversity unnecessarily causes confusion and gives rise to doubts as to whether any difference in substance is intended or not. Draft sub-clauses (1) and (2), therefore, make it clear that the representative assessee is subject to the same duties, liabilities etc. as if the income were his own income. It further provides that he is liable to assessment in his own name. The category under which he is to be assessed and the computation of _tax, however, are to be governed by the priniciples that would have been applicable to the beneﬁciary himself, and this has been made clear in the draft.
The words "representative capacity? will, incidentally, remove one lacuna existing in the present Act. When _a . 7 trustee is charged in respect of income of the trust in his hand, the question might arise whether his individual in- come derived from his personal properties can be included in the same assessment. In other words, the question is, whether the assessment of a trustee quit-trustee is to be kept completely separate from his assessmerft in his private capa- city. On principle the two should be kept separate as the capacities are different, but there is 110 provision in the present Act giving clear guidance on this point. The words "representative capacity only", as usodi in the draft sub- clause under discussion, will make the position clear. , Existing section 41(1) etc. are limited to "tax". The position regarding penalty or any other sum due under the Act should not, however be different, and the provision as _ drafted will cover penalties and other sums also.
Sub-clause (2).--The provision ﬁh t a representative is liable only to the extent of the asset grith him at present appears only in the case of in legal' _presentative liable under section 24B(1). There iséhowev no reason why this protection should not extend to representative assessees, such as guardians, trustees, agents, etc. It is therefore put in a general form in this sub-clause. (There are, of course, special remedies available against certain representative assessees, which have been saved in the draft clauses on the subject that follow in this Chapter.)_ Sub-clause (3).--Persons 1' ble as representative asses-
sees, especially as trustee, gua 'an or ager etc. (i.e.' the assessees governed by exist' secti 140 and 41) are, at \ 426 present, liable to be charged directly under section 3._also. In any case, the absence of a speciﬁc provision lends sup- port to the opinion expressed by some commentators that the Act leaves an option with the Department to assess the trustee etc. either under section 3 or under section 40 or 41. Since assessment under section 3 might be more onerous than under section 40' or 41, it seems desirable to make it clear that it is obligatory on the Department to apply the provisions of sections 4Q and 41 in cases where they are applicable, leaving the general liability under sec- tion 3 to be applied only in cases which are outside sections 40 and 41. The draft sub-clause under discussion is intend- ed to achieve this object.
Notes to clause 171 Sub-'clause (1).----This is new. The principle of the sub- clause however is not controversial and is therefore embodi- ed in the draft on the lines of section 71(1) of the South African Income-tax Act.
Sub-clause (2) and (3).----Existing section 42, second and third provisos, lay down a procedure whereunder the agent of a non-resident can approach the Income-tax Oﬂicer for the issue of a certiﬁcate stating the amount to be retained by the agent for discharging his estimated liability in respect of tax on the income of the non-resident. This provision can be usefully extended to all cases of representative assess- ment, and has therefore been embodied in the draft sub- clause under discussion.
Notes to clause 172 This is new and is based on section 72 of the South African Income-tax Act. In a sense, it is a corollary of the provision in the main clause' relating to the liability of a representative assessee, to the effect that he is liable only to the extent of the estate and in a representative capacity only. If the representative assessee parts with the assets without making proper payment of tax, it is but fair that he should personally become liable.
(The South African Act, of course, includes even a case where the representative -assessee alienates, char es or disposes of the income in respect of which the tax is. c arge- able; in South Africa the tax is payable on the income of the current year itself. Since, however, the scheme of the Indian Act is different, this partof the South African sec- tion has not been incorporated in the draft clause under discussion.) ' ;
Notes to clause 173 Sub-clause (1).--The deﬁnition of "agent", given in this sub-clause, is based in substance on existing section 43, main para, but assistance has been taken in drafting it from the language of the Ceylon Incometax Ordinance'.
/.
' Draft clause :70. V ' Scctionj35, Ceylon InQomc- tax 1 (2?
Paragraph (d) embodies section 40(2) in a brief form- It seems unnecessary to treat the case of a trustee of a non-resident separately from' the agent of a non-resident or to devote a separate section to it. In subst ce, the lia- bility of the trustee (when the beneﬁciary is a n-resident) should be the same as that of the agent. -
Existing section 43, main para, contains the words "upon whom the Incometax Officer has caused notice of his intention to treat him as agent" to be served. Since a pro- vision for giving opportunity to the agent is already con- tained in section 43, second proviso, (vide draft sub-clause (2)), these words are unnecssary and have, therefore, been omitted in the draft.
The words " .......... ..sha1l .......... ..be deemed to be such agent" have been replaced in the draft by the words "agent .......... ..includes .......... ..". A deﬁnition in the form of enumeration having been adopted in the draft, the form had to be changed, ' Existing section 43, Explanation, has been embodied in the Explanation to draft sub-clause, with the addition of the words "or relinquishment" on the lines bf existing section 12B. The reference to the date 28th day of February, 1947, has been omitted as unnecessary, since the new Act will apply only prospectively, that is, for assessment years subsequent to the commencement of the new Act.
Section 43, 1st proviso, has been embodied in the pro- viso to the draft sub-clause. An attempt has been made to make the language less involved, by Toning the proviso with a reference to the "broker", instea of beginning with the word "transactions" as the existing proviso does.
Sub-clause (2).--Existing section 43, 2nd Proviso, has been embodied here, with the addition of the words "to be treated as such" at the end in order to make the pro- vision more precise.
Notes to clause 174 The ﬁrst proviso to section 41(1) has been split up into paragraphs, for the sake of clarity. The position in respect of income-tax has been stated separately from the position regarding super-tax, since .the provision that the tax shall be levied at the maximum rate does not: apply to super-tax, see existing section 58(1). ' [The latter part of the Proviso, of course, must be taken as applying to superbtax also, and this has been made clear in the draft, vide sub-clause (b).] ' The latter part of the Proviso _is, obviously, an excep-
tion to the earlier part of the para (part) of the sub-section. _ earlier part of the proviso ' not , p' 28-! Law Com. 58 428 also does not apply. The draft makes this clear by treat- ing the latter part as an item--item (i) in the draft--falling under the earlier part, i.e. undér sub-clause (a) of the draft.
One impgrtant change has been made in the substance of the existing provision. Section 41(1), lst Proviso, (dealing with the case where the income is not speciﬁcally receiva- ble for one person or where the shares are unknown) pro- vides that income-tax shall be chargeable-
(i) where the beneﬁciaries have no other personal income, and none of them is an artiﬁcial judicial person, then at the rate applicable to an associa- tion;
(ii) in other cases, at the maximum rate. This provi- sion leads to an anomaly. Where a beneﬁciary has even 1 Rupee of other income, the income becomes chargeable at the maximum rate. More- over, the provision is not simple in its Working. The draft, therefore, proposes a provision where- under the tax will always be at the rate appli- cable to an association, except in cases where the income is received by a beneﬁciary and the Income--tax Olﬁcer desires to charge income-tax at the rate individually applicable to him'.
Notes to clause 175 Existing section 41(1), 2nd proviso, has been embodied in this clause, which does not need, any comments.
Notes to clause 176 This is new and has been introduced on the lines of section 75 of the South ,African Income--tax Act, in order to make it clear that the fact that a person is holding cer- tain property as a representative assessee (and not as the beneﬁcial owner) does not affect the remedies available to the department against the property;
Notes to clause 177 Existing section 41(2) provides, in effect, that though a Court of Wards, Oﬂicial trustee, trustee appointed under a deed etc. is assessable as representing the beneﬁciary. the direct assessment of the beneﬁciary is not barred. There is no reason why this principle should not be applied to all representative assessees, and 'the rule has, therefore. been embodied in this clause, which will be applicable to all cases of representative assessment.
3 The Subject has been 'disccussedby the Taxation Enquiry Commission, which however, did not favo _ y change See T. E. C. Report (1953-31), pt, II,:ch. VIII para. 9 to u, _ .-107. 5 -_ l 429 Notes to clause 178 This is new and is intended to state the position re- garding tax in respect of the estate .of a deceased person in the hands of the executor. The clause, of course will be conﬁned in its application to income derived after death. Income in respect of the period up to death will be governed by existing section 24B, which has already been incorporat- ed in the draft clause in this Chapter relating to legal re- presentatives.
The clause has been drafted on the lines of the relevant provision of the Ceylon Income-tax Ordinance.' Notes to clause 179 This is consequential on the new clause introduced in the draft laying down the liability of the executor, and will authorise the executor to recover the tax from the persons to whom the estate is to be distributed.
Notes to clause 180 General.--Existing section 26(2), which deals with the case of succession to business, profession or vocation, raises a number of difficulties, and the language of the section has not escaped criticism". Some difficulty is created by the words "where a person carrying on a business .......... ..has been succeeded in such capacity". The exact signiﬁcance of the words "in such capacity" is not clear. The observations of the Privy Council' indicate that what is in- tended is, that the business _etc. should continue to be carried on by the successor. A person who becomes merely a successor (in the sense that he gets the legal ownership of the business etc. but does not actively continue the busi- ness etc.) would not be governed by this section, since in his case there would not be any income after the date of succession. The wording of the section, therefore requires some change to make this intention clear.
For the sake of simplicity, section 26(2) has been split up in three sub-sections in the draft.
Sub-clause (1).--Apart from the changes explained above. the following drafting changes have been made :---
(1) The existing words "person succeeded" and "person .
succeeding" cause a slight confusion, since it is not clear whether the predecessor is .intended or the successor is intended, and some effort has to be made to remember the person intended to be covered. The expressions "predeces- sor" and "successor" have, therefore, been used in the draft in place of these words. i ' See Sections n (to) and 11 (u) of the Ceylon Income-tax Ordinance.
' See observations of Madhavan Nair J. in jupudi Kexava Ran vs. C.I.'I'o (1935) 3 I-T-R- 339. 343 (Mad-)- , ' Mahamjadhiraj of Darbhanga vs. C.I.T. Bilut -and Oriua (1934) 2 I.T.R., 34.5, 347, 348 (P.C.)-61 LA. 312-LL. R-. 13! 607.' g 430 (2) In ordergto explain the effect of this section more clearly, clauses (a) and (b) have been added in the draft to provide that the income upto succession is assessable. on the predecessor and the income after successi.on is assess- able on the successor. Incidentally, the use of the words "income of the previous year up to succession" will also make it clear that the previous year talked of is the pre- vious year in which the succession took place.
Sub-clause (2).--The words "year in which succession took place" have, in the draft, been prefaced by the word "previous". For the sake of clarity, the latter half of sec- tion 26(2), Proviso, has been dealt with in a separate sub- clause, see draft sub-clause (3).
Sub-clause (3).--In existing section 26(2), Proviso, latter half. which provides that the tax in respect of the "assess- ment .......... ..assessed on the person succeeded", shall. be payable by the successor, the wording does not sound well ; the recurrence of "assessment" and "assess" can be avoid- ed. The language has, therefore, been altered' in order to make the intention clear, though this has resulted in a slight elaboration.
Sub-clause (4).--Existing section 25A. sub-section (2), deals in part with the case of succession, though that sec- tion mainly deals with the partition of a Hindu family. The portion dealing with succession has been incorporated in this sub-clause, for reasons already explained in the notes to the draft clause' dealing with partition of Hindu families.
The words "where any person has succeeded to a busi- ness .......... ..formerly carried on by a Hindu undivided family whose joint family property has been partitioned on or after the last date on which it carries on such busi- ness .......... .." in existing section 25A(2), do not give out the intended meaning easily. What is intended is, that there is ﬁrst a succession to the business of a family, and simul- taneously with the succession or subsequent thereto there is partition of the family property. This has been stated in more direct language in the draft sub-clause under discus- sion. It has also been made clear that it is the income upto the date of succession which is to be assessed in the manner provided in the section relatin to partition. Income sub- sequent to succession will be t en care of by existing sec- tion 26(2), and this has also been made clear by the words "but without prejudice to the provisions of this section" at the end of the draft sub-clause.
Notes to Clause' 181 General.--Existing section 25A is really intended to lay .down the proposition, that until there has been a complete partition of the joint family pmperty and the Income-gtax Qﬁicer records a ﬁnding to .eﬁe,ct, the family should x Su-notes to dnfcclitne IF!) (4). " . I 431 be treated as joint and assessed as a Hindu undivided -fami- 1y. The way in which the section begins, however, clouds the main proposition, because the section begins with pro- cedural matters and relegates the main proposition to the last sub-section. The various sub-sections have, therefore. been re-arranged in order to emphasise the main proposi- tion contained in the section.
Sub-clause (1).--It has been held by the Privy Council' that section 25A applies only where there is a total parti- tion. This is certainly the position under the existing sec- tion. But it would be desirable to apply the procedure con- tained in the section to partial partition also. The draft, therefore, makes this alteration in the section, with con- sequential changes. ' Sub-clause (2).--The proviso to section 25A(1) has been combined with the main para.
Sub-clause (3).---Provision has been made that the In- come-tax Oﬁicer, while passing an order under this section, should record a ﬁnding as to the date of the partition. This, besides avoiding many complications, will facilitate the assessment for the periods before and after partition.
Sub-clause (4).--Some confusion is caused by the language of existing section 25A(2), Which, while opening with a reference to a case of partition, goes off at a tangent to deal with the case of succession. For the sake of clarity, these two cases should be dealt with separately, even though the substantive rule to be applied may be the same. Draft sub-clause (4) conﬁnes itself to partition. Succession is dealt with in the separate clause' corresponding to existing sec- tion 26(2).
The existing provision in section 25A(2), main para, to the effect that the Income-tax Ofﬁcer shall make assess- ments on the members or group of members accordingly '_'in accordance with the provisions of section 23"' creates an impression that a special assessment for the purposes of this section has to be made, on the member etc. This is, however, not the intention. The section is merely intended to lay down the liability of the members for pre-partition income, and does not require that the assessment made in pursuance of his liability should be made separately from the individual assessment of each member. This part of the sub-section has, therefore, been omitted.
There is some amount of confusion, in existing section 25A(2), as to how far a member (or "group of members") is liable for pre-parti'. ion tax. While the main para. of that sub-section says that each memberis liable for a "share of the tax on the income so assessed" according to the por- tion of the joint family pr erty allotted to him, the pro- viso says that the liability s all be _"g'qint and several". The ' SImdarS:'n_hMa':tln' was: I H 10 I.'I"' J» 'P.C. "
" Sea draft c'l'aune11_$o(4). , ( f) 1457 _ .
432position is not quite clear. The 'intention, however, seems to be this, that a member is jointly and severally liable, and that for the purpose of computing his "several" liability the property received by him is to be taken into account. To make this clear, the language of the proviso has been modi- ﬁed and the position has been stated in a diﬁerent form in the draft. For clarify, cases of partition during previous year have been dealt with separately from the cases of subsequent partition.
In order to make the section comprehensive, partial par- tition has also been dealt with, as pointed out above in the notes under sub-clause (1). The Words ''total income receiv- ed by... ....... ..the family .......... ..shall be assessed", will, in relation to partial partition, have the effect of including the income received by the family in the assessment of the family even after the partial partition.
Sub--clauses (5) and (6).--See under sub-clause (4) above.
Sub-clause (7).--This is new. The rule embodied in the draft is, that where a family was carrying on a business at the time of partition, the assessment may be made by the Income-tax Officer of the area in which the principal place of business was situated before the partition; in other cases the place of residence of the last manager will govern the decision of the question.
Sub-clause (8).----This is new. The existing section is silent as regards penalties and other sums'. The sub-clause is intended to make the position clear.
Explanation.---Clause (a) of the Explanation is intended to codif a rule already established. Section 25A applies only where t ere is such division of the property as its nature admits of; mere severance of status does not fall under this section". This is also clear from the words "allotted at the partition" in existing section 25A(2).
Clause (b), deﬁning "partial partition", does not need any comments.
Notes to clause 182 General.---All the provisions relating to shipping busi- ness, as contained in sections 44A, 44B and 44C, have been placed in one clause.
The provisions have been re-arranged, so as to state the liability ﬁrst, followed by the method of assessment, excep- tion, and savings.
1 cr. 0.1.7'. vs. Sanichar Sali. (1955) 27 I.T.R. 307, (Pamaij Raju Chettiar and other: V. Collector qfMadras,(i956) 29 I.'[ .R.241 (Madras). M. Subba Ran Vs. C.T.I. Hyderabad, (1957) 31 [.T.R. 867 (Andhra).
' Bansidhar Dhandhaniaand another v. 01.7'. (:94?) I2 I. T. R. :26. Gardhanda: T. Man alda: V. C.l.T. (19413) n .T.R. 183. Jaganaatli Ram, v. .I.T. #5? I9 I. .' R. 353. V Blmn Rn; Barm Dhar v.C _. . I954). 26 I. T. 11.185.
433 ' Sub-clause (1).--The expression "ﬁnancial year" has been substituted for the expression "year", for the sake of precision.
Sub-clause (2).--The existing section is silent about the carriage of mail by the ships covered by the section. It seems desirable to add a reference to mail'.
Existing section 44B(2), latter part, provides that one-' sixth of the amount assessed shall be deemed to be the amount ,of proﬁts and gains accruing to the principal on account of carriage of passengers etc. But since it is only income which accrues in India that is taxable, this part of the section has been re-drafted. It has also been made clear that section 44B will apply whether the amount is payable in or outside India.
Sub-clause (3).--Does not need any comments.
Sub-clause (4).--Existing section 44B(3), earlier part, provides that the Income-tax Oﬁicer shall determine the sum payable as tax at the rate applicable to the total in- come of a company. Since, however, there are different rates applicable to different kinds of companies (by virtue of the annual Finance Act), it seems desirable to make the pro- vision more precise, by indicating exactly the category un- der which such ship-owners are to be placed. The draft sub-section. therefore, makes it clear that the rate appli- cable to a company which has not made the prescribed arrangements for the deduction of super-tax on its divi- dends under existing section l8(3D), will be the rate to be applied under section 44B.
Sub-clause (5).--Does not need any comments.
Sub-clause (6). Section 44B, latter part, provides that a port clearance will not be granted until the officer con- cerned is satisﬁed that the tax has been duly paid under
- this section. In the draft, the words "the tax assessable un-
der this section" have been used to make it clear that this sub-section will apply whether the tax has been duly assess- ed and has, therefore, become payable, or whether the tax is "assessable". In other words, this sub-section» will apply even if the tax has not actually been assessed by reason of any default of the master of the ship etc. Sub-clause (7).--The word "year" has been replaced by the words "ﬁnancial year" in the draft, for precision. Fur- ther, it has been made clear that the payment of tax will be treated as advance payment of the tax "leviable in the relevant assessment year", in order to make the provision more precise. -
Sub-clause (8).---Does not need any comments.
As regards the words "relevant assessment year", notes above under sub-clause (7) may be seen.
Notes to clause 183 Existing section 42(1), first proviso, lays down a rule which relates to the recovery of tax on a non-resident. not 1 Cf. Section :5 Subsection (1), Sowh Ai'r_i.can:_I|,eomc-tax Act.
\ 434 from his agent but from his assets in India. The emphasis here IS on the assets; this provision has, therefore; been excluded from the draft clauses dealing with representa- tive assessment, and has been placed here.
The words "without prejudice to .......... .." have been added in order to malre it clear that the remedies confer- red by the other sections referred to are not affected by the special provisions of this section.
The words "whether in his name .......... .." had to be added here, since section 42(1), 1st " Proviso, in the scheme of the existing Act, is connected with section 42(1), main paragraph, and the main para. uses these words.
Notes to clause 184 Section 24A_ has been embodied in this clause. For the sake of simplicity, the provision has been split up into a number of sub-sections. ~ Sub-clause (1).----The provision for assessment in the current ﬁnancial year, embodied in section 24A and other similar sections, really constitutes an exception to the gene- ral principle embodied in section 3 that it is the income of the previous year that is taxable.
The chargeability of the income in the current assess- ment year is made clear by speciﬁc words in this sub-clause, and it is also made clear that to this extent the section over- rides section 3. (As a matter of fact the draft clause for s. 3 is itself subject to the other provisions of the Act»). (See also notes to sub-clause (2) below).
It may be added that the language of this section has also been criticised by the Income-tax Investigation Com- mission'. The alterations made in the draft, though they do not follow the lines suggested by the Commission, re- move the ambiguities and lacunae to which the attention of the Commission was directed.
Since the section will apply only to natural persons, the expression "person" has been replaced by the expression "individual".
Sub-clause (2).--The period, whose income is char_ge~ able is mentioned separately in this sub-clause. The existing provision says that the total income to be assessed is "'of the period from the expiry of the last previous year of which the income has been assessed in his hands to the probable date of his departure from the taxable territories, or where he has not been previously .assessed, on his total income of the period up to the probable date of his depar- ture from the taxable territories". Now, in so far as this period covers a previous year which has been completed before the commencement of the ﬁnancial year in which the Income-tax Officer takes action under this section, the sec- tion has no importance, because assessment for such earlier
1. Sn I.'I'.I.C; Report -094155, page 25, 58. - % Ev ,.
45previous years can be made even umier the normal pro- vision in section 3. It is only in respect of a previous year which falls wholly or in part within the ﬁnancial year that the section needs to be relied upon. In the draft, therefore, the words just now quoted have been omitted.
Of course, it is still necessary to cover cases where a completed year of income forms part of the period from the end of the last previous year to the date of departure. For example, a person whose previous ear ends on the 31st December may leave India, say, in ebruary, 1958. The year of income commencing on the 1st January, 1957 has to be covered, because the assessment year for that income will be 1958-59, which has not yet started. In such cases the complete year of income 1957 as well as the fraction from 1st January, 1958 to February, 1958 may be governed by this section. Hence, draft sub-clause (2) does not make any other modiﬁcation as regards the taxable period.
Under the existing section, the position regarding rate
-of tax has been stated in a very elaborate manner. It says that the assessment shall be made. "as regards each com- pleted previous year" at the rate at which such income would have been charged had it been fully assessed. Now, -
as already explained, the incomes of years completed before the commencement of the assesment year in which the In- come-tax Olﬁcer takes action are governed by the normal provision in section 3, and it does not make any difference whether they are dealt with under section 3 or under this section. Under section 3, the rate applicable is the rate for the relevant ﬁnancial year; such cases should, therefore, be left to be governed by section 3, and hence the words just now quoted are unnecessary and have been omitted in the draft. The remaining "previous year", that is, the period' from the end of the previous year for the assessment year to the date of the departure will continue to be governed by this section.
As a matter of fact, the words just now quoted are misleading from one point of view, because, if interpreted strictly, they would mean that a person leaving India in February, 1958 and having his previous year ending with the 31st day of December, 1957 would he chargeable at the rate applicable to the assessment year'1'958--59. Obviously, this is not the intention, and the provision as embodied in the draft will obviate any possibility of any such wrong result being deduced from this section.
Sub-clause (3).--The criticism of the existing section, made above in the notes to sub-clause (2), applies in res- pect of the provisions for estimating the total income also. The power to estimate should not be conﬁned, as in the existing section, to a fraction of aipreirious year; even a completed previous year might fall within the period for which the income has to be ."qstima, ". The sub-clause has therefore been widened to-' -'ve a fder. power to the Income-tax Officer in this respg = _q »_-. - ' 436 Sub-clause (_4).~--In view of the simpliﬁcation made in sub-_section (1), it has become possible to simplify this sub- section by removing the elaborate description of the period for which return is to be called.
The_ words "(along with such other particulars as may be provided in_ the notice)" have been omitted in the draft, since the pI'0VlSl0I1 that it is a notice under section 22 (2) implies that other particulars are also to be furnished, where required. The words "subject to the provisions of' this section" have been added for precision, particularly in view of draft sub-clause (3).
Sub-clause (5).----It appears desirable to make it clear that the special assessment made under section 24A is in addition to any regular assessment which may happen to take place in the same assessment year. This has been made clear by this sub-clause. Existing section 25(1), latter portion, may be compared. ~ Sub--clause (6).--This is new. The special provision limiting the period of hotice to seven days, embodied in sub--clause (4), is applicable to the emergency assessment: by virtue of the section itself. Where, however, the normal assessment for any. past previous year has not, yet, been made on the assessee who leaves India, it may sometimes. be necessary to ﬁnish the assessment before the assessee leaves India. In such cases the normal period of 30 days- provided for in section 22 may be difficult to be complied" with. The draft sub-clause, therefore, allows the Income- tax Officer to reduce the period in such cases. This new provision will ultimately be for, the beneﬁt of the assessee,. since he cannot obtain a clearance certificate under exist- ing section 46A until his assessments have beenpﬁnalised.
Sub-clause (7).--A time limit-of three months will be allowed to the Income-tax Officer except where the delay is occasioned by any conduct of the 'assessee.
Notes to clause 185 This clause embodies a part of section 25 of the exist- ing Act. The latter part of section 25 (2), imposing a penal- ty, is transferred to the Chapter on penalties.
The section has been simpliﬁed without affecting the substance. Main drafting changes are :---
(i) The words "notwithstanding anything contained in section 3", have been .added to make it clear that the ordinary rule requiring assessment of the pre- vious year's income in the next assessment year is modiﬁed in this section;
(ii) the words "discontinued in any year" have been. replaced by "discontiiued in any assessment yyear", for the sake of precision ; ' r ' --- -
. ..._..._........ . -.... ....
437(iii) words excluding a business etc., charged under' ' the 1918 Act have been added, since section' 25 (1) does not apply to such business, vide the words "to which sub-section (3) is not applicable", in existing section 25 (1) ;
(iv) it has been made clear that the power to charge- tax in the current assessment year is to be exercis- ed at the discretion of the Income-tax Officer;
(V) the existing words "assessment may be made in. that year on the basis of the income .......... ..in addition to the assessment, if any, made on the basis of the income .......... ..of the previous year" give rise to a controversy, namely, whether the income of the normal previous year is to be com- bined with the income of the current assessment year, when making the assessment. It has been considered desirable to alter the wording on this point to make the intention clear. The draft, therefore, uses the words "the total income ....... .. of the period from the expiry of the previous year to the date of discontinuance", and avoids any" reference to the normal previous year in sub- clause (1). Draft sub-clause (4), however, makes it clear that any assessment made under the normal' provision will not be affected by the special pro- cedure given in this section.
Sub-clause (2).--Does not need any comments. Sub-clause (3).--Does not need any comments. Sub-clause (4).--See notes under sub-clause (1).
The remaining portion of section 25 has been embodi- ed in the draft at the appropriate places.
Notes to clause 186 Sub-clause (1).--Section 44 of the existing Act deals the assessment in case of discontinuance of business. by ﬁrms and dissolution of associations. The part dealing with ﬁrms is being incorporated in a separate clause (vide separate Chapter relating to ﬁrms). The part dealing with associations has been incorporated here.
A reference to the legal representative of a member who is deceased has been added'to provide for cases where a member dies after dissolution and before assessment.
The changes made by the Finance Act, 1958 have been given effect to.
Sub-clause (2).--This is new. The object is to allow the Income-tax Officer to.contin_ue assesment proceedings already started before the dissolt tion eﬂ} So. that time may not be wasted in the re-issue of n tices eta ' 438 _ Sub--clause (3).---Section 44(3), as inserted by the Finance Act, 1958, authorises the Income-tax Officer etc., to impose a penalty under clause (a) or (b) or (C) of section 28 (1) in respect of a dissolved ﬁrm or association. Instead of rnak1ng_an elaborate provision on the lines of that sub- section, it is considered sufficient to say that the provisions relating to 'tax will apply to penalties also. Sums other thanpenalties have also been covered in the draft. The provision as drafted will, thus be more comprehensive, though less elaborate in form.
Sub-clause (4)----This is new and is intended to make it clear that the limitation on the liability of the legal re- presentative is not to be affected by the provisions of this section. This becomes necessary in view of the fact that in draft sub-clause (1) a reference to legal representative has been added.
Notes to clause 187 Existing section 12AA is applicable in all cases where the time taken by the author of a book is more than twelve months. Clauses (a) and (b) dealing separately with a case where the time taken is "less" than 24 months and a case where the time is "more" than 24 months, are unneces- sary in the opening portion, since this distinction is rele- vant only in connection with the mode of separately allo- cating income. The distinction does not affect the applica- bility of the main principle of the section. A slight recast- ing of the language has, therefore, been attempted in the draft on this point.
Clause (a) of the existing section uses the words "less than twenty-four months" and clause (b) uses the words "more than twenty-four months". For the sake of precision, the former wording has been replaced by "not more than twenty-four months", so that clauses (a) and
(b) can collectively exhaust all cases, including a case where the time taken is exactly 24 months.
It may be observed here that existing section 12AA was inserted in 1953. The Taxation Enquiry Commission' recommended the spread-over of income not only for copy- right but also for patents. The Commission suggested that 'proceeds of sale of patent rights should be spread over a period of six years. Section 318 of the U.K. Income-tax' Act. 1952, also allows such spread-over in the case of patents. It is for consideration whether the section should not be
-extended to patents.
'Notes to clause 188 Existing section 8, third proviso, has been incorpora- ted here with two changes:---
(i) The rate at which the State Government will pay tax should be laid down by the Finance Act spe- ciﬁcally; this has been made clear in the draft.
1 '['.E.C.'Re1§o'rt (xgfg-1954.), II, Ch. 111, par'a'7. page 42.' p 4%
(ii) Since the word "receivable" in existing Section 8, main para, has in the draft been replaced by word "received", necessary drafting changes have been made here also.
CHAPTER XVI ' SPECIAL PROVISIONS APPLICABLE TO FIRMS Notes to clause 189 Provisions relating to ﬁrms have been brought together in this Chapter under the following groups :--
(1) Assessment.
(2) Registration.
(3) Other provisions.
Sub-clause (1).--Existing section 23 (5) (a) provides that the total income of each partner, "including therein his share" etc., shall be assessed and the sum payable by him on the basis of such assessment determined. Since the scheme of assessment in the case of a registered ﬁrm is, that the partner is himself assessed on his share, these words have been replaced in the draft by the words "the- share .......... ..shall be included in his total income" etc., which seem to be more appropriate.
Sub-clause (2).----Does not need any comments. Though this provision is in a sense repetition of existing section 16(1) (b) Proviso, it has been a lowed to stay for the sake of convenience of reference.
Sub-clause (3).--The existing words "his share ....... ..
shall be assessed on the ﬁrm" have been replaced in the ' draft by the words "tax on his share .......... ..shall be asses--A sed on the ﬁrm", which are more appropriate.
Section 23 (5) (a) (i) has been retainedin the draft in the existing form; but it is recommended that it may be deleted.
The Finance Act, 1956, introduced this new provision making a ﬁrm liable to income-tax on its income at a special rate provided by it. The provision for including the shares of the proﬁts of the ﬁrm within the total income of a partner in his individual assessment and levying tax upon it was also retained. This implies,.s that the share of the partners in the proﬁts of the ﬁrm suffers tax twice---- once in the hands of the ﬁrm and again in his own hands. This is really a double taxation of the same income though at different rates. [The same Finance Act, 1956, introdu- ced a new provision [section 14(2) (aa)] under which the proportionate income-tax paid by the ﬁrm on the share of income included in the partners' share is deducted. It means that the partner is not_.liable Ip pay income-tax on the pro orticnate tax; but. it not obviate the diﬁiculty 0 double taxation]. _ .
. 'z 1 440 (No'rE.--It is understood that in the year 1957-58, there were 6651 registered ﬁrms which were assessed to a tax of 1 crore 57 lakhs on a total income of about 51 crores.) Section 23(5) (a), 3rd Proviso, has been omitted, as it is in substance the same as the second proviso. It was introduced for the purpose of enabling persons going to Pakistan to be treated as non-residents, The necessity for any such special provision does not remain now.
Notes to clause 190 Paragraph (a).----Existing section 23 (5) (b) does not directly state the position that in the case of an unregister-
-ed ﬁrm the tax payable by the ﬁrm itself on the basis of his total income is to be determined. This is the primary mode of assessment of an unregistered ﬁrm, and has, there- fore, in the draft, been stated at the opening of the clause in paragraph (a). (The existing words "instead of determin- ing .......... .." are thus covered by this paragraph).
Paragraph (b).--The drafting changes that have been made are intended to state the position in more simple manner.
Notes to clause 191 General.--The provisions relating to procedure for registration of ﬁrms, as contained in existing section 26A, .are sketchy; because many of the important provisions are at present contained in the rules. It seems desirable to «collect together some of the provisions at present contained in the rules, and the draft clause has therefore, been made more elaborate. -
Sub-clause (1).---.The existing words "constituted under" an instrument of partnership are found in practice to lead to unnecessary controversy based on sharp distinc- tions'. They have, therefore, been replaced by the words "evidenced by".
The existing words "specifying the individual shares
-of the partners" have been construed too technicall some- times, so that applications for registration are re used if the shares are not given in the partnership deed speciﬁcally in so many words, or if the partnership deed is not self- contained and has to be read with the deeds relating to subsidiary ﬁrms in which the partners are interested. It is felt that registration should not be refused in such cases "merely on the ground of the existence of such ﬂaws in the partnership deed. Necessary drafting changes have been made to achieve this object.
Sub-clause (2).--It has been made clear that the appli- «cation for registration may be made even after the dissolu- tion of the ﬁrm,
1. Sea the Case citedin Kong; 'and Palkhiwalfs Commentary, [958 Edition, page 650. . .
....._...........» 441 Sub-clause (3).----The persons who should join in an application for registration have been mentioned exhaus~ tively in this sub-clause, which_ incorporates the second paragraph of rule 5 of the Income-tax Rules.
Sub-clause (4).--~Under the existing provisions (rule 2 of the Income-tax Rules), the first app ication for regis- tration has to be made within six months of the constitu- tion of the firm or before the end of the previous year of the ﬁrm, whichever is earlier, if the ﬁrm was constituted in that previous year. Where a firm is already registered under the Partnership Act or the deed is registered under the Indian Registration Act, the application has to be made before the end of the previous year. It has been suggested .
that the 30th day of June of the assessment year "should be ,.adopted as thelast date by which an application for ﬁrst registration should be made. But the adoption of this time-limit would enable the assessee to get registered an' antedated partnership. It seems desirable that, irrespective
-of the fact whether the deed is or is not registered under one or other of the laws referred to above, the application should in all cases be made before the expiry of the pre- vious year. The reason is, that the assessee is claiming an advantage under the Act in respect of proﬁts earned in the previous year on the basis that during that year the ﬁrm came into existence. If that is so, he must be able to make good that plea by a proper application made before. the end of the previous year. If any more time is given, there will be ample scope for the assessee to make up his mind whether to get the ﬁrm registered or not and for that end to invent a partnership antedating the constitution for the entire period and bringing into existence a docu- ment evidencing such partnership.
The draft sub-clause under discussion gives effect to this proposal. A proviso has been added authorising the Income-tax Oﬁicer to entertain an application made after the end of the previous year in proper cases.
Sub-clause (5).--~The provision contained at present in the rules, requiring the application to be accompanied by the instrument evidencing the partnership, has been incorporated in this sub-clause, and it has also been made clear that in ﬁt cases a certiﬁed copy of the instrument may be accepted in lieu of the original.
Sub-clause (6).--The provisions contained in existing rule 3 of the Income-tax Rules and Form I below that rule, relating to particulars to be given in an application for registration, have been incorporated here, with changes intended to secure precision.
Sub-clause (7).--Under existing section 26A (2) an application for registration has to be made "at such times" as may be prescribed. The use of the word "times" suggests a necessity of renewal of registration every year, and under rule 6 of the Income» Rules"; fresh application has -to be made for any sub uent yepq. This, requirement 43 seems to be rather too hard, particularly in cases where there were no change in the constitution of the ﬁrm after its first registration. So far as renewal is concerned it should suffice' if a declaration is made by the ﬁrm (along with the return of income for the assessment year con- cerned) to the eﬁect that no change in the constitution of the ﬁrm or the shares of its partners has taken place in the previous year; where such a change has taken place, the ﬁrm will, of course, be required to apply for fresh registration vide sub-clause (8).
( Sub-clause (8).----See notes above under sub-clause
7).
Notes to clause 192 Sub-clause (1).--The procedure to be followed by the Income-tax Officer in the enquiry for registration has been elaborately laid down. The ground on which application can be refused has been narrowed down so that if the exist- ence of a genuine ﬁrm with the constitution shown in the instrument is established, registration has to be grant- ed. It has also been made clear that a speciﬁc order grant- ing or refusing registration should be passed by the Income- tax Officer.
Sub-clause (2).----This is intended to prevent the rejec- tion of an application for registration on technical grounds. Where the formalities prescribed by the Act or rules are not complied with, the ﬁrm must be given an opportunity of rectifying the defect, so that the application may be con- sidered on the merits.
Sub-clause (3).--See notes under sub-clause (2) aboye.
Sub-clause (4).----This is intended' to expedite the dis- _posal of applications for registration. f Sub-clause (5).----Existing rule 4(1) of the Income-tax Rules provides that the Income-tax Officer shall record a certiﬁcate of registration on the instrument of partnership. This practice is sought to be codiﬁed in this sub-clause.
Sub-clause (6).------Does not exceed any comment. Notes to clause 193.
Sub-clause (1).--The power to cancel registration, at present dealt with in the Rules, has been dealt with here as it is a matter of substance. This clause is new, but does not depart in substance from the provisions at present con- tained in the Rules. It has been made clear that registration can be cancelled only on the ground of mis-represenihtion. It has also been made clear that the ﬁrm must have an opportunity of being heard before the registration is can- celled; it has also been provided that registration can be cancelled only with the previous approval of the Inspect- ing Assistant Commissioner. .
1.: ma " .::.
1000953-54) Yb 11.
4-I3 Sub-clause (2).-----Does nd. need any comments. Subéciouses» (3) "and (4).---These' are new, but embody provisions which are hardly objectionable.
Sub--clause (5).----This is newand is intended to pres- cribe a time limit after which the registration cannot be cancelled.
Notes to clause 194 The words in existing section 26 (1) "or a ﬁrm has been newly constituted" do not exactly indicate what is intended. The preceding words "cha_nge' in the constitu-
tion of a ﬁrm" would cover cases where the old ﬁrm con--
tinues, in the sense that some but not all the members of the ﬁrm are changed. In other words, where the ﬁrm consists of partners A, B and ,C, the dropping out of A and B and coming in of new partners D and E would merely be a case of change in the constitution of the ﬁrm'. The words "a ﬁrm has been newly constituted" would, there-
fore, appear to be redundant. They have, therefore, been:
omitted in the draft, at the same time giving a deﬁnition of "change in constitution" so as to indicate its exact.
scope.
It may be added that where a ﬁrm. is dissolved and an . new ﬁrm is formed, the case can be left to be governed:
by existing section 26 (2).
Notes to clause 195, This is new in form, but merely provides that in the case of succession to business _etc., of one ﬁrm by another, the provisions in existing section ,%(2)gWi11 apply, unless it. is. a case of a change in the colistitutintrof the ﬁrm. It has been inserted in this Chapter jfor thesake of compréhen-'» siveness.
Notes to clause 196 I Sub-clause (1).--Existing section :44, in so far as it relates to ﬁrms, has been incorporated re. A reference to the legal representative of a édece gpattner has been added for the sake of comprehensiveness.' Sub-clause (2).--Is new and is intended to continuity in proceedings in at wh p ' an assessment has already commenced before ' tin _ 'or dissolution}.
Sub-clause (3).--Needs no continents.' _ Notes to clause-197; ~ This is new and is intended to V}: a list of pnovi- sions specially applicable to ﬁrms, for j sake of, conveni- ence of reference-
1 Qf, 1:ntGngor_7, mica. (1937) 5 I. R. :2 (<h§q'¢t:). 'Qf.dnﬁcla.usc186a.ndnotes . 'E =' 29-! Law Com.]58. g 444 CHAPTER XVII
-SPECIAL PROVISIONS RELATING TO COMPANIES Notes to clause 198 ' This clause is new and is intended to give a list of provisions specially applicable to companies which are .
scattered at several places in the Act. The list has been given for the sake of convenience of reference.
CHAPTER XVIII COLLECTION AND RECOVERY OF TAX Notes to clause 199.
This clause is new and.is intended to make it clear that there is some kind of liability to pay tax in cases where tax is deductible at source or payable in advance'. Such "charge." of tax, which is implied in the obligation to pay tax in advance etc., has been brought out more direct- ly in this-clause.
Notes to clause 200 This clause brings together the provisions relating to direct payment of income-tax and of super-tax respec- tively, contained in existing sections 19 and 58 (2).
Notes to clause 201 General.~The scheme adopted in the draft is to deal in separate clauses with deductions in respect of the" vari- ous classes of income, such as salary, interest, dividends, etc. The substantive provision for deduction has been placed in the first few clauses, while incidental provisions like certiﬁcate, etc., and consequences of deduction like credit, payment of tax by the person deducting etc., :have been placed after those clauses.
Sub-clause (1).-The existing words "at a rate re- presenting the average of the rates applicable" have 4been replaced in the draft by the words "average rate of income- tax and average rate of super-tax respectively, in force for the ﬁnancial year in which the payment is made". 'This change has been made for the sake of precision. Further, the existing words "' plicable to the estimated total in- come .......... ..under tlig head", are slightly unhappy; the expression "total income" should be reserved for the total income from all sources in the previous year. The draft, therefore, uses the words "income of the assessee under this head for that ﬁnancial year".
Sub-clause (2).----The existing rovision to the effect that the person payin salary s al deduct income-tax at the maximum rate an 1 also super-tax under section 17(1) ':7 . "
»w 'Sn also notes to clause 3.
445(b) has been replaced in the draft, by the shorter expres- sion "tax .......... ..in accordance with" existing Section 17 (1).
Sub-clause (3).~--Does not need any comments, since the drafting changes made are only consequential, Sub-clause (4).-----This is new and is intended merely to point to the deduction in respect of tax on accumulated balance paid to an employee participating in a recognised_ provident fund.
Sub-clause (5).~----This is also new and is intended to point to the deduction of tax in the case of amounts paid to an employee participating in an approved superannua- tion fund.
Sub-clause (6).----This embodies the latter part of S. 18 (2A). The earlier part of that sub-section does not seem to serve any useful purpose; salary is now taxable wher- ever paid, and it does not seem necessary to make a special mention of the deduction in respect of salary payable to the assessee out of India hy.the Government.
Notes to clause 202 The provision for deducting the tax in respect. of in-
terest on securities has been embodied in this clause with' the following drafting changes :------
(i) the deduction in respect of income-tax and that in respect of super-tax have been stated in sepa- rate sub-clause for the sake of clarity;
(ii) as regards deduction of super-tax in respect of com- panies, it has been made clear that the rate appli-' cable is that in force for a company which has not made the arrangements referred to in existing section 18 (3D). This will remove the uncertainty at present experienced as to the exact rate applic- able in' such cases. (This clariﬁcation is not neces- sary in the case of deduction.frorn salaries, since the situation of a company which receives salary is not likely to arise). -
Notes to clause 203 . _ The drafting changes made follow the lines of those made in existing section 18(3A)'. ' T " ' Notes todclause 204 _ The following drafting changes have been made--
(i) The position_regai-ding income-tax and super-tax has been treated in separate sub-clauses ;
' he notes to clause 202.
446(ii) in the case of a company, the rate applicable has been stated more precisely as in the case of de- ductions under the head "Interest on securities or on dividends ';
(iii) the concluding words of existing section 18 (3C) provide that the Income-tax Ofﬁcer may deter- mine the appropriate proportion of any sum charge- able to tax, and upon such determination tax shall be deducted "therefrom'?. The word "therefrom" does not clearly give out the sense that the_ deduc- tion is to be limited to the proportion of the sum so determined. Suitable drafting changes have been made to make this clear.
Notes to clause 205 The provision authorising the Income-tax Officer to issue a certiﬁcate for deduction of tax at a lower rate, which has been repeated in the existing Act in the provisos to various sub-sections of section 18, has been embqldied in this Elause, which is applicable for all kinds of inclpme. The drafting changes made are consequential on the scheme adopted in the draft. It has also been made clear that the Income-tax Officer can issue a certiﬁcate not ﬁonly authorising the deduction at a lower rate but also autlior_i5- ing no deduction. ' That part of existing section 18 (2B), Proviso, which relates to an order by the Income-tax Officer requirin de- duction at a particular rate, has been omitted in the aft as unnecessary. In cases where a person desires deduction at a lower rate than the maximum, he can a ply td the Income-tax Officer and obtain a certiﬁcate. De uction,at a higher rate is not contemplated, since the rate applicable for deduction is in most cases the maximum rate. (I ' the case of salary, it is only the rate applicable to the in ome under that head and "deduction at any other rate is not-
contemplated).
0Notes to clause 206 This embodies existing section 18 (4) and does not heed any comments. .
Notes to clause 2,07 Existing section 18(5). deals with two topics :--
(i) credit for tax deducted at source ; '
(ii). credit for tan»; in respect of dividends as grossed up under existing sectign 16 (2). . .
1 Sn notes to clause 20¢.
6 2a v 447 For the sake of clarity, the first topic has been dealt with in this clause, while the Second has been dealt with separate] '. The Proviso to this sub-sebﬂion has, therefore, been bro en up in conformity with the scheme adopted in the draft. ' The ﬁrst proviso to section 18 (5) has been incorporat- ed for simplicity in the main para. of the sub-clause.
The second proviso to section 18(5) has been incor- porated in the 1st Proviso, andgthe Words "or shareholders" have been added in order to cover a use where tax is de- ducted on dividends under existing section 18(3D). [The existing proviso does not make any speciﬁc mention of shareholders, presumably for the redoh that existing sﬁction]-14E (5) deﬁnes securities as including stock and s ares. .
. The third proviso has been embodied as the 2nd pro- V150.
. The other drafting changes are consequential.
Notes to clause 2%" '4 This embodies existing section (6) with a small drafting change converting the passive voice used in the existing section into the active Voice.
Notes to clause 209 Existing section 18(7) h been 'V embodied in this clause with the following chan S :--- K (1) It has been made clear that _in the case of deduc- tion of tax on div-it ' under existing section 18 (3D), the principal O cer as " ell as the company .
been considered desir le in few of the fact that the existing section (3D) fuses the expression "person". ' 2 ' ' (2) Since existing section 16(1) relating to the imposi- tion of penalty by ,e ordelt pf the Income-tax Oﬁicer is in the draft propo éto be replaced by provision for automatic runn' gof interest," the proviso has been suitaﬂly altered.
(3) Sub-clause (2) has bin neg? added for impos-
can be treated as in ﬁfault. is clariﬁcation has ing a ﬁrst charge u n the slsets of the person deducting tax, if it is not pd into the treasury oﬂice after deduction. The intention is to ensure speedy transmission of the amount deducted so that the amount may not lie-ighathe custody of the person deducting it'. ' ' 1 ' S¢e'Chapter_ on Tax deemed to have been on dividends. , ' ' 5 .
' Soc clause 230(1). 1 ' -
s Cf. Section 123 (6) of the (Cana5:li+-1) 1913..
448Notes to clause 210 Existing section 18(8) has been embodied here without any change.
-Notes to clause 211 Existing section 18(9) has been embodied here with- out any change.
Notes to clause 212 Existing section 18 (Explanation) has been embodied here. with a small drafting change. Item (iii) has been ampliﬁed so as to cover all sums not chargeable as salary or interest on securities.
Notes to clause 213 Existing section 7 (1), 2nd Proviso, provides that where tax is deductible at source under existing section 18, the assessee shall not be called upon to pay the tax himself unless he has received the salary without such deduction. This provision is at present conﬁned to salary, but there seems to be no reason why it should not be extended to all kinds of income. It has, therefore, been incorporated in an extended form in this clause.
. Notes to clause 214 This is new and is consequential on the breaking up of existing section 18(5).
Notes to 'clause 215 General.------Existing section 18A is cumbersome and difﬁcult to understand. The difficulty arises by reason of the fact that sub-section (1) cqmbines a number of things which could be dealt with separately. For the sake of sim- plicity, therefore, the section has been split up in the draft, so as to deal separately with the following topics :-
(1) income subject to advance tax;
(2) conditions of 'liability to pay advance tax;
(3) mode of computation of tax;
(4) order by the Income-'tax Oiﬁcer, which ﬁxes the liability;
(5) instalments ;
(6) estimate made by the assessee;
(7) commission receipts;
(8) interest payalile by Government or by assessee; (9) other provisioips. * 9 lI."'5"'"' "
449Sub-clause (1).----Income subject.to advance tax has been described here, and for the sake of accuracy it has also been made clear that capital gains are not included in that income. Though existing section 18A (12) has been re-
tained in the draft', it appears desirable to make this clari- ﬁcation at this stage also.
Sub--c1a.use (2).---This is new, but is intended merely to enable the use of the shorter expression "income subject to advance tax" and "advance tax" in 'the subsequent clauses.
Sub-clause (3).----This is new and is intended to pro- vide that advance payment of tax will, so far dividends are concerned, apply only for super-tax. So far income- tax is concerned, it is the company which is deemed to have paid the tax, and advance payment should not apply for income tax on dividends .
Notes-to clause 216 The concept that advance tax is payable where the total income of the assessee exceeded a certain limit, or is likely to exceed a certain limit, has been embodied in this clause; for the sake of comprehensiveness, the case dealt with in existing section 18A (3) has also been referred to here.
Notes to clause 217-
The mode of computation of advance tax has been dealt with in this clause. For the sake of facilitatin the pro- per understanding of the method to be adopte , the pro- cess has been divided in various steps.'Thus, theﬁrst step is the ascertainment of the total income of the latest pre- vious year assessed. This having been ascertained, the second step is to find out how much of that total income falls under the category of income subject to advance tax. That having been done, the next step is to actually compute the tax on the income subject to advance tax by applying the average rate of tax. The result arrived at is the amount of the advance tax.
There are, of course, two speciai situations, which re- quire mention. One is, the situation where a non-resident chooses to adopt the method of taxation on the basis of the total world income. This is contained in existing section 18A(1)(a) main para, latter half, and has been embodied in the draft sub-clause (b). The second situation is that in which the assessee sends an estimate of his total income etc. Here the tax is calculated with reference to the total income so estimated. This follows from existing section 18A(2} and (3) and has been incorporated in sub-clause (3) in the draft.
Section 18A(1)(a), 2nd Proviso,A_ has been incorporated in the Explanation.
J ' Sudnl'tcinu|e228. E "E" ' 450 Note: to clause 218 A portion of sectioin 18A(1),Tdea1ing with the order of the Income--tax Ofﬁcer, has been embodied in this clause. The worgls "where a pqrson has been previously assessed .......... .. in the opening portion in the draft, merely state what is implied in the existing section.
Sub-clause (2) makes it clear that the instalments are to be mentioned in the notice of demand. That is the existing practice also. i The third proviso to existing section 18A(1)(a), under which the income-tax Officer is authorised to issue an amended order in a case where an assessment of the as- sessee for a_ later previous year is completed in the mean- time, has been embodied in sub-clause (3).
Notes to clause 219 The instalments of advance tax have been stated sepa- rately in this clause. The drafting changes made are con- sequential on the scheme adopted in the draft.
Notes to clause 220 The provision regarding estimate by the assessee is§em- bodied here. The estimate should mention-- *
(i) the total income as estimated for the period';con- cerned;
(ii) the income subject to advance tax as estimated for that period; and -
(iii) the advance itself. 7 This has been made clear in the draft. in sub-clans (1) & (2). i _ An assessee may desire to ﬁle an estimate under. e 'st- ing section 18A(2) whim the estimated advance -tax is less than the amount demarjded by the Income-tax Oiﬁcer, e . er ;because-- . ' _
(i) the estimated total income is less, or
(ii) the estimated' income' subject to advance is less, than that 'assessed by the Income-tax cer. This is made, clear in sub-clause (1). - ' * , Sub-clause (4).--Is_nevv and is intended to provide A at the estimate of adv tax will be ﬁled in the prescrbed .form and in the pre T 'bed manner.
Notes to clause 221 Section 18A(4) is embodied; here with the following changes z--- -
(i) the words "income to which sub-section (1), (2) or (3) apply" have been aplaced by the "in- come subject V adv a tax" in conformity ' ith the scheme ado?ted in qdraft. - 2
--- i.
\ l it ; i 'l8£:( , 2nd Proviso, -is-ap Hcable , die' ' ex},-5 -. '24? v
450.
(ii) The proviso to the existing sub-section provides for payment of 6 per cent. simple, interest. In view of the fact that the rate of interest in the other sub-sections of section 18A is now reduced to 4 per cent' the rate has, in the draft, been reduced to 4 per cent. in this case also. 3 Notes to clause 222.
Sub-clause (1).--Existing section . 18A(5) relating to interest payable by the Central Government on tax payable 'in advance has been embodied here. The sub-section, as amended in 1953, raises a diﬂicult quation of interpreta- tion. The main part of the sub-section provides that inte- rest should be paid (at 4 per cent.) on any sum paid after 1st April, 1955, "from the date of payment to the date of the provisional assessment" or? to the regular assessment :as the case may be; but the secdnd proviso, inserted in 1953, :says that for the period beginning with"? 1-51; April, 1952, the interest is payable from the beginning of the next finan- «cial year to the date of the r A ar ausdssment. There is thus a change as regards the eriod ﬁr' which interest is to be paid. ,Another change made in 1 _ is as regards the uamou-nt on which interest is pa able. Ie the main para. provides that interest is paya "on ah amount payable in accordance with the provisipns of th section .......... .. and paid accordingly", the second proviso, inserted in 1953. provides that for the period inning with the 1st April, 1952, interest is payable only the amount by which the aggregate of the instalments paid durin the ﬁnancial year ' in which they are payable exceeds the am urfder the regu- lar assessment.
Now the question is, whether, these. changes inserted by the 1953 Act in the shape cf the second proviso are to govern the whole of the post-1 52 periqd: or whether they are to apply only in respect 0 4 the pant-41952 and pre-1955 period. If the second proviso is taken as overriding' the main para, the former view is correct. If, on the other and, the proviso is taken as limited '-to the period between 1952 and 1955 (on the theory that a groviso knot to replace the main section), the second view an be supported. ' The main draft of the clause undertngscussion embodies the former view, which seemsito be , prevailing view. But, if the latter view is adopted. it cant: 'be given effect to
-:
by the alternative draft given below :.~ Alternative draft' "
(1) The Central Government shall pay simple interest .... at four per cent. per annum ;any amount pay- able as advance tax in accordance wi the provisions of ' See existing section 18A (5), item (ii) and section l'8A (6), 1st Proviso.
9 The alternativcgdraftis intended, 1 inop 1 the view that section
-.t ( §52.--'i9':i5 and does not ovcrricthcmainsub-loch - .-
452section [18A(1) (2) (3) and (4)] and paid accordingly, from the date of payment to the date of the provisional assess- ment made under section [23B], or, if no such assessment. has been made to the date of the regular assessment ....... ..
Explanation.--Same as in the main draft. (2) Same as in the main draft.
Notes to. clause 223 Interest payable by the assessee has been dealt with in this section. The 1st proviso to existing section 18A(6) has» been combined with the main paragraph. -
One important change made is. that interest is not to run from the 1st day of January of the year in which the advance tax is paid but from the 1st day of A 'l in the _ next ﬁnancial year. This chan e has been ma e in View of the fact that interest payab e by the Central Govern- ment runs from the .1st day of April of the next ﬁnancial year; [vide existing section 18A(5)].
Existing section 18A(6), 4th proviso, which provides» that in the case of a businessetc. newly set up, the interest is computed in certain cases fr_om the 1st April of the ﬁnan- cial year next following, has been omitted, since tlje rule embodied in that proviso has, in the draft, to apply in all cases and no separate provision is necessary.
. V Notes to clause 224 The only change made in the existing section 18A(7) is the reduction of the rate of interest payable by the assessee (in cases of under-estimate). from 6 per cent to 4 per cent. This change has been made in view of the fact that the rate of interest under section ].8A(5) and section 1'8A(6) IS' also 4 per cent. under the existing Act. ' Notes to clause 225 Sub-clause (1).--It would be useful here to summarise- the existing position regarding interest payable by the as- sessee with reference to an advance tax. The position can be analysed as follows 2-
(a) interest in a case of estimate seems to be dealt with in the following provisions for diﬂerent situa- tions :--
(i) faulty estimates (that is. estimated income falling short of E!) per cent. of the income regularly as- sessed)----Section 18A(6);
i(") deliberate under imate of tax in the ﬁr; t 1.1 imtdm n 18A(7)(.a); 5 . L' ~ 453
(iii) under--estimate, where estimate is necessary- under section 18A(3)----Section 18A(8);
(b) If there is a deliberately false estimate of the in-e come, the assessee may also become liable to a_ penalty under section 18A(9)(a); and similarly, if there is a failure without reasonable cause to file an estimate when required under section 18A(3),. the assessee is also liable to pay a penalty under' section 18A(9)(b);
(c) in cases where the aspect of estimate is not mate-- rial and the emphasis is on non-payment of ad--- vance tax due either by virtue of an order under section 18A(2) or section 18A(3), interest can be charged under section 18A(8) and the assessee is. also liable to be dealt with under section 18A(10).
Sub--clause (2).--This is new. It seems desirable to make it clear that section 18A(6), 3rd and 5th Provisos, ap~ plly to interest payable under this section. Hence this sub-- c ause.
Notes to clause 226.
This clause does not need anycomments.
Notes to clause 227-' The drafting changes are very minor and do not neecﬁ any comments.
Notes to clause 228. -
Existing section 18A(12) has been embodied here, and' for the sake of clarity it has also been provided that the expression "total income" occurring in the previous clauses should not include capital gains. Even though the clause dealing with incomes subject to advance tax' ex- cludes capital gains, the general provision has been repeat- ed here for convenience.
Notes to clause 229 _ Gene'rql.-----The provisions relating t9_ recovery of tax by the Department, contained in the present sections 45 and
46. have been broken up for the sake of simplicity into va- rious clauses in the draft. The general provision relating to dates etc. of payment is placed ﬁrst; ;the penalty provi- sions contained in existing section 46(1).1is placed next. Then follow the various modes of recovery, namely, (1) certiﬁcate, (2) other modes of recovery, (3) recovery by the State Government, (4) slpecial provisions for recovery pf Indian tax in akistan and vice ' 1 Secdnft clause 215 (l). , § . ' 454 Miscellaneous prdvisions 'come at the end.
Sub--clause (1).--Existing section 45, main para, pro- vides that any amount speciﬁed in a notice of demami un- der section 23A(3) or section .29 or section 31 or section 33 shall be paid' within a particular timeietc. Since, however, under section 29, a notice of demand is to be issued in all cases where any tax, penalty or interest is due under the Act, it does not appear to be necessary to mention any sec- tion except section 29. The draft, therefore, mentions sec- tion 29 only. The time-limit for payment has been men- tioned in a simpliﬁed form.
Sub-clause (2).---This is new. It appears desirable to incorporate an express provision in the Act authorising the» Income--tax Oﬂicer to extend"tl1e time for payment or al- low payment by instalments. Hence this sub-clause.
Sub-clause (3).----Refers to the provisions for treating the assessee as in default.
Sub-clause (4).--This is new and is consequential on sub-clause (2) of the draft which is also new.
Sub-clause (5).--It has been made clear that the wer to treat an assessee who has 'appealed as not in defa It, is confined to the amount in dispute and it has also been made clear that this power can be exercised even though the time for payment has expired. ' Sub-clause (6).--Does not need any comments.
N otes to clause 230 Existing section 46(1) provides that where an assessee is in default the Income-tax Officer may lev a p nalty not exceeding the amount in default. Un er e sting section 46(lA), the Income-tax Officer may make the order for an amount lower thahthe total arrears an may go on enhancing the penalty (in the case oﬁ a cont' uing default) subject to the limit that the total penalty sh 1 not exceed the total arrears. These two sub-sections emb y a .
position which is notxsatisfactoty. In the first place they leave the matter to the discretion of the Income-tax In the second place, sub-sectith (1A) is not happily It creates a number cf doubik as to the exact amo _ to which the Income-lax Oﬁioer may impose the pen ty at a particular time. Speedy collection of tax would be aci1i- tated, if interest is to run aiinmatically from the d te of default. Taking into account these considerations, the draft proposes simple interest* at the rate of 10 per cent.§from 1 It may also be po'ntcd out that neqtion 23A (3), referred to in existing section 45, has been repealed by the amendment made in 1957.
' Cf. section 270 of the Australian Income-tax etc. Act, 1936-19 (rate being 10 p. c.). Also see sectign 54- (1) ofthe "Canadian Incomc~taJ5 A , 1948 (where the rate is 6 p. c.) arqi section $195 (I), U. K. Income-tax Ac 1952 (where the rate is 3 p. c.). 3 pi . - . ._,. T :
i Q .
4:55 the date of default to the date of payment, and does away with the necessity of any express order by the lncome--tax Officer. It would also reduce the number of appeals.
Under the scheme adopted in the draft. existing sub- section (IA) becomes unnecessary and has been omitted.
Sub-clause (E.').--This is intended to provide' that if arrears are paid within three months. the interest levied or- leviable on the arrears will be remitted.
Sub--clause (3).--Does not need any comments. Notes to clause 231 Existing section 46(2) provides that the Income-tax Oiﬁcer may forward to the Collector a certiﬁcate of arrears. and the Collector shall then proceed to recover the amount "as if it were an arrear of land revenue". Since the law re-- lating to recovery of land revenue varies from State to State, it seems desirable to state the permissible modes of recovery in the Act itself. Sub-clause (1), therefore, enu- merates these modes. which are taken from the Code of Civil Procedure.
The proviso to existing section 46(2) lays down that the Collector shall. for such recovery, have the powers of a civil court also. Since the various modes of recovery are being listed in the clause itself, this proviso becomes un- necessary and has not been reproduced in the draft.
' Sub--clause (2).--Does not need any comments.
Notes to clause 232 This is new. There are some doubts as to the Collector to whom the Income-tax Ofﬁcer can send the certiﬁcate referred to in section 46(2). The draft clause provides that the Collector within whose jurisdiction the assessee carries on his business etc., or resides or has any property, can be approached.
Sub-clause (2).--Provides for the procedure where the Collector to whom the certiﬁcate is initially sent is not able- to recover the arrears.
The explanation makes it clear that the Collector of any district in India can be approached (even though the dis- trict is situated in other State). (This would avoid the necessity to have recourse to the procedure under the 'Re--- venue Recovery Act (1 of 18%)). ' "Additional Collectors" have also been included in the definition of "Collectors" as difficulty was experienced having regard to the provi- sions of the General Clauses Act deﬁning Collector. That. deﬁnition. if strictly construed, would not include an Addi- tional Collector. » _I Cﬁ section 495 (2), U. K. Income-ax Act, 1952. ' . ._.....a..4....._...
456Notes to clause 233 This is new and is intended to make it clear that the correctness of the assessment shall not be questioned be- _fore the Collector, Sub-clause (2) saves the right of the .assessee to apply to the Income-tax Officer for withdrawal of the certiﬁcate. Sub-clauses (3) and (4) lay down that the Income-tax Oﬂicer may correct the certiﬁcate, in which «case he should inform the Collector.
Notes to clause 234 This is new. The object is (i) to ensure that the In- ~come-tax Oﬂicer and the Collector remain in touch with each other and (ii) to lay down the procedure in cases where, after the issue of a certiﬁcate, time is granted for payment of tax, or the demand is reduced'.
Notes to clause 235 Sub-clause (1).--Does not need any comments.
Sub-clause (2).--The only 'change made is the addition of a restriction to the effect that salary etc. exempt. from attachment under the Civil Procedure Code will be exempt ;for this sub-clause also.
Sub-clause (3).--S1ight verbal changes have been made in existing section 46(5), for the sake of simplicity and pre-
-c1s1on. « , Existing section 46(5A), 5th paragraph, provides that where the person to whom a notice under this sub-section is sent does not ay amount concerned, further proceedings may be taken " y and before the Collector on the footing that the Income-tax Ofﬁcer's notice has the same effect as .an attachment" etc. This language is not very happ and has been replaced in the draft by a simpler provis n to the effect that further proceedings may be taken as if the amount were an arrear of tax and that the notice: shall ."have the effect as an attachment of debt by the Collector.
Sub-clause (4).--This is new and is intended to enable ' the Income-tax Officer to apply to a court holding money belong to the assessee, for payment of the tax duesfrom 'the assessee. ' Sub-clause (5).--Existing section 46(3) contemplates in
-certain cases the recovery of 'arrears by the Inconte-tax Officer by any process authorised by the "municipal law 4 'for the recovery of municipal. takes". One of the processes' 'usually found in municipal laws is, distraint and sale of movable property, Sub-'clause (5) read with the third Sche- rdule deals with this process. It seems unnecessary to re- tain any of the other modes of recovery provided for by Municipal Acts.
'. Séa also duh clause 213(4). - V ' . ' -~ v section 46(7), 2nd Proviso.
457Notes to clause 236 ~ Doesnot need any comments.
Notes to clause 237 Does not need any comments.
Notes to clause 238 Does not need any comments.
Notes to clause 239 _This clause does not need any comments.
Notes to clause 240 Existing section 47 has been incorporated here. The only addition made is the reference to the provision corres- ponding to section 18A(9) for the sake of comprehensive- ness. ' Notes to clause 241 Sub-clauses (1) to (3).--Do not need any comments.
Sub-clauses (4) and (5).--These are new. Since there are many ships or aircraft which carry passengers outside India, it seems desirable to require the owners of the air- craft or ships etc. to furnish a list of the persons who travel- led by the ship etc. in the preceding months. In the absence of any such provision it becomes difficult to put into force the provisions of section 46A(2), since the Income-tax authorities have no information in their possession as to the persons who travelled in the ship or air-craft belonging to the person concerned against Whom section 46A(2) is direct-
Sub-clause (5).--Provides that the liability enforceable against the owners etc. of such ships etc. will not be en- forced after two years of the date on whichthe list is ﬁled. It gives a concession and wil1'ensure the prompt ﬁling of such list. .
Sub-clause (6).--Does not need any comments. Notes to clause 242 The time limit for commencing recovery proceedings contained in the existing section 46(7), has been dealt with' here. For the sake of simplicity, the limit has been ex- pressed in all cases (vide the proviso in the draft) as com- mencing from the last day of the ﬁnancial year concerned. Under this scheme, it becomes unnecessary to reproduce \ 438 Notes to clause 243 The only addition made is the clariﬁcation in sub- clause (b) to the effect 'shat the Government may also in- stitute a suit for recovery of arrears.
Notes to clause 244 / Existing section 23B(5) has been incorporated; here- The provision was inserted only for the avoidance of doubts; it has, however, not been disturbed in the draft.
Notes to clause 245 This clause does not need any comments. CHAPTER XIX TAX DEEMED TO HAVE BEEN PAID ON DIVIDENDS Notes to clause 246 Existing section 18(5), deals in part with credit'to be given in respect of the tax deemed to have bee paid on dividends. Existing section 49B also contains pro- visions on income-tax. All these provisions have bee com- bined in this clause, without any change of substan . The drafting changes made are consequential on the br aking up of section 18(5). H The opening portion of section 49B(1), i.e., the 'words "where any dividend has been paid ....... ..to any of t per- sons speciﬁed in section 3" etc., has been omitted, un-- necessary, particularly in view of the fact that se ion 3- as proposed in the draft does not enumerate the char eable-
entities.
A proviso has been added to deal with cases whe e the share is held by partners. me existing proviso reg rding persons not constituting partnership may be compa .
CHAPTER xx ?
REFUNDS.
Notes to clause 247 i i General.
Existing section 48, dealing with refunds. is confused in its arrangement. The general right to claim refund, dealt with in existiig sub-section (1), is mixed up with provisions relating to special. situations in sub-section (3). Further, the restriction regarding questions that can be 459 raised in refund proceedings is unnecessarily put in the same section in sub-section (4). An attempt has, therefore, been made, in the draft, to separate these various topics.
Clause 247--The following drafting changes have been made in existing section 48(1) :--
(i) The words "any individual, Hindu undivided family" etc. have been replaced by one word "person". Existing section 3, as proposed in the draft, uses only the word "person",' and it is felt that the right to claim re- fund should be co--extensive with the liability to tax. In the case of State Governments, it may be pointed out, there is a rohibition against tax being charged from them, under the onstitution. Even in respect of shares held by State Government, refund of tax deemed to have been paid under existing section 49B is allowed only if the dividend is in- cluded in the total income of the person concerned; see existing section 49B(1). There is, therefore, no harm in.
' using the word "person" in section 48(1).
(ii) The existing provision empowers the grant of re-- fund by the Income-tax Ofﬁcer, "or other authority ap pointed by the Central Government in this behalf"; It is. understood that the Central Government has not appoint- ed any such authority and the need for such appointment is not likely to arise. The wards in question have, there- fore, been omitted. . .
(iii) Other changes are minor.
Notes to clause 248.
Sub-clause (1) Existing words "such other person only" have, in the draft,' been replaced by the words "the latter alone", for simplicity.
Sub-clause (2).
Existing section 49F has been embodied in this sub- clause with the following changes 2--
(1) the' Words "who would but for such cause have been entitled to a refund under any of the provi. signs of this Act". have been bmitted, as unneces- sary.
(2) References to sections 48 and 49 have been deleted;
it ma also be pointed out that section 49 was re peale in 1948.
(3) Besides executors etc., a reference to guardians has been added.
T ' See draft clause 3.
30- 1 Law Com./58.
460Notes to clause 249.
Sub-clause (1). ' This is new and embodies a provision at present con- tained in the rules. ' Sub-clause (2).
The main paragraph of existing section 50 has been embodied in this sub-clause, with slight verbal changes. The two provisos to that section have been omitted, as not applicable to future assessment years.
The starting point of limitation has been expressed in a more simple manner.
Notes t.o clause 250.
Existing section 48(2) has been incorporated in this clause, and it has also been made clear that the Income-tax Officer shall make the refund without any express claim by the assessee.
The words "except as otherwise provided in this Act" are intended to cover cases where payment of refund is postponed under any express provision of the Act; for example, existing section 66(7), proviso, latter half. j Notes to clause 251.
Existing section 48(4) is unnecessarily elaborate; The propositions enacted in that section can be expressed in simple language, without using the words "nothing, ...... .. shall operate to validate any objection or appeal which is otherwise invalid", or the words "to authorise the revi- sion of any assessment." The concluding lines of the sec-
'tion, dealing with refund of tax payable before the 1939 Amendment Act, are also obsolete now. The draft dlause, therefore, attempts to simplify the section, keeping in' mind the considerations stated above. 5 Notes to clause 252.
This is new. If after a refund application is Tmade under this Chapter, the Income-tax Oﬂicer does notimake an order within three months, the assessee should e en- ' titled to interest at the rate of 2 per cent. on the amo nt to « be refunded. In the Taxation Enquiry Commission port"
the complaint of delays in making refunds was consi ered. After an analysis of the ﬁgures, the Commission p inted out that nearly 86% of the claims for refunds wete dis-
' posed of within the year in which they were received, and of the pending claims as on 1st April, 1953, approximately 60% were less than three months old, while only 13% were over a year old. It was represented to them by the Depart- ment that under administrative instructions it was obliga- tory on the part of the 'Income-tax Ofﬁcer to dispose of 1 .T. E. C. Report, 1958-T954, Vol. II, page 214, Chapter XIII, ma '1 1, , E 2; ~"r'L 461 refund claims within three months. In view-of this, it is obvious that normally the refund applications are disposed of, (at any rate at present) within a period of three months. The Department will not, therefore, be affected by a provi- sion for payment of interest. The provision is intended only to make sure that the representation made to the Taxation Enquiry Commission by the Department would invariably be followed with no exception. The liability to pay interest will act, as an incentive for an early disposal ' of the refund applications and allay the fears of the 'assessees that there might be delay in the disposal of re-
and separately.
fund applications.' Notes to clause 253.
The only change is the addition of a requirement to the effect that the Income-tax Ofﬁcer shall. while making an adjustment under this section, intimate the assessee.
CHAPTER XXI.
APPEALS AND REVISIONS.
Notes to clause 254.
General.
The provisions of the Act relating to appeals and revi- sions are scattered in existing sections 30, 31, 33, 33A, 33B, 66A and 67A. Existing section 66, dealing with reference from the Appellate Tribunal to the High Court, is also in a sense, connected with appeals. There are, also, provi- sions authorising appeals in existing sections 58B(~1) and 61(3), proviso to clause (b). .
An attempt has been made to bring all these provisions together in this chapter. In order to facilitate their proper understanding, the provisions have been arranged accord- ing to the authority to which the appeal lies. Thus, ap- peals, from the Income-tax Officer to the Appellate Assis- ta_nt Commissioner are dealt with ﬁrst, under one group. Appeals from the decisions of the Appellate Assistant Commissioner are dealt with in a separate group and so on. Provisions regarding revision are placed in a separate group, and miscellaneous provisions are placed at the end.
In each group, the order against which appeal is allow- ed is speciﬁed ﬁrst, and the form ofappeal, limitation and procedure are dealt with next; where necessary, powers of the appellate authority have been dealt with speciﬁcally 1 It may be added here that the Incometax Investigation Commission E194-8) had also made a similar recommendation for interest on refunds where isposal of the application is delayed for more than sit months, Lid: its report, page 125, para. 279.
Appeals to the Appellate Tribunal have been replaced .
462by appeal to the High Court,. for reasons explained in the body of the report.
Clause 254.
The following changes have been made in the existing section 30, sub-section (1), main para 1--
' (i)
(ii) The existing words "any assessee objecting to the amount" etc.' have been replaced by the words "any assessee aggrieved «by ....... ..", which seem to be more appropriate.
The existing section allows an appeal as to the amount of income assessed under section 23 "or section 27". It is, however, unnecessary to men- tion section 27 separately 'in this context, 'since, even when section 27 is used, the ultimate 'assess- ment is really made under section 23 itself; as is clear from the concluding words of existing sec- tion 27, This reference has, therefore, been omit- ted.
(iii) It has been made clear that an objection,7 as to
(iv) (V)
(vi)
(vii) status under which also be raised by way of appeal.
The existing section allows an appeal in res ect of loss computed under section 24. Since, howev r, the computation of loss, is also a part of assessment under existing section 23, this,reference has been omitted. 7 The existing section allows an appeal frbm an order refusing "to make a fresh assessment under section 27. These words have been replaced y the words "to reopen an assessment", which at more easily intelligible. E The existing section. allows an appeal from orders under section 46(1).' Since, however, sectio 46(1) is, in thedraft, proposed to be replaced' by a pro- vision authorising the automatic running of in- terest, the question of appeal does not ari , and this reference has been omitted.' The existing section allows an appeal un sec- tions 49 and 49F. Section 49 was repealed. ' 19%, and section 149F does not authorise any i epen-
dent order of refund,.. but merely enables n exe- cutor etc. to claim refund. The order itself pas- ed under section 48.- The references to see ons 49 and 49F have, therefore, been omitted.
' See draft clause 23_(E(l).
2:3 5 i; I the assessee is assesséd can _ E 463
(viii) A new provision authorising appeals in respect of orders under existing section 35 has been added. It is desirable' to allow appeals from such orders passed by the Income-tax Oﬂicer, particularly since an order under section 35 may aggrieve an assessee who desires rectiﬁcation.
(ix) The various orders relating to interest under exist- ing section 18A have also been made appealable in the appropriate cases'.
(x) The sections under which a penalty can be imposed, have been described more elaborately in order to make the position regarding appeals from such penalty clear.
(xi) The following orders have been made appealable :--
(i) an order passed by the Income-tax Officer on an assessee's application for withdrawal or cancella- tion of a certiﬁcate.
(ii) order passed by the' Income-tax Oﬂicer refusing any assessee's request to treat him as not in de- fault, in View of an appeal.
Notes to clause 255 This embodies existing section 30, sub-section (1), 2nd Proviso. The language has been slightly simpliﬁed.
The ﬁrst Proviso to section 30, sub--section (1) deals with an appeal against an order under existing section 46 (1), This has been omitted as unnecessary in the scheme adopted in the draft'.
The third Proviso to section 30, sub-section (1), prohibit- ing an appeal by a shareholder, in a company in respect of which an order under existing section 23A has been passed, has also been omitted as unnecessary, since, under section 23A as amended up-to--date, the income of a shareholder is not aﬁected directly and the question of his being aggrieved by any such order does not arise.
Notes to clause 256 No comments are needed.
Notes to clause 257 Sub-clause (1).--Does not need any comments.
Sub--clause (2).~--Existing section 30(2), dealing with the time limit within which the appeal may be presented from the order of the Income-tax Olﬁcer, describes in an elaborate manner the date from which the time limit is to be counted. It does not appear to be necessary to have such ' Cf. I. T.I. C. Report, 1948 para. 254-, page 113. ' Vidc draft clause 254 (I) and Explanation. ' See note: to draft clans! 254. 3 0 ' , A 464 elaborate provision, and it would be sufﬁcient if the starting point is described as the date' on which the order is inti- mated. The provision, ha_s, therefore, been simpliﬁed in the draft. Where the appeal is in respect of tax, interest or penalty, it will of course be useful to deal with the time limit speciﬁcally (vide paragraphs (a) and (b) of the draft sub-clause).
Sub-clause (3).--Does not need any comments. Notes_to clause 258 Sub--clause (1).--Does not need any comments.' Sub-clause (2).---The. persons entitled to be'heard at the appeals have been listed; cf. existing section 31(3), 2nd Proviso. "
Sub-clauses (3), (4) and (5)----do not need any com- ments.
Sub-clause (6).----This is new. Some guidance as to the contents of the appellate orders appears to be desirable, and hence this sub--clause.
Sub-clause (7).--Does not need any comments. Notes to clause 259 Sub-clause (1).----Existing section 31(3) deals elaborately with the various kinds of appellate orders that can be passed by the Appellate Assistant Commissioner. It does not,§ how- ever, appear to be necessary to make such an elaborate provision; it should suffice if only the important cases of appeal against assessments or penalties are dealt with speci-7 ﬁcally. In the remaining cases, the power to pass such orders as the Appellate Assistant Commissioner thinks ﬁt should suffice. The draft sub-clause has been simpliﬁed on these lines.
Sub--clause (2).--Does not need any comments.' Eacplanation.--This is new. and is intended to codify a rule which is well recognised, namely, that the Appellate Assistant Commissioner is not conﬁned to the points raised by the appellant in the appeal. ,He may _re-determine any matters which fell to be decided by the Income-tax Officer in the course of the assessment or other proceedings'.
Notes to clause 260 Sub-clause (1l.----The only important change worthimen-H tioning is the addition of paragraph (c).
Since appeals to the Tribunal are proposed to be re- placed by appeals to the High Court,' consequential changes have been made in this and subsequent clauses.
1 See the judgment of Chagla, C._]. in Narandas Manohnrda: v. C.l.'1'., (1957) 31, I.T.R.-909, quoted with approval-in_ C. I. T. V. Mo Millan and 02., r (1953) 33-'l'.T.R.-I82, 193 S.C. ' ' Vida notes to clause 255:, under thd head "General". ' ' 'k 455 It has been held that an order by the Appellate Assis- tant Commissioner, holding that there was no sufﬁcient rea- son for excusing delay in ﬁling an appeal and rejecting the appeal as time-barred, is an order under section 31, and an appeal lies from such order'. It has been observed that,---
"If the appeal is dismissed as incompetent or is rejected as it was ﬁled out of time and no sufﬁcient cause was established, it results in an afﬁrmation of the order appealed against."
To cover such orders, para. (c) has been added in sub- clause (1). (No such addition is considered necessary in the section dealing with appeals to the Supreme Court, since the language of the relevant provisions for these appeals is not likely to raise the question that arose with reference to the appeals from the Appellate Assistant Commissioner).
Notes to clause 261 ' Sub-clause (1).--The time limit for ﬁling an appeal from the order of the Appellate Assistant Commissioner is, at present, dealt with in section 33(1) and 33(2). These have been combined in this sub-clause without any change of substance.
Sub-clause (2).--Does not need any comments.
Notes to clause 262 The form of appeal etc. has been left to be prescribed by rules made by the Supreme Court.
Notes to clause 263 This clause deals with the powers and procedure of the High Court. No detailed comments are needed.
As to rulesiby the Supreme Court, see notes to the relevant draft clause'.
Notes to clause 264 This clause does not need any comments.
Notes to clause 265 ' This clause provides that a copy of the appellate order of the High Court shall be sent to the assessee also, besides the Commissioner and the Appellate Assistant Commis- sioner. This will encourage the speedy implementation of the High Court's judgment. ' ' 1 Mela Ram and Sons vs. C.I.T. (1956)-2&9 ITR. 6u7S.C. 3 C.I.T. Vs. S/whzadi Begum (I952) 21 LTRJ. u. A ' Draft clause 277. ' "
466Notes to clause 266 , This clause does not need any comments. Notes to clause 267 Sub-clause (1).--This is new and is intended to make it clear that any refund consequential on the decision of the High Court must be made unless the High Court autho- rises the postponement of its payment'.
Sub-clause (2).--This sub-clause provides for postpone- ment, pending appeal, of any refund consequent on an order of the High Court, if the Commissioner communicates his intention to appeal to the Supreme Court.
The rate of interat is at_,present ﬁxed by the Commis- sioner. The draft transfers this powers to the High ~ ourt. Since the appeal is heard by the High Court, it is proper that this power should also rest with the High Court.
Notes, to clause 268 N 0 comments are needed for this clause.
N\otes to clause 269 S1/.b--clause (1).--Does not need any comments.
Sub-clause (2).--Is new; existing section 66(6) may be compared.
ment of the High Court is varied or reversed in a peal, effect should be given to the order of the High Cort in the manner provided in section 66(5) and section 66(7). The reference to section 66(7) is, apparently, not to its imain paragraph but to its proviso. This has been broug 't out in the draft. This is clear from the. words "eﬂect s ould be given" in section 66A(4). ?
Existing section 66A (3), 1st Proviso, says that th ' sub- section is not to affect the provisions of section 66 6) or section 66 (7). This has been incorporated partly i the plroviso to this sub--c1ause and partly in a subse uent c ause'. » Existing section 66A(4) provides that where the 'Fudg-
i ?
Notes to clause 270 This is merely intended to point to the provision autho- rising appeals to the Central Board of Revenue. ' Notes to clause 271 No comments are ' needed. V ' Compare existing scctién 48 (2). ft ' Vida draft clause 273. f 1' 467 Notes to clause 272 General The power of revision by the Commissioner' at the instance of the assessee is at present dealt with in exist- ing section 33A(2). Existing section 33A(1) is also mainly :meant for cases where revision proceedings are started for passing orders not prejudicial to the assessee. There is no harm if both these sections are combined in one sec~ tion. Some of the provisions contained in these two sec- tions are common to the proceedings under the two sec- tions. An attempt has, therefore, been made to combine them in this clause. No change of substance will result from such combination, since, wherever necessary a distinc- tion has been drawn between a revision at the instance of the assessee and a revision at the instance of the Commis- :S10neI'.
Sub-clause (1).--Only verbal changes have been made, apart from the change discussed above.
Sub-clause (2).---Is new and self-explanatory.
Sub-clause (3).--Existing section 33A(1), Proviso (c), has been incorporated here.
Sub--clause (4)--
It has been made clear that the limitation of one year runs from the date on which the order is communicated to the assessee or on which he otherwise comes to know of it. Existing section 33A(2) counts limitation from the date of tlp-2 order, which might cause hardship in some cases.
Sub-clause (5).----Existing section 33A(1), provisos (a) and (b) and section 33A(2), Provisos (a), (b) and (c) have been embodied here. Cases "where an appeal has not been made are dealt with in draft paragraphs (a) and (b), while "the case where an appeal is pending is dealt within para- graphs (c) and (d).
The existing Wording "the order .......... ..has been made the subject of an appeal" is not very clear, since it does not 'show whether it deals with a pending or a decided appeal. The draft makes it clear that thesewords will apply both in a case where the appeal is pending and in a case where the appeal has been disposed of on the merits. Cases' where the High Court has disposed of the appeal otherwise than on merits should not. it is felt, be taken out of the purview
-of the Commissioner's revisional powers.
Sub--clause (6).----Does not need any comments. Explanations 1 and 2 do not need any comments. Notes to clause 273 The substance of existing section 66(7) and of existing section 66A(3), 1st Proviso, part, has been embodied here in simpliﬁed language.' r 2 7 'See also notes to clause 269. l 3
--
468'Notes to clause 274 No comments are needed.
Notes to clause 275 Existing sections 31(4) and 33(5) provide that where as a result of an appeal the assessment of a ﬁrm etc. is changed ' or a ﬁrm etc. is newly assessed, the Appellate Assistant,Com--
missioner or the Tribunal, respectively, may authorise the Income-tax Officer to amend the assessment of any partner of the ﬁrm or member of the association. This provision has been incorporated here with the following changes:---
(1) The provision has been made applicable for appeals. to the High Court and the Supreme Court.
(2) It has been provided that the Income-tax Officer' shall make all amendments necessary for carrying out orders of the appellate authority, irrespective of whether the 'appellate authority gives a direction or not.
Notes to clause 276 Existing section 67A has been embodied here,«with slight alterations. The present section authorises the ex--- ' clusion of time taken for obtaining a copy of the order. How» ever, if the assessee is furnished with a copy. of the order, along with the notice of the order, then the concessiongneed not be made available to him. The provision has, therefore, been altered accordingly. Further, the provision has been extended to applications for revision also. I Notes to clause 277 This is new_ The power to make rules regulating the powers and procedure of the High Court (in appealsunder the Act) is proposed to be conferred on the Supreme Qourt, so that there may be uniformity throughout India. ﬁThe' corresponding provision in the Companies Act. 1.956. (sec-
tion 643) may be compared.
' Notes to clause 278 Para (a).----Does not need any comments.
Pard (b).--Is new. Since the word "status" has been used in the draft clause dealing with appeals from the orders of an Income-tax Officer', it is considered that a deﬁnition of that word might be useful. I 1 CHAPTER XXII PENALTIES IMPOSABLE BY INCOME-TAX. AUTHORITIES A Notes to clause 279 This embodies existing section 44F(6). in so far as it deals with imposition of a penalty. The existing section says that if the person concerned failsyto comply with the ndtice 1 Vida draft clause 254. (12). iv '~ 1 { I 469 issued by the Income-tax Officer (requiring him to furnish. particulars relating to securities). "he shall be liable to a penalty" etc. The words "he shall be liable to" have. in the-draft, been replaced bv the words "the Income-tax Oﬂi- cer may direct that such person shall pay" etc. This will secure uniformity with existing section 28(1), main para.
Notes to clause 280 General.
The constitutionality of section 28(1)(c) has been up- held by a Division Bench of the High Court of Madras'. The attack on the validity of this section in that case was based" on the argument that under sections 28 and 51-52, the Inspecting Assistant Commissioner has a choice as to whe--- ther a penalty should be levied on the' assessee or whether the assessee should be prosecuted under sections 51-52, The course to be pursued by the department is, it was argued, left to the unfettered discretion of the Inspecting Assistant Commissioner and the enactment gives no guidance and prescribes no standard. This argument was rejected by the High Court. which observed that section 28(4) was in the nature of a concession and there was noquestion of article 14 of the Constitution being attracted to invalidate it. Sec- tions 51-52 had been enacted for vindicating public justice and for the punishment of the offender for the deliberate infraction of the law, while section 28 is enacted for the purpose of rendering evasion unproﬁtable and of securing to the State compensation for damage caused by attempted evasion. The two sections do not always overlap; but even where there is overlapping in a concrete instance, the two remedies could have been taken at the same time, but for the provisions of section 28(4). The two remedies are not in their nature mutually exclusive, and the grant of a concession to the assessee in the form of section 28(4) does not alter the situation.
In view of this pronouncement. it is not considered necessary to disturb the substance of section 28, but sec- tion 28(4) has been made into a separate section, in order to bring out its true function. A The words "in the course of any proceedings" also came up for consideration in the case cited above. The' High Court noted that the practice is, that when an In-« come-tax Oﬂicer ﬁnds that an assessee has concealed his income etc., he estimates the concealed income. adds it to the income returned and levies tax on the entirety of the income as thus determined in his assessment ordered. At the same time he issues' notice to the assess' to show cause why a penalty should not be levied un er section 28(1) and (2). But the assessee may not have been heard I and no ﬁnal conclusion is reached at that stage. The assess- ment is completed and a demand is made for the tax. and.
' Siilgaminatha Maopamzr and Sour Vs. I .T.0., II Circle, Madurai and an other (1955) 28 ITR. 601. , ' -
..;.---
470the Income-tax Oﬂicer waists until the appeals, if any, as regards the assessments, are over. After obtaining the assessment ﬁgures as ﬁnally deterrnind, the Income-tax Ofﬁcer pursues the notice already issued, resumes the penalty proceedings, hears the assessee and passes an order in proper cases under section 28(1) after obtaining an approval of the Inspecting Assistant Commissioner. "This practice", the High Court observed, "appears to be fair to the assessee and not contrary to the language of the enactment"'. In the view of the High Court, "the proceed- ings for the levy of a penalty must be initiated by an authority when such authority was in seisin of the assess- ment or other proceedings in the course of which it is found that the assessee has brought himself within the mis- chief of section 28. When once the notice has been issued, "the jurisdiction of that authority to continue the proceedings is not dependent upon the continuance of other proceedings in the course of which the penalty proceedings came to be initiated."
The purport of the words in question has been cxlifarly explained in this judgment, and it does not appear .eces- sary to make any change in the language. .
Clause 280.
Existing section 28 has been broken up in the draft in the following manner:--- ' (1) The general power to impose penalty has been idealt with ﬁrst. . ' (2) The special provisions applicable to ﬁrms. cont; ined in section 28(1) Proviso (b), are dealt with 'ext.
(3) The special provisions contained in other parts of the Proviso, applicable to other cases, are pilaced . next.
(4) The special provision applicable to partners is§plac- edat the end. , ' s The words "three thousand ﬁve hundred rupe " in existing section 28(1), Prov. (a) have been replaced b able words linked up with the taxable minimum whic may 'Vary from time to time (Cf. para 196, I.T.I.C. Report, 1948).
Notes to clause 281 i No comments are needed.
, Notes to clause 282 Existing section 18A(9) has been incorporated in this clause. The main para. of that sub-section has been em- bodied in the earlier portion of the draft clause, the changes made being consequential on the breaking up of existing section 18A itself, the}! remaining portions of which have, in "(r955) 28 I.T.R. 601, *3.
I suit- ' 471 the draft, been placed in the Chapter relating to collection» and recovery of tax.' The proviso to this sub-section has been placed in the latter half of this clause, with verbal changes which have been made in order to elaborate the provision and make» its understanding easy.