Section 24B( 1) , part .
Section 24.B( 1), part .
Section 24B(1), part .
Section 24B'2) .
Section 25(1), part Section 25(1), part Section 25(2), earlier part .
Section 25(2), latter part Section 25(3), part Section 25(3), part (applicable to income-tax) Section 25(4), part Section 25(4), part (applicable to income~tax) Section 25(4), Proviso (a) Section 25(4), Proviso(b) Section 25(5) Section 25(6) Section 2 5A( 1) , main para, earlier part Section 2 5A(1), main para, latter part .
Section 2 5A(1), Proviso Section 25A! 2), main para, part .
Section 25A(2), main para, part .
Section 25A(2), main para, part .
Section 25A(2), main para, part .
Section 25A(2), Prov.
Section 26(1) Section 26(2), main para .Section 26(2), Prov. earlier half .
Section 26(2), Prov. latter half Section 26A(1) . _. .
Repealed.
Clause 73(3), part.
Clause 74(3), part.
Clause 76(2).
Clause 78(2)(b).
Clause 77.
Clause 79. "
Omitted, as obsolete.
Clause 75(1).
Clause 75(2).
Clause 75(3).
Clause 164.
Clause 184(1).
Clause 184(2).
Clause 184(3).
Omitted, as unnecessary in the draft as framed.
Clause 184(4).
Clause 168(1),.part.
Clause 168(6).
Clause 168(5).
Clause 168(2), part.
Clause 168(2), part.
Clause 185(1).
Clause 185(4).
Clause 185(3).
Clause 281.
Clause 13(1).
Clause 91(1), part.
Cla.use'13(2).
Clause 91(1), part.
Clause 100.
Clause 13(3).
Clause 91 (2).
Clause 322.
Clause 181(2), part.
Clause 181(3).
Clause 181(2), part.
Clause 180(4).
Clause 181(4), (a).
Clause 181(4), ([2) part.
Clause 181(6).
Clause 181(4), ([7) part.
Clause 181(1).
Clause 194(1).
Clause 180(1).
Clause 180(2). 1 Clause 180(3).
Clause 191(1).
Section 26A(2), part .
Section 26A(2), part .
Section 26A( 2), part .
Section 26A(2), part .
Section 26A(2), part .
Section 27 Section 28(1), main para Section 28(1), Prov. (a) Section 28(1), Prcv. (b) Section 28(1), Prov. (c) Section 28(1), Prov. (:1) Section 28(2) .
Section 28(3) Section 28(4) Section 28(5) Section 28(6) Section 29 Section 30(1), main para Section 30(1), 1st Proviso Section 30(1), 2nd Proviso .
Section 30(1), 3rd Proviso .
Section 30(2), part Section 30(2), part Section 30(3) Section 31(1), earlier part .
Section 31 (1), latter part Section 31(2) . .
Section 31 (3), opening lines Section 31(3), main para, clause(a) Section 31(3), main para, clause(I:) Section 31 (3), main para, clauses (c), (d) and (2) Section 31(3), main para, clause (f) Section 31(3), main para, clauses (g) and (II) Section 31(3), 1st proviso Section 31(3), 2nd proviso .
S ecticn 31 (4) Section 31(5) Section 32 Section 33(1), part Section 33(1), part Section 33(1), part Section 33/ 1), part Section 33 (2), earlier part .
Section 33(2), latter part Section 33(2A) .
Clause 191(3).
Clause 191(4).
Clause 191(5).
' Clause 191 (6).
Clause 192(1).
Clause 151.
Clause 280(1).
Clause 280(3) (a).
Clause 28o(3)(b) .
Clause 28o(3)(c).
Clause 280(2).
Clause 280(4). I Clause 283(1).
Clause 284.
Clause 283(3).
Clause 283(2).
Clause 163.
Clause 254.
Omitted, as under the draft' proposed for existing section 46(1),penal interest runs with-
out any speciﬁc order by the-
Income-tax Oﬁicer.
Clause 255.
Omitted, in view of section 23 A.
as amended uptodate.
Clause 256.
Clause 257(2).
Clause 257(3).
Clause 257(1).
Clause 258(1).
Clause 258(3).
Clause 258(4).
Clause 258(5).
Clause 259, opening lines.
Clause 259(1)(a), part.
Clause 259(1) (a), part.
Clause 259(1)(c), pan.
Clause 259(1)(b).
Clause 259(1)(c), part.
Clause 259(2).
Clause 258(2).
Clause 275, part.
Clause 258(7). \ Repealed. , Clause 260(1), opening li:_tes.. Clause 26o(1)(a).
Clause 26o(1)(b).
Clause 261(1), part.
Clause 260(2).
Clause 261 (1), part.
Clause 261(2), part.
:
312.Section 33(4) Section 33 (5) .Section 33(6) Section 33A(1), main para Section 33A(1), pr0viso(a), part . Section 33A(1), proviso (a), part. Section 33A(1), proviso (b), part. Section 33A(1), proviso (b), part . Section 33A(1), proviso (0) Section 33A( 2), main para, part .
Section 33A(2), main para, part .
Section 33A(2), lst proviso (a), part Section 33A(2), 1st proviso (a), part Section 33A(2), Ist proviso(b) Section 33A(2), 1st proviso(c) Section 33A(2), 2nd proviso Section 33A(2), Explanation Section 33A(3) .
Section 33B(3), part .
Section 33B(3), part .
'Section 33B(4), part .
Section 333(4), part . . . .
Section 34(1), 1st para, clause (a), part Section 34(1), 1st para, clause (a), part 'Section 34(1), 1st para, clause (b), part Section 34(1), 1st para, clause (b), part Section 34(1), 2nd para, part Section 34(1), 2nd para, part Section 34(1), 2nd para, part Section 34(1) 2nd para, part Section 34(1), 1st proviso, clause (1') Section 34(1), 1st proviso, clause (ii), earlier half Clause 262, part.
Omitted.
Clause 275, part.
Omitted.
Clause 272(1), part.
_Clause 272(5)(a), part.
Clause 272(5)(b), part.
Clause -272(5) (c), part.
Clause 272(5) (cl), part.
Clause 272(3).
Clause 272(1), part.
Clause 272(4).
Clause 272(5)(a), part.
Clause 272(5) (b), part.
Clause 272(5)(c), part.
\Clause 272(5)(d), part.
Clause 272, Explanation 1.
Clause 272, Explanation 2.
Clause 272 (6).
Clause 271(1).
Clause 271 (2).
Clause 260 (1) (d).
Clause 261 (1), part.
Clause 262, part.
Omitted.
Clause 152 (a).
Clause 153. part.
Clause 152 (b).
Clause 153, part. 5 Clause 152, paragraph' below sub-
clause (b).
Clause 154(1). I Clause 155, (1) opening lii es and para (a), opening lin .
Clause 155(1) (1)).
Omitted, as obsolete.
Clause 155(1) (a) (iii).
Section 34(1), 1st proviso, clause (ii), latter half, part Clause 155 (1) (:1) (ii).
Section 34(1), 1st proviso, clause (ii), latter half, part.
Section 34(1), 1st proviso, clause (iii), part . Section 34(1), 1st proviso, clause (iii), part .
Section 34(1), 1st proviso, clause (iii), part Section 34(1), 2nd proviso .
Section 34(1), 3rd proviso .
Section 34(1), Explanation .
Section 34 (1B) .
.'Scction 34(1C) . . . . .
\ Clause 155 (1) (a) (1').
Clause 1 54(2).
Clause 157(1).
Clause 157(2).
Clause 155(2).
Clause 158(1).
Clause 152, Explanation. _ Omitted, as obsolete.
Omitted, as not applicsﬂale for future years. :
E.
Omitted, as not applicable for future years. i 313 Section 34(1D) .
Section 34(2) Section 34(3), main para, part 'Section 34(3), main para, part Section 34(3), main para, part [reiating to sment under section 34(1) (a)] .Section 34(3), 1st proviso . _ . .
Section 34(3), 2nd proviso, earlier half Section 34(3), 2nd proviso, latter half, part .
Section 34(3), 2nd proviso, latter half, part .
Section 35(1), main para, part Section 35(1), main para, part Section 35(1), main para, part Section 35(1), main para, part Section 35(1), 1st Prov.
Section 35(1), 2nd Proviso .
Section 35(2) S ection 35(3) Section 35(4) Section 35(5) Section 35 (6) Section 35(7) 'Section 35(8) Section 35(9) Section 35(1o) .
Section 35 (11) (See Finance Act, 1958) .
Section 36 Section 37(1) Section 37(2) Section 37 (3) Section 37(4) Section 38 Section 39 Section 40 (1), part Section 40(1), pa.rt Section 40(1), part Section 40(2) Section 41 (1), main para, part . .
Section 41(1), main para, part 6 Section 41 (1), main para, part .
Section 41(1), main para, part"
Section 41(1), 1st Prov., earlier half, part Section 41(1), 1st Prov., earlier half, part Section 41(1), 1st Prov., latter half 5 , . Section 41(1), 2nd Prov. . . . I , .
Section 41 (2) .. . ..
Omitted, as not applicable for future years.
Clause 158(2).
Clause 160(1) (:1).
. _Clause 160 (2) (b) (1').
asses-
Replaced by clause 160 (2) (4).
Clause 160 (2) (b) (ii).
Clause 160 (3) (1').
Clause 156.
Clause 160 (3) (ii). 1 Clause 161 (1) (a) and (5).
Clause 161 (1) (5).
Clause 161 (2).
Clause 161 (7).
Clause 161 (3).
Omitted, as not applicable for future assessment years.
Omitted, as the Trigtnal is proposed to be aboli ed.
Clause 161 (5).
Clause 161(6).
Clause 162(1).
Omitted, as not applidable for future assessment yeﬁs.
Omitted, as not applidzble for future assessment years.
Clause 162(3).
Clause 162(4).
Omitted, as not applicable for future assessment years.
Clause 162(5).
Repealed.
Clause 136(1).
Clause 1 37.
Clause 136(2).
Clause 136(5).
Clause 138.
Clause 1 39.
Clause 169 (1) (ii).
Clause 170 (1) part.
Clause 170(1), part.
Clause 173(1) (:1).
Clause 169 (1) (iii).
Clause 169 (1) (iv).
Clause 170(1), part.
Clause 170 (1), part.
Clause 174, opening part.
Clause 174(u), part.
Clause 174(a), part.
Clause 175. . f Clause 177, part.
314' Section 42(1), main para, earlier half . Section 42(1), main para, latter half, part Section 42(1), main para, latter half, part . Section 42(1), main para, latter half, part Section 42(1), Ist Prov.
Section 42(1), 2nd Prov.
Section 42(1), 3rd Prov.
Section 42( 2) Section 42(3) Section 43, main para Section 43, 1st Prov.
Section 43, 2nd Prov.
Section 43, Explanation . . .
Section 44(1), part (See Finance Act, 1958) .
Section 44 (1), part (See Finance Act, 1958).
Section 44(2), Part (Sec Finance Act 1958) . Section 44 (2), part (See Finance Act, 1958) . Section 44(3), part (See Finance Act, 1958) .
Section 44(3), part (See Finance Act, 1958) .
Section 44(3), part (See Finance Act, 1958) .
Section 44(3), part (See Finance Act, 1958) . Section 44A, earlier part .
Section 44A, latter part Section 44B (1) . . .
Section 44B (2), earlier half, part Section 44B (2), earlier half, part Section 44B (2), latter half .
Section 44B (3), earlier part Section 44B(3), latter part .
Sub-section (1), part Sub-section (1), part Sub-section (2), part Sub-section (2), part Sub-section (2), part Sub-section (3) ' Sub-section (4) Sub-section (5) Sub-section (6) . . . . .
Sub-section (7 ) (a) Sub-section (7) (b) Subsection (7) (c) Subsection (7) (d) Sub-section 7 (2) . .
Sub-section (8) . . . . .
Sub-section (9) . . . V . .
Clause 9(i), main para.
Clause 169 (1) (1').
Clause 170 (1), part.
Clause 177, part.
Clause 183.
Clause 171(2).
Clause 171(3).
Clause 95.
Clause 9(i), Expl.
Clause 173(1) (a) (b) (c).
Clause 173(1), Prov.
Clause 173(2).
Clause 173(1), Expl.
Clause 186(1), opening lines and?
sub-clause (a). .
Clause 196(1), opening lines and! sub-clause ((1).
Clause 186 (3), part.
Clause 196 (3). part. _ Clause 186(1) (b).
Clause 186(3), part.
Clause 196(1) (.5).
Clause 196(3), part.
Clause 182(1).
Clause 182(8).
Clause 182(3).
Clause 182(4), part.
Clause 182(5).
Clause 182(2).
Clause 182(4), part.
Clause 182(6).
Clause 182(7).
Clause 96(1) (a).
Clause 96(6) (f), part.
Clause 96(1) (b). ' Clause 96(6) (o).
Clause 96 (6) (f), part.
Clause 96(2).
Clause 96 (3).
Clause 96(4).
Clause 96(5) .
Clause 96(6) (a).
Clause 96(6) (b).
Omitted, in view of S. 23A as-
amended uptodate.
Clause 96(6) (:1).
Clause 96 (6) (e).
Clause 96(7).
Clause 96(8).
Section 44E---
Sub-section (1) . . .
Subsection (2) . . .
Subsection (3) . . .
Sub-section (4) Sub-section (5) Sub-section (6) Section 44F-----
Sub-section (1) . .
Sub-section (2) . __ . .
Sub-section (3), main'para Sub-section (3). proviso .
Subsection (4) Sub-section (5) Subsection (6) Section 45, main para, part Section 45, main para, part .
Section 45, 1st Prov. (printed with the ma Section 45, 2nd Prov.
Section 45, Expl.
Section 46(1) Section 46( 1A) Section 46(2) . . . .
Section 46(3) & (4) . . .
Section 46(5) _ . . . .
Section 46(5A), 1st paragraph part Section 46(5A), 1st paragraph, part Section 46(5A), 2nd paragraph .
Section 46(5A), 3rd paragraph .
Section 46(5A), 4th paragraph Section 46(5A), 5th paragraph .
Section 46(5A), 6th paragraph .
Section 46(6) . . . .
Section 46(7), main paragraph Section 46(7), 1st Prov. .
Section 46(7), 2nd Prov. . .
315Section 46(7); Explanation, earlier half Section 46(7), Explanation, latter half, part .
in para) Section 46(7), Explanation, latter half, part .
Section 46(7), Explanation, latter half, part .
Section 46(8) . .
Section 46(9) . . . .
Section 46(1o) . . .
Section 46A(1.) . . . .
Section 46-4(2). min P-nsnph ;
Section 46A(I). I'-aplautioa i 21-: Law CoIn.I58. .
-..u--Lu.~.l,~ o Clause 97(1).
Clause 97(2).
Clinic 97 (5)-
Clause 97 (6).
Clause 97(8).
Clauses 97(7) and 279..
Clam 97(3), pa"-
Clausc 97(3) Pm-
Clausc 97(3). part-
Clause 97(4).
Omitted.
Omitted.
Omitted.
Clause 229 (1).
Clause 229 (3).
Clause 229 (5).
Clause 229 (6).
Clause 229, Expl.
Clause 230.
Omitted, as under the draft for 246(1) as proposed; penalty (interest), runswtthput any order.
Clause 230(1).
Clause 235(5)-
Clause 235(2).
Clause 235(3) (5).
Clause 235(3) (ii).
i.' Clause 235(3) (iv).
0Clause 253 (3) (1).
Clause 235(3)(1n').
Clause 235(3)(m's').
Clause 235(3)(t'z'1').
Clause 236.
Clause 242, main pars.
Clause 242, Prov. i Omitted. See in Prowl as propo-at - % .
Clause 242, Expllanti+n.
Clause 231(2).
Clause 235(1).
Clause 243.
Clause 237. _.
Clause 238.
Clause 239.
Clause 241(1). g Clause 241(2) Cl-In -41.. _ 316:
Section 47 Section 48(1) Section 48(2) Section 48(3) Section 48(4) Section 48A Section 49 Section 49A Section 49AA Section 49B(1), part .
Section 49B(1), part .
Section 49C Section 49D--
Sub-section (1) Sub-section (2) Sub-section (3) Sub-section (4) Explanation Section 49E Section 49F Section 50, main paragraph Section 50, 1st Prov. .
Section 50, 2nd Prov.
Section 50A Section 51, opening lines Section 51(a) Section 51(b) Section 51(c) Section 51(d) Section 51(2) Section 51, last part .
Section 52 Section 53 Section 54(1) .
Section 54(2), earlier part .
Section 54(2), latter part Section 54(3)-
Clause (a) Clause (b) Clause (c) Clause (d) lause (9) Clause (f) Clause (g) 4. .2 Clause (gg) -.
qa_u:e4(b)v. ._ . a 4 «w, Clause 241(3).
Clause 241(6). ' Clause .240.
Clause "247.
Clause 25o.
Clause 248(1).
Clause 2 5 1 .
Repealed.
Repealed.
Clause 92.
epealed.
Omitted, in view of redtaft of Section 3.
Clause 246(2).
Clause 246(3).
Clause 94.
Clause 93(1).
Omitted, as spent.
Clause 93(2) Omitted, as spent.
Clause 93, Exp].
Clause 253.
Clause 248(2).
Clause 249(2).
Omitted, as spent.
Omitted, as spent.
Repealed. , Clause 285, opening linesl Clause 285(d).
Clause 285(9).
Clause 285(6).
Clause 285(6).
l 1 Clause 285 (a).
Clause 285, last part.
Clause 286. ' Clause 287.
Clause 141(1).
Clause 141(2).
Clause 288(1).
Clause 141(3)(a)_ Clause 141 (3) (1)).
Clause 141 (3) (d), Clause 141(3) (¢)_ Clause 141(3) (g).
Clause 141(3) (h), Clause 141 (3) (i), Clam I4r(3)(:')-
Claw -141(3) (k) -~ .3121 Clause (1') Clause (j) Clause (k) Clause (1) Clause (m) 8 .
Clause (n) Clause' (0) Clause (p) Section 54(4) Section 54(5) 'Section 55-
Main paragraph 1st proviso 2nd Proviso Section 56 .Section 56A--
Sub-section (1), opening lines .
Sub-section (1), Clause (i), part Sub-section (1), Clause (i), part Sub-section (1), Clause (ii) _Sub-section (2) 'Section 57 . . . .
Section 58, Sub-section (1), part Section 58, Sub-section (1), part Section 58(2) Section 58A Section 58B(1) .
Section 583(3) Section 58B(3A) Section 58B(4) .
Section 58C(1), opening lines Section 58C(1)(a), main paragraph Section 58C(1)(a), Proviso.
Section 58C(1)(b), main paragraph Section 58C( 1 ) (b), Proviso.
'Section 58C(1)(d), main paragraph Section 58C(1)(d), Proviso. .
"Section 58C(1)(e) Section 58C(1)(f) .
'Section 58C(1») (g), earlier part . Section 58C(1)(g), latter part .
Section 58C(1)(h), 'Section 58C(2) . . . .
'Section 58D . .
Section 58E Section 58F . - v .
Section 58G(1), earlier part .
!1 i
-'Section58G(1),1atterpa1-t . . .
J.
.4-
Clause 141(3) (1).
Clause 141(3) (m).
Clause 141(3)(a).
Clause 141 (3) ([7).
Clause 141(3)(q).-
Clause 141 (3) (r).
Clause 141 (3) (5).
Clause 141(3)(!).
Clause 141 (4).
Clause 288(2).
I Clause 98(1), main pairs.
Clause 98(3). ' Clause 104.
Clause 99.
Clause 108(1), opening lines.
Clause 108(1),(i).
Clause 108(3).
Clause 108(1)(:'z').
Clause 108(2).
Repealed.
Clause 102(1).
Clause 102(2).
Clause 200(2).
Clause 305.
Clause 289(1).
Clause 289(2).
Clause 289(3).
Clause 289(4).
Clause 301. 4 Clause 290, opening limes"
Clause 29o(a). : ' Clause 291(1).
Clause 290(b).
Clause 291(2).
Clause 290(5).
Clause 290(d).
Clause 291 (3)(b) Clause 290(2).
Clause 29o( f).
Clause 29o(g).
Clause 291(3)(a).
Clause 290(h) Clause 292.
Clause 291(4).
Clause 294.
Clause 295.
Omitted,' as covencd daft clauses.11=(13)§1nj 5.
Clause 29'']( ). ' ' Section 530(2)' Section 58G(3) Section 581-! Section 581 .
Section 58_]'(1) .
Section 58_](2) .
Section 58_]'(3) .
Section 58_](5) .
Section 58K Section 58L Section 58M Section 58N .
Section 580 . . .
Section 581', main paragraph Section 58P, Proviso . . .
Section 58Q . . . .
Section 58R, main paragraph, part Section 58R, main paragraph, part Section 58R, main paragraph, part Section 58R, 1st Prov.. .
Section 58R, 2nd Prov. . .
Section 58T Section 58U' Section 58V Section 59 Section 60(1) Section 60(2), for income-tax Section 60(2), for super-tax Section 60(3) Section 60A Section 61 (1), part Section 61(1), part Section 61(1), part Section 61(1), part Section 61 (1), part Section 61(2) (1') Section 61 (2)(1'i) Section 61 (2) (iii) Section 61(2) (iv) .
Section 61(3), main paragraph, part Section 61 (3), main paragraph, part Section 61(3), Prov. .
Section 62 . . . .
Section 63 . . . .
Section 64(1) . . . .
818Clause 296.
Clause 297(1).
Clause 298.
Clause 300.
Clause 299(1).
Clause 299(2).
Clause 299(3).
Clause 291 (5).
Clause 299(4)-
Clause 302.
Clause 303.
Clause 304.
Clause 318.
Clause 306.
Clause 307(1).
Clause 307(2).
Clause 308.
Clause 309.
Clause 310, main paragraph.
Clause 311, part.
Clause 311, part.
Clause 310, Prov.
Clause 312.
Clause 313.
Clauses 314 and 166(3).
Clause 315.
Clause 316.
Clause 329.
Omitted as obsolete. See a1ist--
ing S. ' Clause 90.
Clause 1 12.
Omitted as inapplicable 'to fu-
ture usessment years. ' Omitted, as not required for fu-
ture assessment years.
Clause 324(1).
- Clause 324(2), opening linﬁ.
Clause 324(2) (1').
Clause 324(2) (iv) .
Clause 324(2)(n), part.
Clause 324(2) (ii) .
Clause 324(2) (iii) .
Clause 324(2), Exp].
Clause 324(2) (0) ,-part.
Clause 324(3).
Clause 324(4), main pa.ra..
Clause 324(4), Prov..
Clause 325. 1 Clause 320.
Clause 135(1).
Section 64(2) , Section 64(3), main paragraph Section 64(3), 1st Prov. . .
Section 64(3), 2nd Prov. earlier part Section 64(3), 2nd Prov. latter part Section 64(3), 3rd Prov.
Section 64(4) Section 64( 5) Section 65 . , , .
'Section 66(1), main paragraph, part Section 66(1), main paragraph, part 'Section 66(1) , Prov. .
Section 66(2) 'Section 66(3) 'Section 66(4) 'Section 66(5), part - .
Section 66(5), part Section 66(6) .
Section 66(7), main paragraph Section 66(7), proviso Section 66(7A) .
Section 65(8) . . . .
Section 66A(r), main paragraph Section 66A(1),. Proviso .
Section 66A(2) . . .
Section 66A(3), main paragraph .
Section 66A( 3), 1st Proviso, part Section 66A(3), 1st Proviso, Part Section G6A(3), 2nd Prov.
Section 67, Section 67A Section 67B Section 68 Schedule Rule 1 .
Rule 2 . . .
Rule 3 . . .
Rule 4 . .
Rule 5(i) Rule 5(ii) Rule 5(iii) Rule 5(iv) .
Rule 5(v) . .
Rule 6, earlier half, part Rule 6, earlier half, part Rule 6, latter half Rule 7 .
Rule, 8, para 1 Rule, 8, para 2 Rule 9 .
319Clause 135(2).
Clause 135(3), main para.
Clause 135(3), 1st Prov.
Clause i35(4)(a) Clause I35(4)(b).
Clause 135(5).
Clause 135(6).
Clause 135(7).
Clause 326.
Clause 261(1), part. I Omitted.
Omitted.
Omitted.
Omitted.
Omitted.
Clause 263.
Clause 265.
Clause 266.
Clause 273, part.
Clause 267(2), part.
Clause 261(2), part.
Clause 278(a).
Clause 264(1).
Clause 264(2).
Clause 268.
Clause 269(1), main para-
Clausc 269(1), Prov. , Clause 273, part.
Clause 274,.
Clause 269(4).
Clause 327.
Clause 276.
Clause 328.
Repealed, Rule 1, First Schedule.
Rule 2, First Schedule.
Rule 3, First Schedule.
Rule 4, First Schedule.
C13-use 5(1) (8)1 L' Rule 7(1)(i), First Schedule.
Rule 7(1) (iii), First Schedule.
Rule 7(1) (iv), First Slchedule.
Rule 7(|)(ii), First _hedu.le.
R1351 5, opening lines; First Sche- e. -
Rule 5(b), First Rule 5(c), First Omitted, as not Rule 6(1) First Rule 6(2), First Schedule.
Clause 44., part.
1 It is understood that there are jgno carryi ment business.
ng on dividing societicf or assess-
320NOTES ON CLAUSES CHAPTER I PRELIMINARY Notes to clause 1.
The word "Indian" has been omitted in consonance with the recommendation made by the Commission in res- pect of other Acts, and in conformity with recent legislative practice.
Notes to clause 2, The words "unless here is anything repugnant in the subject or context", appearing in existing section 2, have been retained, in View of the opening lines of section 3, General Clauses Act, though recent Central Acts use the formula "unless the context otherwise requires".
1. {\gricultu- Till recently there was a conﬂict of judicial op nion ""1'"°°m°- regarding the interpretation of the word "agriculture . In the latest pronouncement of the Supreme Court', all the decisions have been reviewed and the conﬂict in the judicial pronouncement resolved. Hence it is not necessary to ex- plain what is meant by "agriculture".
2. Annual Since existing section 9 has been broken up, the ''*'"'''~ draft, into various clauses, it appears useful to have? this deﬁnition pointing to the relevant provision. I
3. Appellate No change has been made in the existing provision.
Assiw-nt C0- Only, it has been placed before the deﬁnition of 'asses$ee'. mmissioncr. ' 4- Approved Since these two expressiolns occur frequently in} the
5."P°""m""' Act, a reference has been made to them here. tlon fund etc.
5. Assesscc. The existing definition of 'assessee' has been rep ced in the draft by a more comprehensive deﬁnition, so s to include all the possible categories of assessees, i.e., i) a person who is himself liable to pay the tax on incom be- longing to him, (ii) a persop liable to pay tax. on in ome belonging to 'another person, and (iii) a person who is d em- ed under the sections of the Act to be an "assessee" or§"as- sessee in default". '
- Wherever necessary, drafting changes have been ade in the substantive provisions (particularly in the Ch ter entitled "Liability in Special c ses") to bring out the r sult that any person on whom a li ility to pay tax etc. i im- posed by the Act, becomes am'; assessee. It is hoped hat the deﬁnition of 'assessee', as drafted, when read wit the substantive provisions, will cover all cases of vicarious: lia- bility falling under any of the following categories (1) One person's income included in another's totag in- come-vide existing sections 4(2)', 16(1)(c), 1g(3), 44D, 44E and 44JF, as Well as %ect1on 42(2). :
' C.I.T. vs. Raja Benny K at Saha V (I957) 32 I. T.R. 466.» S: also C.I.T. vs. Jyoti Karla Clwwdﬁur , (1957):-3 IjT-R- 705, and Kalli!-"twat 3' V5- C.I.T. (1957) 32 I.T.R. 58. i ii ~ -
"321 ' (2) One person liable tolbe assessed as representing an- 3 other person under existing sections 40, 41, 42(1). and 44B(3).
(3) -One person ceasing to exist,: and thereupon ano-T ther becoming liable, to be assessed for or to pay tax for which the f rmer is ".liable--12ide existing sections 24B, 25A, 26 ,2), Prowiso and 44.
(4) One person liable to pay (without the formality of assessment) tax normally payiable by another-/vide existing sections 18(7) and 4ﬁA§(2) and (3).
(5) Cases where procedure for recovery of tax may be applied against one person, (Who is not himself the assessee) for tax r overable from another--/vide existing section 46( A) 5th para and also draft Second Schedule, Rule 87. 1 ' (Existing section 8, 3rd Proviso and section 58-U need not be speciﬁcally dealt with here).
Since the deﬁnition of "assessee" is made comprehen- sive, the words "or other person liable to pay such tax, penalty or interest" occurini' in existing section 29 have been omitted in the draft'. his will remove the difficulty created by a decision of the Madras High Court'.
A deﬁnition of assessment, as including re-assessment, 5; Aim!-
has been inserted on the lines of the Canadian Income-tax Act'. T Ill'.
1' i This is new. Though the Act uses the expression "as- 7 sessment year" there is no deﬁnitiop. of that expression anywhere in the Act. We have, thenefore, included a deﬁ- nition which conforms to the existing practice. In the In- come-tax Acts of other countries, e.g.', Ceylon, there is a deﬁnition of 'assessment year'.
This is new. Instead of givinggan elaborate formula' 8 Am.ge to arrive at the average rate wherever it becomes necessary, °f tax.
we thought it more convenient and conducive to clarity to add a deﬁnition.
existing section 17.
Mention of earned income relief has not been made in the deﬁnition, in view of the ifact that the provisions of the Act relating to earned income relief' ave now Hecome ob- solete. Since successive Finance Acts ﬂor the last two years have not provided for this relief,-it bvpuld seem to be the coiiﬁgmed policy of Government to abolish earned income re 1e . 2 This is also a new provision intended to arrive at the A, This isl based on sub-section .(5)' of t year.
(201116-
yieragc rate average rate of super-tax; (compare the deﬁnition of "ave- rage rate of income-tax" referred to above).
' Vida draft clause 163.
cf supcrtax.
= E. Alffed vs. Addl. 1.7.0., (1955) 29 I.T.R. 708 See also Abdul irasim ' vs. C.I.T. (1g58)33»I.T.R. 466.
~ 3 ' See the (Canadian) Income-wdAct., x39(x)(d).
9. Business.
I 0.
3886!.
Capital
11. Central Board of Re-
venue.
12. Commis-
sioner.
13. Compa-
ny.
14. Co-opera' tivc Seciety. ' 1 5. Director, Manager, Managing Agent.
16. Director of Inspec-
tion.
17. Dividend.
18. Earned income.
322No change has been made in existing section 2(4).
Item (iii) of the existing deﬁnition, which excludes "any.
land from which the income derived is agricultural income", has been redrafted and replaced by the words "any agricul- tural land in India". The general scheme of the constitu- tional provisions relating to taxation is to exclude agricul- tural land from taxation by the Union, and it would, therefore, be in conformity with that scheme to express this exclusion, not in terms of "agricultural income" but in terms of land. Agricultural land which has been cultivated, say, for 5 years and then remained fallow for 2 or 3 years during which it is sold, would, under the existing deﬁnition, attract capital gains tax. This anomaly will now be remov- ed by the proposed redraft.
No change; it corresponds to existing section 2(4B). No change; it corresponds to existing section 2(5).
There is no substantial change in the draft. which fol- lows the existing deﬁnition in section 2(5A).
2 No change; it follows the existing deﬁnition in section (5B). ~ We have included in the existing deﬁnition [sec. 2(8A)] the word "Director" also, and we have substituted fct the "Indian Companies Act, 1913", the "Companies_Act, 1956". To make the meaning clear, we have also introduced the words "in relation to a company'T.
No change; it corresponds to existing section 2(6).
There is no change in the existing deﬁnition in section 2(6A), except that we have added another explanation to the effect that the accumulated proﬁts "shall include all proﬁts of the company up to the date of distribution or: pay- ment referred to in this clause". ' -
The reason for this alteration is this. In the case of Girdhar Das and Co. Ltd. vs. C.I.T.', the Bombay ' Court observed that in this section, "accumulated pr ﬁts" have been used in contra-distinction to current proﬁts; In our opinion, the intention of the legislature was to in lude the current proﬁts also in the deﬁnition; and to mak this clear we have made the proposedalteration.
We have adopted the existing deﬁnition [section 2(6AA)]' with the following changes. To make the meaning of clause
(b) clear, we have split it up into two clauses and number- ed them as (b) and (c). The existing clause (c) is renum- bered as clause ((1). We have added an explanation to « } ET (1957) 3: I.T.R. 82. .3 *1 . I 1 ~ 323 overcome the 'difficulty introduced by the Madras High Court in Mari Muthu. Nadar v. C.I.T.' V -
No change; it follows the existing deﬁnition in section :9. Firm. 2(6B). - Fem" ,and partnership.
We have included in the existing deﬁnition other proé visions which treat income as deemed income for the pur- 9°- "'°°'"°- pose of the Act. ' The Act uses at several places the lengthy expression "income, proﬁts and gains". To simplify the matter and to avoid repetition, we have included 'proﬁts and gains" in 'the deﬁnition of income, and throughout the Act we have "used, as far as possible, the word "income". Suggestions have been made that we should give an exhaustive deﬁni- tion of income. It is not possible to do so.
The provision within the brackets» in existing sub-
-clause (iii) (relating to the meaning of; "person having sub- stantial interest in a company") has been transposed as an explanation.
Item (vii) of the existing deﬁnition of income relates to the proﬁts and gains of insurance business carried on by a mutual insurance association or by a Co-operative :Society. What is described as "proﬁts and gains" in this item is, in fact, merely a siitplus. The deﬁnition simply artiﬁcially extends the conception of income so as to cover
-such surplus. The existing words "computed in accord- ance with Rule 9 in the Schedule" indicate this clearly, when read with existing rule 2(b) of the Schedule. An attempt has been made to bring out this aspect still more «clearly in the draft." _ .
No change, in the existing deﬁnition in section 2(7).
We have revised the deﬁnition of 'Indian company', in 22.:'1ndian the light of the Companies Act, 1956, and the abolition of Co-tzpanh 'the distinction between Part A and 'Part B States. The : existing position relating to companies registered in the State of Jammu and Kashmir is retained.
i No change; it follows existin section 2(6D), and has ?,?,;i',';ﬁ°,§,,, been placed after "Income-tax O cer". Co mission- CI'. ,= No change; it follows existing sehtion 2(6E), and has :3-i'"SP°°'°f 'been placed after "Income-tax Ofﬁcer". ' tax: '"°°"'°' ' (I956) 30 I.'I'.R. 670. For the corresponding provision in the U. K. Act, see Section 525(1) last para, of the Income-tax Act. 1952.
' For a general discussion of the 'position regarding mutual insurance associations, see the recent Privy Council case of English and Scottish Joint Ca- operativc Wholesale Society Ltd., v. Assam 'cultural I a§n¢--tax Commi5sioner,(t948) 2 A. E. R. 295. See also I. '1'. I. C. Re , I918, 13.: 126, page 54, and compare section mi, Australian Inc ' tax etc. ,'1936-1953. ,
25. Magistra-
te.
26. Non--resi-
dent.
27. Person.
28. Prescrib-
ed .
29. Previous / year.
30. Principal Oﬁiccr.
31. Public servant.
32. Register-
ed ﬁrm.
33. Regular assessment. \ e 324 ._Under the existing deﬁnition, second--class magistrates specially empowered by the Central Government are also authorised to try offences under Act, and in the State of J ammu _and Kashmir the State Government may7 autho- rise a Magistrate of the second class to try offences under the Act. We are, however, not in favour of second-class» Magistrates trying offences ,under the Act, and we have therefore, conﬁned the power to ﬁrst class Magistrates throughout India. Incidentally, this will lead to simpliﬁca- tion of the deﬁnition and uniformity.
The Act uses various resident of India.
"non-resident"
cable, 'and has phrases for a person who is not a For the sake of uniformity, the,phrase has been used in the draft wherever practi- been deﬁned here.
The deﬁnition of "person"
in existing section 2(9) has:
been ampliﬁed. ' The existing deﬁnition includes (a) Hindu undivided family and (b) a local authonity. The General Clauses Act,' deﬁnes "person" as including a company or association or body of individuals whether incorporated or not. The charging section (section 3) of the Income-tax Act enume- rates the units for taxation as "individual, Hindu un 'vided family, company, local authority, ﬁrm and other ssocia- tion of persons, or the partners of a ﬁrm or the m mbers of the association individually". Section 4 of the Act refers to a "person". » .» It seems desirable to havea comprehensive deﬁnition of the word "person" in the .'Act so as to cover all entities mentioned in-- «
(i) the existing deﬁnition. [s. 2(9)],
(ii) the existing charging provisions and
(iii) the General Clauses Act.
The deﬁnition has therefore been ampliﬁed on thei above lines". 9 i [sections 3 iand 4] ,.
i No change, vide existing section 2(10). .
The expression is deﬁned separately in clause No change, videeexistingf; section 2(12).
No change, vide existing; section 2(13).
No change, vide existing' section 2(14). ' The expression is at present deﬁnedionly casually in-.
the Act in S. 18A(5). Since the expression occurs in some sections, it is desirable to place its deﬁnition in this clause.
v 1 Section 3(4«.»), Gene iciame-'pug. ' See also notes to d e 3.
325The deﬁnition refers back to the,» proposed clause' 34.1qesidcm. which reproduces S. 4A with modiﬁcations. . » The deﬁnition is new. Wherever bbth inc'ome-talx and 35- Tax- super-tax are intended to be covered, the simple word "tax" . ' would be sufﬁcient. The substantive prdvisions_in the draft. therefore, use the word "tax" wherever. convenient, and it has been deﬁned here. i No change; vide existing section 2(15), ﬁrst para. 36. V Total UICODIC.
The existing deﬁnition in section 2(15) (second para) 37. Total is reproduced with one change. ;The existing words "except "'°'1d "100-» income to which .......... .. this Agzt does not apply" are not '"°' , happy and have been replaced V y more appropriate words ' which bring the wording in line; with existing section 4(3).
No change; vide existing section 206). _ ~ gfédlirggglste Existing section 2(14A), deﬁning the expression "tax- Taxallc tcro x able territories", has been omitted in the draft, as the use "it°Vi,3- of that expression is no longerinecessary and can be con- veniently replaced by the word "India' .' CHAPTER II h BASIS OF CHARGE;
Notes to clause 3.
Sub-clause (1)----
(1) The word "person" has been substituted for the words "individual", "Hindu undivided faimily" etc. and the deﬁnition of "person" is being jwidenedl' for the following reasons :-- : .. '
(a) As already explained'. the co ined effect of the T deﬁnition of "person" in section,'2(9) of he Income-tax Act and section 3(42) of the Generali Clause 'Act is that a "per- son" includes (a) Hindu undivided fam' y; (b) local autho- rity; (c) company; and (d) assbciationotr body of indivi- duals whether incorporated or riot. No eciﬁc mention has been made of corporations othdr than dmpanies included within category (d). i » The problem which has troubled the courts is whether such corporations are withinithe ch ing section. It can be met by the suggested mend ,t by introducing 7 the word "person" in the se tion. I 'Commissioner of Income-tax, Madras vs. Salem iDist'rict*Urban Bank Ltd.' a co-operative bank was treated as an individual by an ' Clause 6.
' As assessments for_ the period prior to the Commencement of the new Act will continue to be governed by the existing Act, there will be no need to lay down separate periods for the various a as. J .
' See notes to clause 2 deﬁnition of " non". pg ' (194.0) 8. I.T.R. 269.
326'artiﬁcial interpretation of the word "individual". Similar-
ly, in Commissioner of Income-tax, Madras vs. The Bar Council, Madras', a bar council_ and in the Baronetcy case' a corporation sole, were treated as individuals. It seems desirable to make the position clear.
(b) There is also the problem of private religious trusts in favour of deities or mutts which are treated as artiﬁcial jurisdical person in law, vide existing S. 41. The point for consideration is whether it is proper to bring them under "individual" by a strained construction or whe- ther it would be more appropriate to include them under "person". These difficulties can be solved if we adopt the word "person" in S. 3, the charging section. It may be noted incidentally that in the existing S. 3 it occurs only in the expression "association of persons".
(c) All the foreign Acts employ the term "person" in the charging section, and it is better to resolve all doubt about the chargeability of particular classes of persons by using the comprehensive term "person" in section 3.
(2) The next point for consideration is the,difﬁculty noticed in sustaining the legality of the recovery of the tax on the current income under S. 18 and 18A. The charge created under section 3 applies to the income of the pre- vious year, while the provisions of sections 18 and 18A apply to the income of the assessment year also. To meet this difficulty a proviso has been added on the lines of the Ceylon Income-tax Ordinance to cover the provisions of the Act relating to charging the tax in particular cases in respect of income, proﬁt and gains of a period other than _the previous year. This will cover S. 24A, 25(1) and 44B (3) of the Act, whereby the income of the assessment year itself is made.chargeable at the rates prescribed by the Finance Act of the assessment year.
Sub-clause (2) is intended to make it clear that there is some kind of liability to pay tax in cases where tax is xdeductible at source or payable in advance. It seems desir- able to make a reference to this obligation to pay tax in advance etc. in the charging section itself, so as to bring out more directly a position which is implied in existing sections 18 and 18A.
(3) After the phrase "in respect of the total income of the previous year" the words "or years, as the case may be" have been added. Under the deﬁnition of "previous year ' in the existing section 2(_11) a person may have separate previous years in respect of each separate source of in- come. The proposed addition is intended to meet such cases'.
' (1943) II I.T.R-x. I 0 ' Currimbhhy Ibrahim Bzrenetqy Trust: vs. C. I. 71, 5 I. T. C.-4.84, (Bombay). ' Cf. CIT vs. Savumiamurthy (194.6) in LT. R. i 5 32'?
Notes to clause 4.
(1) The income of_ residents and. non-residents ha been dealt with separately for the sake of simplicit and clarity. ' (2) The ﬁrst proviso to S. 4(1) has been omitted; as it concerns the assessment year 1939-40 and is now unneces-
sary.
(3) The second proviso to S. 4(1) relating to persons not ordinarily resident should be omitted, as it is proposed to abolish the category and the exemption granted in res- pect of such persons'. If, however, the provision is to be retained, it can be .kept as shawn in the relevant clause on the subject'.
(4) The third proviso to section 4(1) concerni g the exemption for unremitted foreign income upto. R 4,500 has been transferred to the clause relating to income which does not form part of total income.' 1 (5) The fourth proviso to S. 4(1)" relating to residents who are not resident in two out of three preceding' years has also been transferred to that clause.' (6) The ﬁfth proviso to S.4(1) relating to exemption' for foreign income of residents who deposit tax etc: with- in three months (where the fourth proviso does not apply) has also been transferred to the clause relating to 'exclu- sions from total income. after omitting portions whic have become obsolete.' ' (7) The words "by or on behalf of" have been used in respect of foreign income received in India [vide : draft sub-clause (1), (a), (d), (e), (f) and (g)] to cove cases where the income is received not by the assessee imself but by any other person on his behalf.
(8) Explanation 1 to S. {(1) has been incorporated in draft sub-clause (3). * (9) Explanation 2 to section 4(1) is transferredffto the new clause' relating to deemed income'. = (10) Explanation 3 to S.4(1) has also been transferred to that clause'. ' (11) Explanation 4 to existing s. 4(1) relates to come which accrued in a Part B $t:ate or merged territo be- fore the extension of the Income-tax Act thereto énd is Vide notes to draft clause 6.
Draft clause 11 (4) (iv).
Vida draft Clause 11 (4) (i).
Vida draft Clause ll (4) (ii).
Vida draft Clause 1} (4) (iii).{ . E Vidc draft c1au.e' (ii). . i Vida draft Clause 3 (iii).
COODIDF 328' brought into any other part of India after the extension of the Indian Act. These provisions, it appears, have be- come almost obsolete. . -
The Explanation provides that proﬁts accruing in 5 a merged territory after 1-4-1933 shall be chargeable under section 4(1) (b) (iii) only if such incomeiis remitted into another part of India other than the merged territory. Para. 8 of the Merged States (Taxation Concessions) Order, 1949, enacts that Explanation 4 would not apply if the assessee was not a resident in at least three outiof six assessment years viz.,~1943-44 to 1948-49. Even in the case of persons who were resident in at least three out of six years, Ex- planation 4 would not operate,' if the income had been assessed under the State law on accrual basis and had also been included in the total income for rate purposes [under section 14(2)(c)]. Thus, Explanation 4 to section 4(1) would apply only in the case of persons who were resident in In- dia in at least three out of six assessment years 1943-44 to 1948-49 and whose income accruing in the State has escap- ed assessment either in the State or in India.
The Explanation should therefore be omitted. If, how- ever, it is deemed to retain it, it 'should appear in a simpli- ﬁed form. Draft sub-clause (1), (e), (f) and (g) have been drafted to indicate how the Explanation Should be incor- porated. The language has, however, been altered so as to make the provisions easy ofi applic ion. The existing Explanation uses the words "taxable te : itories" and the deﬁnition of these words in S. 2(14A) does not show in clear words the background in which the special provisions relating to merged territories and Part B States were in- troduced. The provision has now been .50 drafted as to relate it to the assessment year with effect from which the Indian Act was extended to merged territories and Part B ' States. A provision may be inserted inithe Miscellaneous Chapter to guard against the possibility bf any income be- ing taxed twice----once under the existing Act and again under the provision as proposed. . 1 (12) Existing section 4(2) is transferred to the new clause on deemed income'. ~ ' (13) Existing section 4(3) forms the'subject--matter of a separate clause dealing with income which does not form part of total income'. 1 4 Notes to clause 5.
The deﬁnition of "previous year" has been embodied in a separate clause, since it is a lengthy one. No change of substance has been made, but drafting changes have been attempted to achieve simplicity, and to state the po- sition regarding various situations separgately. Further, the R V _ .
' Vida draft clause 10, g' ' Vida draft clauses 11,12 and 13.
' the previous year.
329provision at present contained--.«'Rule 5'(i) o-frthe Schedule, regarding insurance iusinessi has been brought here for the sake of comprehensiveness; ' Notes to clause 6.
(1) The clause relating to category "not ordinarily re- sident" has been retained in thedraft but is recommended to be omitted in order _to simplify the law. This recom- mendation was made by the Income-tax Investigation?Com- mission' and also by the Taxation Enquiry Commis- sion'. The only difference in the taxation between r- son who is ordinarily resident and not ordinarily regii ent is relating to the foreign income, and provision for V eter- mining the tax on foreign income in the case of a person not ordinarily resident is containedin second proviso to section 4(1). But for this diﬁerencep both of them stand dn the same footing for the {purpose of taxation. The retention of persons not ordinarily resident as a separate category is unnecessary. ' ' ' , .
(2) The condition' for residence in the case of a erson who has been in India Wit n the four preceding years has now been someiwhat tiered so as to requir the presence of the persdn in In is! for at least thirty d s in 'The a iguity caused by the rase "otherwise than by an occasional or casual visit" in the existing section 4A(a) (iii) will now be avoided. » 9 (3) Section 4A(a) (iv) oﬂ_- the Act, authorising t e In- come-tax Ofﬁcer totifeat a 'on as a resident if he "sa- tisﬁed" that the person, havi %arrived in India du ' g'the year, is "likely to remain" to not less than three years, has been omitted, as. it gives; a vague discretion to e In- come-tax Officer. The words';"_has maintained", in e isting section 4A(a) (ii), have beers' replaced in the draft y the words "causes to be; maintaﬁried", which express e in- tention better. I (4) Draft sub-clause (4).-1-This is new and has b en in- serted to make provision foi ﬁxing the residence o "per- sons" who are not lndividuﬂs, Hindu undivided f ilies, ﬁrms, associations of compaiiiies. ' (5) Draft -sub-clause (5).---This is new. In C.I.T.a£1s. Sa- vumiamurthy', the Madras Hi h Court has held th since there can be a sep 'ate prdvous year for, each so rce of income, the residen?a1 stat of the person has als to be ource.
plica-
separately determin d with reference to each such As this procedure w J 11 be cumbersome and entail co ' J' J ,1:g.1.q=' pan, 194a , 1 \ 3953~1°5+w,o#-;?1-
'. .V='d..~m¢-15» W.-
' Vida pages 28-29. V, ' (I946) 14- I.T.R. '1 1 330 tions in practice, the newly added sub-céhuse provides that a person who_is resident for one source of income shall be treated as resident for all such sources'.
(6) Existing section 4A(c), latter part,' dealing with the determination of the residence of a company on the basis of its income in India, is proposed to be omitted, since such test does not appear to be a proper one. (After the draft was prepared the Finance Act 1958, by section 4. has omitted it).
(7) Draft sub-clause (6).------Though the category of per- sons not ordinary: resident is recommended for abolition, the existing special provisions applicable to such per- sons are retained in the draft. (For example, see section 4(1). 2nd proviso. See also sections 42(2) and 44D, which treat such persons on the same footing. as non--residents). These sub-clauses will. therefore, be useful for the pur- poses of the provisions just referred to.
Existing section 4B (c) which provides that a com- pany, ﬁrm or other association is ordinarily resident if it ' is resident, has been omitted in the draft, as unnecessary.
The distinction between "ordinarily resident" and "not or- dinarily resident" is signiﬁcant only when there is a pos- sibility of an entity being resident and yet not ordinarily resident. In the absence of anything to ﬁle contrary, a resi- dent would have to be regard as ordinarily resident, and no express provision is necessary for the purpose.
'" Notes to clause 7.
According to section 4(1) the chargeable income of every person whether resident or non-resident includes in- come "which is deemed to be received" in India in the previous year. There is, however, no enumeration at any one place of these 'receipts which are deemed to be received in India in the previous year. This clause mere- ly collects together the relevant provisions, without effect- ing any substantial change in language'.
[The deemed income referred to in section 18(4) (tax deducted at source) will be dealt with inthe clause corres- ponding to that section, as it merits special treatment.] Notes to clause 8.
It seems desirable that all provisions relating to income "deemed" to be of a particular year, or deemed to be received in a particular year should appear in pro-
ximity to each other. Hence a part of section 16(2) has.
been embodied in this clause. No change of substance has been made. ' 7 ' A similar recommendation was . _ bytl; '1' -tax lnvcstiption ' ' - ('f903)~ "'10 "S |'43'i4a- ' 33+ "S0c|l:onotestodnﬁ'clau:c8. , 331 Notes to clause 9.
According to section 4(1) the chargeable income of a person whether resident or non-resident includes income, proﬁts and gains which "are deemed to accrue or arise to him in the taxable territories" in the previous year. Income is deemed to accrue- or arise under various provisions scat- tered all over the Act. All these provisions which deal with income which is deemed to accrue or arise in India have now been grouped together.
The changes made are all of a drafting nature, and are intended to remove ambiguity and simplify the expres- sion'. 1 S"u.b--cluu.se'(i).--The words "sale ....... .. of a capital as- set in the taxable territories" in the existing section 42(1) are slightly ambiguous, since "in taxable territories" can be read either with "sale" or with "capital asset". To re- move this ambiguity, the word "situate" has been added after "capital asset". (It is not necessary to make any such addition in the earlier phrases referring to business con- nection etc._. since the language there does not end itself to any ambiguity.) The words "that part of the operations", inthe existing section 42(3) have been replaced by "the operations", for two reasons; ﬁrst, the word "that" in the existing section is not happy, since it is not 'followed by any pronoun, and secondly, the existing words are not in symmetry with the opening words "in the case of ....... ..all the operations".
As to the meaning of the word "operation", see the decision of the Supreme Court, in the Anglo French. Teaco title Co., vs. C.I.T.' -
_ Sub-clause (ii).---An attempt has béen made to simpli- fy the language, by omitting unnecessary words such as "if payable in the taxable territories vlherever paid". The substance is not affected by the deletion of these words, since the proposition sought to -be enacted is only this, that saléiry earned in India is deemed to accrue or arise in In ia.
Notes to clause 10.
This embodies S. 4(2). The section is based on a double ﬁction. While the income of the non-resident husband and is treated as the income of the residentwite, it is also treated as income which is deemed to accrue to her in India.
The provision has been embodied in the draft, with a slight verbal change (see the words 'for on her b'el_1alf" which have been added to make it comnoehensive). * __ 1'(Ig53) 23 I. '1'. ll. 101.
22,-] Law Qou.I58 332 CHAPTER 111 .
INCOMES WHICH DO NOT FORM PART OF, TOTAL INCOME Notes to clause 11.
(1) This clause deals with the various kinds of income excluded in computing the total income of an assessee.
'Simpliﬁcation has been sought to be achieved by the follow- ing devices: '
(i) re-arrangement of the various clauses of section 4(3) so as to bring out their common features (e.g., existing section 4(3) (x)(b), section 4(3) (xiv) etc. have been placed in proximity to each other, as they deal with income of foreigners or employees of foreign Governmcnts\etc.)';
(ii) analysis of the essentials of each clause, and their restatement in a form that can be easily followed; e.g., vide the draft sub«-clause' dealing with casual receipts and the draft sub-clause' relating to local authorities;
(iii) incorporating in the draft clause, provisions re- garding exclusions from total income at present contained in other sections of the Act'; ~
(iv) omission of obsolete provisions; (1)) general simplification" of language.
(2) Provisions relating to income from propertyi held
-on trust for religious or charitable purposes, and income of religious and/or charitable institutions has been? dealt -
with in a separate section on account of its importance'.
Income of a business chargeable under the Act of 1918 and discontinued after the commencement of the p esent Act is, under section 25, sub-sections (3) and (4), ex uded from total income. _This has been dealt with in another separate section'. A (3) The changes' made by the Finance,Act 1958} have been given effect to at the appropriate places.
(4) The changes made are (mainly of a drafting ' ture, designed to simplify the expression as explained i para (1) "above. The following aib-clauses, however, d serve special notice, as the changes made there are not urely formal :-- ' f I c. g., Vida clause 11 (5) to (9). . ' ' Clause 11 (3).
' Clause 11 (22).
' e. 3. Clause 11 (11) to (14).
5 Sn draﬁ clause 12. ' _ g _ _ 'sudnftclmncls. -' p A - ; _~ ' 333 Sub--clause (7).---Items (ii)- to (v) of this sub-clause correspond to sub-clauses (b)-:to (e) of section 4(3) (x) of the existing Act. The requirement that the recipient must not be an Indian citizen is contained, at present, only in two sub-clauses of-section 4(3) (x). Sub--clauses (b) and
(d) relating to Consuls etc., and Trade Commissioners do not mention it. In the draft, however, this has been made applicable to all cases, for the sake of uniformity.
Sub-clause (8).------In the existing section 4(3)(xiv), the exemption is conditional on the stay of the'emp1o ee of a foreign enterprise for a period not exceeding in e ag- gregate "ninety days in any year". The words "any year" are, in the context, vague. It has, therefore, been made clear that the stay should not exceed ninety days in the previous year, and it should not have exceeded ninety days in any ﬁnancial year prior to the previous year.
There is no reason why this exclusion should be avail- able to Indian citizens. The provision has therefore been altered so as to conﬁne it to foreigners.
O Sub-clause (9).--It seems desirable to extend the bene- fit of this clause to services rendered by a foreigner even before the actual commencement of the business. Explana- tion' is intended to achieve this object.
Sub-clause (15).--"Wholly and necessarily" has been re- placed by "wholly and excl ively";-, cf. existing section 7(2)(iii) as redrafted.' The ject is"to liberalise the al- lowance. See the recommendation of the U.K. Royal Com- mission on the Taxation of profits and income'-'.
Sub-clause (17) and (24,).---These correspond to certain exemptions enjoyed, at present, under .a notiﬁcation issued under section 60. In view of the importance of the subject- matter of the exemptions, they have 'been included in the draft sub-clauses. -
Exemption for members of Nepalese; Forces [Existing clause (.7:1'.)].--This has been omitted. ere are no Indian .State Forces now, and there isno meniber of the Nepalese Armed Forces now serving in" India.
Sub-clause (18).--This item will, of course, have to be omitted if it becomes obsolete by the time the new Act comes into force. ' Notes to clause 12.':
1. This clause is based on" section"4(3)(i) and (ii) of the Act. There are' certain anomalies which we have noticed in the existing provision and we have attempted in the proposed draft to put an end to sI.'x:h anomalies as far as possible. ' ~
-,; " VHO also notes to draft clauses 15- ,' pa:-a,6.V' 3 'U.K.RoyalCommiuoinonthcT tionof_ Report June, I955, (Cmd. 9474). Q7, , tsandlncome Final ﬂp ' p 5,?! 334
2. Before the Amendment Act of 1939, there was in the Act only the provision which corresponds to the exist'- mg provision in 4(3) (1), main era. The instruction in the Income-tax Manual issued by e authority of the Govern- ment of India at that time was, that the word "property" in clause (i) does not bear the restricted meaning that it bears in section 9 of the Act, but includes securities or business or share in a business. In view of the recommen- dations made in the Income-tax Enquiry Report, 1936' (to give statutoryeﬁect to this practice, subject to the condi- tions to be observed by the business) an amendment was introduced by adding clause (via) which was as follows :--
» "Any income derived from business carried on, on be- half of a religious or charitable institution, when the in- coréie is applied solely for the purposes of the institution an
(a) the business is harried on in the course of the car-
rying out of a primary purpose of the institution, or
(b) the work in connection with the business is mainly carried on by beneﬁciaries of the institution."
(After the amendment in 1939, the Government chang- ed the instructions in the Manual, expressing the view that in the case of business, the conditions laid down in clause (ia) should be fulﬁlled before exemption could be grant- ed).
9 3. The meaning of the word "property" in clause (i) was judicially considered and it was held that it includes even business if the business was subject-matter of a trust. This was the view taken in Charitable Gadodia. Swaideshi Stores vs. C.I.T., Punjab by the Lahore High Court'. Deal- ing with the contention that the word "property" in clause
(i) does not include business. their Lordships of the Lahore High Court held that the two clauses were intended to apply to different situations and that the word " roperty" in clause (i) was wide enough to include all kin s of pro- perty including business. It was also pointed out that clause (ia),dealt with a business conducted by a religious or charitable institution without any reference to ?trust' whatever. In an instructive judgment, Din. Mohammad J. in that case also pointed out the distinction between an institution and a trust. He held that an institution may be religious or charitable and may still. not be held under trust. Clause (ia), according to him, does not in any way subtract anything from the sub- ject and provides immunity for a certain kind of business which in the view of the legislature had not already, been rovided 'for. From this decision it follows that where gusiness, which is property within the meaning of elause
(i), is impressed with the character of trust, the income from such business is altogether exempt and it is not obli- gatory that in the case of. suchbusiness the conditions laid
-' Page 6, I. T. Enquiry" c_port, 1936 ("also known "as V 1 . I I I I', 7 " 1 « Export)-V _ .. p , A
-(x944)121.r..n.u:..- ,4 335 down in clause (ia) should be fulﬁlled. (Clause (ia) thus applies to a different situation, namely, where there is an institution and that institution 'carries on business which is not subject to a trust. In such a case the remiisites of the section must be complied with. The income must be applied solely to the purpose of the institution and the charitable or religious institution must also fulﬁl the con- ditions in sub-clauses (a) and (b). As to the distinction between an institution and a trust, see also the discussion in a recent Privy Council case,' and Gunn's commentary on the Australian Income~tax Act.')
4. That "property" in clause (i) includes business has been well established not only by a decision of the Judicial Committee' but also by the latest pronouncement of the Supreme Court in J. K. Trust Case'. . This aspect there- fore does not present much difficulty. (The dilﬁculty as to in which set of circumstances clause (ia) applies still remains, though the View in Gadodia Swadeshi Stores' case has subsequently been followed and conﬁrmed by the High Courts -of Allahabad' and:Bombay'.
5. In view of the recommendations. made by Din. Mohammad J. in Gadodia's case and by the Income-tax In- vestigation Commission [Report (1948) at pages 56-57, paragraph 131] the legislature in 1953 [vide the amending Act of 1953 (Act 25 of 1953)] converted clause (via) into a proviso to clause (i), and by subsequent legislation it was made clause (b) of the proviso to clause (i) (vide the amending Act of 1955). 'The object of this legislation was to restrict the operation of clause (i), where the property consisted of business impressed with the character of trust, by applying the limitation imposed by clause (b) of the proviso'.
But in carrying out this object, the immunity which was granted under clause (ia), (as it stood before 1953), in the case of business carried on' 'by a religious or charit- able institution and not subject to trust, was negatived. The linking up of old clause (via)_ to clause (i) had the effect of taking away the separate exemption granted by clause (ia). In other words, the conversion of clause (ia) in- to a groviso has led to the op osite result of depriving the bene t (limited though it be , which; was intended to be _ 1 Minister of National Revenue vs. Tmsts and Guarantees Co. Ltd. (1932) 4-A. E. R. 149 P, C. See also 2". M. C. A. vs. F. C. off'; E1926} 37 C. L'. R. 351 at pp. 350, 361. g I ' ' 4th edition, p. 114, para 292. l .' Tribune cast, (1939) 7- I. T. R. 4:5 p. Q.-:61. A: 241. _
- - [1957] 32 I_:r.R. 535 (Bombay H. C. on-remand 11933333 I.T.R. 32). " (1944) 12 I. T. R. 385. - j -
i ' C.I.T. vs. Radlzaswm-u"Sat:ang Salim. (.1934) 25 I. T. R. 472. r" 21 J. K'. Trust w.C.j".,'(l958) 33iI..'l'.'R.32. . . . _ . ' . y= ' C . 'Report of-the Tﬁntloa-'1 _ y' Os?on,_'(}953-3954). Vol. II, Ch.:V'I I..;1aIrIII'!|Phs 1,aud~3,']nge;- '3 " vi'; a -1.,
-4 336 conferred by clause (ia) on charitable and religious instit- tutions which carried on business which was not subjected to trust (provided they fulﬁlled the conditions laid down in paragraphs (a) and (b) of that clause). We think that this result was not intended by the legislature. If the intention is----as undoubtedly it has been from 1936----to impose restrictions in the case of business whether carried on by a trust or by a religious or charitable institution, the intention should be clearly stated in the Act. But the im- munity itself need not be taken away. In order to avoid the anomaly the clauses should be so drafted as to bring about the real intention of the legislature, and this we have done in the proposed draft. '
6. Incidentally, it may be noted that the legislature really wanted the conditions contained in paragraph (b) of the Proviso to apply not only to cases where business is carried on by the institution, but also Where the business was the subject-matter of a trust (i.e., even if there was no institution). This object has also not. been properly car- ried out, and some redrafting is desirable on this point also. On this assumption, it has been made clear in the draft that the restrictions in paragraph (b) of the Pnoviso will apply to both the cases. ~ ,
7. In short, the redraft makes clear the two points that require clariﬁcation, namely :.--- '
(i) Exemption under section 4(3) (i) is (in the case of a business) subject to the conditions given in@ Pro- visio (b), irrespective of whether the business is carried on by a trust or an institution. =
(ii) The exemption is also available to institutionf not subject to trust, (subject to the same conditons).
8. For the sake of clarity, a__ trust carrying on a busi- ness is dealt with separately in draft sub-clause (2), and draft sub-clause (1) is conﬁned to other properties, wide the draft Explanation thereto. 1
9. Besides this important change, the following pbints may also be noted :----
(a) The phrase "religious or charitable purposes?' oc- curring in the existing Act has been replacetl by the phrase "charitable or religious purposes", to give more prominence to charitable purposes.'
(b) The existing section 4(3) (i) opens with the words "subject to the provisions of clause ((3) of %sub- section (1) of section '16". The limitation expres- sed by these words has been retained in draft sub- clause (1), but it is to be considered whether there is any sound reason for this limitation. '111e eﬁect of the words ' ques .seems to be that ev n in cases of t er tor. ' itable purpose th in- come of the ansfe A assets is regarded " the ~33?
transferor's_income.' It would be more consistent _ with the spirit of the law if such income were ex- cluded from total income, at least so long as the income is applied for a charitable purpose. The words "subject to the provisions of clause (c) of stab-section (1) of section 1'6" "deserve to be delet- 6 . » Notes to clause 13.
Section 25, sub-sections (3) and (4) provide for two things. One is the exclusion from total income of income of certain businesses, and the. other is the right to claim substitution of the income of the year of discontinuance etc., in place of the last year's income.
The ﬁrst part (exclusion from total income) has been
-- (f%il'n(;)Odied in the present clause, with the language simpli- e .' CHAPTER 'Iv ~ .
COMPUTATION OF TOTAL INCOME Notes to clause 14.
1. This corresponds to section 6 of the present Act. The opening words of the section, have, however, been mo-
diﬁed so as to 'make it clear that the section merely classi-.
ﬁes the chargeable income into different heads for the pur- pose of computation of tota1.income.. fThat section.6 con- cerns itself with classiﬁcation and seqtions 7, 8; 9 etc. with computation is clear from the' disaussion in Kothari vs. C.I.T." and. in United Commercial Bank Ltd., vs. C.I.T.f
2. Item (c) relating to "Income from property" has been changed into "Income from House Property". Sec- tion 9 is essentially concerned with''' House Property and the description now adopted will clearly indicate the .
nature of the head.
Another variation in the present section is the men- I tion of the head "Income ﬂrom ot er sources" after the 3 head "Capital gains", indicating _"Income from other : sources" continues to be the residpafy head as hereto- 1 fore.
' These words were introduced in 1953 in pursuance of the recommenda- tion made by the Income tax Investigation, Commission; see its Rcport (1948), para 129, page 56. -
.1 Sac notes to clause 91 for comments on the retention of existing section 25 (3) and (4). ' = (1951) 20 r.tr.n. 579. i ' ' 4 (1957) 32 1.r.n. sea.
338Notes to clauses 15 to 17.
A--Salarics:' Simpliﬁcation of the present section 7 has been at-
tempted in the following ways :-- V
(i) only the substantive provision specifying the charge in respect of _"salaries" paid or payable by afi employer has been dealt with in the main c ause'.
(ii) the extended meaning given to the expression "sa- laries" is omitted from the substantive clause and separately deﬁned in the interpretation clause;
(iii) similarly, instead of mentioning the different types of employers'in the substantive part, the term "Employer" alone has been used, a deﬁnition hav- ing been given separately to cover the various txpes; 7 (ivj the permissible deductions are placed in a separate clause;
(v) the present Explanations about "perquisites" (Expln. 1) and "proﬁts in lieu of salary" (Expln. 2) have been placed in the interpretation clause.
V 2. Provisions dealing withincome classiﬁable as salary, scattered elsewhere 'in the Act, have been collected together, e.g., draft clause'----dealing with notional payments from provident funds etc.
3. The existing section makes a distinction between salary which is "due" to an employee and other salary "paid" which is not due to him. The former is taxable on "due" basis whether actual payment has been made or not, while the latter is taxable on the basis of actual payment. This aspect is more clearly brought out in the present draft. (See the decision of Calcutta High Court in Bhuban Mohan Banerjee vs. C.I.T.' though in an earlier decision' it was held that an amount due in one year could be taxed in a later year in which it was received).
4. Arrears of salary would, at ﬁrst sight, appear to be delayed "payments" for amounts which had already ac- crued "due'-' in thelyear or years in which the employee had rendered service. Looked at from this angle, they do not present much difﬁculty.
But the arrears of salary which call for speciﬁc treat- ment are those where Services are rendered in a past "ear but the quantum of payment to be made is not determpned till the year of receipt of the amount by the employee in a subsequent year, or where the emoluments of the post are revised or 'a promotion is made'retr_ospectively. In these case-s"it will be difficult to include in the regular original assessment the arrears sanctioned and paid subsequently, ' Cl c 15. V ' Viftusdx-aft clause 17 (2) gi) and (vii). ,- .- - _j I (1956) 29 I.K.R. 229,_2 . A ; ﬂ ' Uslmraui R0] Clwudhuralu, In re. (1911). I0. [..'I.'3R. 199.
'339 since in many cases the determination may take years. It would also not be possible to keep the assessment pending until such determination is made. The Departmental prac- tice has been to include such arrears in the total income
-of the year of receipt. Relief is aﬁorded against the hard- ship involved in the taxation of the lump-sum by means of an order under section 60, sub-section' (2), the effect of which is that the arrears are attributed to the periods to which they should reasonably be related. Assessment in the year of receipt is in accordance with the decision of the Calcutta High Court in Usha Ram' Roy Choudhuran'i.'s case.
The recent decision of the Calcutta High Court in Bhuban Mohan Bane'rjee's case,' however, contains obser- vations which may be taken to mean that a salary pay- ment made in a subsequent year would still be taxable 'only on due basis in the ﬁrst year. The decision does not create any diﬁiculty if the word "due" is interpreted as relating to the point of time when the amount is actually «quantiﬁed by the employer. On this view the claim for relief under section 60(2) may not be admlssible. But if it is intended that such amounts should be related to the back years and subjected to tax under section 34, diffi- culty may arise in the initiation of such proceedings be- cause of limitation. It can even be argued that these are not cases of escapement of -income, there being no omis- sion or commission by the assessee or by the Department. 'There will be further difficulty for the employer in the matter of making deduction of tax at source, and some confusion is bound to arise as to whether the tax so deduct-
ed at the time of payment should be' given credit for the year for which the assessment under section 34 is supposed to be made. .
On the whole the present Departmental practice seems to be a reasonable compromise and is fair to the assessee and the Department. It is fair to the Department because the complication of section 34 is avoided, and even when .an. order under section 60(2) is passed the consequential' ad- justment of tax is made in that assessment itself and not 'by reopening past assessments. It ispftnir to the assessee, because if the amount were to be treated as due only when it is paid, the question of relief under'section 60(2) would not.arise, while the Departmental practice ensures that the assessee is to be in the same position as if he had been "taxed in the respective years after spnead-back of the ar- rears to the relative period. » There may, of course, be cases when the assessee will be worse off by the arrears being related back than when he is taxed on the arrears. This will happen when the ar- rears of salary are received after retirement or after rever- sion from a higherpost. In those cases-tl'ie'ass'essee will not apply for relief under section 60(2) and no action is taken by the Department itself 'section :34..o,r otherwise.
.'-M (1942) I0'l'.=-T. An. 199."=- - t (1956) 29 I. 'r. R. 229,236. .~ 340
-- In view of the position discussed above draft sub-clause
(c) has been added to deal adequately with arrears.
5. Section 60(2) was placed on the statute book at a time (in the-"yea,r" 1939) when the chargeability of salary was not on due basis but on freceipt" basis, under sec- 'lc1on 7 as it stood then. Accordingly it continues_to emp- oy language appropriate to a_higher tax burden in conse- quence of the employee "receiving" a payment as salary in arrears or for more than twelve months. This contin-
gency will not arise on the present "due" basis of taxation on salary.
It is, however, proposed notto make any changes in that section, since the section will be useful in so far as it gives relief in respect of lump-sum payments received by the employee and treated as pmﬁts in lieu of salary nder explanation 2 to section 7(1). It may also be use 1 in view of the fact that. a provision for charging arrears not already taxed has been added in the draft.
6. A few minor points also deserve notice; These are ~ as follows :--
(i) Draft sub-clause 16 (ii) :----The provision relating to deduction for entertainment allowance has been made more logical in one respect. Where a person was in receipt of entertainment allowance at a lower rate before 1stfApriE 1955, his claim for deduction will not be tofally forileited, but will be reduced to that previous lower rate. The pre-
sent section 7(2) (ii)' does not make this clear.
The changes made by the Finance Act, 1958, have been given effect to.
(ii) Draft clause 16 (iv) :---The allowance for expenses- incurred by an employee in the performance of his duties has been made exclusive not _only of entertainment allow- ance (as at present), but also of the allowance for ex nses for books etc. and conveyance allowance. The existin pro- vision; section 7(2) (iii), does not include these latte . cate- gories. The change has been made in order to make' the provision comprehensive. 3 The wording has also been changed so as to make it precise. The word "necessarily" has been omitted,§ as it is unduly restrictive. We have followed the language of existing section 10(2) (xv). ~ It may also be pointed out that the Royal Commission on the Taxation of Proﬁts and Income (United Kingdom)' examined the corresponding. provision in the UK.' »Act (Schedule E or old Rule 9)' aid has recommended that the allowance should be made liberal'. It has proposed' the '';'Now see the U. K. ngaome-may-.'g 1952, mun. schedule, Ru! 7. ' non: Commiuionon' Tan! 'ofhoﬁts udtlnoolue, Final c. Juner955.(C-ml-941>.P-se4 p g 140-. . r ' - M: 5 fl '341 wording "all expenses reasonably incurred for the appro- priate performance of the duties of the oﬁice or employ- ment". This, the Commission has pointed out, would re- move the complaint that the legislature imposes upon those in employment a narrower form of allowance for expenses than it accords to persons deriving a private in- come from their own efforts. The wording suggested by the Royal Commission is worth consideration as an alter-' native.
(iii) Draft clause 17(1) :--'1'-he deﬁnition of "employer" as now adopted includes a foreign Government, reference to which is not to be found in the present section 7. It is for consideration whether the mention 'of foreign Govern- ment as employer is acceptable; It has been suggested that by such inclusion the assessee'will not be subject to any heavier tax burden but on the other hand may qualify for relief under section 60(2) which will be advantageous to him. The possibility of an employee of a foreign Govern- ment being required to make an actual payment of tax (on "due" basis) without actually receiving the salary will not arise, because section 7(1), 2nd roviso, lays down that where tax is deductible at source, t e sesessee shall not be called upon to pay the tax himself unless he has received salary without deduction. How far the procedure for de- duction (section 18) will be enforceableagainst a foreign Government will also be a matter for consideration.
(iv) Draft clause 17(2) :---Item (ii) relating to annui- ties has provoked some discussion. It has been suggested that annuities paid by the Government or local authorities should be taxed as salary irrespective of Whether the payee is an employee or not. This cannot be accepted, as it goes against the basic scheme of the section.
Notes to clauses 18 to 21 The existing section 8 is now covered by four clauses.' The first clause relates to the: charge, the second relates to deduction, the third relates to deductions in the case of banking companies and the last clause relates to amounts not deductible.
Clause 18 The word "receivable" in the present section 8(1) has been interpreted to mean ''reoeived''.' : is decision has been given effect to and the word "rec ed" has been subs- tituted for the word "receivable" in e draft clause to make the intention clear.
Clause 19 This clause and draft clause 21 incorporate the subs- tance of existing section 8, first proviso. Thelanguage of ' Clame:_x8 to 21. ' 9; . -
'SctIaLdbh'Dd 1:' .c.1.r' w %I.T.R. Jr" ' Clwuiar v:C. I. .M:lrav:. (1953) 'P . '.13., 33"!" . E ' B -f-Interest on securities.
- .. .9 g¢qu1z,Co¢apnativc Ltd. vs.- C'-. I. T. (1949) 1-7 II. Tfk.
342the present proviso is involved'. A rough analysis will 'show that it deals with three things :-- V
(i) Allowance for realisation expenses and interest on money borrowed for investment;
(ii) Exception to the allowance at (i) above, in respect of dinterest payable outside the taxable territories; an ,
(iii) Counter-exception to the exception at (ii) above, for interest for which tax is deducted at source or an agent can be appointed under section 43. * In the draft. therefore, the proviso has been split up. Item (i) above has been incorporated in this clause, while itlems (ii) and (iii) have been embodied in a subsequent c ause.
The provisos to existing section 8, which exclude cer- tain items of expenditure incurred for realising interest etc., do not express the exclusion as "deductions". Since, in the draft. these have been treated as deductions, it is possible that the deductions might. in a particular case, exceed the total gross income. In such cases, the excess will be treated as a loss. We do not think that this result should be avoided. Deductions under the head "Interest on securities" should be treated on the same lines as de- ductions under other heads; if the income is a loss, it should be dealt with as a loss under any other head.
Clause 20 This embodies the Explanation to section 8, recast in form so as to make it less complex and state the.various aspects distinctly. ' -
'Clause 21 Item (i) gives effect to the latter part ofvsection 8. ﬁrst proviso (see notes to the clause relating to deductions, above) Item (ii) is new. The Madras' and Bombay' High Courts have held that expenditure pertaining to interest on tax-free securities is not deductible, while the Nagpur High Court has taken a contrary view in C. P. and'Berar Provincial Co-operative Bank Ltd., vs. C.I.T.'. Effect has been given to the view taken by the Bombay and Madras High Courts. ' Item (iii) is also new and seeks to make it clear that interest paid on money borrowed for investment» in tax- free securities isnot deductible. « 'See the criticism in'Um't¢d Commercial Bank vs. C.1. T. (1953)
241. T. R. 425.
' Madras Provincial Co-operative BONE'! case (1942) to I, T.
i '(!94.6) I4I.T.R.].7¢:. ,: 5..-' .
'I 343 Notes to clause 22 to 21 . _ Section 9 of the existing Act has been split up into separate clauses'. The title of 'the head has been charged into '"Income from house property", because the section deals only with that property 'and not any other immova- able property. --
In the draft, after having stated that the annual value is the basis of chargeability, the expression "annual value" is deﬁned. The basis of computation of annual value in the case of a tenanted building and in the case of owner- occupied building is set out separately'. The main drafting changes are the omission of provisos and re-arranging the section on a more logical basis. An interpretation clause has been added. ' The detailed changes made in each clause are explain- ed below :--
Clause 22 ' The head has been changed into "Income from House property" as already explained. In the expression "bona- tide annual value" the words "bona-ﬁde" have been omit- ted. The section deﬁnes only "annual value" and not
2. "bona-ﬁde annual value". Section 9(2) also uses "annual value'' only. Moreover the words "bona-ﬁde" do not in any way make the meaning clearer.
Clause 23 Sub-clause (1) :--The sub-clause corresponds to sec- tion 9(2) and no change has been made.
Sub--clause (2):--This is new. It seems desirable to embody some rules in the Act to furnish guidance in deter- mining the annual value of tenanted property. The draft sub-clause tries to set out the considerations to be borne in mind in such cases. The sub-clause, of course, does not purport to be exhaustive, and refers only to fac- tors of importance. « Sub-clause (3) :---Deals with property occupied by the owner. The ﬁrst para sets out, in a simple form, the provi- sion contained in section 9(2), first proviso for reduction of the annual value. The form has been changed in order to avoid all ambiguity. The second para corresponds to the last line of section 9(2), ﬁrst proviso. The existing sec- tion provides that the annual value shall not exceed 10 per cent. of the total income of the assessee. Now the total income of the assessee will naturally include income from such occupied property. The calculation of the an- nual value thus becomes a complicated mathematical pro- blem (see formula below). It will be evident from the formula given below that the annual value so calculated comes to 6/55 i.e., roughly 11 r cent. of the other income of the assessee. The draft, t erefore, provides that this 11 per cent. shall be taken as the annual value. No addi- tional liability is saddled on the assessee.
. "Cllll.I:¢S.2_2 t_o27. T y ' _ _' I"
'7H«dI&'l3-I . .L-'El '3 '- .' --\.,_;
C. Income from house P1'°P<=|'tY-
The draft seeks ..removig_this defect. The pro A ion has also been made ' ler jremoving the'referen eg to the law authorising 4 evy o 13 etc., as A : It 344 i The formula referred to above is derived as under :-
Suppose AV is the annual letting value of the sélf-oc- cupied property. Now, according to section 9(2) first pro- viso, the annual letting value 1'..e., AV is 10 per cent. bf the total income; or in other Words the total income is 'ten tiomﬁsv the annual letting value. Thus the total income' is If Y is the other income of 'the assessee, then--.
Total income 10AV=Y+(AV--AV/6) i.e., 60 AV =6Y+(6AV--AV) i.e., 60 AV=6Y+5AV z'.e., 60 AV--5AV=6Y 'i.e., 55 AV =6Y i.e., AV=6/55Y i.e., AV=10'9 per cent of Y (roughly 11 per cent). -
Sub-clause (4) :----This corresponds to section 9(2), 2nd proviso. The following changes have been made-- 3
(i) the word "occupied" has been replaced by "actual- ly occupied" at all places, since the proviso is meant only for cases where, the property, though occupied, is not actually occupied by the ovéner;
(ii) the case where the property remains un-occupied for the whole year and the case where it remains un-occupied for a part of the year have beengdealt with as separate items, for the sake of 'clarity, and the formula for computation of annual value in the latter case has been deﬁned in clear language. The existing expression "computed proportiqnate- ly" sounds abrupt and does not fully express 'what is intended. ' ' Clause 24.
Sub-clause (1), Item (i):----This corresponds to s V tion '9(2), 3rd, proviso. The existing provision bis defecti e in form, because it brin s about in a rounda out way re- sult which can be stagted directly. The gist of the c ause is that inl the casehofulai telzjnargafsl ptr<:lpert%'},1_one half at tlge rnunicipa axes s o e uc e . is nee n e expressed in the form- of a "deeming" provision (as s.;9(2), 3_rd proviso, clause (a) appears to do) regarding the tenant's liability, followed by a provision (clause (b) of the movi- so) for deduction if the tenant's liability is borne by?' the owner. i Z:
i 345 may be added here that as a general rule, such laws make the tax payable Wholly by the owner-and not by the ten- ant. -
Item (ii) :--The existing section' 9(1) (i) -has been split up into two parts (a) where the property is occupied 'tained in section 9(2), 2nd Proviso, last by the owner and (b) where it is occupied by the tenant. The two parts have been dealt with separately since in the latter case the annual value has to be reduced by the one ' half of the deduction for municipal 'taxes. The expres- sion "reduced annual value", has been, therefore, used for the purpose; it has been explained in the explanation at the end of the clause. It is also made clear that the existing allowance of the one-sixth of income is in respect of re- pairs.
Item (iii) :-The existing provision, section 9(1). (ii), is ambiguous, since the words "not exceeding one sixth of ' such value" can be read either as applying to the "differ- ence" or to "rent". This has been avoided by splitting up the sub-clause. The Proviso for assessment year 1951-52 has been omitted as spent.
(As to "reduced annual value", see notes under item
(ii) above).
Item (iv) :--No change has been made in the exist- ing provisions [Section 9(1) (iii)].
Item (v) :--Existing section 9(1) (iv), has been split up into four items (v) to (viii) for clarity. The proviso is transferred to a separate clause'.
Item (vi): ---See notes to 'item (v) above.
Items (vii) and (viii) :---See notes to item (v) above.
Item (1'.r)--~No change has been made in the existing section 9(1) (v). .
Item (x)--The percentage for collection charges, as prescribed by rules, has been embodied in the Act itself. (As to the expression "reduced annual'-value" see notes un- der item (ii) above). I Item (xi)--Verbal changes have made to im-
prove the language. (As to the expression "reduced annual value" see notes under item (ii); above.) I Item (a:ii).---This incorporates- the: substance of the notiﬁcation providing for dedpction of irrecoverable rent.
Explanation :--(See notes:under item (ii) above). Sub-clause (2)----This gives effect to the principle con- pline, putting it in a more conspicuous form;
1 Clause 25.
D-Proﬁts and 3.46 Clause 25.
The amounts not deductible have been put 'in one clause.
Clause 26.
This clause reproduces the provisions of sub-section (3): of existing section 9 without any change.
Clause 27.
_Sub-clause (i)-----reproduces the existing provision in section 9(4) (a).
Sub-clause (ii)--reproduces the existing provision in section 9(4) (b) with the addition of the words italicised as even a part of a building such as a ﬂat may be allot- ted on ownership basis, as very often happens in Bombay.
Sub-clauses (iii) and (iv)---The deﬁnitions of "annual charge" and "capital charge" have been taken from the decision of the Supreme Court in New Piece Goods Bazar Co., Ltd., Bombay vs. C.I.T., Bombay.' Sub-clause ('v)---gives effect to the change made by the Finance Act, 1938.
Notes to clause 28.
-. Section 10 of the existing Act, relating to proﬁts and gains" ''"5'' gains of business, profession or vocation is cumbersome in 11653 CIC.
form and illogical in arran ement. It is proposed to split up the section, so as to dea separately with the charging provisions, deductions, amounts not deductible, and provi- sions in the nature of interpretation.
The opening clause' deals with the charging provi- sions and enumerates the various categories of income to be classiﬁed as proﬁts and gains of business. In order to make the enumeration exhaustive, the provisions at pre- sent contained in section 10(5A) for treating payments re- ceived for termination of managing agency or other agen- cy etc. as proﬁts and gains of business, have been trans- ferred to this clause as~sub-clause (ii). For the same rea- son, the provision in existing section 10(6) regarding in- come of a trade association rendering services to its mem- bers has been transferred to this clause as sub-clausei (iii).
Draft Explanation 1 is intended to clarify the position regarding classiﬁcation of proﬁts of managing agency, and does not mark any departure from the present practice Draft Explanation 2 incorporates the Explanation 1 in sec- tion 24(1), as it should be appropriately placed here.
Notes to clause 29.
This clause gives the general scheme of arrangement of the sections in the draft dealing with proﬁts and? gains of business etc. The object '3 to give a bird's-eye viewof S '»...a,' ' (1950) :8 I. -T. R.» 5168. G.
' Clause 28.
34: b the main provisions and to enable the reader to know at a glance how they are arranged. The inspiration for this kind of arrangement is derived from the U. S. Internal Revenue Code. ' Notes to douse 30.
This clause deals with deduction for rents, repairs and. insurance charges for buildings.
The expression "building used for the business" has been used throughout the whole clause for uniformity (as in the existing Section 10(2) (iv) and (ix); in contrast to "building in which business is carried on" used in section 10 (2) (i) of the existing Act).
Draft Clause (a) (i)--C~ol1ects together the deductions allowable for premises used for the business, where the as- sessee is a tenant.
Cases where, only a part of the premises is so used, have been dealt with separately.' Draft clause 30(a)(ii)----Dea1s with the deduction for repairs to a building, where the assessee is not a tenant.
Draft clause 30(b).----Corresponds to section 10(2)(ix), earlier part. Cases where ong a part of the premises is. used for the business, are de t with separately.' Draft clause 30(c)--needs no comments.
Notes to clause 31.
This clause collects together the deductions for repairs,' etc., of machinery, plant, etc. and does not need any com- ments, as the changes made are verbal and consequential on the scheme adopted in the draft.
Notes to clause 32.
Sub-clause (1)--The various allowances in the nature of depreciation have been grouped together in this clause. To simplify the clause and make it brieﬁ, the conditions for depreciation allowance have been dealt-iwith in a separate clause'. In the interest of clari , the various classes ofas-V sets have been dealt with separa 1y. i a Draft clause 32(1) (1) & (ii)--Toget '1i exhaust the first para of existing section 10(2) (vi). V e second para of section 10(2)(vi), beginning with "andnvhere ....... .." and ending with the words "cost thereof to:11he assessee" has been omitted, as its operation is Eimited tab the year of erec- tion of a. building erected during the assessment years 1945- 46 to 1955-56. .
1 Sec draft clause 38 (1).
3 See draft clause 38 (2).
3 Vida draft clause 34,.
2$--l Ltw Gom.[58 348 As regards the proviso to existing section 10(2)(vi), clauses (a) and (c) of the proviso have been transferred to the draft clause on conditions for depreciation'.
Clause (b) of the proviso has been transferred to the Chapter on Aggregation of income and Set off of loss, being relevant thereto.
Item 32(1) (ii)--See notes under item (i) above. Item 32(1)(iii)---Existing section 10(2) (via) has been simpliﬁed as follows :--
(i) The main proviso finds a place in clause (iii) while the second parenthesis (for exclusion of extra allowance for double shift working) has been framed,as an Explanation; this will avoid interruption in reading.
(ii) The ﬁrst parenthesis-----containing the words "(which shall be deductible in determing the written down value)" has been omitted. Since clause (via) now forms part of "depreciation", the allowance will naturally be de- ducted in determining the written down value under exist- ing section 10(5) (bi).
(iii) The time for the allowance--ending on the 31st day of March 1959, has been transferred to the clause relating to conditions for depreciation". If this deduction becomes obsolete by the time the new Act comes into force, it may be deleted.
Clause 32(l)(iv)----The propositions embodied in sec-
tion 10(2)(vii) are these :--
1. A loss on the sale of an asset is allowed as a deduc- tion. "Loss" here means the difference between the written down value and the sale price when the latter is lower than the former;
2. A proﬁt on such sale is counted 'as income. "Proﬁt" here means the excess of the sale price over the written down value. (If the sale price exceeds even the original cost, then such excess is a capital gain.)
3. In the case of asset not sold, but discarded, eto., the place of sale price is taken by its scrap value, as increased by insurance moneys, etc., if received.
Of these propositions, No. 2 has nothing to do with deductions, and relates to income by way of balancing
-charge.
An attempt has been made to simplify the section so as to embody these propositions in_a simple form. Simpliﬁ- cation of the section has proceeded on the following lines :-
(i) Only the "Loss" aspect has been dealt with. here. The proﬁt aspect (2nd, 4th and 5th provisos) has been dealt with in a separate clause relating to deemed proﬁts'.
' Vida draft clause 34. (1) and 34 (2) (iii). ' Vida draft clause 34. (2) (ii).' ' Vidc draft clause 4.1 (2), 349
(ii) Unnecessary repetition has been avoided. The 3rd proviso and the main para of section 10(2)(vii) have been combined in the draft in clause 32(1) (iv), since the princi- ple is the same.
Much of the existing 4th proviso repeats parts of the 3rd proviso. The draft clause 32(1) (iv) expresses the prin- ciple behind these two provisons in such a manner as to render repetition unnecessary in the draft for the fourth proviso'. .
(iii) Simplicity in expression in general has been at- tempted. For example, the 3rd proviso at present says that where insurance, etc., moneys are received, then the amount by which the difference between the written down value and the scrap value exceeds the amount of insurance moneys is allowed as a deduction. This merely embodies the simple proposition (vide proposition 3rd above), that in- surance -moneys are added to the scrap value.

The draft adopts the second formula. Sub-clause (2)--needs no comments.- Notes to clause 33.
Existing section 10(2)(vib) has been incorporated here. An important change has been made with reference to the year in respect of which the development rebate is to be allowed. The existing section allows it only for the year of acquisition or installation; but it seems desirable to allow the rebate in the next year, if the ship or machinery is ac- tually put to use in the next year.
The proviso to existing section 10(2)(vib) has been transferred to a separate clause relating to conditions for depreciation and development rebate'.
The changes made by the Finance Act, 1958, have been given effect to.
Notes to clause 34. .
Sub-clause (1)--The' provisos to section 10(2) (vi) and section 10(2)(vib) of the existing Act lay down that the de- duction under these clauses is to be allowed only if the pres- cribed particulars are furnished. Thedraft embodies this requirement and extends it to deductions under existing section 10(2)(via) and 1G(2)(vii) also, since these cases should stand on the same footing so far as the point under discussion is concerned. ' ' Draft clause 4.1 (2).
' Vida draft clause 34. (3).
350Sub-clause (2)--1t2m (i)----Is new. It embodies a provi- sion contained at premnt in the rules [vide Rule 8, First and Second Provisos, Indian Income-tax Rules, 1922], as to depreciation for user for part of the year.' Item (ié)----Incorporates the limitation contained in the last line of existing section 10(2) (via). If the deduction it. self becomes obsolete, this might have to be deleted."
Item (11ii)--Corresponds to existing section 10(2)(vi), proviso (C), under which the aggregate allowance for de- preciation should not exceed the original cost. The existing section applies to the allowances under section 10(2) (vi) and 10(2)(via) only. The draft will cover section 10(2)
(vii). also, since it culd not have been the intention of the legislature to exclude that allowance from the rule that the aggregate of such allowances should not exceed the original cost.
Item (iv)--Where an asset is sold etc., in the previous year, the allowance under section 10(2)(vii) will be suffici- ent and there will be no need for an allowance under:exist- ing section 10(2)(vi) or 10(2)(via). The draft provision has therefore been added to avoid a double allowance. Since the draft was prepared. the Finance Act. 1958, has also in- corporated this provision. in the Act. But it would, seem that "furniture" should not be subject to the restriction em- bodied in this clause, since existing section 10(2) (vii) does not apply to furniture. The draft retains "furniture" in view of the Finance Act. but the matter requires to be con~ sidered. ' Sub-clause (3)--A part of existing section 10(2)§(vib), as amended by the Finance Act, 1958, has been inco orat- ed here. The changes are mostly verbal and 'cons,quen-- tial; but an important point which requires to be mdntion- ed is, that, the words "and if any gush ship, machinery or plant is sold .......... ..", occurring in the latter half of the proviso to existing section 10(2)|(Vib) have, in the draft, been taken as applicable to all ships etc., in respect of which development rebate has been obtained, and not conﬁned to the ships etc. to which clause (b) of that proviso applies. This wider interpretation seems in consonance With section 35(ll) (as inserted by the Finance Act, 1958) which is appli- cable to all ships etc. The provisions contained in existing section 10(2l3) and (2C) have been omitted in the draft. It is understood that Government does not want to enforce these provisions for the future: in any case. the 'changes made in existing sec- tion 10(2)(vib) render these provisions superﬂuous, at least so far as development rebate ls concerned.
1 See also last para of qotcs to claquse 38. ' See also notes to draﬂ clause 32 (iii). ' .3 'J 351 Notes to clause 35.
Subsclauae )(1)--Item (i) needs no comments. Items
(ii) and,(.iii) represent section 10(2) (xiii), which has been broken _ for' clarity. Item (iv) corresponds to section 10(3)(x1v , re ating to allowance for capital expenditure o_n scientiﬁc research. For simplicity, the broad principle for allowing such expenditure as a deduction, embodied in existing section 10(2)(xiv), first para, earlier portion, has been embodied here. The rest of the provisions of section 10(2)(xiv), and its provisos deal with (i) detailed conditions and provisions for deduction, or (ii) rules regarding proﬁt on sale of the asset or (ii) interpretation. These have been dealt with separately.' Sub-clause (2)---Item (i) & Eacp1anat1l<m.----These cor- respond to the existing provisions in section 10(2)(xiv), ﬁrst para and first proviso. An attempt has been made to simplify the expression and make it direct. No change has been made in the substance. As the allowance is granted in both cases (t'.e., whether the expenditure was incurred before or after commencement of business), it will suffice to say so. without making separate elaborate provision for the two cases.
The draft Explanation states the ﬁrst Proviso in a different form, which is positive.
Item (z'i)----needs no comment, except that the affirma- tive provision in existing section 10(2)(xiv), 2nd Proviso
(a) (ii), has been made to precede the negative provision in section 10(2)(xiv), 2nd Proviso, (a) (i). The deduction allowed under this item takes the lace of the 1 /5th in item
(i). This is made clear in the dra t.
Item (tii)--Language has been simpliﬁed. Item (iv)--Needs no comments.
Item (v)--Correspondens to the earlier portion of sec- tion l0(2)(xiv), 2nd Proviso (e). The latter portion has been transferred to the interpretation clause.' Sub-clause (3)--needs no comments. The contents of the Explanation to section 10(2) (xiv), have been transfer- red to the interpretation clause.' ' Sub-clause (4)--needs no comments. Notes to clause 36.
Sub-clause (1)--deals with deductions for insurance of stocks and stores.
Sub-clause (2)--Item (i)--needs no comments except that the wording in the existing section >10(2)(x), proviso, has been sought to be improved. The existing phrase, "the 1 Vid d ft clause 35(2) and d aft clau ' 41(3) S '2(5) respectively. ' Vid: drift clause 42(1), Explﬁnation I?! * ' Vida draft clause 42(5). 4 352 amount is of a reasonable amount" unnecessarily repeats the word "amount".
Item (iz)--This is new and has been added to help an assessee to get a deduction where bonus is paid in ursu- ance of any award of an industrial or other tribuna even if the amount is not reasonable, that is to say, even if the condfiitigns in the existing section 10(2)(x), proviso, are not satis e .
Sub--clause (3)----corresponds to existing section 10(2)
(iii). The proviso has been transferred to the clause on amounts not deductible', in order to simplify the sub-clause and make the arrangement logical.
Sub-clause (4)--Section 58R, ﬁrst para, which pertains to the deduction of the contribution of an employer to an approved superannuation fund, should really ﬁnd a refer- encfe amongst deductions, and has therefore been referred to ere. = Sub-clause (5)--needs no comments.
Sub-clause (6)--corresponds to existing section 10(2): 5 changes made are explained
(xi) for bad debts.
below:----
The Opening lines--Instead of the words "bad and doubtful debts" the words "debts or parts thereof that are estab- lished to have become bad debts" have been used. The word "doubtful" is unnecessary and does not add anything to what is conveyed by "bad".
Item (i)----A condition has been added that the debt must have been taken into account in computing the in- come for an earlier year. This follows section 11(1)(e) of the Canadian Income-tax Act and section 63(1)(a) of the Australian Income-tax Act.
Item (ii)----The requirement expressed by the _words "not exceeding the amount actually written off" etc.. ap- pearing at the end of existing section 10(2) (xi), ﬁrst para, has been given here the shape of a condition.
First Proviso--This embodies the latter half of the existing proviso. [The earlier half of the existing proviso deals with "proﬁt". not "deduction", and is therefore trans- ferred to a separate clause".] Second Prom'so--is intended to meet a case like this :
A debt is written oﬁ in the accounting year 1957-58. At the time of the assessment for that year, the Income-tax Ofﬁcer does not allow it as a deduction, on the ground that it is not yet established to have become a bad debt. But when the assessment for a subsequent accounting year, say 1958-59, takes place, the Income-tax Oﬂicer has no- doubt 1 Draft clause 40(3) (i). l ' Draft clause 41(4).
353left as toits irrecoverability then. The debt will be treat- ed as a bad debt for the account year 1958-59, and the mere fact that it was written off in an earlier year should not bar the grant of a deduction.
This result could have been brought about by suitable words in draft item (ii) also (e.g., by adding "or earlier previous year" there). But a proviso has been preferred in order to avoid obscurity.
Notes to clause 37.
This embodies section 10(2)(xv).
The existing section uses the words "not being an al- lowance of the nature described" elsewhere; the word "al- lowance" has, in the draft, been replaced by the word "ex- penditure" which is more appropriate in the context.
Notes to clause 38.
Sub--clause (1)--The limitation contained in existing section 10(2), Proviso, regarding deduction for rent where a part of the premises is used as a dwelling house, has been incorporated here in para (a). Similar limitation regard- ing deduction for repairs, contained in existing section 10(2_)(ii), Proviso, has been embodied in para (b).
In draft para (a), the annual value of the part used for the business has been mentioned, in preference to the an- nual value of the part used as a dwelling house men- tioned in the existing section, as the former seems to be a more direct way of stating the rule.
The words "as the Income-tax Oﬁicer may determine" do not occur in the existing section 10(2) (ii), proviso, but have been added in draft para (b) to make the matter clear and to have uniformity (Cf. existing section 10(2)(i), Pro-
viso).
See also notes below under sub-clause (2).
Sub-clause (2).--Existing section 10(2) (ix), provides for deduction for» land revenue etc. and says that the deduc- tion is for that "part" of the premises which is used for the business. The provision for deduction has already been dealt with in the draft clause on deductions. The present draft sub-clause deals with the limitation regard- ing "part".
The provision has been made more elaborate, on the lines of existing section 10(2)(i), Proviso (See notes to sub-clause (1) above).
[Logically speaking. draft sub-clause (1), for section 10(2) (i) and (ii) Proviso (for deduction for rents and re- pairs where a part of the premises is used as residence) should also be framed on the same lines as draft sub-clause (2). The existing provision op these bints is conﬁned to cases where a part is used as ;a "dwélyiflg house". It does 354 not deal with a case where the part is used not as a dweI- ' ling house but for some otherpurpose not connected 'with the business. However, no change has been made in this respect in draft sub-clause (1), in order to avoid any al- teration in tax liability.] Sub-clause (3)--corresponds to existing section- 10(3). The word "wholly" has been replaced by the word "exclu- sively". It has been held' that the words "not wholly .... .." mean that the building is not used exclusively for the purposes of the business, but for other purposes also. (These words, the court held, have nothing to do with the period of user during the previous year.) The draft gives effect to this decision.
The section has also been made more elaborate: by providing that the Income-tax Officer is to determine' the amount with reference to the extent to which the user was for the purpose of the business.
It must have been noticed that the Act does not deal with all cases of partial user in the context of deduc- tions.
User may be partial in point of--
(i) Space, i.e., only a part of the building is used for the business; 3
(ii) purpose, i.e., only some of the purposes of the user are business purposes; or .
(iii) duration, i.e., the building is used only for a part of the previous year.
(Moreover. there may be. partiality both in point of space and time, time and duration, and so on.) The Act deals with (i) and (ii) only, and that too only for certain kinds of deductions. It does not deal in so many words with (iii). The draft also does not gt) be- yond the Act, except that a earlier clause' embodies a provision contained in the r es regarding user which is partial in point of duration.
Notes to clause 39. _i No change has been made in existing section 32 Notes to clause 40.
This clause collects together all amounts"not deduc- tible in computing the proﬁts and gains of business, etc. The scheme adopted is to proceed from the general to special. Thus, rules common to all assessees come ﬁrst ' [para. (a)], while those applicable to particular kinds of assessees are placed after them. ' z ' C. I. T. vs. Dalmia cnt Ltd. ;I(Ip4.5) r3 l.'P.R. 415. ' Sec draft clause 34(2) ). ,4 P
- I i ' (Q?
m% .
Para (a)-
Item (t)--An attempt has been made to simplify the language. The last 17 words of the existing section 10(2)
(iii) Proviso, relating to interest paid to a partner have been oitnitted, as para (b) of present draft clause will cover 1 .
Item (ii)--needs no comments.
Items (iii) & (iv)---need no comments except that zslight verbal changes have been made to secure clarity.
Para (b)--Needs no comments.
Para (c)--The words "expenditure _or" have been add-
-ed in item (ii) in order to make it clear that moneys ac- tually spent (by a person having a substantial interest in .a company) are also excluded from deductions.
Para (d)--embodies the last line of clauses (a) and (b) of the Explanation to existing section 8. The bar against double deduction of such amounts has been embodied in "the draft for that section,' but has been repeated here in order to make the list exhaustive.
Notes to clause 41.
There are provisions scattered 'at. various places in :section 10, enacting that a certain amount shall be treated as a» proﬁt of business and taxed accordingly. An attempt has been made here to collect all of them together.
Sub-clause (1)-Needs no. comments.
Sub--clause (2)--is an attempt to state in a simple form "the propositions embodied in the second and the fourth "provisos to section 10(2)(vii). The second proviso is con- ﬁned to assets which are sold and bling proﬁts, while the fourth proviso deals with assets which are discarded etc., and bring proﬁts. The' draft sub-clause (read with the draft Explanation 1) combines both th'ese_cases.
It must, of course, be noted that the existing fourth proviso is highly involved in language, and does not dis- close easily the rule that is to be ap lied. But there can 'be no doubt that the true rule is is--t-hat if the scrap value plus the amount of insurance 'moneys etc., exceeds the written down value, then the excess is taxed as a "business proﬁt to the extent to which the original cost is not exceeded.
The proviso as drafted is faithful,to this rule. More- »over, it avoids the ambiguity arising from the existing words "so much of the excess as does not exceed the dif- fference between the original.cost a .the written down ~v_alue less the scrap valug". [Th flmbiguity arises by E . -.
4 Draﬁ clause 2o(ii). 7 'll E «>.»..:.: .
356reasonof the fact that the word "less" can be read either with (1) excess, or with (11) difference, or with (iii) written
- down value.] The following analysis of the fourth' proviso is intend-
ed to show how each part of the proviso has been dealt with in the proposed draft.
Existing section. How incorporated.
1. "Provided futher . . . . . .exceeds the I. The italicised words are unneces- diiference between the written down sary, since deduction is allowed only value and the scrap value no amount where the written down value is not shall be allowed under this clause." exceeded. (See existing Sec. 10(2)
(vii), 3rd Prov.)
0. "and so much of the excess shall be 2. Incorporated in the} present draft deemed to be profits".
3. "and so much of the excess as does not exceed the deference between the orz'_gz'nal cast and the written down value less the scrap value."
sub-clause (2).
3. 'l'het:ue rule behind the italicised words has been incorporated in a.. simpliﬁed form in the present draft sub-clause (2), as already explained in the notes.
The function of draft Explanation 1 has been explain--
ed above. Draft Explantions 2 and 3 do not need any com- ments.
Sub-clause (3)----needs no comments. The changes" are only verbal. The words "Whether during the conti- nuance of the business" have been added in order to clarify the scope of the provision, on the lines of the existing sec- tion 10(2)(vii), 2nd Proviso.
Sub-clause (4)------The addition of the words "or part of' debt" is consequential on the draft adopted for the main para of section 10(2)(xi»). Other changes are verbal.
Notes to clause 42.
This clause groups together all provisions in the na- ture of the deﬁnition or interpretation, relevant to profits. and gains of bdsiness etc. Sub-clause (1)--
First para--needs no comments.
Explanation 1--needs no comments.
Explanation 2.----Existing section 10(5) (c) provides that in the case of an asset acquired by the assessee by gift or' inheritance, its written down value shall be the Written down value in the case of the previous owner or the market value (whichever is less). The provision thus appears as' a part of the deﬁnition of "written down value"; but it would be more appropriate to place it as a part the deﬁnition of actual cost. What is intended is the ﬁ tiom of a notional ﬁgure of actual cost and not a notional rgure t 357 of written down value as such. The written down value of an asset is an amount that is constantly diminishing, and" cannot be frozen at the ﬁgure of written down value of the previous owner, as the existing section purports to do. The real object is to invent an "actual cost" (because a. person acquiring property by gift and not paying anything for it does not, actually, incur any cost).
The provision has therefore been placed as an Expla- nation under the deﬁnition of actual cost, with suitable verbal changes.
Explanation 3: The only change made in existing sec- tion 10(5)(a), lst Proviso, is to add, after the word 'busi- ness', the words 'profession or vocation' to make the pro- vision comprehensive. (Cf. existing section l0(5)(a), 2nd Proviso).
Explanation 4: Existing section 10(5)(a), 2nd Proviso, has been transferred to the deﬁnition of actualcost, since it pertains to that topic. A few verbal changes have been: made to simplify the language.
Proviso.
Sub-clauses ,(2) and (3)----need no comments, except that it is made clear that ships are included in "plant".
Sub--clause (4)----is new. The word "received" has been sought to be deﬁned on the lines of the existing deﬁnition of "paid" in section 10(5), ﬁrst para, so as to cover not only cash receipts, but also receipts according to the method of accounting. The deﬁnition is, of course, conﬁned to the provisions dealing with proﬁts from business [e.g. section
-10(2A)].
Sub-clause (5)--Corresponds to existing section 10(2)'
(xiv), Explanation.
(a) of the same item. , - p Sub-clause (6)--needs no comments Sub-clause-(7), Para (a)---The provisos to existing sec- tion 10(5)(a) have been shifted to the deﬁnition of "actual cost", for the reasons given above in the notes relating to draft sub-clause (1), Explanations 3 and 4.
Para (b) and Prom'so--need no comments. « Explanation 1.--Corresponds to the second proviso to section 10(5)(b)_. The form has been changed. The exist-
Explanation 5: This is based on section 12B(l), 2nd.
ing provision says that in cases of succession to business, ' the actual cost referred to in the main part (deﬁnition of "written down value") shall be the costto the predecessor in business. The effect of th' is, the written down value that would have been adopte¥ in the , lie of the predecessor 'E--Capital :gall'lS.
358.in business will be regarded as the written down value of the asset even in the hands of She successor. This effect has been sought to be brought about more directly in' the 'pro- vision as drafted.
. Explanation 2.--is based on section l2B(1), 2nd pro- 'VlS0.
Clause (c)--of_the existing deﬁnition of written down value has been shifted to thedeﬁnition of "actual cost"-
.See notes above relating to draft sub--clause (1), Explana- tion 3.
Eacplanatton 3.--embodies existing section 10(5), Ex- planation, latter half, without any change. , ' Notes to clause 43.
This is a new clause. There is some doubt as to whe- ther the residences constructed for employees are buildings used for the purposes of the business or not. The adminis- trative instructions appearing on page 447 of the Income- "tax Manual, 10th Edition, are as follows :--
"Buildings belonging to the owner of a business and used by him in order to house his employees are buildings used for the purpose of business where the occupation by the employees of property owned by the employer who carried on a business is subservient to and necessary for the performance of their duties. In any other event such buildings would be chargeable under section 9 irrespective of the fact whether any rent is paid by the employees or not."
The instructions. which appear to be in accordance with the strict legal position, aresought to be codiﬁed by this clause.
Notes to clause 44.
The provisions regarding insurance business, contain- ed in the existing Schedule, have been placed in the ;draft First Schedule, but Rule 9 of the existing Schedule has been placed here in view of its importance. [For a deﬁ- nition of "mutual insurance company", see the South African Income-tax Act, 1941, First Schedule, para 2(ti).] Notes to clause 45.
General----
Existing section 12B has been split up into several sec- tions in the draft, in order to facilitate its understanding. The charging provision comes ﬁrst, followed by the year of charge and mode f comp' ' tion of the gains. D ailed provisions for ﬁxing e cost' the asset follow nex , and provisions, in the no of 1 mption come at the e 359' Draft clause 45.--The changes made are verbal only. The existing words "the tax shall be payable" have been replaced by the words ....... .."shall be chargeable to in- come-tax" as in other sections. The words "save as other-- wise provided" have been added merely as a drafting im- provement. ~ The existing reference to the date 31st March, 1956, has been omitted as obsolete.
But it has been made clear that the transaction must have been effected "in the previous year". Though this might amount to a repetition of a provision already con- tained in the Act, namely, that income chargeable as capi- tal gains is deemed to be the income of the previous year in which the transaction took place,' still such clariﬁca- tion appears to be useful in the main section also.
Notes to clause 46.
This clause ﬁxes the previous year to which the income should be related.
Notes to clause 47.
Existing section 12B(1), 1st proviso, and earlier part of the 2nd proviso, have been combined together. The latter part of the 2nd proviso really appertains to the deﬁnitions. of "actual cost" and "writtendown value" and is placed there. ' Sub-clause (i)--needs no comments.
Sub-clause (ti)--The existing provision reads "any dis-- tribution ............. .. under a deed of gift". The term "dis--
tribution" may not, it is apprehended, cover a gift to a single donee. It has, therefore,_ been replaced by "transfer". The words "deed of" have been omitted, so as to include- oral gifts.
Sub--clause (iti)--The existing provision requires that' the subsidiary company should be "registered under the In- dian Companies Act, 1956". (Before it; amendment in 1956, the wording was "registered under the Indian Companies Act, 1913".) Obviously, however. the intention is that the subsidiary company should be an "Indian company". The wording has been changed acdordingly. (It may be noted, that the existing wording wogild, if "construed strictly, ex» clude companies registered under a pie-1956 law, and this" narrows down the scope. On the other hand, it would slight- ly widen the scope by being? silent about the- registered office being in India--a requ ementimentioned expressly in the deﬁnition of "Indian co'rnﬂpany".) 7 Notes to clause 48.
Sub-clause (1)---Item (i);-The wards "wholly and ex- clusively" have been substituted for the existing word' "solely". This will secure uniformity: in language with analogous provisions, e.g., exifting seqtiion 10(2)(xv).
' ' See existing section r2B(1), main Fa, latterihflf.
360Item (ii)--Existing section 12B(2)(ii) speaks of "the actual cost to the assessee of the capital asset" (with certain inclusions and exclusions) being deducted from the consideration. But there are cases where "actual costs" is replaced by written down value, e.g., see existing section , 12B(1), 2nd proviso. In some cases, it is replaced by the fair market value, see section 12B(2), 3rd proviso. Further. the amounts to be added to the actual cost (as representing improvements) vary in various cases, according to the date of acquisition of the asset etc. In order to cover all these cases, it seems desirable to use some convenient expression to denote the deductible cost. The expression "statutory cost" has been used for the purpose. The manner of arriv- ing at the statutory cost is dealt with separately for' the sake of simplicity.
As to the amounts spent on improvements (additions and alterations), they have not been mentioned in the draft in the present clause, but have been dealt with elaborately in the draft clauses to follow,' explaining in detail what is "statutory cost" in various situations. The reason is, that the date after which the improvements should have been made will vary in various situations. To take an example, where the fair market value of the asset on 1st January, 1954, is substituted under existing section 12B(2), 3rd pro- viso, it is only improvements made after 1st January, 1954 that can be taken into account, and it would not suﬁice to say that improvements made after acquisition by the as- sessee will be added to the actual cost.
Notes to clause 49.
This clause enumerates the various modes by which a person might have acquired a capital asset which he sub- sequently transfers for consideration. The various modes enumerated in this section are contained in section 12B it- self and are grouped in the clause for the purpose of clarity.
In the following clauses' the method of calculating the statutory cost of the capital asset is laid down.
Assets for which depreciation allowance is admissible have been dealt with separately. The rules for depreciable and non--depreciable assets differ; e.g., (i) in the case of de- preciable assets, the written down value is taken as the ac- tual cost in ordinary cases; (ii) even where the assets are ac- quired before 1-1-1954 and" the market value on that date is substituted. subsequent depreciation has to be adjusted in the case of such assets.
Item (iv)(d) of the draft clause uses the words "revo-
-cable or irrevocable trus ", since there is no reason for differ- entiating between the two;
1 Vida draft clauses 50-51.
361Notes to clause 50.
General----
The cost of an asset to be allowed for the purpose of computing capital gains can be described as made up of the following ingredients :--
(a) The basic amount. This is (i) cost of acquisition or
(ii) written down value or (iii) in certain special cases, the fair market value on a certain date.
(b) Addition for expenditure on improvement to the assets.
(c) Reduction for depreciation.
(d) Adjustment for proﬁts assessed or losses deducted under section l0(2)(vii), 3rd and 4th provisos.
Items ('c) and (d) are not applicable to non-deipreciiable assets.
The existing section mentions all these ingredients while dealing with the normal situations covered by section 12B (2)(ii) and 2nd proviso, but does not do so when dealing with certain special situations. In the draft. however. it has been considered desirable to make the provision for each situation elaborate and to state all the applicable ingredients.
Scheme-
The scheme adopted in the clause is to deal in separate sub-clauses with the mode of statutory cost according to the mode of acquisition. (The modes of acquisition have been classiﬁed in a preceding clause).' Sub-clause (1)----
Para. (a)----the words "cost of acquisition" have been
-substituted for the existing words "actual cost", as being more appropriate. Incidentally, the expression "actual cost" might give rise to the impression that the deﬁnition of that expression in section 10(5) is applicable here also.
As to the expression "cost of improvements" see the interpretation clause at the end of this group.
Para. (b)----The existing section creates a slight diffi- culty in understanding it, because it combines two things in one, namely, (1) where the capital asset became the property of the assessee before 1st January, 1954, and (2) where it became the property of the previous owner be- fore the 1st January, 1954. The draft separates these two situations and deals with them separately for the sake of clarity.
The existing provision requires that the fair market value should be "proved" to the satisfaction of the Income- tax Oﬁicer. This requirement has been omitted, as it is im- plied in all proceedings before the Income-tax Oﬂicer.
1 Sec draftclausc 4,9 and notes thcmtg.
/ 362 Sub-clause (2) and subsequentsub-clauses----do not need any detailed comments. The various ingredients constitu- ting the statutory cost have been embodied,' here.
Notes to clause 51.
This relates to the determination of statutory cost of depreciable assets. The expression "adjusted" has been coin- ed as a short expression to convey the proﬁts assessed and losses deducted under existing section 10(2)(vii), 3rd and 4th provisos. It has been deﬁned in the interpretation section pertaining to this group of sections.' We think however, that it would be more convenient to adopt a simple formula for arriving at the actual'cost instead of the elaborate provisions now contained. Either the market value on the date of acquisition if acquired be- fore 1-1-1954 or the market value on 1-1-1954 at the 0 tion of the assessee may be adopted, whatever be the mo e of acquisition. In other cases the market value on the date of acquisition may be taken. Adjustments may be made to arrive at the statutory cost.
Notes to clause 52.
The verbal changes made are consequential on the. pro- visions for arriving at the cost of the asset as re-drafted.» Notes to clause 53.
This is new.
Where a capital asset is given in exchange, the qonsi- deration received by the assessee will itself be an asset;(i.e., in kind and not in cash). Some rule for estimating the value of such consideration appears to be necessary. _ The draft clause takes the fair market value of the asselt re- ceived by the assessee, as the basis.
Paragraphs (a) and (b) are intended to deal with cases where the transaction is not a pure exchange of asset; and the assessee receives or gives something (usually money) in addition to the thing received or' given in exchange.
Notes to clause 54.
This deals with the case where the consideration stated in the deed of sale etc. is low. a An important departure has been made from the exist- ing provision. Existing section 12B(2), 1st proviso, applies to cases where the transaction entered into with a person 'directly or indirectely' connected with the assessee. This does not appear to be necessary and has been omitted.
1 See notes above " Cenaal ". , I The elaborate provisi ofscct' ' fa B, (3), Brevin at an ' for improvements are regarded impplitﬁieafor dcpreciablé assets. \ \ . 2 The draft clause has, further, been limited to cases where the actual consideration is not correctly give-n in the deed. The power should not extend -'to cases where the gogsiideration, though law, has been correctly recited in the e . .
Notes to clause 55.
The question of transferring this to the chapter on "Exclusions from Total Income" was considered, by us, but we thought it more appropriate to retain it here.
Notes to clause 56.
No change of importance has been made in existing section 12B(4) (b).
Notes to clause 57.
"Adjusted"-----Existing section 12B(2), 2nd proviso says that in the case of depreciable assets, the cost of the assets (Le. the written down value) has to be adjusted by losses deducted or proﬁts assessed under existing section 10(2)(vii), 3rd and 4th provisos. Even in cases where the fair market value on a certain date is substituted, this deduction has to be made. ' In order to avoid the necessity of repeating the words "diminished by losses and increased by proﬁts" frequently, the substantive draft clauses' for calculating the statutory cost use the short expression "adjusted", and the present clause seeks to deﬁne it.
"Cost of improvement".--Existing section 12B(2)(ii) says that the actual cost of an asset shall include expendi- ture of a capital nature on additions or alterations to the asset. Even in cases where the actual cost is to be replaced by the. fair market value as on a certain date, improvements subsequent to that date have to be taken into account.
In order to avoid the necessary of repeating the lengthy expression "expenditure of a capital nature" etc., the sub- stantive draft clauses use the short expression "cost of any improvements", and the present clause seeks to deﬁne it.
The existing provision, section 12B(2)(ii), last lines, speciﬁcally excludes expenditure deductible under other heads. * ' Notes to clause 58.
'Clause 58 This clause deals ith income taxable under the resi- F. I duary head "Income rom other sources". Sub-clause' (1) (,0; "$12: embodies the general principle, while sub--clause (2) lists sourées. some speciﬁc items deserving special mention.
~v
1. Vida draft clauses 50-51.
24---l Law Com. 58 364 Sub-clause (1)--The language adopted is in conformity with that adopted in the draft for the other heads i(e.g., Salaries). The words "which may be included in his 'total income" have been omitted, as unnecessary. Under exist- ing sections 3 and 4, it is only income forming part of "total income" that is subject to tax. V Therefore the words "Which may be included in the total income" are to be read into each section dealing with a head of income, and need not be repeated in every section.
Sub-clause (2)----Item (i) needs no comments.
Items (ii) and (iii) are, in form, new; but sub-sections (3) and (4) of existing section 12 imply that such income is taxed under the residuary head. This implication has' been made express in the draft.
Section 12(1B) is omitted,' as it is not relevant for as-
.--sessments to be made hereafter. -
Notes to clause 59.
Existing section 16(2) provides for two things :--